November 8, 2011 / 5:25 AM / 6 years ago

Harrisburg closer to deal to prevent state takeover

HARRISBURG, Pa (Reuters) - Harrisburg’s mayor and five of its seven city council members voted on Monday to sell an incinerator and lease out parking garages, among the city’s biggest assets, moving closer to an agreement that could stave off a state takeover.

Harrisburg, a city of about 50,000 and the state capital, is struggling to pay for essential services while also facing about $300 million in debt linked to a revamp of its incinerator. The city council filed for bankruptcy last month.

The new agreements, which also include how to then pay off any stranded debt, will be included in a consent agreement due to the commonwealth at 5 p.m. next Monday.

Such an agreement is needed to prevent a takeover by Pennsylvania, whose governor has signed legislation allowing him to declare the fiscal emergency as a step toward a takeover in which the state would employ a receiver to decide how to eliminate the debt.

Although Monday’s meeting was more contentious than a similar meeting a week ago, council members said they were happy with what they accomplished.

“It’s big. We actually made progress today,” City Councilwoman Patty Kim said.

Mayor Linda Thompson, asked if she believed a consent agreement would be reached by next week’s deadline, said: “I don’t think council wants a state takeover under their leadership.”

Thompson and the council members agreed to sell the incinerator and lease out the parking garages, but not until after they debated language dealing with the delivery of a forensic audit of the Harrisburg Authority, which oversaw the incinerator retrofit and other multi-million dollar projects.

Thompson said she had been worried the council would use the uncompleted audit as a “trump card” to stall the sale of the incinerator and the leasing of the garages, deals that could generate $224 million in revenue for the city.

After the Harrisburg Authority agreed to regularly update the mayor and city council about the audit’s progress, the sides agreed to include language dealing with incinerator sale and the leasing of the garages in the consent agreement.

The council also agreed with the mayor to include the original Act 47 proposal from the state as the framework for dealing with any leftover debt once the incinerator is sold and the garages are leased.

If the debt is less than $26 million, Thompson wanted the city’s four major creditors -- Assured Guaranty Mutual; Dauphin County; Covanta Energy, which operates the incinerator; and Ambac Financial Group -- to take on that stranded debt.

If the outstanding debt is greater than $26 million, she asked for 80 percent for the creditors with the city paying the remaining 20 percent.

City Councilman Brad Koplinski wanted creditors to pay $100 million each, regardless of any incinerator and parking garage deal.

The Act 47 plan that was agreed on includes annual payments from the state and county of $2.5 million and $3 million, respectively.

Earlier on Monday, the council and mayor met with creditors for 3.5 hours behind closed doors in a hotel. The room was “packed” with businesses and their attorneys, one city official said, asking not to be named because of confidentiality agreements. Another official described the meeting as “pretty rough.”

Besides the city’s requirement to present a consent agreement to Pennsylvania by the end of the business day on November 14, it is still waiting to hear from federal bankruptcy court about a petition for Chapter 9 bankruptcy that was filed last month. That hearing is still scheduled for November 23.

Editing by Cynthia Johnston

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