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The former mayor of Harrisburg, Pa., was charged yesterday with dozens of counts for allegedly using city money to fund obsessive buying sprees of artifacts that helped plunge the state capital into debt, the state’s attorney general said, the Wall Street Journal reported today. Former Mayor Stephen Reed was charged with running a corrupt organization, bribery and multiple counts of theft, Pennsylvania Attorney General Kathleen Kane said. Reed served as Harrisburg’s mayor for 28 years, leaving in early 2010. The charges against Mr. Reed stem from an investigation into the financing of the city’s debt-ridden incinerator project, according to a grand-jury report released yesterday by Kane. The incinerator, which was supposed to generate electricity and revenue for the city, instead saddled it with $300 million in debt through a series of bonds and loans. Prosecutors alleged that Reed diverted money from those deals to fund what became an addiction to acquiring objects ranging from the Civil War and Wild West to sports memorabilia for museums that he planned.

Puerto Rico’s finance team said yesterday at a meeting of its creditors that it had not yet determined how it would seek to revamp the island’s obligations, the New York Times DealBook blog reported today. The roughly 350 creditors, such as hedge funds and money managers, that had packed into a New York City auditorium yesterday were told they would have to wait several more weeks until a working group made up of Puerto Rico political leaders came up with formal recommendations for ending the island’s fiscal crisis. “I ask for your patience while we develop a credible plan that meets all of our stakeholders’ objectives,” Melba Acosta Febo, the president of the Government Development Bank for Puerto Rico, told the creditors gathered at Citigroup’s executive headquarters. The meeting, which lasted more than an hour, was the first time that creditors heard directly from Puerto Rico officials since Gov. Alejandro García Padilla declared two weeks ago that the island’s debt was not payable.

Detroit’s home county plans to sell the landmark downtown Art Deco building that serves as its headquarters as it moves to plug a crippling deficit and fend off insolvency, Bloomberg News reported on Friday. The struggles of Wayne County, Mich., underscore the region’s lingering stress even after Detroit emerged from a record $18 billion bankruptcy in December. Last week, Governor Rick Snyder announced a review of the county’s finances, a step toward possible state intervention after the municipality asked Michigan for help in tackling its fiscal woes. The county of 1.8 million residents has seen property-tax revenue drop by more than $156 million since 2007, while spending has climbed by more than $50 million. As a result, Wayne faces a $52 million deficit and may run out of cash by August 2016.

More than 300 participants ranging from institutional investors to hedge funds to bond insurers are scheduled to attend today’s presentation in New York explaining why Puerto Rico cannot repay all of its obligations on time, Bloomberg News reported yesterday. Complicating matters is a push by commonwealth officials to seek federal assistance and even changes in bankruptcy laws. “It will be a very protracted battle given Puerto Rico lacks a mechanism for restructuring like Chapter 9,” said Peter Hayes, head of municipal debt at BlackRock Inc., which manages $114 billion of the securities, including Puerto Rico debt. “There is likely to be a multitude of lawsuits given the unlikely event creditors are acceptable to terms to be proposed by Puerto Rico.” Governor Alejandro Garcia Padilla said in a June 29 televised speech that he will seek to postpone debt repayment for “a number of years,” and directed island officials to craft a restructuring plan by Aug. 30. A report from three former International Monetary Fund economists made public last week suggests that Puerto Rico swap current bonds for new ones with later maturities and lower payments. The report will serve as a focal point during the 3 p.m. meeting at Citigroup Inc.’s offices on Park Ave.

Standard & Poor’s Ratings Services has downgraded Chicago one notch to triple-B plus from A-minus, predicting that a “structural imbalance” will lead to “corrective budget measures over several years,” the Wall Street Journal reported yesterday. S&P said “in our opinion, the city has not yet fully identified a credible plan” to address the imbalance. S&P removed the rating, which is now three notches above junk, from CreditWatch. The rating firm has a negative outlook. In May, Moody’s Investors Service cut its rating on Chicago’s debt by two notches to junk, citing expected increases in unfunded pension burdens after a ruling by the Illinois Supreme Court that overturned state pension changes.

A generous series of tax breaks enacted by Congress shielded the profits of U.S. corporations operating in Puerto Rico and helped transform the territory from a largely agrarian society to a manufacturing powerhouse, the Washington Post reported today. But what the federal government gave, it also took away. When Congress decided to phase out a crucial tax credit that ended in 2005, it helped plunge Puerto Rico into a recession that began a decade ago and has yet to end. Last week, Gov. Alejandro García Padilla said that the island could not repay more than $70 billion in debt, setting it down a path that could rock the municipal bond market and lead to higher borrowing costs for state and local governments across the U.S. Read more.

In related news, Puerto Rico’s governor says the island’s $72 billion debt load is too big to pay, but OppenheimerFunds Inc., the largest mutual-fund holder of the bonds, disagrees, Bloomberg News reported yesterday. As Alejandro Garcia Padilla begins to make the case for delaying debt payments, the New York-based company is building the opposite argument. On a conference call this week, its money managers said that data on sales-tax collections, unemployment and income growth indicate the economy is strong enough for the government to keep paying what it owes. “The governor’s new rhetoric, which we see as political cover after signing a budget that required unpopular spending cuts, is disappointing,” OppenheimerFunds wrote in a summary of the July 6 conference call. “The ability to pay remains intact.” Read more.

Leading House Republicans declared their opposition yesterday to allowing debt-ridden Puerto Rico access to chapter 9 bankruptcy protections, raising new uncertainty about how the island can emerge from its financial crisis, the Associated Press reported yesterday. A statement from House Judiciary Chairman Bob Goodlatte (R-Va.) said that members of his committee share a concern that "to provide Puerto Rico's municipalities access to chapter 9 of the Bankruptcy Code would not, by itself, solve Puerto Rico's difficulties, which are associated with underlying, structural economic problems." The White House and leading Democrats, including presidential candidate Hillary Rodham Clinton and Sen. Chuck Schumer (D-N.Y.), have suggested bankruptcy as a possible way out of Puerto Rico's economic crisis. As a U.S. territory, Puerto Rico is prohibited from allowing its municipalities, such as a debt-burdened state-run power company, to enter bankruptcy protection as a way to restructure their debts. Schumer is pursuing legislation to change that, though he has not yet succeeded in attracting Republican co-sponsors. Read more.

In related news, Puerto Rico’s representative in Congress, Resident Commissioner Pedro Pierluisi (D), made a statement on the floor of House urging for Congress to move forward on solutions to Puerto Rico’s debt crisis. Click here to read his statement. Read more.

Additionally, Citigroup Inc. intends to host a meeting of Puerto Rico bondholders on Monday in New York that will include a presentation by former International Monetary Fund official Anne Krueger, the Wall Street Journal reported today. A recent report by Krueger, former first deputy managing director of the IMF, recommended reducing the commonwealth’s debt payments by offering to exchange some debt for new bonds with longer maturities. Citi has handled such exchanges in the past, including a deal to buy back and refinance water and sewer bonds that helped Detroit save money during its bankruptcy. Puerto Rico has about $72 billion in debt outstanding and is struggling with a weak economy and declining population. Some Puerto Rico bonds sold last year traded Wednesday at about 70 cents on the dollar, after touching all-time lows of around 64 cents last week, according to the Electronic Municipal Market Access website. Read more. (Subscription required.) 

Franklin Advisers and OppenheimerFunds said they will work with Puerto Rico and its power authority, PREPA, on a revitalization plan after a U.S. appeals court on Monday affirmed a lower court decision to strike down a Puerto Rican legislation granting local municipalities the right to enter bankruptcy, Reuters reported yesterday. Franklin Advisers and OppenheimerFunds said that they expect to work with Puerto Rico to develop reforms that holders of its bonds can support. PREPA creditors Franklin Advisers and OppenheimerFunds are parties to a creditor forbearance agreement that protects PREPA from litigation until Sept. 15. Read more.

In related news, U.S. Representative Tom Marino (R-Pa.), chairman of a House subcommittee considering legislation that would allow Puerto Rico’s government agencies to seek bankruptcy protection, said he’s pushing for the measure to advance, Bloomberg News reported yesterday. The bill, which was the subject of a February hearing by Marino’s House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law, hasn’t moved forward as lawmakers have raised objections and the island falls deeper into a fiscal crisis. Marino said discussions among House members are continuing over the legislation, which was introduced by Pedro Pierluisi, Puerto Rico’s nonvoting delegate to Congress. Read more.