William B. Lynch, the state-appointed receiver of Pennsylvania’s capital, said “a deal is imminent” with creditors on easing an incinerator debt burden of about $345 million that has left Harrisburg insolvent.

The revised fiscal rescue involves the sale of the trash-to-energy plant and the lease of city parking facilities, Lynch said today in a statement. The transaction will remove future liabilities for the incinerator, which hasn’t generated enough revenue to cover its costs.

Lynch’s success with creditors would avert bankruptcy for the city, whose incinerator debt amounts to almost seven times its annual general-fund budget. He said he plans to submit his proposal late next month to Pennsylvania’s Commonwealth Court, which must approve the blueprint for it to take effect.

“All stakeholders” have agreed to his plan, Lynch said. “While they realize this may be an imperfect situation for each of them, everyone understands a cooperative solution is most certainly in everyone’s best interests.”

Lynch’s announcement follows a step by a state-appointed municipal overseer in Michigan, Kevyn Orr, to seek court protection for Detroit last week. The move by Orr, who was put in the job by Republican Governor Rick Snyder, has brought fresh scrutiny to state and local government debt there.

Creditors’ Role

Lynch didn’t say if creditors are shouldering a part of his plan’s costs. Before seeking court protection for Detroit, Orr proposed giving creditors including some municipal bondholders pennies on the dollar owed by the city.

The crisis in Harrisburg, a community of almost 50,000 residents, stemmed from financing an overhaul of the city incinerator. Surrounding Dauphin County and bond insurer Assured Guaranty Municipal, a unit of Hamilton, Bermuda-based Assured Guaranty Ltd., have covered skipped debt payments since 2009.

Under his plan, the Lancaster County Solid Waste Management Authority would buy the incinerator, which a unit of Covanta Holding Corp. runs. Lynch said today other claims, such as those from Assured Guaranty and Dauphin County, must be resolved before the sale, which may be late this year.

The Lancaster authority plans to sell revenue bonds to finance its purchase, and is drafting a preliminary offering statement to investors and other documents, Executive Director James Warner said in an interview.

Budget Stability

The relief from future liability for Harrisburg residents after the transaction was described by Lynch as a “critical step” for the city’s recovery. He said his blueprint would stabilize the municipal budget through 2016.

Also under Lynch’s plan, the Pennsylvania Economic Development Financing Authority would take over city parking garages and outdoor lots under a long-term lease from the Harrisburg Parking Authority, the city agency that owns them.

Chicago-based Standard Parking Corp. would run the 8,991-space system. AEW Capital Management LP, a Boston-based property manager, would oversee the real estate involved, and both would receive fixed fees.

The state authority would sell tax-exempt bonds to be repaid from lease revenue, with the debt underwritten by Guggenheim Partners LLC.

“This plan will create important new revenue streams to help the city reduce its structural deficit and spur economic growth,” Lynch said in the statement. “The parking agreement may very well become a national model.”