Prospects cloudy for Corbett’s Harrisburg bailout

by Bill Keisling

Corbett Administration officials publicly say the Act 47 Harrisburg bailout plan is a success. But privately they know the plan could still collapse. Insiders say an implosion could happen in the near or long-term because of its many concealed flaws.

Some of the problems that could sink the plan are procedural, while others are political or financial. Looming, and obvious, problems include:

• Critics of the plan have not been allowed to file objections to the plan in court. Last Thursday, September 19, leadership of Harrisburg’s black churches and minority communities, as well as political figures, was told by Commonwealth Court Judge Bonnie Leadbetter that they could not file objections to the plan. Nor could they appeal, the judge said.

Even the receiver’s lawyer, Mark Kauffman, was concerned about this. “I hope you’re right about that, judge,” Kauffman told Judge Leadbetter.

Harrisburg controller and mayoral candidate Dan Miller also does not support the plan, and says it makes no financial sense. Miller filed his objections to the plan last Friday, September 20.

No objections or appeals allowed? Whoever heard of such a thing? What happens if a higher court overrules Leadbetter and sends the case back down to Commonwealth Court to hear community objections? The plan could unravel.

• Act 47 was hurriedly implemented and may be unconstitutional. Gov. Corbett’s political allies in 2011 hastily drafted the enabling legislation for the bailout, under 1987’s Act 47, to prevent Harrisburg officials from filing for bankruptcy. The hasty implementation of the Act has led to vagueness and confusion in the wording of the Act about who can object to the plan, and when objections can be filed, among other issues. Pennsylvania’s constitution demands due process for all citizens, something that is obviously lacking in Leadbetter’s interpretation of the Act. If a higher court declares Act 47 unconstitutional, the whole plan could be thrown out.

• Receiver William Lynch’s term expires in December. What then? Act 47’s language gives the receiver a two-year term. “The receivership under this chapter shall expire two years after the appointment of the receiver,” the Act reads, with provisions for extensions.

Former Harrisburg Receiver David Unkovic was appointed in December 2011. His successor, William Lynch, was appointed to succeed him in April 2012, after Unkovic called for a criminal investigation of the players. So does Lynch’s term, by law, expire in December, or next April?

At the hearing on September 19, Judge Leadbetter raised this issue and the uncertainty over whether Lynch’s term ends in December. This could be challenged in appeals. What happens if an appeals court orders Leadbetter to hear citizen objections, and the resulting delay causes hearings to run after the receiver’s stated two-year term expires in December? Some wonder whether this rush to get the plan approved by December is the real reason Leadbetter forbade citizen objections.

• Bond sales may fail. Several bond issues, including LCSWMA’s proposed $130+ million in bonds to buy the $30 million incinerator, have yet to be offered to the bond market. If the bond issue(s) fail, the plan fails.

• State may not provide money as specified in plan. The plan says the Commonwealth of Pennsylvania will make payments to Harrisburg for fire protection and parking spaces of upwards of $15 million a year, for decades in the future. But on August 30, Corbett’s governor’s office released a budget report stating that, “The commonwealth is spending … $500 million more than it is taking in.” The administration budget report also notes, “Rating agencies have already begun to downgrade the commonwealth’s bond rating, which increases borrowing costs and which has already had an impact on agencies’ workers’ compensation rates.” (See above, Bond sales may fail.) If the Corbett administration, or future administrations or legislatures, are unable or unwilling to continue making these unprecedented high payments to Harrisburg, the plan will fail.

• Prosecutions. What happens if pending criminal investigations throw the net over insider beneficiaries of the plan? A criminal taint could destroy the plan.

• Citizens may actually read the plan. The highly complicated plan was rushed through before citizens could understand it. High tipping fees and other long-term demands of the plan already upset Harrisburg taxpayers. More hidden Easter eggs are surfacing daily.

This week it was learned that, under the plan, Harrisburg will repay $125 million for a $50 million bond issue to compensate bond insurer Ambec. Will taxpayers, already unsupportive of the plan, read the fine print, and really not like the plan? Without lasting public support, Receiver Lynch’s lawyer told the court last week, the plan could easily fail.