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Beyond the debt dealWhat might Harrisburg look like with the weight of the incinerator off its books?

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The 1500 Condominium, in the background, is across Sixth Street from the slated federal courthouse. Photo/Kathryn Morton
The 1500 Condominium, in the background, is across Sixth Street from the slated federal courthouse. Photo/Kathryn Morton

Good morning, Harrisburg.

The sun is shining and another school year is in the books. It's time to start making those summer plans.

Wait, what?

Yeah, it's 2014. Time to hit the beaches.

Oh, the incinerator? That's done. The Susquehanna Resource Management Complex, as it is now known, is operating under the direction of a regional waste management authority, while Harrisburg's parking system is in the hands of private operators as part of a long-term lease.

So, the debt crisis is over?

Not exactly.

Harrisburg has wiped about $345 million of incinerator debt off its books. Fiscal conditions have improved in the city, but there still is work to be done.

(Back to 2013 for a moment: A recovery plan modification is expected to be submitted to Commonwealth Court later this month to include terms of an incinerator deal that all parties have agreed to. The Lancaster County Solid Waste Management Authority has said it intends to assume ownership of the trash-burning facility this fall, which it will rename. Closing of the asset deals, which includes the parking system lease, should be done by the end of the year, according to the Office of the Receiver.)

The new focus

Housing and economic development strategies now jump to the forefront of the recovery discussion, according to city officials and prominent real estate investors and developers.

"No question it's going to be a much more positive environment next year at this time," said Matt Tunnell, senior vice president of Harrisburg-based GreenWorks Development LLC. "While all of Harrisburg's issues won't be behind it, we are well on the way to a plan that creates some real stability again."

GreenWorks partnered with Lower Allen Township-based Brickbox Enterprises Ltd. to do the COBA Apartments project in Midtown. That mixed-use project wrapped up last year, breathing new life into the historic Furlow Building.

Brickbox is slated to open the Lux condominium building at Third and State streets this fall.

"As real estate developers, that certainty in stability is something businesses and individuals are looking for when moving to an area," Tunnell said.

Many in the capital city's real estate community have long been clamoring for comprehensive plan and zoning updates. Renewing a tax abatement ordinance has been a major priority since the last one expired at the end of 2010.

That likely would mean more investment in residential and commercial development, officials said. GreenWorks continues to focus on Midtown.

"The city has to increase its population to increase its share of the region," said H. Ralph Vartan, CEO of Susquehanna Township-based Vartan Group Inc., which opened the mixed-use 1500 Condominium last year at Sixth and Reily streets.

Harrisburg grew in the 2010 Census, but not as much as the region.

Demand for new housing is there, but the supply can't keep up, Vartan said. And new construction can't be built without a more equitable tax assessment system, he said.

"I would build multiple buildings in a heartbeat," Vartan said. "But there does need to be something done on the supply side. I am not one that thinks tax abatement is the best. We need to reform the way real estate is assessed so (new) construction is comparable to existing real estate."

Tax abatement is a nice stop-gap measure that helps "soften the blow," he said.

A big part of the city's solution lies in rehabilitation projects, but new buildings have to be included, Vartan added. He, too, has his sights set on Midtown and the widened Seventh Street corridor between Reily and Maclay streets, an area known as the northern gateway.

The 1500 is across the street from the site of a future federal courthouse, where demolition work has begun.

Government structure

When we wake up in 2014, there will be a new mayor.

Until then, the current one, Linda Thompson, is looking to simplify the transition.

"As the city returns to solvency and gains confidence as well as access to capital markets, we will be able to focus on longer-term economic development, expanded services and marketing, which will accelerate population and business development," said Robert Philbin, the city's COO.

Restructuring of the financially strapped city school district also will play a role in that effort, he said.

The city is working to prioritize capital improvements.

A long-term economic development plan that will address zoning, housing, Keystone Opportunity Zones, tax abatement, local neighborhood and job development is underway, Philbin said.

"The city has to address the fact that about 45 percent of the city's land is tax-exempt," he said. "City government has to both shrink and adjust to the reality of how public health, safety and development service are delivered to citizens in reality of the post-recovery environment."

Like many of its municipal peers, Harrisburg generates the bulk of its revenue from taxes. Real estate, earned income, local services and business taxes are major drivers of revenue, according to the city's general fund budget. Departmental revenues generated largely by fees also make up a chunk of the budget, along with intergovernmental funds tied to pensions, capital fire protection and parking.

AFTER THE TRASH

Revenue boost: The parking side of the debt deal calls for a public/private partnership that will create new revenue streams for the city, according to the Office of the Receiver. The private operator and manager will be paid a fixed fee, instead of a percentage of revenue or portion of the profits. Other than some early scheduled increases, parking rates are expected to rise by a cost-of-living increase.

The city is expected to receive a large upfront payment, as well as increases in parking tax, meter and fine revenue when received. Harrisburg will receive the residual cash flow after the revenue pays for operations, debt service and capital replacement and reserves.

Community confidence: Completing the incinerator deal should bolster confidence, especially in real estate investment.

The city's tax base should increase as new residents move into Harrisburg to live at current construction sites, including the Lux condominiums at Third and State streets.

Other projects, including the completed COBA Apartments and 1500 Condominium, should continue to drive new tenants.

Developers such as Brickbox Enterprises Ltd. are eyeing other mixed-use redevelopment opportunities in the city. Vartan Group Inc. is looking into construction possibilities around the Seventh Street corridor, which was widened to entice development.

A federal courthouse is slated for Sixth and Reily streets, which promises to drive other development opportunities.

The Susquehanna Art Museum at Third and Calder streets is scheduled for a fall 2014 opening.

Current and future planning: A finalized asset deal should bring housing and economic development strategies to the top of the priority list. Work has begun on these fronts, including comprehensive plan updates. Expanding Central Pennsylvania's Keystone Opportunity Zone by 2014 to include new city sites also is underway.

Structural deficit: The city operates at a loss of millions of dollars annually. Tackling the structural deficit will be an ongoing challenge, even if current budgets are balanced. Last year, the city increased earned income tax to 2 percent from 1 percent. The increase took effect in 2013. That bump, where the city receives 1.5 percent to the school district's 0.5 percent, could be extended.

Other bond financings guaranteed by the city also could be restructured or eliminated, according to the Office of the Receiver. Union concessions also are being made to address city debt.

OTHER DEAL NOTES

The incinerator alone is expected to be sold to the Lancaster County Solid Waste Management Authority for about $130 million, said Cory Angell, a spokesman for Harrisburg receiver William Lynch.

"The purchase price can fluctuate, but that's in the ballpark," he said, as terms of the negotiations won't be made public until the Commonwealth Court filing later this month.

LCSWMA had two previous public offers on the table. One was for $45 million, the other for $124 million. The receiver has been negotiating solely and in private with LCSWMA since last summer.

The authority has said it plans to make about $16 million in facility improvements once it takes over.

The incinerator debt is said to be about $345 million. Assured Guaranty Municipal Corp. and Dauphin County, the biggest creditors, as well as others, could be expected to take certain losses to resolve incinerator-related claims.

Other bond debt is expected to be resolved, including $107 million associated with the Harrisburg Parking Authority, Angell said.

"Certain redevelopment authority bonds that are guaranteed by the city (for the Harrisburg Senators and Verizon offices downtown) are being worked on by teams to make sure that the likelihood of the city having to pay on these bonds in minimized or eliminated," he said. "The general obligation bonds insured by AMBAC are subject to a modification that will be discussed in detail when the recovery plan modification is filed."

Judge Bonnie Brigance Leadbetter has to approve any changes to the recovery plan.

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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