Harrisburg Mayor Eric Papenfuse. (File photo.)
On the campaign trail in 2013, soon-to-be-mayor Eric Papenfuse spoke approvingly of the state’s financial recovery plan for Harrisburg, saying it offered a “brief window of opportunity” to bring the city back from the brink of bankruptcy.
Now, Papenfuse and other city officials are sizing up the recovery plan once again, as they look back on the city’s first year under his administration and weigh the financial challenges and successes since the plan was implemented.
The year saw Harrisburg’s departure from receivership, the period of direct state intervention in city finances, although the city remains in Act 47, Pennsylvania’s program for state oversight of financially distressed municipalities.
For the most part, officials said, the year exceeded expectations, with the city receiving most of its anticipated revenues, maintaining a balanced budget through the close of the year and getting current on its bills faster than was predicted.
They also pointed to a substantial year-end fund balance and a likely settlement of an outstanding debt obligation as evidence of the city’s improving fiscal health.
At the same time, they remained cautious about the city’s finances in the coming year, as evidenced in part by the $4.5 million tax and revenue anticipation note, or TRAN, they plan to submit for City Council’s consideration Tuesday evening.
The TRAN, a form of short-term borrowing that municipalities often issue to cover lean revenue periods, would allow the city to pay its bills in the event of a cash shortfall in the months before property and other taxes start to roll in.
Steven Goldfield, a financial advisor who helped craft the city’s recovery plan and continues to work closely with the city’s coordinator under Act 47, said the TRAN was a positive step for Harrisburg, since it meant the city was accessing the capital markets for the second year in a row after its debt crisis.
In addition, three lenders bid this year on the city’s request for a TRAN, securing a better offer for the city than last year, when only Metro Bank bid.
Last year’s $2 million TRAN cost the city a $10,000 commitment fee and a $5,000 legal fee. Under this year’s offer, from Mid Penn Bank, the city will pay a $1,500 legal fee and no commitment fee, said Bruce Weber, the city’s finance director.
The city ultimately didn’t draw upon last year’s TRAN. Both Papenfuse and Weber said in an interview last week that they did not expect the city to draw upon this year’s TRAN, either, largely because of its sizable fund balance going into 2015.
That year-end fund balance, which Weber said totaled $5.3 million, is another measure of the city’s improved financial condition, they said, as well as being a pleasant surprise to city officials.
“In my wildest dreams I never thought I’d see a fund balance like this,” said City Controller Charles DeBrunner, who took office in January.
DeBrunner, who served briefly as budget director under Mayor Harold Swenson in the 1970s, ran for his current post with the encouragement of Dan Miller, his predecessor and a former councilman whom Papenfuse defeated in a bid for mayor.
DeBrunner praised Papenfuse for his management of the city’s 2014 budget, saying the mayor helped achieve the large fund balance in part by having almost every city department spend less than it was actually authorized to spend.
The city also managed to pay down nearly all of the $4 million in outstanding 2013 payables that it carried forward into 2014, far exceeding DeBrunner’s expectations.
Papenfuse “had a terrific year,” DeBrunner said. “I’m really pleased with him. And controllers don’t get pleased.”
Officials were also hopeful about a settlement to a significant outstanding debt obligation, which City Council will consider for the first time at Tuesday night’s legislative session, the first of the year.
The settlement, to be introduced as Resolution 7 of 2015, will be with bond insurer Assured Guaranty Municipal, or AGM, over debt obligations related to the so-called Verizon tower, a downtown office building.
In 1998, the Harrisburg Redevelopment Authority issued $23.6 million in revenue bonds to purchase land and facilities from the city in Strawberry Square. The city guaranteed $7 million of these bonds, which were to be secured by rent payments from tenants and were to start coming due in 2016.
However, the building’s primary tenant, Verizon, later decided not to renew its lease, which expires in 2016, potentially leaving the city on the hook for a total of $41.6 million of debt payments through November of 2033.
The so-called Verizon Tower in downtown Harrisburg, which the telecommunications company plans to vacate in early 2016.
In September, the state Department of General Services agreed to lease office space beginning in 2016, relieving the city of part of the burden. The DGS payments, however, will not be sufficient to cover all of the debt, leaving the city with mounting debt service that could threaten its financial stability.
Full details of the proposed settlement with AGM will not be made public until Tuesday’s council hearing. But Goldfield, in a partial preview of the deal last week, said that it would involve AGM advancing payments to bondholders on the city’s behalf without declaring the city in default of its obligations.
Effectively, AGM will authorize the city to borrow up to $400,000 per year for six to eight years to put towards debt service on the bonds, with the city later paying back any required advances with interest.
Goldfield would not disclose the interest rate, although a note in the relevant section of the state’s recovery plan from August 2013 indicated the receiver’s team was at the time negotiating towards a rate of 6.02 percent.
Goldfield said it was his “mantra” in the city’s debt negotiations that Harrisburg would not have ascending debt service. His goal, he said, was to keep annual debt payments at around 10 percent of the city’s budgeted expenditures.
The city’s current annual debt service exceeds this percentage, although a chart of projected payments, which Papenfuse showed TheBurg, indicates that under the proposed settlement with AGM, the city’s debt service will reach 10 percent of expenditures in the next few years and remain there through 2032.
Repaying the Verizon tower debt is a “horribly bitter pill to swallow,” said Papenfuse, who was reviewing documents from the original 1998 bond issue prior to the interview with TheBurg.
He said he was “personally reviewing every document” to see if the city could get out of its obligation. But he added that, in his current analysis, Harrisburg was “stuck with this horrible Reed deal,” referring to former Mayor Stephen Reed, under whose watch the borrowing occurred.
Because of that borrowing, Papenfuse said, the city had “basically maxed out” its credit through 2032 and would not be doing any elective borrowing under his tenure or possibly even the next mayor’s.
Nonetheless, he was proud of the city’s progress in his first year, which he said represented an extensive effort by him and his staff to cut costs and spend responsibly. “To me it’s pretty extraordinary what we’ve been able to do,” he said.
This article has been updated to correct the title of Bruce Weber, who is the city’s finance director.
