Harrisburg Council Seeks to End Bankruptcy Ban
May 31 -- The Harrisburg City Council will circulate a petition in an attempt to convince state legislators not to renew a ban on municipal bankruptcy for the city.
The announcement came during a press conference held today by several council members, who both complimented and criticized Mayor Linda Thompson for saying yesterday that she opposed an extension of the ban. "It's too little, too late," said council President Wanda Williams. Some legislators are considering extending the ban when it expires. Last year, the legislature passed a law that removed bankruptcy as an option for Harrisburg, as well as other third-class Pennsylvania cities, until July 1. Thompson yesterday said she wanted the ban to expire so that the city could file for bankruptcy in case the current financial recovery plan does not work. “I continue to oppose bankruptcy for the city of Harrisburg and remain committed to the court-confirmed financial recovery plan," she said. "However, should that plan fail to return the city to fiscal solvency – that is, should it fail to liquidate all debt pertaining to incinerator bond transactions, as well as balance the city’s structural deficit – we should reserve the right to petition for bankruptcy protection.” To further complicate the situation, the law that created the position of city receiver gives the power to declare municipal bankruptcy to the receiver, not to the city's elected officials. The council filed for municipal bankruptcy last year, but that petition was rejected by a U.S. Bankruptcy Court judge as invalid. Since then, Harrisburg has been following a financial recovery plan implemented by two separate state-appointed receivers, officials of the state Department of Community and Economic Development and several teams of consultants. The council majority today said they were pleased that Thompson seemed to warm to the possibility of bankruptcy. However, they criticized her for embracing the idea relatively late in the process, when the city's major assets are already out for bid to help retire some $320 million in debt tied to the city incinerator. "The state's plan, which she supports, would sell our assets before it negotiates with our creditors and offers a comprehensive solution to our debt disaster," said Councilman Brad Koplinski. "Her sudden realization that bankruptcy should not be taken off the table shows that she is unable to lead our city. She is two years too late." Councilwoman Sandra Reid blasted the receiver's plan for upping the resident earned income tax rate from .5 percent to 1.5 percent. That burden, she said, would fall entirely on the residents of Harrisburg, while asking nothing of commuters who use the city's services daily or of Dauphin County residents. The county played an essential role in pushing forward the troubled incinerator retrofit and now guarantees about half the incinerator's huge debt burden. The financial recovery plan omits two potential revenue sources supported by council: a commuter tax and a county-wide sales tax. "Gov. Corbett is imposing a tax on the citizens of Harrisburg after he took a no-tax pledge," she said. "That's not right." Reid also said that it's wrong for the state to force the cash-strapped city to incur expenses opposed by council, such as to fund the position of city communications director. "If Gov. Corbett want to pay for a city spokesperson, then how about Gov. Corbett fund a city spokesperson," she said.
School Budget Slashes Programs, Kindergarten
May 30 -- The Harrisburg school board tonight introduced a draconian budget plan that would end kindergarten in the district, as well as athletics, band and clubs.
The $125 million budget also would raise the school portion of the city's property tax by the legal ceiling of 2.5 percent, about $33 per $50,000 of assessed property value. In addition, it would cut 64 teaching positions, including all 26 kindergarten faculty. Unlike many states, kindergarten is not mandated in Pennsylvania. Despite these cuts, the budget remains more than $7 million in the red. Therefore, additional cuts probably will be made before June 6, when the district must submit a plan with a balanced budget to the state Department of Education. The school board is slated to meet again on Monday, when additional budget debate is expected. It must pass a final budget by June 30. The district has lost about $6 million in state aid over the past two years, exacerbating its already precarious financial state. Over the past several years, hundreds of teachers have been let go, leaving the district with only about 500 faculty members to serve about 6,800 students. The state Senate now is considering legislation that could lead to state receivership of financially troubled school districts, including Harrisburg's.
Lynch to be Confirmed as Receiver; Unkovic Testifies in Court
May 24 -- Harrisburg has a new receiver, as a Commonwealth Court judge today said she would affirm Maj. Gen. William Lynch in the post.
Judge Bonnie Brigance Leadbetter said she would issue an order confirming Lynch, despite some concern that he has no experience in the complexities of municipal finance, such as bonds, indentures and swaps. However, Lynch's leadership skills and experience in budgetary matters as past commander of the state National Guard qualify him for the post, she said. Her decision came after testimony by Lynch, as well as by former receiver David Unkovic, who resigned from the position on March 30. In 90 minutes of testimony, Unkovic said he resigned because he felt powerful forces were working against a fair solution for the people of Harrisburg and because he thought he soon would be fired. Unkovic said he was under pressure from Dauphin County, state Sen. Jeff Piccola and others to rubber-stamp the Act 47 plan drafted last year. The final straw came when a Dauphin County Court judge sided with a creditor lawsuit, supported by the county, ordering a separate receiver for the troubled, debt-ridden city incinerator. "I viewed that as a creditor's receiver being put in charge of the incinerator," he said. That decision has since been appealed to the Commonwealth Court. Unkovic also testified that, following a meeting with state's Office of General Counsel, he believed he would be removed from his position, so he resigned. Two days earlier, he had given an impromptu press conference saying that "political and ethical crosswinds" had put him in an "untenable position." He also announced that he was requesting state and federal authorities to investigate past incinerator financings. Unkovic assumed the receiver post on Dec. 2, believing that the majority of Harrisburg's financial problem lay with the incinerator, which now is some $320 million in debt. However, he soon came to realize that the city had a much greater financial problem due to "20 years of mismanagement" that included the routine transfer of money from the city's utility funds to fill constant shortfalls in the general budget. In addition, debt was accumulated to hide other debt and to finance a series of dubious projects, he has said. Unkovic said he was particularly disturbed by pressure put on him by creditors and by county and state officials who he believed were deeply complicit -- along with the administration of former Mayor Stephen Reed -- in burying the city beneath a pile of debt. He said he regarded these parties as "partners" in a "joint venture" to ensure that the city incinerator was salvaged at practically any cost. Those forces now want the burden of that debt to fall fully on the people of Harrisburg, he said. Unkovic said that a new receiver must have the unqualified support of the governor, who will defend him and ensure his independence. "This is a huge financial mess," he said. "It's also a huge political mess." After saying she would affirm Lynch, Leadbetter added that only she can remove the receiver. Therefore, she wants Lynch to come to her if he believes he is facing similar pressures described by Unkovic. "I want to make it clear that . . . [Lynch] is given the independence he needs to fulfill his fiduciary duties," she said. "Part of that duty is that he be allowed to act with independence so long as he is the receiver."
DCED Takes Action Against Council, Controller
May 24 -- A state official today filed a "notice of non-compliance" in Commonwealth Court charging the Harrisburg Council with refusing to comply with the court-approved financial recovery plan for the city.
C. Alan Walker, secretary of the Department of Economic and Community Development, charged that the council and the city controller are thwarting the recovery plan by refusing to comply with its terms. In his filing, Walker cites statements by council members and Controller Dan Miller in the press, as well as the council's refusal to approve two new positions mandated in the plan: communications director and assistant city solicitor. Council members have given several reasons why they have refused to fund the positions, including that they wanted to wait for a new receiver to be named, that they wanted former receiver David Unkovic to testify why he quit his position and that they wanted a state or federal investigation of incinerator financing. Robert Philbin has been serving in the $75,500 communications director post without pay since January. The assistant city solicitor position is not currently filled. Council also has refused to act on a provision that would increase the city's resident earned income tax rate from .5 percent to 1.5 percent. The court filing faults Miller for refusing to sign off on a contract that would allow New York-based Guernsey's to begin an auction of the city's collection of historic artifacts. Miller has said that the contract with Guernsey's requires council approval. The notice of non-compliance could lead the Commonwealth Court to issue an order that would force compliance.
Mendez-Saldivia Confirmed as New COO
May 22 -- Harrisburg has a new second-in-command, as a split City Council tonight voted to confirm a chief operating officer/chief of staff.
The council voted 4-3 to affirm Ricardo Mendez-Saldivia in the new post, which pays $110,000 a year and is mandated under the court-approved financial recovery plan for Harrisburg. Last month, the council tabled a resolution appointing Mendez-Saldivia, saying it wanted more clarity on the status of the recovery plan, as well as the status of appointing a new receiver. On May 11, Gov. Tom Corbett appointed Maj. Gen. William B. Lynch as the city's new receiver. The next day, the state Department of Community and Economic Development provided the Commonwealth Court with an update on the recovery plan. Councilwomen Patty Kim, Sandra Reid and Susan Brown-Wilson joined Councilman Kelly Summerford to vote in favor of the nomination. Council members Wanda Williams, Brad Koplinski and Eugenia Smith continued their opposition. The council tonight also voted to hire attorney Mark Schwartz to represent it during the Commonwealth Court hearing on Thursday to confirm Lynch as the new receiver. Former receiver David Unkovic has been ordered to make an appearance, and several council members said they hoped Schwartz would be able to ask Unkovic questions over why he abruptly resigned. Lastly, Williams read a letter from the U.S. Department of Justice, responding to the council's Feb. 15 request for a federal investigation into past financings of the city's troubled incinerator. The letter said that the matter was "under review" by the department and that it also had been referred to several other agencies, including the U.S. Securities and Exchange Commission. The department said it would have no further comment.
Court Denies Police Pension Appeal
May 16 -- The Supreme Court of Pennsylvania has denied an appeal filed by the city's police union, ending a two-year legal battle over whether union members were entitled to a pension increase that former Mayor Stephen Reed granted as he was leaving office.
Last November, Commonwealth Court Judge Bonnie Brigance Leadbetter upheld a previous decision by the Pennsylvania Labor Relations Board that the city does not have to honor an agreement the Fraternal Order of Police reached with Reed in 2008. That agreement would have cost the city about $500,000 in additional salaries and pensions per year by extending an existing contract until 2015. Though Reed negotiated the deal, the City Council never approved it, leading the FOP to file an unfair labor practice claim. The ruling has significant implications for Harrisburg, as re-negotiating union contracts is a key element of any comprehensive financial recovery solution. “This decision finally shuts the door on this case," said acting City Solicitor Jason M. Hess. “Vigorously defending this appeal was a priority initiative assigned to the Law Bureau as part of the city’s financial recovery plan.”
New Receiver Named for Harrisburg
May 11 -- A military man, retired Maj. Gen. William B. Lynch, today was nominated as Harrisburg's new receiver, the person charged with guiding the city to financial solvency.
Lynch, the former adjutant general of Pennsylvania, introduced himself at a short afternoon press conference, stating that he would work hard to solve Harrisburg's debt crisis. "This seems to be something that needs to be done," he said. "It seems to be something that can be done." Lynch, 69, admitted that he had no experience in accounting or municipal finance, but said that he felt qualified for the post due to his background working with large, complex budgets as the long-time head of the state's National Guard. Lynch, who lives in Hazleton, Pa., now must be confirmed for his post by the Commonwealth Court, which is expected to hold a hearing on his nomination within 15 days. He replaces bond attorney David Unkovic, who abruptly resigned on March 30 after claiming that Harrisburg's finances were a "house of cards" marked by decades of mismanagement and possible corruption. Since then, the Officer of the Receiver has been administered by Fred Reddig, an official with the state's Department of Community and Economic Development. Lynch said he now needs to study the many complex issues surrounding Harrisburg's financial crisis. The city owes about $317 million due to multiple upgrades over many years to its incinerator. It also has large and growing annual budget deficits. Lynch enters the process mid-stream, as efforts are well underway to monetize the city's assets to help retire its massive debtload. Multiple companies already have made bids to buy the incinerator, lease the city's parking assets and manage its water/sewer system. Those proposals are now being evaluated, and negotiations with the finalists are expected to begin soon so that deals can be finalized by the end of June. The Washington, D.C.-based law firm of McKenna Long & Aldridge has been handling much of the day-to-day work implementing the recovery plan drafted by Unkovic. As part of his duties, Lynch said he would engage the community, but did not specify when or how. "My intention is to meet with the people who are interested in this problem," he said. The nomination received mixed reactions from city officials. Mayor Linda Thompson was immediately supportive, saying Lynch was “just the kind of strong leadership the fiscal recovery of our city needs at this time. I spoke with Gen. Lynch this morning, and I welcome him and look forward to working closely with him.” Councilman Brad Koplinski was more skeptical. "I hope that Gen. Lynch will be giving orders rather than taking them," he stated. "He should join Mr. Unkovic in demanding our creditors do right by the city of Harrisburg."
Council Again Defies State, Refuses to Fund Spokesman Job
May 8 -- In another swipe at the state, the Harrisburg Council tonight refused to fund two more positions mandated in the city's financial recovery plan.
The council did not vote on a resolution that would have funded the positions of director of communications and assistant city solicitor. Council members used the same reasoning as last week, when they refused to vote on the nomination of Ricardo Mendez-Saldivia as the city's new chief operating officer/chief of staff. They said they would not act until the state Department of Community and Economic Development (DCED) briefs the Commonwealth Court on the status of the court-approved financial recovery plan. DCED must file an update with the court by Friday. "They need us to be able to pass these items and move on with the plan," said Councilman Brad Koplinski. "We're demanding answers over why Mr. Unkovic left and what's the status of the plan." By Friday, DCED also is slated to update the court on the search for a new city receiver, a job left empty since former receiver David Unkovic suddenly resigned on March 30. Council members have repeatedly said they want Unkovic to testify over why he resigned his post. Since then, the receiver's office has been run by DCED official Fred Reddig. Koplinski said that the assistant solicitor position is widely supported by council, but that "that person is nowhere near being hired," removing any urgency to fund the post. The council is less supportive of the city spokesman job, which it cut in its 2012 budget. Unkovic reinstated the $75,500 position in his financial recovery plan, but the council has yet to act on it. Since January, city spokesman Robert Philbin has been working without pay. The council did make other budget moves tonight. One budget change transferred $2.1 million within the city's sewer fund to pay for certain system contracts. It also transferred $80,000 to the Fire Bureau so that eight new firefighters can begin a training class on June 4. The bureau recently has been hit with a rash of retirements, as veteran firefighters have become concerned that their pensions may be in danger as a result of the city's financial crisis. These retirements have created staff shortages and exacerbated the existing problem of excessive firefighter overtime.
Takeover Redux: State Again Eyes Harrisburg Schools
May 3 -- State Sen. Jeff Piccola is due to retire in a few months from a long legislative career, but not before setting the stage for a possible third takeover of a Harrisburg entity.
Piccola is the primary sponsor of SB1450, which would allow the state to assume control of a school district deemed "distressed." The bill, currently in the Senate's Education Committee, would set up an "Office of Financial Recovery" headed by a chief recovery officer, who would draft and implement a financial recovery plan. The officer would report directly to the state's secretary of education. If the school board refused to cooperate with the chief recovery officer, the state could appoint a receiver, who would directly run the district. The bill potentially could apply to many school districts, but Harrisburg is one of the few districts in the state that soon could set off one of the triggers for a takeover, which include an inability to pay teachers on time, a request for an advance on state basic education funding and a default on a bond. The Harrisburg school district is deeply in debt, with a budget deficit for the 2012-13 school year estimated at $16 million. In 2000, Piccola engineered another takeover of Harrisburg's schools, which were placed under the control of former Mayor Stephen Reed. That 10-year mandate expired in 2010, leaving the district with a debt bomb that is estimated to grow to more than $500 million by 2020. Last year, Piccola also sponsored legislation that led to a takeover of the city government, which now is overseen by an official of the state Department of Community and Economic Development pending appointment of a receiver by Gov. Tom Corbett. The new schools legislation is similar to that bill, as it appoints one person to head a financial recovery office, which then would draft and implement a financial recovery plan.