Saturday, May 30, 2015

Can Anyone Spare a Dime, and Maybe a Few Million Extra?

Chris Papst. Capitol Murder: An Investigative Reporter's Hunt for Anders on a Collapsing City: Mechanicsburg, Pa.: Sunbury Press, 2015.

Harisburg offered in the 1970s as the shell mill and mills closed or significantly downsized. Many middle class residents left Harrisburg in the 1970s.

The highway destroyed Harrisburg and other cities. Many people who could afford to move then used the highway to move out f cities into suburbs. Lower income people tended to remain behind in cities. Harrisburg's downtown hotel went from 95% occupancy to 17% occupancy. Downtown businesses that accounted for 70% of the region's businesses then accounted for 11%. Theaters and art houses closed, giving people even fewer reasons to travel downtown.

Steve Reed was elected Mayor in 1981. In the decade before Reed was elected Mayor, the city's population declined 22%. In the decade after Reed became Mayor, the city's popilaiton declined 1.7%. Population then began increasing yet then later decreased.

In 1981, Harrisburg was considered by the U.S.Housing and Urban Development as one of the most distressed cities in the nation, Reed reduced property taxes and created a Land Value Taxation where vacant land was taxed at a higher rate in order to encourage its being development.  Reed claims while he was Mayor the city attracted over $4 billion in private investments.

While Reed was Mayor, the city took out many bonds to hide debt. Bond agencies received many fees. Harrisburg grew economically yet the city government took on debt it could not pay, The city slashed spending, let its infrastructure crumbled, and there still was not enough money to pay the debt. he Governor appointed a Receiver for Harrisburg who took away some powers of elected officials.

Harrisburg's 49,000 residents have an an average household income of $25,0000. 44% of its children live in poverty.

Harrisburg issued $300 million in debt for a hydroelectric dam that was never built. The technology the city chose was unproven, The contractor was inexperienced. The bonds, which reached $360 million in deb,t were meant to be paid from dam revenues which never materialized as the dam was never built. Investors, underwriters, and consultants gained finically from these bonds. $15 million in fees were paid to lawyers engineers and other professionals.

Steve Reed he had planned to lease Parking Authority assets for $250 million to pay off the bonds. Once operational, the incinerator was to have been sold for $125 million. At that time, the bond holders would have been allowed to take a tender offer of 82 cents to 85 cents on the dollar. To pay those bond owners who did not accept the tender offer, a tipping fee would have paid off that debt for ten years,

Harrisburg attempted to file for bankruptcy. Yet bond insurers wanted to be paid. The Governor's Chief of Staff had worked in a law firm that represented bond insurers. The bond insurers did not want to pay for what they had insured. A little noticed amendment to the budget that the Governor, Tom Corbett, signed created a law prohibiting Harrisburg from filing for bankruptcy. The bond insurers did not have to pay their insurance.

The U.S. Environmental Protection Agency closed an incinerator that was harming the Susquehanna River. If the city did not upgrade the treatment plant, the city would have to pay for pollution credits. Harrisburg guaranteed $125 million to update the incinerator. City Council, including Council member Linda Thompson, voted 6 to 1 to approve the loan.

Millions of dollars in fees were paid for the incinerator's retrofit. The bonds paying for these never should have been issued, according to the author. These bonds were exempt from Federal and state taxes, Municipal bonds were not registered with the Securities and Exchange Commission. Buying these bonds was a financial windfall for bond purchasers, some of whom were politically connected.

It was later discovered Steve Reed has a secret $7 million account deposited without Council authorization in a bank 55 miles outside of Harrisburg. Many people who had contributed to Mayor Reed's campaign were paid fees from city government with this account Contributors were thus receiving city contracts.

The $7 million deposited in this account was from water blond sales. District Attorney Richard Lewis investigation this and concluded Reed wa acting in the city's interest and there was no criminality.

Reed knew how to get press coverage. He was on the scene at every murder or fire. He handled public relations. The Harrisburg Police Department's Public Information Officer was the only public info ration person the author ever saw who refused to be interviewed on camera Reed handled the interviews. Reed was also rumored to have been sexually involved with some reporters.

Harrisburg's debt reached $310 million., or six times its budget. (Note: Many municipal debt advisors observe that few local governments can emerge from that high a debt.)

Harrisburg, in a 2008 study, was found to owe $184 million in Other Post-Employment Benefits. The city should have been depositing $18 ill ion a year to fund these future payments yet it was putting on around $4.5 million

In 2011, the city's revenues were $50 million annually That was the cost of the city's operating budget,

When the ity could not make its bond payments, the bond insurers, instead of paying this insurance, reissued making any patents, They hired a law firm formerly led by Governor Corbett's main attorney to lobby the legislators. They passed a law preventing Harrisburg from filing for bankruptcy.

In 2011, the state;s Department of Community and Economic Development issued a recovery plan for Harrisburg It called for selling city assets, increasing property taxes, layoffs, and wage and benefit cuts. City Council rejected the plan by 4 to 3. Linda Thompson, who was then Mayor having defeated Steve Reed, got some concessions from the county and state and proposed essentially the same plan Council had earlier rejected. Council rejected the plan again by the same 4 to 3 vote. The "Gang of Four" who voted against the plans wanted the bond insurers, the state government, and the county government to share in the recovery.

After Council rejected a third plan, the legislature creed a new law and a Receiver was named by Governor Tom Corbett to take over the city's finances. City Council rejected a fourth plan.

Harrisburg filed for bankruptcy. This newly enacted law prohibited Harrisburg from filing for bankruptcy. It also prevented Harrisburg from creating a commuter tax to increase its revenues,

The city attempted to file for bankruptcy with the signatures of each member of Council, the City Controller, the City Treasurer (who would later resign for stealing funds from a non-profit and from a political organization) signed the bankruptcy, Mayor Linda Thompson reused to sign the bankruptcy papers.

The Receiver, David Unkovic, had worked with three firms that had connections to Harrisburg's creditors. Unkovic allowed debt payments to be skipped so that city could use the funds for fire and police. Criminals noticed this and crime increased.

The Midtown Improvement District collected residential fees of $60 for residents with businesses paying more. These funds were used to hire eight police patrols for Midtwon Harrisburg at night. Eric Papenfuss, who founded this District, would defeat Thompson for Mayor,

Harrisburg's loan payments on its Harristown economic development project rose from $75,000 annually to what will become $95 million due in 2016.]

Unkovic resigned as Receiver. He encouraged Federal and state prosecutors to investigate the debt. He suspected some incinerator transactions may have been illegal. District Attorney Ed Marsico stated this was outside his jurisdiction.

Fred Clark was the incinterat'rs Authority Chairman. He contributed $22,781 to Reed's campaigns from 2000 ti 2010. Clark worked for Reynonds, which was a conflict of interest as Reynolds received $850,000 in incinerator retrofit contract fees.

The Authority issued bet because Harrisburg had reached its legal debt limit. The payment lacked a performance bond.

William Lynch was hired as the next Receiver. Lynch in 1979 tried to get the state to buy land for theNational Guard. The purchase was not approved yet the land owner was allowed to keep a $325,000 deposit. The land owner, Alan Walker, contributed money to the Corbett campaign and he was named Secretary of Community and Economic Development Lynch and Walker would work together again in attempting to solve Harrisburg's legal problems.

Lynch recommended selling the incinerator to Lancaster Country for $125 million while Harrisburg retained its $363 million debt. Parking lots, garages, and metered spaces would be sold for 40 years for $260 million. Union agreed to $4 million in concessions. The state government promised $5 million annually for public safety, Artifacts were sold and auctioned providing for $4.5 million

The author beliefs Harrisburg is headed towards Chapter 9 bankruptcy.




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