09.13.12

The Receiver of the City of Harrisburg Finally Confirms—The City’s General Obligation Bond Payment Will Be Skipped

by Tara Leo Auchey

“It’s a poorly kept secret,” Harrisburg Receiver William Lynch declared. And with that, on September 12th he officially announced that he indeed had made the decision to miss the City’s second general obligation bond payment of the year.

The $3.93 general obligation bond payment is due September 15th, and is exclusively linked to the City’s structural fiscals issues, not to the City’s guarantee on the Incinerator debt. In March, former Receiver David Unkovic had decided not to make the City’s March general obligation bond payment of $5.3 million.

While the Receiver waited until a mere days before the due date to announce his decision to miss the payment, the Harrisburg Mayor disclosed the news during an August 28th press conference. Afterwards, when asked to comment on the Mayor’s announcement, the Office of the Receiver’s spokesman, Cory Angell, responded by declaring no “official decision” had been made at that time.  (See City of Harrisburg Won’t Make Its September GO Bond Payment?)

However, a week later at the September 5th Mid-year Budget Presentation to City Council, the City’s Director of Finance, Bob Kroboth, reiterated what the Mayor had proclaimed—the Receiver had decided not to make the City of Harrisburg’s September 15th general obligation bond payment.

On September 11th the Office of the Receiver sent out this press statement:

As many have already surmised due to the structural deficit in the city of Harrisburg, the General Obligation debt service payment will not be made for the next one due Sept. 15.  The appropriate notifications are being made by our counsel. The city will not be making the debt service payment but the bond insurer will do so.

The bond insurer of the City general obligation bonds, AMBAC Assurance, made the payment to bondholders in March as well, there by becoming part of the list of City creditors. When asked if AMBAC had commented on the Receiver’s decision to skip this second GO bond payment, the Receiver said, “I’m sure they are very disappointed in us.” This year is the first time the City has ever missed its GO bond payments.

By skipping the GO bond payments, the Office of the Receiver projects a $11,340,577 year-end deficit for the City of Harrisburg with a cumulative deficit for 2012 projected to be $14,717,921, adding in a rollover deficit from 2011.

The Thompson Administration on the otherhand, projects the City will only see a $2.6 million deficit at the end of the year. The difference between the projections, Kroboth explained, is the Receiver’s projections include “obligations and operating carryovers from previous years.” The Thompson Administration’s analysis is only based on available cash the City will have at the close of 2012, i.e. “cash flow.” Therefore, Kroboth says while the Administration agrees that the Receiver’s “assumption of obligation” is valid, it is not assumed in the Administration’s 2012 deficit analysis because those obligations will get pushed to next year.

The Office of the Receiver forsees the City running out of cash sometime in November.

The City of Harrisburg’s prohibition on filing for Chapter 9 Municipal Bankruptcy ends on November 30th.

Roxbury News videos:

• 9/5: “City of Harrisburg Mid-Year Budget Review:     An assumption of obligation versus an assumption of cash flow”

• 9/12: “Municipal Financial Recovery Advisory Committee:     ‘It’s a poorly kept secret.’”

• 9/12: “Municipal Financial Recovery Advisory Committee:      PA DCED’s Fred Reddig: ‘The City’s cash position will deteriorate as we move into the fourth quarter and turn negative sometime, in all likelihood, in November.’”

• 9/12: “Municipal Financial Recovery Advisory Committee________Harrisburg Receiver William B. Lynch: ‘I’m sure they’re very disappointed in us.’”