TheBurg recently sat down for an interview with Harrisburg receiver Gen. William Lynch and his financial adviser, Steven Goldfield, to discuss elements of the Harrisburg Strong financial recovery plan. The entire, unedited interview follows. An excerpted version of the interview appears in our October issue.
TheBurg: The Harrisburg Strong Plan is very complex. What would you consider, from the perspective of residents, to be highlights of your plan and what would you like the residents to get from it?
Lynch: The thing that pleases me most about the plan—and you need to know that this isn’t even close to being a one-man effort. We’re fortunate to have world-class representation on this team. In fact, most of the writing was done by others. This is an interesting thing, I think. I am surrounded by people, each of whom knows far more about part of this than I do. On the other hand, there aren’t too many who know something about all of it. I kind of get something from everyone’s perspective. My role in all of this has been pretty much keeping the puppies on the paper and making sure we’re going in the same direction.
So, getting back to your question: The thing that pleases me most about the plan is that it’s readable. It’s not a legal brief. It’s not written by accountants for accountants. Normal people—and I put myself in that category—can read it and say, “Huh, OK.” I think the most important thing for people who live in this city or close by – and I will submit to you that it’s every bit as important for people who live close by, across the river in what we refer to as the suburban communities as it is to the residents. Harrisburg cannot succeed in a vacuum. Harrisburg cannot succeed without the input of the surrounding communities and the region, if you will. A successful Harrisburg will, in turn, lead to a regional success.
So, what’s in it for the city of Harrisburg? Number one, the city of Harrisburg can put this awful incinerator debt behind it. I am a big believer in you are who you think you are, and the incinerator debt and all of that ugly history has become kind of the symbol of the city of Harrisburg. We need to get away from that, and this plan offers us that opportunity.
I think it’s important for you and your readers to know also that ignoring the incinerator debt—if it had never occurred—the city would be in big trouble. The city’s income does not match its expenses and, for some 30 years, it hasn’t. What you see in the deals that people uncover—when you peel that back, it’s almost always the same thing. There’s a $5, $6, $7 million hole in the general fund budget (how we pay cops and firefighters and municipal workers) that generated some cockamamie scheme, for lack of a better word, borrowing of money that, over time, has come back to be significant.
So, forget about the incinerator debt. Let’s talk now about just managing the city’s finances so that we can meet expenses with income. This plan offers a balanced budget through 2016—through the term of the plan. It offers income to the city through the lease of the parking assets, which will take it beyond 2016 and out into the future. And it offers the city the opportunity to craft for itself a predictable, stable financial future. And I emphasize “for itself” for a very good reason. All we can do, even with some of the no-kidding geniuses we have working with us, is to provide the tools that we believe will give the city that opportunity. It’s up to the city then to use those tools in a way that creates that future. Money from the parking—initial proceeds will be set aside for various things like economic development, capital infrastructure improvement, a trust fund to pay post-employment healthcare benefits for past employees, which is an albatross around the neck of any municipality, because those costs increase geometrically.
TheBurg: Harrisburg has a particular problem with post-employment healthcare because of the generous deal that former Mayor Reed reached with the unions before leaving office.
Lynch: Even under the best of circumstances, there is almost no municipality that can fund those costs or plan for them because there’s no way to plan for them. They increase geometrically.
So, it’s hard to find anything good in this situation, but, if you are looking for something good, I believe it’s been an action-forcing set of circumstances that require the city of Harrisburg to face these issues in a way that most cities can’t, at least not yet, and in a way that’s dramatic and gives some cover for the incumbent politicians, who really had nothing to do with this. The situation demands some difficult political choices. There isn’t a politician on the face of the planet who wants to raise taxes, for example. And these things are going to be necessary. The next administration will have to manage it astutely and well and seek ways of simply doing business better. Frankly, that’s a target-rich environment. There’s lots of opportunity here. But we have to come to grips with who’s responsible for this and who’s going to use these tools that I think this whole receivership has been able to provide and move into the future.
TheBurg: When you say, “who’s responsible,” do you mean in the previous administration?
Lynch: No, I don’t mean “responsible” in a, “it’s your fault that we got here.” The fact is there’s nothing we can do to change the past. And that past is unfortunate, perhaps illegal, based on, at best, some instances of professional malpractice. But there’s nothing that you or I can now do to change that past. So, we can work with the future to make that future the best we can and deliver us from this present, which I believe is unfair, caused by that unfortunate past that we can’t change. So, I believe we’re a lot better off looking to the future. I understand there are others who will investigate these things and decide if punishment is warranted and how that should be meted out. But that’s not within our purview.
TheBurg: Is there any particular element in the Harrisburg Strong plan that you feel proud to have accomplished? Alternatively, is there something you wanted to make happen, but couldn’t?
Lynch: We would like to have made all this happen six months ago. The fact is that sometimes things like this just take time, and it’s hard to define why that is. But sometimes, things need to mature. I believe the city of Harrisburg is ready to put this past behind itself and get on with business. I sense that. I know this sound ridiculous, but, at least twice a week, somebody comes up to me on the streets and says, “thanks.” I find that astounding, but it happens enough—and they’re all kinds of people. Really, it’s intriguing.
So, what are we proud of? I’m very proud of the fact that, for example—and don’t misunderstand, I’m proud of the things that our team and working with the mayor’s office and City Council and the state government and the Department of Community and Economic Development—there are a lot of heroes in this. But I’m very pleased with the fact that we were able to deal with the incinerator property that, frankly, isn’t worth very much as it sits there as a business proposition when it’s burdened by $350 million in debt. There’s no businessman who is going to take that on. What we were able to do was increase the value of that asset, number one, by seeking out a strategic buyer. And Lancaster County Solid Waste Management Authority is a strategic buyer, and they wanted that property because they have a state-of-the-art facility in Lancaster County. They were growing, and they wanted to expand. Purchasing our facility is much more efficient than trying to build a new one from scratch in today’s environment. So, that made sense to me.
Then, we were able to increase the value of that—you may or not know this, but the resource recovery facility burns trash and makes electricity. So, we were able to increase the value of that—and I mean increasing the money that’s on the table at closing—by brokering a contract with the commonwealth to purchase the electricity. But not purchase it on the spot market, which is what they normally do, but agree to a long-term contract. That gave LCSWMA some predictable income, which they like. But, much more importantly, it allowed for tax-free financing of the bonds that will have to be issued to take that old debt off the market. And that made for a lot more money at closing on the table. Not nearly enough, however—if you assume that we’ve increased the value of that to somewhere in the neighborhood of $130 million—not nearly enough to satisfy $350 million in debt.
TheBurg: You have so many players involved. I’m picturing your role here. It’s like you have to have eight arms and get everybody to shake a hand and promise to you that this is going to go through. Can you take me through the process here?
Lynch: And sometimes eight is not enough. We spent months and month and months, and, when I’m frustrated, I refer to it as negotiating with ourselves. And basically, we like to think of ourselves as the honest broker, though I could find a lot of people who might disagree with that. We piqued the commonwealth’s interest in doing this. Then we had a serious job of convincing the commonwealth that this was an OK deal, because this is not the way electricity is normally purchased. So, part of that sales job, if you will, was to point out the value of a long-term agreement, and there is some value in predictability. And the way some of the geniuses crafted that—and our marching orders, by the way, when we went to the commonwealth to say, “Hey, we’d like you to do this,” was to say, “There are public policy issues here with our capital city. We should, the state government, should be helpful here.” On the other hand, you can list off 20 or 30 other cities to include Pittsburgh, Philadelphia, Altoona, Wilkes-Barre, Scranton, Reading, all of which are in difficulty. So, what we couldn’t do is just have largesse visited upon Harrisburg.
So, the deal with a quid pro quo, where the commonwealth buys something and gets something back, was what we were looking for. And the deal was that because of the public policies and issues involved, we didn’t think that that had to be the best-ever, face-of-the-planet, never-been-a-better electrical purchase deal ever. It just had to be OK. And, at some point, it had to go from being just OK to back below the projected curve to where it was a little better than OK so that, over the life of the agreement, we’re not paying any more than the market would demand. And that’s what we’ve done.
Now, the bottom line is this is based upon projections and everything else, so who knows? We believe predictability, on behalf of what the commonwealth is getting, has value. I think largely, because of our efforts, the commonwealth agrees with that. Built in this, there is something called a clawback provision. And, if electrical rates drop to next-to-nothing and the amount the commonwealth is paying is outrageously absurd, the commonwealth can claw back some of that. So, the bottom line here is we think this is going to be OK. And what’s in it for the purchaser is predictable income, but what’s really in it for the deal is the way of the financing, which requires a lot less money on the table.
TheBurg: Which portions of the plan did you find most troublesome to put together and which were the least problematic?
Lynch: I was going to be a smart aleck and say, “there was no part that was easy,” and I don’t think that was an exaggeration. I found it very, very difficult to deal with some of the entities and some of the people we’ve had to deal with. And I think—and Steve (Goldfield) sitting here is a numbers guy, he’s a financial guy. And, if you’re a journalism major, an English major, you’re probably built the same way I am. I don’t do math in public; I don’t understand it. My stepdad could add up his golf score in his head, and he could never figure out why I couldn’t do that. So, I’m leading up to this: even for me, the math part of this is easier than the people part. I think that people ignore the people part. If you have lived in Harrisburg for any amount of time, I think you sense, in the pit of your stomach, the people part. You know, “those so-and-so’s outside the city are out to stick it to us. Why should we pay back the bond insurers? We didn’t do this. Somebody else did it—in the name of the city—but it wasn’t us.” There’s a strong sense that somebody else should somehow bail us out of this.
One of the things that I have found very difficult is by enacting Act 47 and the receivership provisions, the legislature has given the impression, if you choose to take it, that the state has somehow taken over this problem, and it’s no longer our problem. It’s somebody else’s. That is grossly erroneous. There is nobody who sees it that way except people who choose to. The only way for the city of Harrisburg to work its way out from under this problem is for the city of Harrisburg to take ownership of it and work its way out of it.
Go back to what I told you a couple of minutes ago: I think this plan provides the tools to make this possible, and it is a far superior outcome than bankruptcy. Everything we read and see, and I’m sure you guys have done your homework. All you have to do is Google the California cities or Central Falls, R.I., or now, God help us, Detroit. None of that is anything we want to emulate. We have had really good coverage in the national press and in some of the more esoteric publications that people like Steve read, the Bond Buyer, that, in general, praised this collaborative solution as being far superior.
So, what am I most pleased about? That’s probably it. Not the press coverage, but the fact that we’ve been able to somehow pull this off—I think. We’re not quite there yet. But, to go back to what’s most difficult—the getting over the biases because they’re very real. And, if you ignore that, say, well, “That doesn’t make any sense; it’s just stupid.” Then you’re screwed. You have got to understand what it is, and you’ve got to deal with the people part. To me, the math should be so good that it outweighs those biases, and there is no rational alternative than, “I just want to get even. And I’m willing to burn it down to do that.” And we have run across some of that.
It’s a very real thing. And, if you don’t, at least, know it’s there, you’re doomed to failure, I think, because it would be very easy to get frustrated with this.
TheBurg: Some people have been surprised at the creditor concessions in this agreement. Can you provide insight into how those negotiations went with the major creditors and how eventually you were able to reach agreement with them?
Lynch: Yes, but before I do that, you’ll be disappointed, but we will not discuss concessions, and here’s why. That becomes emotional. It becomes personal. What we decided sometime ago to do was to concentrate on what’s in it for us. So, I’m happy to tell you what I think is in it for the city. I would recommend that you check with the others involved, you know who they are. My belief is that each of those entities found something that was in it for themselves. Otherwise, they wouldn’t have agreed to it. So, when you say, “Boy, we really stuck it to so and so,” you make an enemy, and we choose not to do that. This was never anything we discussed in a group. What we did do was we tried to appeal to each entity’s self interest and demonstrate that this was far superior to bankruptcy.
Now, there are some who aren’t sure that’s correct. We believe that some were more interested in just maintaining the status quo. We believe there were some who were much more interested in getting the deal done, and I put the city in that category. The city simply will have trouble paying the bills even more than we have had. So, we need the income from parking, the parking lease and other things we discussed. We need the infusion of capital that we’ve discussed. None of which appears in bankruptcy, by the way, and none of which appears until after closing of these various deals.
So, I guess to answer your question in a sentence or two: the art in this was being able to find something in it for the various parties. And one of the more difficult parts was getting some of the creditors to work together. One of our, I guess, techniques was to say, “There’s x amount of money, and I don’t care how you guys divide that up.” And that seemed to work OK. It created some weird partnerships.
TheBurg: You mean Dauphin County and AGM as partners?
Lynch: Yeah, and others. There’s a whole herd of lesser creditors. Those are the ones we think of, but there’s Covanta, CIT, JEM, Metro Bank, SunTrust, others.
TheBurg: On a slightly different topic: Reading the plan, a lot of it seems to hinge on the replacement or substitution of some fresh faces for elected officials, to remove things from the reach of the mayor and City Council.
Lynch: Like?
TheBurg: The Harrisburg Authority separation, regaining control over the water/sewer and employees who are going to run that. Also, the creation of a task force to do the OPEB (Other Post-Employment Benefits) trust.
Lynch: Let’s do water and sewer first, because they’re not even close to being the same. I understand your question.
When I first got here, the concept was that we would sell the water and sewer, or at least would monetize it, which is the fancy word for it. Or at least hire a private entity to come in and manage those assets. And we changed our mind. The reason we changed our mind was that we were beset by people from Washington who came to help us—the EPA, the Department of Justice. Those guys who come in and say, “I’m taking your computer.” You may recall the issue with the suburban communities and overpayment and misuse of those funds. So, all of that sort of met me as I entered the office on day one or two.
What we discovered was that all of those Washington people who were threatening to fine us if the city did not undertake a $55 million required fix to the sewage treatment plant to make it comply with Chesapeake Bay and other issues. And your first reaction is to laugh right out loud and say, “The line for paying fines is over there.” But then you realize it isn’t funny, and they’re very serious. And they really don’t have a mechanism other than to levy fines.
So, we made a conscious decision to work with those folks and kind of co-opt them. I don’t know if you should say that in your newspaper. It may offend them. But what we didn’t want was them correcting our homework later. So, we brought them in at the beginning, again, with some very good people who worked with us to represent the (Harrisburg) Authority and the city. And what emerged was a Washington, D.C.-style plan. Washington, D.C., is considered to be a turnaround poster child in the way they did the water and sewer system. It’s deemed to be the best. So, we unabashedly set out to copy that. We brought in some people who were active in that, who knew what they were talking about.
So, here’s the deal. The Authority should be an operating authority. The Harrisburg Authority should run the water and sewer business, and that’s it. Over the years, the Authority has gotten into all kinds of stuff that you know better than I do, that has nothing to do with anything. So, we wanted to bring them back to their core business and give them the assets and the authority and the responsibility to do that business and take some of that away from the city because, if those employees work for the Authority, it brings the city closer to a balanced budget. If the Authority is in that business, they should provide that service better, more efficiently. Oh, and by the way, the Authority will then take on the responsibility for those pipes that have been in the ground beneath the city streets since 1898. So, there’s a lot of potential liability there that now becomes the Authority’s, and the Authority still has—or will have—the ability to borrow that the city does not to enter into some kind of a capital improvement periodic maintenance system that frankly needs to start today.
So, the Department of Justice, the EPA, state DEP and all those folks sat in on these meetings, and there was a consensus that this was the way to go. So, that’s what we’re doing. My personal bias was to start all over again with a new authority, but that’s just too hard to do. And this authority will be transformed. We’ve already signed the papers. The mayor and the authority have agreed on how this will take place. The authority will now get to do the water and sewer, and the city won’t. And that includes billing, etc. Now, there will be a transition period to go from here to there.
Immediately, that makes the Authority eligible for a $26 million loan from PENNVEST. Are you familiar with PENNVEST?
TheBurg: Yes, the state infrastructure improvement authority.
Lynch: Yeah, so that loan frankly was contingent upon it going to the Authority, rather than the city.
TheBurg: Yeah, I heard that in the press conference (announcing the agreement between the city and the Authority).
Lynch: No comments necessary. So, that’s half, we think, of what will be required for the sewage treatment facility upgrade. We have already have had some private financial institutions making inquiries. That’s unheard of in Harrisburg. Steve and I would go to banks for a year, and they’d laugh right out loud at us. So, this is—there are a couple of good things that have happened lately, and this is one of them. We also think we perhaps can go back to PENNVEST and tap that yet again.
I left out the suburban customers—and I’ve forgotten what percentage of that business they are.
Goldfield: Between 40 and 50 percent of the revenues in sewer alone.
Lynch: So, that’s a big deal. And there’s also some water transfer there, as well.
So, one of the things that we discovered is that nobody had ever met with those guys—ever. Steve brokered a meeting with them. We all got together. We had never had all of those folks in a room before. The relationship with the city was, dare I say, adversarial. They thought they’d been done wrong by the city. They were astounded that anyone was willing to listen to them or talk to them. They believed they had overpaid by a whole boatload of money. We negotiated that with them, and we’ll make sure they get some of that back. On the other hand, their real interest is to be invested with the city in this. Oh, and by the way, they have far better credit ratings than anybody you know. So, we can, we think, tap into that in the future.
So, that’s the benefit to all that. I would frankly like to see them get even more involved. They’re not there yet. They’re not sure. But the fact that we welcomed them to look over our shoulder will make things go a helluva lot better in the Authority than it has in the past.
TheBurg: Now, on the task force?
Lynch: We decided, as a negotiating position, we decided that I would assume the role of judge, whatever. And I would be an advocate for a solution, not necessarily just the city’s advocate. Now, that annoyed some people in the city—ask me how I know. But that seemed to work pretty well in discussions with the creditors. So, we said, from that exalted receiver position, I, with a lot of good advice, would determine a certain amount that was absolutely necessary for the future success of the city. Because, if we just sell off the incinerator, lease the parking, and don’t fix this $8 to $10 to $13 million hole in the city’s budget, what do you got? And the answer is nothing.
So, we decided it would take $40 million, plus or minus. And I say the numbers are bad because they change on a daily basis. Anytime you mention a number, you’re wrong. Again, ask me how I know. So, just in round numbers, we said we wanted to put about $10 million into a silo for economic development. And we wanted to put about $10 million into another silo that was focused solely on infrastructure improvement. And we wanted to put some money into a trust fund that would begin—begin only—to fund post-retirement benefits for people. People we’ve already made deals with, who have labored in this city for a long time. Nobody else has done that. That’s basically just seed money, appropriately invested, and the city needs to kick into that in the future. And, eventually, that will be self-sustaining as that population will diminish, of course, over time—but not for a long time.
And we wanted to set some money aside for paying down the city’s bills. Remember when we had the big sinkhole on Maclay Street? I’ve forgotten the name of the contractor, but the guy said, “Yeah, I’ll come and fix it for you, but not until you give me a check first.” And that’s the problem with the city’s reputation.
TheBurg: There’s no trust.
Lynch: Well, with good reason. I mean, we had $4 or $5 million of basic things that hadn’t been paid for. Tires for police vehicles—those kinds of everyday, mundane stuff. We’ve done a pretty good job of whacking that down because of the increased earned income tax, for one thing. And we’ve made some pretty stiff employment decisions, or non-hiring decisions generally, that have freed up some money. So, that’s down to a meaningful level, but what we wanted to do was pay off an old SunTrust loan on police cars and stuff like that—and two or three of those other things for several million dollars—and start fresh. And that’s what I mean by putting the city on footing where it can be successful.
OK, what about who is going to administer those monies? The trust fund is easy. You hire a trustee and let some bank do it. The other stuff: I’ve come to decide it’s best to look at that as a grant. It’s a funding for grants to be used for specific things, but they’re grants that only the city can access. But, like any other grant, there are strings attached and people who have to be convinced, and that’s the point here. We want that money to be hard to use. We want you to have to demonstrate that the need is there, that it’s the best possible use. And we want that to be governed by a diverse group of people with various interests. That’s what that is all about. This is not normal city income. It’s not. It comes from the proceeds of these sales.
The fact is we carved this out of the settlement, and the fact is we wanted it to be controlled in a way that would be above reproach. It’s going to be purer than Caesar’s wife. And that’s the point of it. If you have a plan for money you think will further economic development, and you come before this board or committee or whatever it winds up being—and you can make your case, they’ll go along with it. But they won’t go along with just because your brother-in-law is the contractor.
TheBurg: It does strike me as very historic plan compared to other cities, both in Pennsylvania and nationwide. You are in this new territory. Part of it that seems historic, as well, is that you could look at this and say: the city’s own elected officials were not able to govern. They were not able to come up with these ideas and administer them in a way that outside bodies found trustworthy. And that happened over enough time that a higher level of administration, the state-appointed receiver, had to corral some experts and even create institutions to take of this where the city elected officials couldn’t and now can’t.
Lynch: I don’t know that that’s wrong, but we’ve gotten a fair amount of that from our friends down the street here in City Hall. I think the point here is, if you want to look at problems writ large, it’s easier for someone like me to come in who doesn’t have any baggage or not emotionally tied to it, to see the fixes. It’s like when you have somebody inspect your house. There’s a water stain on the ceiling. Well, jeez, I’ve been living with that for 10 years, and I didn’t even know it was there.
So, from that perspective, an outsider, I believe, is helpful. From the perspective of how do we control this money, the point is that we want to make sure, doubly sure, that the concept is executed. None of this changes City Council or anybody else’s normal legislative role with respect to normal city income taxes, business taxes, fines, all that stuff. All of that will be going along. And we think, if the plan is confirmed, the budget will be balanced through 2016. After that, there will be an opportunity to keep that going. Lurking along the side is this money in those various pots, which can be used for additional economic development, and also I see it as an easy way to double the money. Are you familiar with an RCAP grant?
Goldfield: It’s a commonwealth of Pennsylvania revitalization capital grant program.
Lynch: So, you can get, if you have a project that’s deemed worthy by a group similar to the ones we’re talking about over in DCED, you can get money. But you have to have matching funds. So, now, if the city applies for one of those grants, it now has the opportunity to match that and double that money. Harrisburg University, for example, spoke to me the other day. They have some RCAP money, but they don’t have a match. If this is the kind of thing that the city deems is good for the city, you can match those funds. But the point of the outside oversight is to remove any questions, doubt, whatever. This is a new beginning, which, I believe, the next administration, the next mayor, should be able to manage for the benefit of the city.
TheBurg: What do you think are the takeaways for the people of Harrisburg with the parking aspect of the plan? What should they be most concerned about?
Lynch: I might change that around to say what they should be most pleased about. What do you think parking brings in for the city? Last year, it brought in only $250,000. Why? A lot of reasons that have to do with the past you’re so familiar with, a whole lot of bad deals. Bond service on the Harrisburg Parking Authority is about $100 million in bonds out there.
So, what people in the city should take away from this: the plan restores that income to the city, that historic $3½, $4, $5 million—it gets up to about $6 million by 2016. Even if it weren’t for the incinerator debt, this would be a good deal for the city of Harrisburg. The parking assets are leased. They will eventually come back to the city. They’re managed by a nationwide leader in this business—Standard Parking—the biggest in the country. Standard Parking has some 30 outlets in Pennsylvania, one of which is right down here at the airport. Well-respected company. They know how to do this business. So, all of that will bring money back to the city. And there’s lots of bits and pieces to this agreement, but the basics are that it returns the normal parking revenue to the city, in a way that hasn’t been there literally for years.
You will hear that they want to raise parking rates in the garages and stuff like that. What we want to do is bring some order to parking meters, parking garages. You can park at a meter for less than you can park in a garage. So, if you come in here from across the river and you’re going to spend the day, you park out front here all day long because it’s cheaper than the garage. That means your customer can’t park and walk into your store. So, what we’d like to do is force people to park in the garages. You can view that as a commuter tax if you want. And that generates more income. This is a public/private partnership. Standard Parking does well only if the city does well. This has not been done anywhere else.
TheBurg: How do you force people to park in the garage?
Lynch: By enforcing the parking meter fines. It should be more expensive to park on the street than to park in the garage.
Goldfield: One of things about the meters, and we’ve talked to City Council about this. First, it’s going to be upgraded to all electronic. Secondly, there are all kinds of ways throughout the country now where merchants can give a token or give a code so that, when a resident wants to drive up to the hardware store or over to the shoe store to get their shoes, they get the first 15 or 30 minutes free. So, it’s going to go from whatever it was to zero for people who live in the city. But I don’t think a lot of people who live in the city pay $150 a month per space for parking. That’s people from the outside. Those fees going up means more money into the city because the city gets 20 percent of every dollar that comes in for off-street parking. One of the things that I really like about this, as Gen. Lynch was saying, is that the city gets the upside of this—unlike in other places where you do a concession and private equity or other people from out of town get the upside. The city gets the upside of this. So, moving people into the garages means more people are 20 percent taxed, and the residual cash flow eventually comes back to the city, as well.
TheBurg: Slightly off-topic: Do you expect to stay on until a time when the receivership is no longer needed?
Lynch: I would hope the receivership would not be needed sooner rather than later. I don’t have any inkling of how long I will stay. I think it’s in everybody’s best interest to get the city out from under the receivership for the reasons I stated when we started. I think it’s very important that city elected officials make this problem their problem and assume responsibility for fixing it. I think they need to get people like me off their back and get on to their appropriate business.
TheBurg: The plan has a section regarding civil claims against professionals, which is rightly separated from the deal-making part of the plan, which is the majority of it. Certainly, residents are eager to see that brought to fruition. It says the receivership reserves the right to carry that forward. How does that reconcile with the desire to get the city out from under the receivership as soon as possible?
Lynch: That’s a good question, and the answer is that I don’t know. We believe that those questions need to be answered. Not from a criminal—we don’t have the ability to do anything from a criminal perspective. But we think that there may be some civil opportunities for us to explore—civil remedies. I don’t know whether we could pass that on.
The best way to say this is that, if the receiver goes away, the city of Harrisburg will still be in Act 47. The city of Harrisburg was in Act 47 and chapter 6 and 7 were enacted when the city of Harrisburg failed to agree to a recovery plan. That’s when the governor declared a state of fiscal emergency. That’s what generated the receivership. So, if, for example, the governor would declare that state of emergency over, I don’t know if that would automatically terminate the receivership or not. You have seven lawyers in a room, and you get 12 different opinions. So, we don’t know. But, no matter what, that would put Harrisburg back in the normal Act 47 process. There would be a coordinator. Every Act 47 city has somebody in there. And my assumption would be that that person could assume some or all of the rights and liabilities of the receiver, maybe not have as much authority. I don’t know. But one way or another, we’ll figure out how to do this.
Goldfield: That how I envisioned it, as well. If you start that process, and then the governor says, “financial emergency over, no need for a receiver”—and this is the first time it’s happened—it’s not like the last 20 times that we did it, this is how we did it. But I always envisioned that the legal team would shift over to the coordinator. That would be their client. It wouldn’t be that the financial emergency is over, so therefore all bets are off on any litigation that you started.
TheBurg: The plan seems to indicate that there’s at least some basis for litigation?
Lynch: I frankly don’t think there’s a lot of money in it, which is why we didn’t spend a lot of money pursuing it. But I think that some type of statement should be made. I don’t know how successful we’ll be. Well, if I say much more, I’ll screw it up. But there are some institutions—it’s more institutions than individuals.
Goldfield: There are all different strategies and different things you can do. But it’s something that Bill (Lynch) has very clearly understood is important to the people of Harrisburg.
Lynch: The parking is the secret to this, because it brings us closer to the amount of money needed to somewhat satisfy the creditors.
TheBurg: The parking solution was a very complex and creative way of putting that solution together.
Goldfield: It had to be because it had to get rid of the creditors and do annual re-occurring revenues for the city for the structural budget, and deals usually aren’t done that way. It had to fix two problems that had mutually related concerns.
Lynch: Usually, when municipalities sell their parking assets, somebody buys them and then says, “Don’t bother me anymore.”
Goldfield: And that’s what they had with Jacob Frydman a couple of years ago. They were on draft 19, and it was going to be upfront money, and these guys bid. And they wanted to pay money and say, “See you in 75 years. We don’t want to hear about it.” If the city had done that deal, we never would have been able to fix this.
TheBurg: That was another one of Steve Reed’s magic bullets to plug another hole.
Lynch: Each of Reed’s deals—each one—if you peel it back, it was to fix a $5, $6, $7 million hole in the general fund. Each one. It’s amazing.
Goldfield: The Verizon building, which we didn’t get to talk about, is a classic example.
