Harrisburg debt filing: Here is what we know about the plan
Details of what is being called the “Harrisburg Strong Plan” emerged today. City receiver William Lynch has filed the comprehensive debt recovery blueprint in Commonwealth Court.
That plan — a long-awaited update to the preliminary plan approved in March 2012 — includes the sale of Harrisburg's troubled incinerator to the Lancaster County Solid Waste Management Authority, lease of the parking system to a consortium known as Harrisburg First and provisions to both address the city's structural deficit and lay the groundwork for a brighter financial future.
By taking the weight of the incinerator off the city's back and its books, the plan promises ample revenue that will help Harrisburg balance its budget through at least 2016.
Here is what we know from a revised draft (this will be updated to include the recorded proposal to the court):
• Harrisburg's incinerator will be sold to the Lancaster County Solid Waste Management Authority for between $126 million and $132 million, according to the plan filed today by receiver William Lynch.
The lease of the city's parking system is expected to net between $258 million and $268 million through a public-private partnership.
These prices are listed as ranges because of movement on the municipal bond market.
• The City Council meets tomorrow. The council would be expected to take action on an ordinance approving the transfer of the incinerator to LCSWMA and agree to amend and restate its current waste disposal agreement through 2036.
• LCSWMA intends to make $16 million in improvements with the help of a Redevelopment Assistance Capital Program, or RACP, grant.
• Municipal authorities are prohibited from issuing tax-exempt bonds for electricity output, unless it is sold to a state or local government. As part of the deal, Borough of Columbia will buy the steam output from the incinerator and then sell it to the commonwealth at a fixed price for the next 20 years. The electricity will be sold for about 4 cents per kilowatt hour in the first year. That escalates to about 7.2 cents in the 20th year, based on projections. The agreement provides for "clawback" provisions if the price under the contract exceeds the then market rate.
• To minimize interest costs and maximize upfront proceeds, the deal is using a tax-exempt bond financing model. The Pennsylvania Economic Development Financing Authority will issue the parking revenue bonds. The deal involves a ground lease of 40 years to PEDFA. The parking assets will go back to the city at the end of the lease. An intergovernmental agreement also is needed so PEDFA can operate the meters and to delegate rate-setting and enforcement authority. The council must approve a transfer ordinance.
• Harrisburg First includes Guggenheim Securities LLC, Piper Jaffray & Co., AEW Capital Management LP and a subsidiary of Standard Parking Corp., Standard Parking SP Plus Municipal Services.
• PEDFA will contract with a qualified designee to perform certain administrative obligations and responsibilities of PEDFA. That unnamed designee will then enter into an asset management agreement with AEW for an initial term of 15 years. AEW will be paid a fixed fee annually, plus a potential performance management fee. Those amounts were not disclosed in the draft.
• AEW will enter into an operator agreement with Standard Parking for an initial term of 15 years. Standard will receive a fixed fee of $350,000 annually, increasing at a rate of inflation, which is defined to be the lesser of the Consumer Price Index or 3 percent. Standard will offer employment to most of the existing HPA employees, as well as six city parking enforcement employees. AEW also must prepare a 10-year capital plan every five years to ensure the system is operated in a first-class condition.
• The Harrisburg Parking Authority currently has about $106 million in outstanding bonds on the system, which includes 10 garages and five lots with about 9,100 parking spaces. The city also has about 1,250 on-street parking meters.
• Historically, the HPA makes payments to the city of net parking revenue from the operation of the parking facilities and meters. That figure has declined to $250,000 from a high of about $5 million, due to increased operating expenses, increased bond debt service and unpaid amounts related to Harrisburg University's garage. And although the parking tax rate increased to 20 percent, only about $1.9 million of the $3.3 million in 2012 revenue was allocated to the city's general fund.
• To increase the value, the commonwealth through the Department of General Services has agreed to a long-term lease of more than 4,500 parkers. Initial monthly rates are expected to be $140 per space per month. After variable increases over the first four years, the price per space will increase by about 3 percent per year over the remainder of the term.
• Dauphin County is proposing to guarantee up to $140 million of the parking revenue bonds. Assured Guaranty Municipal Corp. also might provide a debt service reserve fund surety and/or a bond insurance policy that would further increase available proceeds.
• Parking rates and fines will be increased at the outset of the transaction to make them more in-line with industry standards. Rates will be fixed for the first four years and then increase by about 3 percent per year.
• The deal will provide about $3.3 million in parking tax revenue to the city's general fund in 2014. Harrisburg also will receive a fixed payment of $1.5 million per year, increasing annually at a rate up to 3 percent. This amount is paid after operating expenses and debt service on the bonds. It comes from parking meter and enforcement revenue of $1.1 million, plus a share of anticipated increased parking revenue from higher rates and greater operational efficiencies. The ground lease will generate $500,000 per year, increasing at a rate of up to 3 percent annually for the first five years and at a fixed rate thereafter.
• The plan also references revenue sharing from any future parking operations net proceeds. The city would get 25 percent, while AGM and Dauphin County would get 75 percent. AGM and the county would be capped at $97 million.
• $16 million: Three new entities will be created under what is being called the "Initial Harrisburg Growth Funding." Of that funding, $3.7 million will go to a health care trust fund to address anticipated increases in employee health care costs for current and retired city workers. The remaining $12.3 million will be split evenly between a nonprofit economic development corporation and a nonprofit infrastructure improvement corporation.
• A supplemental account is included that would provide about $6.7 million for the three entities.
• $5 million in working capital will help pay down high levels of city payables, as well as needed funding to address this year's anticipating operating shortfall.
• The Harrisburg Authority will assume operations and ownership of all water and wastewater assets, including the city-owned sewer collection and stormwater systems. As the operator, THA would set rates and budgets, control billing and collections and implement capital improvements. The city's financial situation, backlog of audits and lack of borrowing capacity caused the city and THA to lose access to the capital markets.
• The plan requires that the 1 percent additional earned income tax — which took the city's share to 1.5 percent while the school district receives 0.5 percent — be extended through at least 2016. The council would be asked to approve legislation to extend the increase. If not, the receiver will seek a court order. The EIT expects to generate $7.9 million per year for the city. The plan does not call for any increase in property taxes.
• Union concessions that include reducing wages or other employment benefits through 2016 also will produce significant savings. The draft did not include a projection.
• The plan projects up to $2 million per year from a possible fuel tax fund that the commonwealth could set up to help cities subject to oversight under Act 47. Those funds would go to the three above-referenced entities.
• The plan also references pursuit of claims related to the botched incinerator retrofit and sharing of proceeds between the city, AGM and Dauphin County.
• CIT: $21.5 million out of $37 million in claims from proceeds of the consummated incinerator sale.
• Covanta: $9.5 million out of $26 million in claims from the incinerator sale proceeds. Covanta also is to receive other consideration from LCSWMA.
• JEM and other subcontractors: JEM owed more than $800,000.
• AGM and Dauphin County: The aggregate incinerator-related claims of both total about $298.5 million. They stand to receive between $120 million and $130 million of the parking proceeds, and collectively at least $210 million.
• Ambac: Harrisburg has not made general obligation debt payments totaling more than $17 million — assuming it misses the next one in September. Settlement includes 10-year extension on the bond repayment schedule at an interest rate of 5.48 percent per annum.
• Other creditors include SunTrust Leasing Corp., which is owed about $2.6 million and Metro Bank, which is owed about $2.4 million. Suburban municipalities claimed about $25 million in overcharges in sewer rates; they will get $11.2 million over six years. There also is about $20 million that will be owed beginning in 2016 on the Verizon Tower in Strawberry Square, which Verizon plans to leave.
Governor weighs in
"I am proud of the work that has been done by the Office of the Receiver, along with the commitment of all the stakeholders involved in Harrisburg's recovery effort, to finding a viable solution to this extremely challenging problem," Governor Tom Corbett said. "We believe this recovery plan will not only address Harrisburg's past financial difficulties and substantial debt, but also open the door for future growth, development and financial stability. This plan demonstrates that it is possible for all concerned parties to work together in crafting a remedy for Harrisburg's fiscal crisis, which can hopefully serve as a guide for other financially distressed communities."