The Pennsylvania State Capitol building seen from State Street in Harrisburg.
Jan. 26 (Bloomberg) — Harrisburg, Pennsylvania, the capital of the sixth-largest U.S. state by population, should skip a $2.2 million debt service payment due Feb. 1 and consider bankruptcy, City Controller Dan Miller said.
Harrisburg faces $68 million in payments this year in connection with a waste-to-energy incinerator and should weigh Chapter 9 protection from creditors or state oversight through a program known as Act 47, Miller said today. Chapter 9 bankruptcy allows municipalities to reorganize rather than liquidate.
The alternatives are to sell assets such as an historic downtown market; an island in the Susquehanna River that includes the city’s minor-league baseball stadium; and the city’s parking, sewer and water systems, according to a preliminary 2010 budget and an emergency financial plan submitted yesterday.
“What I’m suggesting is we stop paying the debt service until we have a plan or we decide which way to go, in bankruptcy or Act 47,” Miller, a former city council member who became controller this month, said in a telephone interview. “I think it could save our assets instead of selling them.”
Mayor Linda Thompson, who unseated 18-year incumbent Mayor Stephen Reed in a Democratic party primary last year to lead the city of 47,000, didn’t return a call to her office for comment.
Thompson is scheduled to present her budget proposal to the city council tonight. The council has until Feb. 15 to adopt a final budget.
Asset Sales, Fees
Management Partners Inc. of Cincinnati, a consulting firm hired to study the city’s finances, recommended selling assets, raising city inspection and recreation fees, and reopening city labor contracts.
Harrisburg owes a total of $68 million in payments it guaranteed on bonds issued by the Harrisburg Authority for the incinerator and on a $35 million working capital loan for the project.
The city skipped more than $3.5 million in debt service and swap payments last year, prompting draws on reserves and back-up payments by Dauphin County, where Harrisburg is located, which has sued the city to recover its payments.
Harrisburg’s debt was downgraded to high-yield, high-risk junk status by Moody’s Investors Service in October. Moody’s lowered the city’s rating to Ba2 from Baa2, the second-lowest investment grade.
The city’s credit rating could be lowered further after an analysis of the steps taken to address future payments on debt and two interest-rate swaps that are costing about $800,000 a year, Moody’s said in an Oct. 19 report.
To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at firstname.lastname@example.org.
Last Updated: January 26, 2010 19:36 EST
By Dunstan McNichol