A contentious city bond deal is expected to close next week, allowing Harrisburg to retire a large chunk of its substantial debt load.
At a meeting on Wednesday, city financial advisor Dan Connelly said that Harrisburg would pay off the remaining $5 million on a 2005 bond issue that funded upgrades to the city-owned minor league baseball stadium on City Island.
In addition, the city plans to make a lump-sum pre-payment of $4 million to offset additional debt incurred during its financial crisis, after the city defaulted on general obligation bonds initially issued in 1997, Connelly told members of the Intergovernmental Cooperation Authority (ICA), the city’s state-appointed financial oversight body.
Harrisburg’s bond insurer, Ambac Assurance Corp., offered the city incentives to retire the stadium bonds and reduce the remaining debt load. At the close of the deal, expected on Tuesday, the city will make a $9 million cash outlay and, in return, receive $13.1 million in total debt reduction, Connelly explained. The debt reduction includes the city’s upfront payments, plus Ambac’s debt forgiveness incentive.
“This will be a major accomplishment,” said Connelly, who’s been acting as the city’s representative on the ICA for the past few months.
After the deal is closed, the city still will owe about $19.1 million in general obligation debt. Under the terms of the deal with Ambac, the city’s interest rate on that remaining debt will be reduced from 6.75% to 5.25% for three years.
“This is great news, a great development,” said ICA vice-chair Ralph Vartan.
Notably, the Ambac deal excludes a refinancing of the remaining debt load originally planned by the city administration.
Mayor Eric Papenfuse wanted to refinance the remaining debt over a 10-year period at a still-lower interest rate, in the 3.25% to 3.5% range, which, he believed, would earn the city a credit rating and allow it to again access the bond market.
City Council members, however, rejected that proposal, stating that they preferred to use the city’s cash balance to pay off the remaining debt faster.
At a meeting in October, city Controller Charlie DeBrunner told ICA members that the city should wait until next year to decide exactly how it wants to pay off the remaining debt, once it sees how much cash it has on hand.
He said that he expected the city to end fiscal year 2021 with about $24 million in the bank, following the close of the Ambac deal.
“We’re not emboldened to do anything right away,” he said. “So, I don’t think we need to do something Jan. 1. Why don’t we wait and see what is real, say March? If these [revenues] are coming in the way I think they’re going to, then we can start writing some big checks.”
Mayor-Elect Wanda Williams, the current City Council president, has repeatedly advocated retiring the city’s debt load as quickly as possible.
At the October ICA meeting, DeBrunner praised the elements of the deal that the city now is about to sign off on.
“I don’t want to be somebody who looks to be a chronic complainer either. I think this deal is really good,” he said. “I’m really pleased we have this deal. So, I’m glad we’re paying it off.”
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This story has been updated to clarify that the administration sought to refinance its bonds so it could access the credit markets.