In late November, 2011, as the Commonwealth of Pennsylvania was moving to appoint a receiver for its state capitol, Harrisburg, the city council by a 4-3 vote abruptly filed a bankruptcy petition, which was immediately contested by the city’s mayor and the state, and rejected (as reported in the New York Times (November 23, 2011) (brown font):
Washington — A federal judge dismissed a bankruptcy suit for the city of Harrisburg, Pa., on Wednesday, saying that the filing, made by the City Council last month, was illegal.
The ruling on Wednesday had little effect on the city’s current financial situation. It dismissed a stay against claims from creditors, but creditors had not been actively pursuing those claims in court, so there was no immediate effect.
“Most people predicted the judge would rule this way,” said William W. Kannel, a partner at Mintz Levin in Boston, who is an expert on bankruptcy law. “It’s very clear, states are entitled to control their municipalities’ access into Chapter 9 bankruptcy.”
Who would file in Chapter 9 must answer me these questions three, ere the other side he see
Principal sources used in this post
New York Times (October 12, 2011) (teal font)
Harrisburg Patriot-News (July 19, 2012) (brown font)
Harrisburg Patriot-News (March 19, 2013) (green font)
SEC release 2013-82 (May 6, 2013) (blue font)
Wall Street Journal (May 7, 2013) (black font)
In came receiver David Unkovic, and his is the most remarkable tenure of them all.
I’m here to shake things up – that means you.
The core text reads:
“I have done my best to use my powers as receiver to bring fiscal stability to the City of Harrisburg. However, I find myself in an untenable position in the political and ethical crosswinds and am no longer in a position to effectuate a solution.”
“I wish the citizens of the City of Harrisburg well in their ongoing quest for fiscal stability and good government, both of which they truly deserve.”
And here’s a tidbit about that letter:
He even wrote his resignation letter by handso his secretary couldn’t be implicated.
According to a Patriot-News op-ed by community activity Michael Sand (April 13, 2012), “David Unkovic was a top-notch professional. … When he reviewed the history of what had caused the massive debt, he was appalled. At a public hearing, he got so upset that he banger on the table and talked about ‘twenty years of mismanagement’. How many groups cooperated fully with him? None. How many groups cooperated at all with him? None. How many groups opposed every single step he took? Every one. Have you figured out yet why David Unkovic resigned?”
Now go away or we will taunt you a second time
Two and a half months after his resignation, Mr. Unkovic wrote a courageous and blunt op-ed for the Harrisburg Patriot-News (June 10, 2012):
The average citizens on the streets of Harrisburg did not know about the depth of harmful acts by those they had elected.
They could not have understood there was a highly sophisticated, multi-hundred million dollar debt scheme going on, as shown now in the forensic audit.
They did not know (and the suburban residents did not know) that sewer customers were being overcharged and those monies were being diverted to other purposes. The people who did know what was going on were certainly not telling the people of Harrisburg about it.
What went on in those 4½ months? We learned only a year after Mr. Unkovic’s resignation, in a thorough article by dogged reporter Don Gilliland as reported in the Harrisburg Patriot-News (March 19, 2013) (green font):
If you do not tell us where we can buy a shrubbery, my friend and I will say … ‘Ni’!
Providence, R.I. — The education of David Unkovic didn’t take long.
Within a matter of weeks after arriving in Harrisburg as Pennsylvania’s first state-appointed receiver, the self-described “public finance technocrat,” realized the problem wasn’t nearly as simple as he’d imagined.
What’s more, he also suspected he would not survive, so he began to plan.
What sad times are these when passing ruffians can say ‘Ni’ at will to old ladies
Unkovic wrote: “I thought, going into the job, that Harrisburg had a debt problem due to the incinerator financings, and I was confident that I could, with assistance from consultants, fix the problem through a workout.”
Upon resigning his office, Mr. Unkovic basically went off the grid – he stopped responding to emails, took no phone calls, did no interviews.
He went birding
That silence was deliberate (with his resignation, Mr. Unkovic had lost his statutory immunity from libel), and he waited out the safe period.
In a white paper presented to a national symposium on Distressed Municipalities in Providence, R.I., hosted by public finance trade publication The Bond Buyer on Monday, Unkovic spelled out the financial challenges facing local municipalities generally – and his strategy for Harrisburg specifically.
According to the white paper, Unkovic “fairly quickly” came to seven “unsettling conclusions”:
There is a pestilence upon this land, nothing is sacred.
These are direct quotes from Mr. Unkovic’s paper, which is well worth reading in its entirety:
1. The incinerator financings were very, very bad transactions in many respects, and some very disturbing things were done in those financings.
2. In addition to the incinerator problem, the city had a very large structural deficit caused by other huge problems which would require significant resources to solve.
3. The bond creditors were not willing to back off on their litigation against the city.
4. The DCED recovery plan in its most important aspects simply did not work.
5. I would need to come up with a new plan that would be much less favorable to the bond creditors.
6. The bidding processes that had been conducted for the city’s assets were not acceptable and I would have to start new bidding processes.
7. And there were very powerful political forces who wanted the DCED plan reconfirmed and the bond creditors taken care of.
Even those who arrange and design shrubberies are under considerable economic stress at this period in history
Mr. Unkovic decided that he had a finite amount of political capital, so he decided to spend it aggressively, expecting to leave when it reached zero. This is brilliant and brave.
“I believed that there were certain things I could get done before I got immolated by the politics,” wrote Unkovic.
He began to put in place the things he believed were needed for a true recovery.
He pushed the forensic consultants to finish and issue the forensic audit on the Harrisburg incinerator financings as quickly as possible.
“The truth needed to come out for a fair outcome to be possible,” wrote Unkovic.
One can say only, Bravo.
Harrisburg could be … Camelot!
He set to preparing – and getting the Commonwealth Court to approve – “a recovery plan that could really work, that is, that was a true fiscal plan for the recovery of the city.”
He hired “a team of consultants that were highly qualified and could get the plan implemented” even if he were gone.
And Unkovic was determined to “deal fairly and directly with all the elected city officials and the people of the city to increase the likelihood that they would eventually accept the plan.”
“Over the course of four months, all those things were accomplished,” he wrote, and having put all the pieces in place, Unkovic went out on his own terms.
“The politics and litigation came to the point where I needed to and did call out the forces who were trying to undermine the recovery process,” he wrote in the white paper.
Unkovic suddenly – and unexpectedly – directed the spotlight of the receiver’s office onto the people and institutions he believed were operating in the dark, behind the scenes, to orchestrate a deal that would benefit themselves at the expense of the people of Harrisburg.
Arthur: Be quiet!
Dennis: Well you can’t expect to wield supreme executive power just ’cause some watery tart threw a sword at you!
Do I look like I acted in Haste? I’m repenting, I’m repenting
Now out of politics.
No longer sitting behind a Senator’s placard
That’s Apollo Global Management, a private equity and alternative-investment bank, led by Leon Black, few people’s favorite person.
Arthur: Shut up!
Dennis: I mean, if I went around sayin’ I was an emperor just because some moistened bint had lobbed a scimitar at me they’d put me away!
Obviously, Mr. Unkovic chose the moment for his dramatic last stand only when he had done everything else he thought he could.
financial group RBC Dain Rauscher (and Royal Bank of Canada, which acquired it), and Stan Rapp, who heads Greenlee Partners, a prominent lobbying firm that represents AGM, the county and RBC in the city’s debt crisis.
(Mr. Rapp’s web site bio describes him as “breathes, eats, and sleeps politics; will be first in line for a surgically implanted cell phone.”)
Not taking the Rapp
Arthur: Shut up! Will you shut up!
Dennis: Ah, now we see the violence inherent in the system.
You see ‘im repressin’ me?
He wrote to the state Attorney General and the U.S. Attorney asking them to conduct a criminal investigation of the incinerator financings.
When he was told he’d be removed as receiver but could stay on the state payroll in another capacity, Unkovic resigned.
And the machinery Unkovic put in place for Harrisburg’s recovery is still running.
The only thing that changed in the receiver’s office was the man with the title. The financial and legal experts were the same. The plan was the same. The strategy was the same.
Truly admirable – shrewd in the planning, clear in its decision, swift in its activity, and selfless in its implementation.
[The new receiver, Major General William B. Lynch, USAF, Ret] has said that he would like to avoid a bankruptcy filing, and that the city is nearing a deal to sell the incinerator and lease parking assets –
Even more admirable, Mr. Unkovic praised both his successor’s work and the governor’s choice of successor:
According to Unkovic, “General Lynch is the right person to accomplish the difficult workout and bring Harrisburg back to fiscal stability… (Lynch) is doing a very good job. He continues to follow the recovery plan with the assistance of the consultants and state employees. His job is extremely difficult, but I am confident that the results of his efforts will be good for the city and the Commonwealth.”
As he explained it:
Unkovic writes: “As strange as this may sound, particularly coming from me, I think having two receivers for this process has actually been a good thing. I accomplished the four things I thought I could get done, and by outing the opposing forces, I got everything out in the open making it extremely difficult if not impossible for them to get their way through behind-the-scenes power maneuvers.”
It’s against this backdrop of dramatic events that, as we saw last week, the SEC rode onto the scene and demanded all the lupins Harrisburg had got.
A spokesman for the mayor couldn’t be reached for comment beyond the statement about the SEC settlement. Stephen Reed, who was mayor in 2009, couldn’t immediately be reached for comment.
I expect Mr. Reed is hunkered down and lawyered up.
“We remain focused on the implementation of the recovery plan,” Mr. Angell said on Monday.
That means selling assets, cutting costs, and reducing financial leverage by crunching the bondholders.
Dennis: Anarcho-syndicalism is a way of preserving freedom.
Woman: Oh, Dennis, forget about freedom. Now I've dropped my mud.
UPDATE: ENTER FORTINBRAS: Eric Papenfuse won the primary as current mayor Linda Thompson’s tenure was decisively rejected:
Papenfuse won the four-way race, getting 2,480 votes. City Controller Dan Miller finished second, with 2,084 votes, while Mayor Linda Thompson came in third, with 1,816 votes.
Yep, that’s the Harrisburg mayor and city council, all right
While there will be a general election in November (six whole months away), in this Democratic-stronghold city Mr. Papenfuse is almost certain to be Harrisburg’s next mayor. And because of this, even though there will be an election to hold, power will now begin inexorably to flow in Mr. Papenfuse’s direction. He gained appeal in part because of his newness, contrasting with both Ms. Thompson and Mr. Miller, who have long been involved with Harrisburg politics, although Mr. Miller would have been my candidate, because of his demonstrated articulate numeracy. On the other hand, with Dave Unkovic’s restructuring plan in place and a new receiver implementing it, Mr. Papenfuse may have a reservoir of goodwill and enough time to develop a forward-looking strategy even as Harrisburg goes through what will undoubtedly be a very messy and financially painful restructuring.
Does this tie make me look mayoral?
I’ll post more on Harrisburg in the upcoming week.