News Around The Burg

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October 2010

State & 2nd Street Building Gets Final OK

Oct. 27 -- The City Council tonight gave its nod to a new, five-story office building at State and 2nd streets, an endorsement that allows construction to begin in the spring.

The unanimous vote clears the way for an April ground-breaking, said David Butcher, president of WCI Partners, the project's developer. WCI first proposed the building in June and has been going through city approvals since.

"The process went very smoothly," said Butcher. "We're delighted with the city's support."

A single tenant will take up about 75 percent of the office space in the $7 million, 54,000-square-foot building, said Butcher. The building also will have ground-floor retail and restaurant space. Completion is expected in summer 2012.

The lot has been empty for several years, a chain-link fence surrounding the highly visible, prime real estate near the state Capitol. Originally, WCI had planned a hotel on the site, but abandoned that plan after the hospitality market tanked, along with the economy.

At the same meeting, the council took initial steps to extend and revise the city's tax abatement program, which provides temporary tax relief for residential and business property owners who make improvements to certain properties deemed deteriorated or that are in particular areas of the city. An ordinance was introduced that would extend the program, which expires at year-end, until Dec. 2015.

The council's Community and Economic Development Committee now will take up the issue, including possible revisions to the program.

Lastly, Council member Susan Brown-Wilson said the council will make a decision "in the next two to three weeks" on a law firm that would provide independent legal counsel on the city's financial crisis, including issues surrounding both the state's Act 47 program for distressed municipalities and municipal bankruptcy.

On Tuesday night, the council's Budget and Finance Committee publicly interviewed six of the 12 firms that responded to a request for proposals seeking legal counsel. Meanwhile, Harrisburg still awaits a decision from the state Department of Community and Economic Development on its application to enter the Act 47 program.

Harrisburg Set to be Named a "Distressed Municipality"

Oct. 20 -- It's almost certain that Harrisburg will be declared a "distressed municipality," as the staff of the state Department of Community and Economic Development has recommended that the city enter its Act 47 program.

Disclosure of the staff's recommendation came at the end of a lengthy hearing held by the department on the city's application to enter the program.

"In our opinion, the city is exhibiting symptoms of distress that support a distress determination under Act 47," said the DCED staff report.

During the hearing, Mayor Linda Thompson and Finance Director Robert Kroboth urged DCED officials to approve the city's application.

Kroboth painted a dire picture of Harrisburg's finances, saying that the city might not be able to meet its next payroll and certainly would not be able to make about $43 million in debt payments due this year, most tied to past upgrades over many years to the city's incinerator.

"There will be no funds available that we envision to make any of these payments," said Kroboth.

DCED Secretary Austin J. Burke now will have 30 days to issue a final determination on Harrisburg's application, though a decision is expected much sooner. The state then will appoint an Act 47 coordinator, who will supervise the creation of a comprehensive plan designed to help Harrisburg dig out of its debt crisis.

Following presentations by Thompson and Kroboth, dozens of speakers took to the microphone to make comments, some very lengthy and passionate, about how Harrisburg got into financial chaos and how it may find its way out.

Most speakers seemed inclined to support declaring Chapter 9 municipal bankruptcy, instead of entering Act 47, as the city's debt -- some $288 million from incinerator upgrades alone -- is massive compared to its annual operating budget of about $63 million.

In addition, speaker after speaker pointed out that bankruptcy puts greater pressure on creditors to negotiate, perhaps forcing them to make concessions on principal and interest. In contrast, an explicit goal of Act 47 is to enable a municipality to pay its debts in full.

Many speakers were concerned that those who put Harrisburg in this position -- former municipal officials who borrowed recklessly, the consultants who advised them and the creditors who made the unwise, high-risk loans -- would experience no consequences, while city residents would foot the entire bill in much higher taxes and reduced services.

"We need DCED to assist us in the process of bankruptcy," stated city resident Sheila Dow Ford, echoing the sentiments of many.

Eric Papenfuse said he resigned from the Harrisburg Authority, which oversees the city incinerator, three years ago because of the authority's reckless borrowing -- loans that were backed by the city.

"We could've looked at Act 47 in 2007," he said. "Now, it's too late."

Mayor Urges Residents to Check Smoke Detectors

Oct. 19 -- Mayor Linda Thompson is urging city residents to make sure their smoke detectors are in working order, a day after five people, including four children, died in a blaze in Uptown Harrisburg.

The house, on the 600-block of Forrest Street, had smoke detectors installed, but fire investigators believe they were not working.

"This is a senseless way to have children die," she said.

Thompson said that residents should check on their neighbors to ensure that they also have operable smoke detectors. Residents who lack detectors should call 255-6464, and the city's fire bureau will install them free of charge. People who wish to donate smoke detectors also should call that number.

In addition, Thompson said that she will form a task force to explore ways to improve fire safety in the city.

According to city fire officials, initial reports indicate that the fire was caused by a faulty space heater at the house's entryway. Escape was hampered because many of the upper-floor windows were nailed shut.

Council Begins Quest for Bankruptcy Lawyer

Oct. 8 -- Harrisburg's slow roll into potential bankruptcy took another incremental step today as the City Council issued a request for proposals (RFP) for a bankruptcy attorney.

The council placed advertisements in two publications seeking legal counsel who could provide advice on both Chapter 9 municipal bankruptcy and Act 47 "distressed city" status.

The city already has submitted an application to enter the state's Act 47 program, which would provide state funds and appoint a state coordinator to oversee a comprehensive solution to resolve Harrisburg's financial crisis, a condition prompted mostly by a $288 million debt accumulated over a dozen years for upgrades and fixes to the city's incinerator. A public hearing on that application is slated for Oct. 20.

"Despite the administration's declaration last week that the city is filing an application for the commonwealth's Act 47 program, many of my colleagues and I are still advocating that City Council retain legal counsel to consider the benefits and burdens to our city of filing for municipal bankruptcy under Chapter 9," stated council member Brad Koplinski. "It is tool to help municipalities, one that may have distinct benefits for Harrisburg. To not take a prudent look at municipal bankruptcy as an option would be foolish."

Proposals in response to the RFP are due by 4 p.m. on Oct. 19 to the city clerk's office.

Mayor Linda Thompson has said repeatedly that bankruptcy should be a last resort for the city. A council majority has viewed bankruptcy more seriously as a tool to put pressure on its creditors and perhaps give the city some relief from its massive debt burden.

Harrisburg Mayor: We Can Meet Payroll

Oct. 7 -- Harrisburg will be able to make its payroll, at least for now, under a last-minute agreement with several other municipal entities.

Mayor Linda Thompson said today that the city will receive "accelerated payments" from the Harrisburg Authority, the school district and the Harrisburg Parking Authority, which will allow it to fund its "immediate payroll needs." The city has a $1.2 million bi-weekly payroll.

The City Council had called an emergency meeting for tonight, since canceled, to consider borrowing $4.1 million in a tax revenue anticipation note (TRAN), a type of short-term debt frequently undertaken by municipalities suffering a cash crunch. TRAN securities are issued on the assumption that future revenues will meet repayment obligations.

City Spokesman Chuck Ardo did not say how much the city received in accelerated payments or how long this funding would last.

Harrisburg Files for "Distressed City" Status

Oct. 1 -- Harrisburg will seek to enter the state’s program for financially distressed cities, Mayor Linda Thompson announced today.

At a press conference, Thompson said that she decided to pursue so-called “Act 47” status after the City Council on Tuesday refused to support her previous plan—the hiring of financial adviser Scott Balice Strategies—to help Harrisburg dig out of its severe financial crisis.

"It was a gut-wrenching and agonizing decision," Thompson said. "If I had not taken this step now, we would've been unable to meet payroll 12 days from now."

Within two weeks, the state Department of Community and Economic Development will hold a hearing on Harrisburg’s petition, which is expected to be granted due to the severity of the city’s fiscal condition. Once the petition is approved, the state will appoint a coordinator to oversee the development of a comprehensive plan to resolve the crisis.

In addition, Thompson said that she will have the authority to hire a state-funded financial consultant, which may re-open the door to the hiring of Scott Balice, despite the council's rejection of the firm.

"Scott Balice, as we stand here today, is a legitimately hired company," she said. "So, yes, they are legitimate, and Scott Balice can be the independent consultant going forward."

Once a plan is developed, it must be approved by the mayor and council and accepted by the Act 47 coordinator.

Thompson was joined in her announcement by Gov. Ed Rendell, who said that, without some movement to resolve the city's financial crisis, no bank would have extended Harrisburg a line of credit so that it could continue to meet payroll.

"All cities have to do short-term borrowing to meet payroll," he said.

Rendell added that he did not look favorably upon statements by several council members that Harrisburg should not honor all of its debts, but should seek substantial relief from bondholders.

"That's what cities do," he said. "They borrow money, and they meet their obligations. They pay off their bondholders. If you don't do that, a city can have no long-term or short-term viability. A city will crumble. No one will give a city credit. Those statements were, to me, mind-boggling."

Thompson concurred.

"We can create the opportunity to make our bondholders whole, as we are required by law to," she said.

Act 47, while uncommon, is not unheard of, as 19 municipalities in Pennsylvania currently participate in the program, including Pittsburgh. While the program asks cities to make often-difficult choices to set their finances straight, it also confers certain advantages, including access to some state funds. In addition, it permits participants potentially to impose a commuter tax, a benefit that prevents many municipalities from ever exiting the program.

Harrisburg faces an overwhelming debt burden, mostly due to $288 million in Harrisburg Authority bonds it has backed to fund upgrades over a dozen years to the city’s incinerator. Lately, it also has had challenges making its general obligation bond payments.