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Everything but progress in Harrisburg debt situation

City has accomplished ‘nothing' in 10 months, business leader says as new COO enters the fray

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Ricardo Mendez-Saldivia, inside Harrisburg's Dr. Martin Luther King Jr. City Government Center, is the city's chief operating officer. He was introduced to the public on April 19. City Council will meet on April 30 to confirm his appointment. Photo/Amy Spangler
Ricardo Mendez-Saldivia, inside Harrisburg's Dr. Martin Luther King Jr. City Government Center, is the city's chief operating officer. He was introduced to the public on April 19. City Council will meet on April 30 to confirm his appointment. Photo/Amy Spangler

“We can't get better until we get this solved. Unfortunately, we have just languished because we haven't taken decisive action.”

Looking back over the last 10-plus months since the state-sponsored Act 47 team presented its initial recovery plan for debt-tortured Harrisburg, city Controller Dan Miller's synopsis of the fiscal crisis seems spot on.

It's a sentiment that has been shared by many who have attended meetings of the City Council as the capital city has gone through the rebuilding process.

The state in December 2010 accepted Harrisburg into its Act 47 program for distressed municipalities. Act 47 is a state-assisted initiative aimed at strengthening a municipality's short- and long-term fiscal management practices.

The first draft of a route to financial redemption was released in June.

Since then, the wayward journey has included the council's vetting and rejection of plans put forth by the team and Mayor Linda Thompson, flirting with bankruptcy and changes in the law that created a path of fiscal receivership.

Receivership has led to a court-approved preliminary plan, but also the resignation of the fiscal overseer, likely delaying a debt resolution that ultimately might not solve all of the city's financial woes, including annual structural deficits.

Fiscally challenged urban centers face many of the same issues — declining population and tax revenue, high pension and health care costs, blighted and tax-exempt properties and heavy debt. Other challenges include the rules of Act 111, which sets bargaining and arbitration for police and firefighters.

"Nothing has happened," said Dave Black, president and CEO of the Harrisburg Regional Chamber and Capital Region Economic Development Corp., who also serves on a city advisory panel created to make recommendations to the receiver.

In a move Black said should provide more stability to the day-to-day city operations, Ricardo Mendez-Saldivia, the new city business administrator and chief of staff, also known as COO, last week entered the fray.

Meanwhile, the state Department of Community and Economic Development is steering the larger debt recovery process until officials can identify a second receiver.

Harrisburg is saddled with more than $326 million of incinerator debt, said Steven Kratz, a DCED spokesman. When the city entered Act 47, the debt — created by a failed retrofit — was $288 million.

"(The COO's) responsibilities will make the wheels on the bus go round and round on a daily basis," Black said of the new addition.

Mendez-Saldivia, who comes from the Miami area, will be paid $110,000 annually as COO. The Miami-area resident has started but needs to officially be confirmed by the council at a public meeting on Monday.

He brings 20 years of professional management experience in county, municipal and public works management, and has financial and budget development experience. As COO, he will oversee the internal operations of the city, develop the city's annual operating and capital budgets, and coordinate interdepartmental relations between departments and managerial staff.

The position was part of the recovery plan crafted by former receiver David Unkovic.

"This COO is really going to be in charge of everything in the city and report to the receiver," Miller said.

The mayor doesn't see it that way. Leading up to the hire, Thompson referred to the position as business administrator and chief of staff — just under the mayor. The position has been vacant in the Thompson administration because of funding.

The COO will expedite administration financial reporting and budgeting process, city spokesman Robert Philbin said. The COO will improve coordination internally, as well as between the administration and the office of the receiver, Philbin said.

Where do we go from here?

Since Unkovic resigned March 30, citing "political and ethical crosswinds," the state has been moving as quickly as possible to find a replacement, Kratz said.

"We're trying to be prudent to pick a qualified person," he said.

Kratz said he could not comment on who might be interested in the job, how many candidates the state was considering or when a decision to nominate someone might be made. DCED Secretary C. Alan Walker, under the direction of Gov. Tom Corbett, is tasked with submitting a name to the Commonwealth Court.

The process for confirmation will be the same as before, with the court being required to hold a hearing within 15 days of a recommendation. The court then has 60 days to make a decision.

In the interim, the process remains on track, Kratz said. The firms invited to submit proposals to buy the city's incinerator, lease the parking facilities and manage water and wastewater assets have done so and reviews are under way, he said.

Unkovic's plan called for the valuation of the aforementioned assets this spring and to come back to the court in June with a more comprehensive plan that also includes favorable concessions from the city's three unions who have contracts in place through 2014, 2015 and 2016.

He said his goal was to have deals worked out with the unions, asset deals in place and negotiations with creditors ironed out before coming back to the court with an amended recovery plan.

DCED and Black said everything remains on schedule with consultants in place. Miller said Unkovic's resignation has been a big setback.

Miller maintains a position that has been shared by several members of the council, which is that selling city assets will not address the long-term debt problems.

"We're going bankrupt. The question is whether the state is going to strip our assets first," Miller said. "I think everybody knows (bankruptcy is) the solution."

During the 2011-12 budget approval process in June, the General Assembly amended the state's fiscal code to include a provision that blocked third-class distressed cities from filing for bankruptcy protection for a year.

Gov. Tom Corbett signed the bill, but that didn't stop the council from filing. A federal judge dismissed the petition after ruling that the state's fiscal code was constitutional in barring Harrisburg from filing.

Under the strong-mayor form of third class city government in Pennsylvania, the council also cannot file legal action on behalf of the city without the mayor's approval, the judge said.

Miller said he expects there will be a push again this summer to put that clause back in the budget, should the fiscal situation go unresolved.

"Just taking care of the debt in whatever manner, it doesn't solve the problem. It's not a quick-fix solution," he said.

Harrisburg needs other revenue tools, he said, continuing to stump for a commuter tax. That option was blocked by the amended Act 47 law.

A local-option sales tax or dedicated revenue from gaming could help, along with increased tipping fees in Dauphin County, Miller said.

"It's (been) an incredible waste of money and waste of time," Black said about the steps in a process that has yet to produce a tangible result.

The business community generally was optimistic with Unkovic at the helm, he said. That has turned to cautious optimism, he said.

"I would call it maddening," Black said. "It's how not to get things done."

Harrisburg in review

October 2010: Mayor Linda Thompson applies for Act 47 program.

December 2010: State grants Harrisburg distressed-city status.

June 2011: State-appointed Act 47 team unveils first draft of recovery plan.

July 2011: Final version of Act 47 plan released, rejected by the City Council.

August 2011: The council rejects mayor's alternative plan, which is nearly identical to team's plan.

September 2011: Senate Bill 1151, also known as state takeover bill, is amended. Cumberland County Republican Rep. Glen Grell leads the charge along with bill sponsor Sen. Jeffrey Piccola, R-Dauphin County.

October 2011: The council files for Chapter 9 municipal bankruptcy protection. Gov. Tom Corbett signs state takeover bill and declares fiscal emergency in Harrisburg.

November 2011: David Unkovic, chief counsel for DCED, is nominated to be Harrisburg's fiscal receiver. Federal judge dismisses bankruptcy filing.

December 2011: Unkovic appointed to post as fiscal overseer. Federal lawsuit filed by Harrisburg plaintiffs, calling SB 1151 unconstitutional.

February 2012: Receiver submits recovery plan to Commonwealth Court.

March 2012: Court approves preliminary plan and Unkovic reveals names of groups he plans to negotiate with on asset deals. Two days after a county judge allows separate receiver for incinerator, Unkovic abruptly resigns. City names COO.

April 2012: DCED continues to oversee the recovery process while searching for new receiver.

Jason Scott

Jason Scott

Jason Scott covers state government, real estate and construction, media and marketing, and Dauphin County. Have a tip or question for him? Email him at jasons@cpbj.com. Follow him on Twitter, @JScottJournal. Circle Jason Scott on .

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