* Democratic Party primary is on Tuesday
* City is poster child for mismanaged public finances
By Hilary Russ
May 19 In Harrisburg, Pennsylvania's cash-hungry
capital city, local political battles are waged much as they are
across the United States: with big personalities and
bare-knuckled verbal brawls.
But unlike most cities, Harrisburg's financial troubles have
thrust it into the national spotlight, most recently with a slap
from the U.S. Securities and Exchange Commission for fraud.
Financing for a single incinerator has been driving the city
toward insolvency since 2009.
The $3.7 trillion U.S. municipal bond market will be
watching on Tuesday when Harrisburg, a poster child for
mismanaged public finances, holds its Democratic Party primary
for mayor. There is no Republican mayoral primary.
Whoever leads the city of nearly 50,000 will play a role in
how Harrisburg struggles to shrink a mountain of debt while
maintaining basic services and paying - or not paying -
The mayor must be "willing to work through the problems and
get to the next step. In order to do that, you need a certain
amount of charisma, a certain amount of cooperation, and a fair
margin of public support," said John Hallacy, head of municipal
research at Bank of America Merrill Lynch. "Given the severity
of the situation, that's a lot to ask for."
The ghosts of a questionable 2007 bond deal haunt
Harrisburg, which is at least $340 million in debt - some
reports put the figure at $370 million - thanks largely to the
municipal bonds it guaranteed to finance upgrades to its
problematic waste-to-energy trash incinerator.
Harrisburg also faces a cumulative deficit of at least $13
million, including more than $9 million of debt service payments
that went unpaid in March and September, according to a March 28
status update from William Lynch, the state-appointed receiver.
CONTROVERSIAL MAYOR FACES RIVALS
Two candidates hope to unseat Mayor Linda Thompson, an
outspoken and controversial first-term Democrat. The victor in
Harrisburg's Democratic primary is also expected to win
November's general election, although at least one challenger,
Independent Nevin Mindlin, will run in the fall.
Thompson is African-American and has a strong base of
support in Harrisburg's black community, which makes up 52
percent of the city's population.
But beyond her base, "she's got very fragile relationships
with almost every constituent group you could imagine," said
Terry Madonna, director of Franklin & Marshall College's Center
for Politics and Public Affairs, who has conducted polls of
Pennsylvania politics for more than a decade.
Receiver Lynch, the only person with the power to send
Harrisburg into bankruptcy, has so far said he sees that option
as a last resort. But even the threat of bankruptcy can be
enough to bring different sides to the bargaining table.
Lynch attempted to negotiate borrowing money through a tax
anticipation note during late 2012 and early 2013, but financial
institutions still "have concerns" about Harrisburg's credit
worthiness, he said in his March update.
None of Wall Street's three big credit rating agencies
currently rate the city of Harrisburg's debt.
The mayor must work with Harrisburg's state-appointed
overseer, the City Council and a host of other players to push
ahead a court-approved recovery plan. The plan includes the sale
and lease of city assets, but so far no deals have been
The mayor also helps negotiate with police, fire and public
employee unions on labor contracts that, if altered, could save
the city money on health care and other costs.
BOND DEAL HAUNTS POLITICIANS
One of Thompson's two top rivals, independent bookstore
owner Eric Papenfuse, hopes that the 2007 bond deal will haunt
both Thompson and challenger City Comptroller Dan Miller.
Thompson and Miller were on the City Council when it
approved the bond financing, and both got there because of
support from former Mayor Steve Reed who had served 28 years.
Miller was the only City Council member to vote against the
It was during Reed's administration that the incinerator
deals were cut and, later, that some of the more troublesome
financial disclosure problems occurred, leading to the SEC's
fraud charge earlier this month. The city paid no penalty in the
settlement and no individuals were named.
Thompson has made a number of problematic statements since
taking office in January 2010. She once referred to Miller -
Harrisburg's first openly gay elected official - as a
"homosexual, evil little man," according to local media reports.
In subsequent stories, she did not deny the comment.
She also lost several close staffers during her first year
in office. Five of them told the central Pennsylvania newspaper
The Patriot-News that she created a toxic, abusive atmosphere.
Papenfuse is no stranger to local politics. In February
2007, the City Council appointed him to the board of the
Harrisburg Authority, which owns the incinerator. Papenfuse
opposed additional funding for the incinerator upgrades and
later quit the board.
Thompson and Papenfuse have said they do not want the city
to file for Chapter 9 municipal bankruptcy. Miller, however,
believes bankruptcy is inevitable, and that it should be done
before the city's assets are sold off.
The only poll of the race so far, published on May 13, found
Thompson, with 13 percent of the vote, losing to Miller and
Papenfuse, who would be tied at 30 percent each. Some 23 percent
were undecided. Fifty-seven percent of those polled strongly
disapproved of Thompson's performance on the job.
The poll, conducted by Susquehanna Polling and Research for
the local ABC News station, surveyed 300 Harrisburg Democrats by
telephone and has a margin of error of 5.6 percent.