The most memorable lecture of my college years came at the end of a semester of medieval history. The professor, a birdlike German who wore thin scarves, drew a graph on the dry-erase board that charted two lines. One hobbled along, then spiked dramatically. The other, initially steady, dropped off where the first one climbed.
The downward line represented the incidence of plague. The professor wouldn’t tell us what the upward line was. After a half-hour or so of politely listening to wrong guesses (medicine? hygiene?), he told us that the line represented government, as measured by quantity of paperwork. He then offered a theory: that the best explanation for the end of plague was the appearance of the power to enforce quarantine, vested in an increasingly centralized state.
When history looks back on Harrisburg, what will it see? On Sept. 19, Judge Bonnie Brigance Leadbetter of the Commonwealth Court confirmed the Harrisburg Strong Plan, the state-appointed receiver’s long-awaited roadmap for the city’s financial recovery. During testimony, the receiver, William B. Lynch, said he was eager to see control of Harrisburg returned to its elected officials. One reason he opposed bankruptcy, he said, is that it prolongs the period of “someone else overseeing” the city’s governance. This emphasis on local sovereignty belies what the plan, and the process that produced it, represent: the state’s power to force an ailing city back to health.
In March 2012, shortly before his resignation, David Unkovic, the city’s first receiver, spoke at an impromptu press conference about “corruption” in Harrisburg: “in the sense of a body being corrupted, deteriorated, just a bad situation.” With regard to Harrisburg’s corrupted bodies—its insurmountable incinerator debt, its millions in unpayable obligations, its ritual abuse of its municipal authorities and its waterlogged credit rating—the Strong Plan is an act of quarantine.
Take the receiver’s plan for the incinerator. The facility, at least in theory, is a revenue-producing asset, generating proceeds by charging clients to dump trash and, to a lesser extent, by selling the electricity generated by burning it. What corrupts it is its spectacular debt, approaching $350 million. The city guaranteed that debt when it was issued, and the debt service obligations have become the city’s. As the plan puts it, the incinerator “is a liability of the City, not an asset.” A key provision of the plan is to sell it to the Lancaster County Solid Waste Management Authority for around $130 million.
A similar act of separation is proposed for the city’s parking: its lots, garages and on-street meters. The plan transfers the assets to an outside partnership that will sign a long-term lease with the city for a term of 40 years. The lease is controversial, but there’s a case to be made that it severs another of the city’s damaged organs. Parking revenues have declined almost every year, from a high in the several millions of dollars to around $250,000 in 2012. The drop is partly a result of increased maintenance and partly a result of complicated debts funneled through the Harrisburg Parking Authority. (A decline in annual parking tax revenues, from $3.3 million to $1.9 million, is the result of further debt service obligations.)
An upfront sum from the parking lease will eliminate the authority’s debt, around $100 million, as well as the remainder of the incinerator debt. In addition, the transaction includes several projected revenues. It restores the income from parking taxes to $3.3 million, and pledges two fixed payments—rent and an annual fee—that should start around $2 million the first year and increase thereafter. Some have argued that the long-term lease surrenders a key asset of the city. But it also repairs a system that, like so many of the city’s operations, had become inefficient and riddled with debt.
The plan also isolates the Harrisburg Authority from the reach of political opportunism. In recent years, the authority had morphed into a financing arm of the former mayor, issuing debt it could never repay and siphoning off cash to professional advisors and to a secret “special projects” fund. The Strong Plan makes short work of these back channels. Under the proposal, the authority will be whittled down to water and sewer operations. The authority will also assume relevant employees from the city into its payroll.
As the plan describes it, the disentanglement of the city and the authority is an act of mutual protection. The sewer system has fallen out of compliance with environmental regulations, and the impending updates are projected to cost upwards of $50 million. The transfer “relieves the City from this burden and assures that the City can focus on the important process of fiscal recovery and the provision of core and essential services.”
But the new structure will also “provide comfort” to several parties—suburban customers, government regulators and lending agencies—that can rest assured that the authority’s rates and borrowings are not connected to the city’s politics or financial liabilities. Part of the plan includes a $26 million loan to the authority from a state infrastructure program, approval of which was conditioned on the operations transfer. You might say that, confronted with patients who were making each other sicker, the receiver forced them into separate wards.
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At the September court hearing, Lynch emphasized cooperation. “I think that cooperation is what distinguishes Harrisburg from many other cities that fit the distressed category,” he said. His “guiding principle,” he testified, was to “start focusing on the positive” and to “point groups in a direction where they could see what was in it for them.”
It may be true that Lynch achieved cooperation where before there was animosity. But this is a bit like the father at a shotgun wedding saying that what brought the couple to the altar was an agreement to get along. It neglects to mention the important role of the gun.
Consider the court decision, nearly two years ago, that dismissed City Council’s application for bankruptcy. In July 2011, council members voted down a state-sponsored recovery plan that resembled, in broad outline, what they would later get under Harrisburg Strong. It recommended the sale of the incinerator, the sale or lease of the city’s parking assets, the reorganization of government functions and the reworking of union contracts. Like the Strong Plan, it did not include a commuter tax or a county sales tax. Council rejected it by a 4-3 vote.
While the mayor and council scuffled over the next step, the state maneuvered to bring the city under control. (This was an ironic development considering the state, through both negligence and collaboration, assisted the Reed administration in letting the city’s finances run amok). In June 2011, Jeffrey Piccola, the Republican senator for Dauphin County, introduced a bill to force the recovery plan’s implementation by way of a state-appointed “management board.” The House, meanwhile, amended the fiscal code, adding a provision that barred distressed cities of the third class (which is to say, Harrisburg) from filing for municipal bankruptcy.
When council filed for bankruptcy anyway, in October, it presented the court with a question of sovereignty. In her discussion of the case, the federal bankruptcy judge, Mary D. France, acknowledged “important concerns of federalism and respect for the power of states to manage their internal affairs.”
The commonwealth brief was more candid. Under the heading “Petitioner is a creature of the Commonwealth,” it surveyed a number of past opinions establishing state sovereignty:
Municipalities are “merely…creature[s] of the sovereign”… “They have no vested rights in their offices, their charters, their corporate powers, or even their corporate existence.” ….They are “fully subject to the control of the legislature, who may enlarge or diminish…[their] functions…or destroy [their] very existence.”
France concurred, and threw out the city’s petition. In the meantime, Piccola’s bill had been amended to replace his “management board” with the novel concept of a “receiver.” In December 2011, with the appointment of David Unkovic, the city entered receivership.
Last month, when City Council next faced a recovery plan vote, members nearly unanimously approved its provisions. (The lone dissent, on bills approving the incinerator sale and removing the residency requirement for city workers, was Sandra Reid.) They seemed to appreciate that the receiver had wrought solutions they couldn’t have achieved alone. Neil Grover, City Council’s attorney, noted in court that the receiver’s team “provided leverage to negotiate with powerful entities” when the city had “no money and no power.” Their efforts, he said, “got us to a place with very real benefits that would likely never be revealed again.”
But council’s willing approval also conceals a paradox. The power of the state to achieve “cooperation” is the same power that locked the city into receivership. Under the terms of Harrisburg Strong, the city will be free of its strangling debt and poised, at last, for recovery. It arrived here by tapping the state’s capacity to intervene. But was there ever an option not to?
