Aug 26 (Reuters) - The state-appointed receiver for Harrisburg, Pennsylvania, said on Monday he wants to pursue claims against some individuals involved in transactions for incinerator upgrades that left the city drowning in more than $362 million in debt.
That’s just one tactic receiver William Lynch laid out in his new plan to rescue the cash-strapped city without having to file for bankruptcy.
Harrisburg, Pennsylvania’s capital, filed for protection from creditors in 2011, but the case was thrown out after state lawmakers banned it.
“We believe this recovery plan will not only address Harrisburg’s past financial difficulties and substantial debt, but also open the door for future growth, development and financial stability,” Pennsylvania Governor Tom Corbett said in a statement after the plan was released.
He said he hoped that the cooperation that led to Harrisburg’s plan could serve as a model for other financially distressed local governments.
Lynch named no names in the court filing on Monday. But the list of advisers, officials and others associated with a questionable 2007 bond deal is a long one. The transaction financed a retrofit of the city’s troubled trash incinerator.
Many in Harrisburg have clamored for someone to be held accountable for the seemingly bad deal. Earlier this month, Pennsylvania Attorney General Kathleen Kane told the Patriot-News that she was pursuing a criminal investigation into the deal after the county prosecutor referred the case to her office.
“The public expects that there be a means to obtain redress for these ill-fated decisions if there is evidence to support the allegation that highly imprudent actions were taken by those charged with protecting the City and its taxpayers against these very types of circumstances,” Lynch wrote.
A 2012 forensic audit of the incinerator upgrades laid out most of the main players involved in deal making.
Bruce Barnes, a financial adviser with Milt Lopus & Associates to the incinerator owner Harrisburg Authority until late 2007, declined to comment on Lynch’s updated plan.
Former Harrisburg Mayor Stephen Reed, whose administration oversaw various incinerator deals, did not immediately reply to an email seeking comment.
Andrew Giorgione, at the time a key attorney advising the Harrisburg Authority and the city on the waste facility, according to the audit, did not reply to an email request for comment.
Financial adviser Public Financial Management also did not reply to a request for comment.
Lynch said he would use settlement talks or, if necessary, lawsuits, to target “professionals or entities” with incinerator claims.
He will seek out people alleged to be responsible for the authority’s “imprudent determination” for a retrofit “at great expense and with enormous potential financial exposure,” he said in the filing.
He also plans to target those involved with the city’s decision “to financially expose itself to serious liabilities” when it agreed to backstop the authority’s undertaking.
Lynch’s move is only a small part in his much bigger plan to revive the city’s finances.
The city is banking on selling the incinerator to the Lancaster County Solid Waste Management Authority for between $126 million and $132 million, according to the revised recovery plan.
The purchase price is based in part on borrowing, and it will drop if interest rates in the U.S. municipal bond market keep rising and pushing up those borrowing costs for the authority. The incinerator is about 800 to 900 percent over-leveraged, according to the filing.
The plan also lays out certain settlements with the city’s creditors, including general obligation bond insurer Ambac Assurance Corp.
Ambac has been paying GO bondholders since March 2012, when the city defaulted on its debt service. The city also missed a March payment, and will miss September’s scheduled payment unless the court confirms the new plan, the filing said.
Altogether, those defaulted payments would total more than $17 million, Lynch said.
Ambac agreed to let the city stretch out its bond repayment schedule for up to 10 more years.
In addition to reaching settlements with creditors and selling the incinerator, the city’s financial recovery depends in part on its ability to sell nine public parking garages and four public parking lots.