PhillyDeals: Harrisburg’s ex-financial custodian Unkovic describes departure
David Unkovic, the bond lawyer appointed to keep cash-strapped Harrisburg city paying its bills, was summoned to a meeting with Stephen Aichele, then Pennsylvania Gov. Corbett’s general counsel, at the end of March.
Should have been cozy. But no.
Aichele previously headed the Philadelphia law firm Saul Ewing Remick & Saul. Unkovic had worked there, too. The agent for Harrisburg’s worried bondholders, Assured Guaranteed Municipal Corp., was represented by Saul Ewing lawyers — Aichele’s and Unkovic’s old colleagues. All so familiar.
The state Department of Community and Economic Development (DCED) had already drafted a plan to sell the failed incinerator and other city assets to pay off more than $300 million in incinerator bonds, and other debt. A Lancaster County public authority had offered to buy the facility.
Corbett and his allies in the Capitol wanted this to happen. They had changed state law to thwart a rival plan by city officials to declare bankruptcy, which might have eased the city’s crisis by cutting payments to its creditors — including bondholders and Dauphin County, which had helped arrange the incinerator financings.
A Harrisburg bankruptcy and default could also subject local officials and bond professionals, who had approved the incinerator deals, to legal liability and securities enforcement. That happened to veteran Pennsylvania muni bond adviser Robert J. Bradbury, sentenced to prison in 2009 after bonds he sold, backed by a failing Franklin County golf course controlled by a Dauphin County public authority, cost his clients millions.
If Harrisburg paid off its bonds, such a threat would recede. But Unkovic had begun to question the plan. In January he read a "forensic investigation" by law firm Klehr Harrison and accountants Parente Beard questioning why local officials and their paid bankers, consultants and lawyers approved the financially shaky project. Going over the city’s books, listening to residents, Unkovic realized an incinerator payoff would still leave Harrisburg with too little taxable property to pay future bills.
Still, Unkovic advertised for asset bids; at least he might get market prices. But that effort was blocked by bondholders — represented by his old colleagues at Saul Ewing. They wanted a quick sale.
Boxed in, Unkovic on March 28 held a news conference and called for investigations of city bond deals. He also complained that local officials, including Sen. Jeff Piccola (R., Dauphin) as well as Stanley Rapp, head of Harrisburg lobbying firm Greenlee Partners, pressured him to speed asset sales and get the incinerator bonds paid.
That’s when Unkovic was summoned to Aichele. According to Unkovic’s statement, through his lawyer, Howard Bruce Klein: "After my news conference of March 28, 2012, I was called into the Governor’s Office of General Counsel. Steve Aichele was adamant that I was no longer able to negotiate a settlement with the creditors, given my criticism of them and my call for an investigation of possible criminal activity in connection with the incinerator financings."
When "I offered to resign." Aichele "proposed that I might no longer be able to remain on as receiver," but instead take a state finance job "and continue to work on Harrisburg matters behind the scenes. I came away from that meeting believing I would be removed as receiver — and therefore decided to resign and leave state government at the same time."
State officials tell it differently. Said Steve Kratz, spokesman for DCED, "We never said, we had no intent, to remove him." Rather, "we had concerns about his behavior." In a court hearing, Unkovic had been "acting irrational. During questioning, he was slamming his fist down. Not acting in a calm and controlled manner."
Plus, "holding a news conference to make public accusations, we thought that could be detrimental to the recovery process. So we called the meeting to get back on track." Even then — rationality aside — Unkovic’s office remained "independent," and Unkovic "had the utmost confidence of the governor." So when Unkovic resigned, Kratz concluded, "we were as surprised and shocked as anybody."
Conscientious Unkovic is now ex-receiver; Aichele was named to a new job on Thursday — as Gov. Corbett’s chief of staff.