Official: Bankruptcy Possible for Harrisburg

HARRISBURG, Pa. — The state official in charge of figuring out how to fix an enormous financial shortfall in Pennsylvania's capital city said in a proposed recovery plan released Monday that "significant and difficult" steps lie ahead, and Harrisburg may end up seeking bankruptcy protection.
by | February 7, 2012
 

HARRISBURG, Pa. — The state official in charge of figuring out how to fix an enormous financial shortfall in Pennsylvania's capital city said in a proposed recovery plan released Monday that "significant and difficult" steps lie ahead, and Harrisburg may end up seeking bankruptcy protection.

Receiver David Unkovic, appointed by Gov. Tom Corbett in November, said he hoped various "stakeholders" would pitch in, but if not he may file for bankruptcy after July 1.

"The receiver desires to have a consensual plan outside of bankruptcy," Unkovic wrote. "That would be best for everyone."

In many respects, his 12-page outline reflected a work in progress, as Unkovic said he still needs to figure out the value of assets the city can sell or lease, and lawyers are digging into a forensic audit regarding an expensive trash incinerator renovation that has left the city on the hook for hundreds of millions of dollars in debt.

"If civil actions are filed, the timing and likelihood of any recoveries are impossible to predict," he wrote. "Therefore, it is not possible at this time to assume any level of proceeds for purposes of addressing the structural deficit of the city."

He recommended the Legislature examine the use of interest-rate swaps by the state's municipalities and authorities.

He urged the warring factions in city government to work together to craft a solution, and said hiring a "strong professional" chief operating officer should be a top priority.

"The key to cooperation is ongoing communication and discussion," Unkovic wrote. "The elected officials must talk with each other on a regular basis."

The plan calls for Unkovic's prior, written approval before a chief operating officer may be hired or fired.

The report describes numerous changes in how the city is managed, and savings that could be realized by changing pay, benefits and employment rules for the city's unionized workforce. It also outlined higher real-estate and earned-income taxes and increasing business license fees.

Unkovic said in a phone interview that he does not envision all of the proposals being implemented. Unions would have to agree to changes in their contracts, and the mayor and city council would have to pass tax increases, he said.

"Which one of them and how many and in what order and so forth depends on the situation as we go forward," Unkovic said.

The nearly 40-year-old incinerator has generated the city's largest financial problems, and Unkovic wrote in detail about debt connected to the facility.

Unkovic filed the report with Commonwealth Court, which must sign off on it, under the law that authorized the receiver's appointment.

The court has 30 days to hold a hearing on the plan and 60 days to rule on it, but exactly how that will play out remains to be seen.

"The statute doesn't have a lot of detail on exactly how they're going to approach the plan," Unkovic said.

Once the court confirms the plan, a four-member advisory committee will be set up consisting of the city council president, someone appointed by the Dauphin County commissioners, someone appointed by Corbett and Harrisburg Mayor Linda Thompson.

Thompson issued a statement saying she would review the plan and speak publicly about it later this week.

Unkovic is former chief counsel for the Department of Community and Economic Development, and has worked as a lawyer advising municipalities on bond issues.

Copyright 2012 The Associated Press.

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