A broke city with no recourse

It was mid-April and, without fanfare, self-proclaimed “last conservative standing” Newt Gingrich paid a blink-and-miss-it visit to his birthplace: Harrisburg, Pennsylvania.

There, the former House speaker, Republican presidential hopeful and bona fide political animal, briefly stumped for his cause. Then he was back out on the campaign trail proper. The Pennsylvania primary was a week away. State capital Harrisburg was nothing but a stop-gap.

The reality is the city wouldn’t have been able to offer Gingrich much of a homecoming anyway. Over $310 million in debt, and hampered by government dysfunction, Harrisburg is the poster child for municipal financial crisis.

It’s a not uncommon narrative: Central Falls, Rhode Island, went bankrupt and Detroit is close behind. Harrisburg tried to file for Chapter 9. A federal judge ruled no. Otherwise, it might have become the first US state capital to file for bankruptcy.     

But Harrisburg’s storyline has a unique twist—an ‘on-again, off-again’ brush with privatisation.

A previously mulled city-wide parking concession, as well as a lease or sale of its waste incinerator, could have helped forestall, maybe alleviate, its dire economic condition.

Today, Harrisburg’s in receivership with no recourse but to do both. It’s the end of a desultory four-year courtship with privatisation, and the city can’t dance around the hard truth anymore.

What it took, in the end, was a judge’s decision.

ROAD TO CHAPTER 9

By 2009, the financial crisis and recession had come calling. Meanwhile, in Harrisburg, a 40-year-old ill-conceived public works project had shaped a white-hot fiscal mess.

The Harrisburg Resource Recovery Facility, a waste incinerator opened in 1972, was burning capital as well as waste. In 2003, it cost Harrisburg $125 million to rebuild.

The city had issued a $288 million debt guarantee on the incinerator. And with 2010 approaching, the city would not be able to meet a $34 million payment.

That’s when an infrastructure fund made a private offer that could have provided a possible solution.

In 2008, LambdaStar Infrastructure made a deal with then-mayor Stephen Reed—a 75-year garage parking concession for a $215 million upfront payment.

Instead, political will prevailed. The city council nixed the deal; controller Dan Miller claiming Reed could not lease a city asset.

With LambdaStar rebuffed, Harrisburg next sought guidance from a privately held Chicago financial advisory firm with a reputed skill set in restructuring and fiscal recovery, Scott Balice.

What Harrisburg needed was a hired gun to come up with a plan to help it out of the mess.  Yet in hiring Scott Balice, the city had aligned with a consultant which ended up recommending precisely the course of action it had just rejected—leased parking.

Chicago, Los Angeles, New Jersey Transit, and Pittsburgh – all Scott Balice clients – had been urged to privatise parking. (Interestingly, Scott Balice co-founder Lois Scott is now finance chief for Chicago Mayor Rahm Emanuel.)

Shortly thereafter, down-but-not-out LambdaStar, now partnered with EQT Infrastructure, reinserted itself in the picture with a package bid: $140 million in cash to lease the incinerator – on the condition Harrisburg accept an offer of $215 million for a 75-year or $195 million for a 50-year parking concession.

But again, political will prevailed and, for the second time, LambdaStar was spurned.

A subsequent Wilbur Smith review priced a 30-year garage parking concession at $215 million. Yet another report from Novak Consulting urged privatising parking and leasing the incinerator, but not to LambdaStar. 

RECEIVERSHIP

In 2011, Harrisburg, with a $65 million debt payment now due on its incinerator, and its Chapter 9 filing dismissed, went into receivership.

State-appointed receiver David Unkovic now fast-tracked privatisation. A parking concession is pending. Unkovic, meanwhile, is gone. So is controller Miller, who was fired by Mayor Linda Thompson.

It’s unfortunate how, in the US – whether on a city or state level – privatisation is considered only as a last resort. Still, installing a framework for successful public-private partnerships (PPPs) is possible, even then.  

Harrisburg, on the other hand, appears to be watching its last resort come and go, having proved itself inherently dysfunctional. That’s beyond unfortunate. And arguably beyond any problem PPPs can solve.