Contextual Content

Municipal Meltdown in Harrisburg

Harrisburg, Pennsylvania, a city of roughly 47,000 people, is in serious peril. Fire protection, kindergarten, high school sports, these are just some of the things on the potential chopping block as the community deals with a serious debt crisis.

Produced by Jesse Freeston and Malak Behrouznami.

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Story Transcript

JESSE FREESTON, PRODUCER, TRNN: Welcome to The Real News Network. I’m Jesse Freeston in Harrisburg, Pennsylvania, a city in the grips of a crippling economic crisis. That’s because as property values are diminishing in the midst of the US economic decline, cities like Harrisburg are seeing their primary source of revenue—property taxes—decline as well. The result is debt crises that threaten basic public services. In the case of Harrisburg, a series of complex financial transactions have left the city’s 47,000 residents with the country’s highest debt load per person.

UNIDENTIFIED: Our debt could approach $1 billion to $1.2 billion.

FREESTON: The town is also the capital city of a swing state in the midst of tight races for both Senate and governor. But one sees very little enthusiasm for the midterms here. There’s a belief that more pressing threats are at the door, both for the city and the school board.

NEWS PRESENTER: A school district without kindergarten and sports could be a reality for Harrisburg.

UNIDENTIFIED: We will run out of money. And what that means, there will—payroll will not be met.

EUGENIA G. SMITH, HARRISBURG CITY COUNCIL: There’s a big fear that taxes will be raised, people will not be able to, you know, afford to live in the city any longer.

FREESTON: Mayor Linda Thompson, who recently defeated 28-year incumbent Steve Reed, has put forward some ideas for paying down the debt, such as selling off city moneymakers like the parking authority and cutting funding to key services like firefighters. She has proposed shutting down one of the town’s fire stations.

ERIC JENKINS, FIREFIGHTER, UNION LOCAL PRESIDENT: We only have four. I don’t know another mayor in America that closes down or that has proposed to close down 25 percent of their fire protection.

FREESTON: Eric Jenkins is the president of the local firefighters’ union.

JENKINS: And the fact of the matter is that this was not born by the labor unions in this city. We’re talking pennies on the dollar in relation to the total dollar amount.

FREESTON: Mayor Thompson called out Jenkins and the union during an appearance on the local CBS affiliate.

LINDA THOMPSON, MAYOR OF HARRISBURG, PA: I know I’ve gotten push-back from the actual union itself. I mean, they’ve been the most nastiest group of men against me. I mean, they went and called firemen from Maryland, from Perry County, and they packed city council chambers, and now they’re using sensational words and saying, the mayor’s going to kill us. That is absolutely not so. I really—.

JENKINS: If letting the public know exactly what’s going on, and if holding the administration accountable for the true-life safety issues that we have to undertake in this city, if that qualifies us as being the nastiest group of men she’s ever had to work with, well, that’s a compliment.

FREESTON: Just last week, four children and one adult died in a residential fire here. Jenkins is adamant about not politicizing the deaths, but says it has strengthened his resolve to defend the fire station targeted for closure.

JENKINS: Me personally, as a union official, it sharpens the teeth. I become more aggressive and more assertive in addressing that issue to those administrators who try to do that.

FREESTON: This happens at the same time that Tennessee’s Obion County voted to extend its subscription-fee-based fire protection, less than one month after firefighters in the county made national headlines for watching a home burn to the ground with four pets inside, after the owners missed a $75 subscription payment. But it’s not just the city’s services that are feeling the crunch. Nongovernment service providers are hurting as well.

REV. LAVETTE PAIGE, PASTOR, MARTIN LUTHER KING BAPTIST CHURCH: The church feels the effects from the offering, the Sunday morning offering.

FREESTON: LaVette Paige is the senior pastor at Martin Luther King Baptist Church.

PAIGE: The mission is large. Many times we feel that we can’t do everything that we want to do, because of, you know, not having enough funding. But that doesn’t stop us. As you can see today, we hold fundraisers, we do yard sales, we do different things in our neighborhood to help raise the money that we need to do the outreach that we need in this community.

FREESTON: At the center of Harrisburg’s woes is mounting debt on a garbage incinerator. Bill Cluck is a lawyer that has followed the situation closely.

BILL CLUCK, LAWYER AND INCINERATOR BOARD MEMBER: The Harrisburg Authority is responsible for approximately $282 million in debt as a result of a series of failed financings for a municipal incinerator. And, unfortunately, the city of Harrisburg is the primary guarantor of all of that debt. So when the Harrisburg Authority cannot make a debt payment, it then falls to the city of Harrisburg. Because the debt is so high, the authority has been unable to make debt service payments this year. And what is now due and payable by the city of Harrisburg is $68 million.

FREESTON: That exceeds the city’s current $64 million annual operating budget, which the city still can’t meet, even though it’s not making a single debt payment. A critical moment came in 2003, when the Feds shut down the incinerator for environmental and public health concerns. The mayor at the time then pushed for an expensive retrofit in order to comply with environmental standards.

CLUCK: And there was vociferous opposition at the city council meetings in the summer of ’03. But, unfortunately, the city council decided to guarantee all of the debt.

FREESTON: The company they hired botched the retrofit, and it turned out that the project was uninsured.

JENKINS: And the amounts of money [inaudible] talking about, hundreds of millions of dollars, and they don’t have any coverage, any insurance on whether this work is—this company defaults on the work. And exactly what the insurance is supposed to protect against is exactly what happened: shoddy work, poor craftsmanship, half-completion of assignments, or no completions at all. Now they left, and then the company simply files bankruptcy, takes the money, and runs. City’s left holding the bag, county’s left holding the bag, residents, taxpayers left holding the bag.

FREESTON: In April, the new mayor appointed Bill Cluck to the Harrisburg Authority, the public entity that owns the incinerator, in order to help resolve the issue. He is pushing for an audit of the decisions made up to this point.

CLUCK: Well, if the current debt is $282 million, it’s fair to say anywhere between $10 and 20 million clearly was professional fees. But it’s amazing what a small fraction of that total debt actually went into hardware to build or retrofit an incinerator.

FREESTON: When the incinerator didn’t come online as expected, in order to produce the projected revenues the mayor pushed through another series of refinancing moves in 2007. Local bookstore owner Eric Papenfuse resigned from the Authority in protest. He believed that the city wouldn’t be able to repay the debts it was taking on.

ERIC PAPENFUSE, HARRISBURG RESIDENT: If it’s easier to not make the tough choice and to push it down the line for the next elected officials, that’s great. And that’s what happened in 2007. You have had the current mayor now and the prior mayor then, neither of which want to address this calamity before the election, both say, let’s borrow the money in a stopgap fashion and let’s deal with it after the election. And by refinancing the debt over and over and over, the city never had to raise their property taxes. Now, 20 years later, it’s $282 million in debt. It’s time we have to address the situation. There’s no more cans to kick down the road.

FREESTON: The big debate in Harrisburg today is who should help the city out of its debt crisis, whether or not it should be the state government appointing a coordinator under something called Act 47, or whether or not it should be a federal bankruptcy judge. The current mayor filed for Act 47 against the wishes of city council. According to the act, a public hearing was held by state officials. Most speakers sided with Chapter 9 bankruptcy because it has the potential to force the banks to take a hit on their failed investments in Harrisburg, whereas Act 47 has as a premise to repay the creditors in full—in other words, it presumes the banks are innocent.

~~~

PAPENFUSE: —remarks you said that full principal and interest payments must be paid. And I have the Act 47 wording right here, and it says very—.

FRED REDDIG, DIRECTOR, DEPT. COMMERCE & ECON. DEVELOPMENT: That is a policy objective. That is—. You’re correct. That is a policy objective of the act.

PAPENFUSE: Which is explicitly not the policy objective of Chapter 9 bankruptcy, as I read it. The premise of Chapter 9 bankruptcy is the renegotiation of that principal in debt. And it seems fundamentally a choice.

~~~

FREESTON: We spoke to Fred Reddig, director of the Pennsylvania department that administers Act 47.

REDDIG: Well, under Act 47, you know, there is an ability to negotiate with creditors, and in some instances when that has been an issue, a serious issue, that has taken place.

PAPENFUSE: You could theoretically do anything, but you don’t have any leverage. The creditors are on record as saying, we’re not taking a dime less than we’re owed, including all of our principle and all of our interest and late fees and everything else. We want it all. How can you force them to pay more? In fact, your premise is: we’re going to pay it all back.

FREESTON: Reddig confirmed that Act 47 does not have any tools to force the banks to take a hit.

REDDIG: It would have to be something that is done voluntarily. That’s right. M’hm.

FREESTON: Many are of the belief that the program will go ahead regardless, given the determination of both the mayor and the governor, concerns that Mayor Thompson appeared to confirm on PBS before the public hearing even took place.

THOMPSON: —and there is no more delay in formalizing this plan. Council’s going to have to come to the table. And if they don’t, the state and the administration will continue to move forward. The bottom line. They’re not going to be able to stop where we are now. The train has left the station.

SHEILA DOW FORD, HARRISBURG RESIDENT: They should act in good faith to ensure that they do the best they can to ensure that creditors feel the pain as well.

~~~

DOW FORD: —after my testimony, that Mayor Thompson handed me a document that was from Assured Guaranty, one of the municipal bond guarantors of the city of Harrisburg’s debt. Basically, it was an article from the bond buyer that said that Chapter 9 was not the way, was not a panacea. It was a confusing moment for me, because the insurer’s going to take that position. The insurer wants 100 cents on the dollar. So, I mean, they represent a different constituency.

FREESTON: Chuck Ardo is the mayor’s communications director. He used to do the same job for the governor. He defended the mayor’s right to make decisions as she sees fair.

CHUCK ARDO, COMMUNICATIONS DIRECTOR TO MAYOR LINDA THOMPSON: The people get to elect their leaders, and their leaders make those decisions on the people’s behalf. So, you know, the leadership doesn’t go to the community for each and every decision that’s made.

FREESTON: The really unfortunate thing for Harrisburg residents is that this debt isn’t due to an abundance of public services racking up all kinds of deficits; this is the result of financial transactions done in secrecy.

PAIGE: The neighborhood daycare center has been closed for the last year. That’s a void in this neighborhood and in this community. So that is something that this church, we’re working on to start in the early parts of next year.

AARON WILLIAMS, HARRISBURG RESIDENT: I mean, they’re cutting things that, you know, our younger generation may need that may be something that will keep them out of trouble. You know. And if they cut that, then where do our children, you know, go? Do they turn to the streets? Do they rely on a mom who’s not there or a dad who’s not there? We just lost some children to a fire. But, you know, it’s Harrisburg.

FREESTON: As for the midterm elections, the candidates are avoiding Harrisburg like the plague. Of the contenders for Senate and governor, only Democratic Senate candidate Joe Sestak even showed for a debate in Harrisburg, but the topic of the debt crisis wasn’t even mentioned.

UNIDENTIFIED: Do you think that they should be able to build a mosque near 9/11?

FREESTON: This debt crisis is causing people in Harrisburg to reflect on what a city is and should be. Be sure to come back for our next segment from the most indebted city in the United States.

End of Transcript

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.