As state lawmakers consider a bill that would terminate Harrisburg’s financial distress status, city officials are advancing a pair of policies that would establish best practices for long-term money management.
Together, the two proposals would create Harrisburg’s first written guidelines for borrowing money and spending its cash savings.
Both policies come at the recommendation of the city’s Act 47 coordinator, the state official charged with guiding Harrisburg through financial recovery, and are adapted from legislation by the Government Finance Officers Association (GFOA), a national society that sets best practices for municipal finance.
Act 47 Coordinator Marita Kelley said that most major cities in the United States have similar policies on the books.
“These are policies you can apply to any government,” Kelley said. “When you’re unsure on these two practices, this gives you a guideline so that you are adhering to what other major cities in the U.S. follow.”
One policy under consideration is a debt management policy, which establishes guidelines for borrowing money and repaying debt. At a work session tonight, Councilman Ben Allatt said the rules could spare the debt-ridden city future financial harm.
“We’ve had a history of bad borrowing that’s led us to the debt we have in the city today,” Allatt said. “If we were following guidance provided by this debt management policy, [some deals] never would have or could have gone through.”
As an example, Allatt pointed to the 1999 Verizon Tower deal, in which former mayor Steve Reed tried to bridge a $7 million deficit by guaranteeing debt associated with the Verizon Tower in Strawberry Square. When Verizon backed out of its lease in the building, Harrisburg was on the hook for more than $40 million in debt obligations.
Harrisburg was able to avoid total calamity when the state Department of General Services signed a $65 million lease to occupy the 12-story building. Harrisburg still had to cover more than $15 million in debt payments.
Under the new policy, Harrisburg officials would have to seek approval from attorneys in the state Department of Community and Economic Development for every borrowing agreement over $100,000.
The guidelines also task the city’s business manager with overall responsibility for debt issuance. The business manager would have to coordinate with the finance director and law bureau to ensure that all debt held by the city is in compliance with the GFOA guidelines. The draft document considered by City Council tonight includes a 14-point checklist of considerations for debt deals.
The debt management policy must be revised every three years according to guidelines from the GFOA.
The second policy council considered tonight would create rules for use of the city’s fund balance — the cash savings it accrues by underspending its annual budget.
For many years, Harrisburg operated at a deficit and did not have a fund balance to bridge budget gaps. But the elevated tax rates that the city passed under Act 47, combined with years of consecutive underspending by Mayor Eric Papenfuse’s administration, have allowed the city to build a fund with a current balance of $20.4 million.
However, Harrisburg does not have any formal policies governing how that money can be spent.
The proposal submitted to council would recommend that Harrisburg maintain a fund balance equal to 5 percent of its yearly general fund. That means that in 2018, a year that Harrisburg had a $72 million general fund budget, it could not draw its fund balance below $3.6 million.
That would also permit city officials to make “permanent draws” – withdrawals that they do not intend to repay – only for use on capital improvement projects or debt service.
Both policies have the support of council members and the city’s administration.
“These weren’t done hastily,” Papenfuse said. “After working for several years with multiple coordinators, what we’ve reached now is a really good compromise that incorporates everyone’s views.”
Note: This story was edited to correct the figure representing 5 percent of Harrisburg’s 2018 general fund. That figure is $3.6 million, not $14 million.