Pennsylvania’s Capital Files Plan for Finances With Court

The receiver, William B. Lynch, said that the city would sell a municipal trash incinerator for $126 million to $132 million and that it would reap $1.5 million a year from the 40-year lease of 13 parking garages and lots to specific operators.

The transactions will allow the city to resolve a debt of about $345 million accumulated by the incinerator during decades of bond sales for upgrades and repairs, Mr. Lynch said in a 357-page filing with Commonwealth Court, which is expected to take two to three weeks to decide whether to approve the plan. The proceeds from both sources will allow the city to balance its budget after several years in which it has missed bond payments and struggled to meet its payroll.

The plan also avoids filing for Chapter 9 bankruptcy, an option that was taken by Detroit in the largest municipal bankruptcy in United States history. Some Harrisburg officials favored a bankruptcy filing, but Pennsylvania passed a law making the city ineligible.

The new plan gives specifics to an earlier outline agreement under which stakeholders — including creditors, bondholders, the City Council and the administration of Mayor Linda D. Thompson — settled their differences after years of acrimony over how the financial pain of settling debts and rebuilding revenue should be divided.

“Civic, community and governmental leaders, as well as creditor interests, have come together to achieve a resolution that as recently as this year many thought not possible,” the document said.

It said the agreement was reached because all parties recognized the need to make sacrifices and to “not insist on receiving the full benefit of their legal or contractual rights.”

Mayor Thompson said the plan could become a template for other cities struggling to balance their budgets.

“If confirmed by the Commonwealth Court, we believe Harrisburg will become a model for other financially distressed municipalities in Pennsylvania and across the country,” she said in a statement.

As a result of the agreement, titled “Harrisburg Strong,” the city will be permanently absolved of its huge incinerator debt without an increase in real estate taxes. It can balance its budget through 2016, and it will gain $25 million over the next several years for infrastructure, economic development and debt payment.

The agreement was achieved in part through a “meaningful reduction” in public-sector labor costs after modifying labor contracts through 2016, and by a “reworking” of the city’s obligations to its general-obligation bondholders and other creditors.

It also pledged to return the financial management of the city to its elected officials “as soon as possible,” ending the role of the receiver.

Harrisburg’s heavy debt load made it vulnerable to the recent decline in the value of municipal bonds prompted by the Federal Reserve’s statements that it intended to phase out its monthly bond buying to stimulate the economy.

“The pricing of bonds being used to fund the two transactions has not yet occurred,” the document said. “Thus, the exact amount of funds from those transactions, which are necessary to the successful consummation of this plan, are not yet known, and are tied closely to the prevailing interest rates in the municipal bond market.”

Despite the reduction in available money brought about by the decline in bond prices, financing is still sufficient for the plan to work, the document said.

The latest plan goes further than one presented for court approval in March 2012, which failed because it failed to get the agreement of all Harrisburg’s warring parties, the receiver said. By contrast, “virtually all” of the affected parties have signed on to the new plan.

Will Pennsylvania's Sizzling January Lateral Climate Last?

Despite the cold temperatures, January is often the month that the lateral market thaws and attorneys begin to make moves. This year has been no exception, with maybe a little more movement than in recent years. But is the movement among Pennsylvania's firms the typical start-of-the-year burst or is it a sign of things to come in 2013?

In the first month of the year, there were at least six lateral moves plus a large group defection among Pennsylvania firms.

Recruiters and law firm leaders alike expect a similar lateral market to what the industry saw in 2011 and 2012 in terms of activity, with the bulk of Pennsylvania firms looking outside of the state for their hiring needs.

Ballard Spahr Chairman Mark Stewart said he would expect the same amount of movement in 2013 as the market saw in the last few years. Stewart said any increased movement in January is typical of the culture and economic structure at law firms that supports movement soon after the end of a firm's fiscal year.

For Ballard Spahr, lateral acquisitions have been focused in other markets.

"We're rarely talking to lateral candidates in Philadelphia," Stewart said.

That isn't necessarily because the firm feels it has maxed out on attorneys in Pennsylvania, Stewart said, but rather there just isn't as much movement. Aside from the Decherts and Morgan, Lewis & Bockiuses of the world, most of the large firms in the market are on the same playing field financially, Stewart said. Attorneys therefore don't look to move much among those firms. The Philadelphia market is mature and many of the clients are institutionalized in the city, causing attorneys to stay put, Stewart said.

Recruiter Robert Nourian of Coleman Nourian said Pennsylvania firms have reached critical mass in their home-state offices and can service clients from those offices with the people they already have. Similar to Stewart's point, Nourian noted it is also difficult for one firm to woo a group of partners from across the street because there aren't that many differences between the firms.

A Pennsylvania firm talking to laterals in other markets, however, can be an easier sell because it gives those laterals the opportunity to fill out a practice need in a newer office and potentially have more leadership potential or autonomy, Nourian said.

If firms are looking to grow revenue in a lower-demand economy, entering new markets where there is a growing industry base, such as the energy market in Texas, may be the way to go, Nourian said. It might also make sense for firms to open new offices to be closer to a client.

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