If there’s one person who knows more about the state of Harrisburg’s finances, it’s attorney William Cluck. This post was written by him and posted on the Harrisburg Forum of the PennLive website.

Please do your fellow citizens a favor and share this link. It is, by far, the most in-depth explanation of the quagmire we’re in that you’re going to read anywhere.

It is time to go directly to the citizens of the city and region instead of the political officials providing sound bites for the media. My intent is to shed some light, provide some facts, and identify, from my perspective, the issues and players in our financial crisis.

1. The debt is actually around $283 million. There is also a risk the Authority could be liable for an additional $25 million if it loses the CIT litigation. The revenue from the incinerator, after operating expenses, has been unable to pay debt service. So, the city’s taxpayers, as primary guarantor of the debt, must come up with money to pay the debt service to the bondholders. Since the city is essentially broke, the county, as secondary guarantor for about half the debt, must come up with the funds. If the county defaults, then the bond insurer makes the payments to the bond and note holders. And any entity that makes a payment wants to be reimbursed eventually.

2. There are basic solutions to addressing that debt. Come up with $283 million and retire the debt or come up with $50 to $100 million to reduce the debt so it can be restructured and more manageable. Of course, how to do that is the big issue. Sale of the incinerator could bring in anywhere from $75 million to $180 million- if someone will purchase it. Leasing the parking garages apparently could net up to $100 million. There you go, done deal. Sell incinerator for $180 million and use parking lease proceeds of $100 million and we can go back to our lives. Easier said than done. A more realistic scenario is to pay down the debt by $50 million to $100 million and look to the state financing authority to provide leverage in refinancing or restructuring the outstanding amount. Neil Grover and City Controller have put forth their concepts for reducing the debt. The rest of this post will identify the parties and how I view their respective interests. My intent is to provide transparency without revealing the substance of draft documents being negotiated and better inform the taxpayers so they are able to participate in this discussion. Let’s look at the parties and their interests and issues:

3. Harrisburg Authority- does not have a quorum, can not conduct business. Wants to lead, but has little leverage. The authority staff is competent and the incinerator operator has the facility up and running rather smoothly. The issues are financial not operational. The Authority wants to pay contractors (unfairly being held hostage), fix turbine blade (to generate up to $1 million additional revenue in electric sales), repair steam line (possible $4 million in revenue), increase receipts and revenue (get higher paying waste from outside county), decrease operating expenses (find solution for ash disposal). A proposed amended budget that you haven’t seen reveals it may be able to start paying between $7 and $12 million annually in debt service. Current debt load too high- debt service is approx $22 million annually.

4. This year’s dilemna- $35 mil due in December because authority, city and county kicked the can down the road in 2007 by borrowing to pay debt service for 2007 and 2008. if that amount is refinanced, expect an additional $2 million in debt service.

5. This year’s budget for debt service includes amounts to reimburse the county, city, covanta and bond insurer. So far this year, on behalf of the authority, the city has paid $637,500, county has paid $1,126,254 and the insurer has paid $425,193. Payments from the debt service reserve fund this year total $5,074,733. All of those payments must be reimbursed or replenished. And, about $10 million in debt service is left to be paid before end of year (not including the $35 million notes).

6. City has limited resources to back up its guarantee. What should the city do? Are the recommendations from management consultants enough to deal with this financial crisis? Is there the political will and leadership to put the parking garages and other assets into play? Can the residents sustain a tax increase? Taxes did not increase in the city over the years because these financings typically would kick a few million to the city’s general fund so taxes would not go up.

7. County refuses to raise tipping fees to raise additional revenue for authority, won’t cooperate in enforcing flow control costing authority up to $600,000 annually in revenue, insists on additional $4.90/ton being added to tipping fee to go to county’s office of solid waste, requires its own engineer, financial consultant and attorneys to oversee authority (and get reimbursed by authority).

8. Covanta wants to be repaid on the $22 million it has put out to fix the Barlow mess. It has not been paid the last two quarterly installments of $637,000. So, Covanta will not release any more funds to pay contractors who did work (about $2.2 million).

9. AGM the bond insurer. Publicly has stated it will not reduce principal or interest on the debt. will not allow use of the $3.6 million from the Barlow settlement to be used to pay contractors or fix turbine blade until city comes up with a plan.

There are all kinds of legal issues involving the rights and remedies of each of these parties. The county has sued the city and authority for reimbursement of the money they have paid and wants the court to order the city to budget for the debt service and raise taxes or sell/lease assets. Covanta has put forth a list of its terms it wants in a forebearance agreement. AGM has put forth its terms for a forebearance agreement. The forebearance agreement initially was to buy time to enable the city to come up with a plan, but now the document is turning into the outline of a plan, which explains why it is taking so long to finalize. The authority can only sit on the sidelines until it gets a quorum.

So that is a status report on where things are as of now. Will the mayor and city council continue the stalemate over adding at least a third member to the board? Who will provide the necessary leadership to make the unpopular recommendations to do some combination of leasing or selling assets, raising taxes, raising tipping fees, asking the state to assist in restructuring the debt and/or allowing the filing of chapter 9, or even sell the water system or sewage treatment system?

At least you now know what we know. We promise to keep you informed and hopefully hold public forums on these issues.