By Edith Honan and Kristina Cooke
HARRISBURG, Pennsylvania (Reuters) - For three days last summer, Mayor Linda Thompson joined religious leaders to pray for a "cooperative spirit" among city leaders, the business community and residents here in Pennsylvania's state capital.
The prayers have gone unanswered.
Looking for a way to resolve $300 million in debt, the city council defied Thompson and voted to file for bankruptcy this month. Not only did a majority of the council go against the mayor's wishes, but the council members also decided not to even tell her of their decision.
The situation comes as no surprise to many who live here. That's because in Harrisburg, a city of about 50,000, the balance sheet isn't the only thing out of whack.
Prayers notwithstanding, Thompson and Dan Miller, the city's top financial official, refuse to speak to one another, even as the city they lead continues hemorrhaging money. Thompson characterized Miller as a "political opportunist who will stop at nothing to accomplish his self-centered ambitions." Miller, who plans to challenge Thompson for mayor in 2013, said he considers Thompson "paranoid," "not well educated" and "a phony."
His words seem kind compared with those offered by four former Thompson aides. They told the local newspaper that the mayor isn't fit to hold office.
Within weeks, the state of Pennsylvania could take over the city's finances unless city officials reach an agreement. That seems unlikely. A last-ditch attempt at a compromise between the mayor and council members days before the bankruptcy filing ended in a shouting match 10 minutes in. The paralysis isn't rooted in partisan politics, either: All of the city's top officials are Democrats.
"Every time we go to see the mayor it turns into a screaming and hollering match," said councilwoman Wanda Williams. "We can't work with her."
Welcome to Harrisburg, a city at war with itself.
AN EXACERBERATED CRISIS
The Harrisburg filing is one of the biggest municipal bankruptcies in U.S. history, and the city is one of a handful to seek bankruptcy protection since the onset of the nation's financial crisis. Other Pennsylvania communities worry that the Harrisburg situation could make borrowing more expensive for them. And some wonder whether Harrisburg is a harbinger of what some of the nation's most fiscally challenged municipalities might face.
But others say the crisis in Harrisburg is more about a single business decision gone awry -- and about deep, dysfunctional personal relationships that have all but paralyzed city government.
"This would be challenging for the best intentioned, most talented group of people," said Dave Black, head of the regional chamber of commerce. "Because of the political problems that have nothing to do with the situation, it's made it worse."
Residents and business leaders say they are increasingly concerned by what they see as a failure of leadership. The feud between Miller and Thompson, for instance, had implications for all of the city's 500 employees; for about a year, the city did not pay its workers by direct deposit -- now standard in most cities. The reason: a dispute between Miller and Thompson over how many people the mayor had hired. Now, Miller said that if he speaks with the mayor's staff, it is "only on the sly." Leaders in neighboring cities say they worry that Harrisburg's collapse casts a pall over the state.
Just two other U.S. cities -- Vallejo, California, and tiny Central Falls, Rhode Island -- have declared bankruptcy in recent years, and what happens here could set a precedent for other troubled cities.
Although much of Harrisburg's debt problems can be traced back to the city's costly revamp of a trash incinerator, the city also faces some of the same long-term challenges as other American cities.
Vacant houses and pocked streets mar the landscape just blocks from the historic state capitol. Many of its wealthiest residents fled to the suburbs during the past decades. About a third of those who remain live below the poverty line. And, as with cities across the country, pension costs are rising.
But Harrisburg has been pulled from the brink before. In the early 1980s, the city was named the second most distressed in the country and was plagued with high crime and high unemployment.
Enter Stephen Reed, then a young man with big ideas. Elected mayor in 1981 at the age of 32, Reed dreamed of turning the city into more than an afterthought on the Amish Country tour maps.
He opened a Civil War museum and planned a slew of others, including a sports hall of fame and a Wild West museum to celebrate Harrisburg's role in America's westward migration.
Never mind that the city is about a thousand miles east of the Mississippi River, more than 1,600 miles away from the Alamo, and more than six months by wagon train to the California coast, give or take a hard winter.
The project became a passion for Reed, who friends say lived for the city. He even traveled around the American West as often as he could, hand-selecting items for the museum.
Reed, who once described his management style as "autocratic," told Reuters last year that the city had spent $15 million on museum artifacts -- including $45,000 for a tomahawk that may or may not have belonged to Crazy Horse, chief of the Lakota tribe. (The chief fought at the Battle of the Little Bighorn; his connection to Harrisburg remains unclear.)
Money for the museum came from a special fund for capital projects, Reed said at the time. The fund was supported by fees earned on bonds issued by the Harrisburg Authority, which owns the incinerator.
'DISCUSSIONS WITH GOD'
In 2003, the federal government called for the incinerator to be shut down. It was releasing dangerous levels of dioxin, a chemical linked to cancer and birth defects, and it sits adjacent to the city's largest housing project.
The city had a choice. It could close the incinerator, or it could equip the plant with new technology needed to keep it open. The city opted to keep the facility open and hired the lowest bidder to do the work.
The project carried considerable risk. The company, Barlow Projects, had never handled a project the scale of the Harrisburg incinerator. Moreover, the deal did not have a performance bond to insure the city in case the company failed to finish.
Thompson, then a city council member, said she had had "intimate discussions with God" about the deal. She voted for it. Today, she and other officials say they would have voted against the project had they known how risky it was.
Others warned of the peril. At a meeting in late 2003, the council heard from residents, many of whom opposed the deal. Perhaps most prescient was Mike Ewall, an environmental activist from Philadelphia. "I'm telling you," he said, "this project will put the city into bankruptcy."
Costs soon spiraled upward, and by 2007, Barlow Projects had filed for bankruptcy. Former Harrisburg Authority board member Fred Clark said city officials are not wholly to blame.
"Could you say we were negligent? Yes," Clark said. But, he added, city officials were "lay people."
"No one knew that we were on the Titanic," he said.
As more residents in Harrisburg came to see the city as a sinking ship, Reed's Wild West museum project became a symbolic anchor.
Looking to raise money quickly, the city council voted to sell some of the items Reed had painstakingly collected. The city netted $1.66 million in two auctions in 2007 and 2008.
In spring 2008, an adviser to Reed took then-council president Thompson to see the remaining items, housed in a 15,000 square foot warehouse. The adviser, Jeb Stuart, said Reed had envisioned the museum to be almost like a theme park. Thompson had no such visions.
As she entered the building, Stuart recalled, Thompson expressed shock at the vast collection: saddles and stage coaches, Doc Holliday's dentist chair, a table where Wyatt Earp once played poker.
"She never embraced the museum concept," said Stuart, who now works as a heritage tourism consultant.
Said Thompson: "I referred to the artifacts - 11,000 of them - as reminding me of my grandmother's attic."
In 2009, Thompson challenged and defeated Reed in the Democratic primary and went on to win the mayoral election. President Barack Obama had just been elected, and Harrisburg's majority black population turned out to support Thompson, who is African-American.
"They were hyped about an African-American becoming president and she ran on his same platform of change," said councilwoman Williams, who also is black.
Then-Gov. Ed Rendell, a Democrat, also endorsed Thompson. "She cares about the people of Harrisburg," Rendell said, according to the Harrisburg newspaper, The Patriot-News. ". I think she knows what needs to be done."
SNOWBALLS AND INSULTS
But as the city's financial problems worsened, so too did the relationships between Harrisburg's leaders -- and with their constituents.
Last winter, several dozen residents rallied outside City Hall. They called on Thompson to step down and hurled insults - and snowballs - toward her second-floor office window. The mayor watched from behind the glass, smiling, as she waved and gave a thumbs-down to the protesters.
In September, four former aides to Thompson spoke to The Patriot-News. In videotaped testimonials, parts of which were posted online, the aides describe an environment of paranoia in City Hall.
They pointed to the mayor's insistence that doors in her suite of offices be kept locked at all times. Chuck Ardo, a veteran Pennsylvania political strategist who served as Thompson's communications director, told Reuters that Thompson once berated him for not immediately locking his door after stepping out of his office.
The former staffers also said Thompson had failed to separate her religious beliefs from her duties as mayor. In one of the testimonials, Joyce Davis, who resigned as Thompson's communications director after two months on the job, said Thompson once threw her eyeglasses at her and exhibited "illogical behavior."
At one point, when Davis considered stepping down, Davis said she recalls what Thompson said: "God told her, clearly in her kitchen, that I was where I needed to be, there, and I was not to go anywhere," Davis recounted to The Patriot-News.
"I'm a person of faith, so I understand that people have faith and that informs their decisions," Davis said. "But there is something else going on here."
Davis, who was a journalist before going to work for Thompson, told Reuters that she and the other former staffers went to The Patriot-News out of concern about what she called a "serious leadership crisis."
Ardo recalled Thompson advising against a plan to work with Miller, the city controller. The reason: She had had a religious vision in which she was instructed not to trust him, Ardo said.
Thompson told Reuters that the former staffers "were deemed not competent to hold important positions of public trust." She said Davis is "given to self-pitying exaggeration of the facts" and was "an embarrassment in her position."
Ardo, she said, "does not understand the importance of office security, secure conversations and so forth."
As for Miller, the city's controller and her likely challenger in 2013, Thompson said she is "always polite" when she sees him.
'PEAS AND LIVER'
There has been no shortage of rescue plans for Harrisburg. But all would force the city to sell the incinerator and to sell or lease its parking garages, among the city's few major sources of income. That way, it would pay off its debts immediately.
The state hired consultant Julia Novak in January to develop a financial recovery plan for the city. "It's as if we've invited you to dinner but all we're offering you is peas and liver," Novak said in presenting her plan to the city council earlier this year. "But it is the right diet."
Williams, Susan Brown-Wilson and two other council-members, Eugenia Smith and Brad Koplinski, disagreed. They want the city's creditors and their insurer to contribute at least $100 million to help the city pay off its debts. (The bonds are backed by the city and the county).
"It's Main Street versus Wall Street, and we are on the side of Main Street," Smith said.
Koplinski worries that if the city paid creditors now and ran out of money again, it might have no choice but to decimate its police force, cut services to the elderly and close fire stations.
The three other council members, including the council president Gloria Martin-Roberts, opposed the bankruptcy move and continue to back Thompson.
The schism troubles political leaders across the state. At a meeting this month in Philadelphia, Pennsylvania mayors voiced concerns to Thompson about the wider impact of the turmoil in Harrisburg. They worried not only that their ability to borrow might be hampered by a Harrisburg bankruptcy but also about the precedent a state takeover could set.
"We wanted to give them a nudge, and point out we really have a dangerous situation that sets bad precedent," said Thomas McMahon, the mayor of Reading and president of the Pennsylvania League of Cities.
From Pittsburgh to smaller towns such as Reading and Scranton, cities in Pennsylvania had cooperated when the state asked them for a rescue plan.
Last week, because of what's happening in Harrisburg, the governor signed legislation that makes takeovers of troubled cities easier.
"We think that a bill like this starts to interfere, or replace the power of the elected officials," McMahon said. "It becomes very murky."
On several occasions, McMahon said he has told Thompson and city council members that they need to set aside their differences and agree on a plan. "Unfortunately, the relationship between the mayor and the council has really degenerated," he said.
This week, Gov. Tom Corbett, a Republican, declared a state of emergency for Harrisburg, a move that allows him to appoint someone to make the city's spending decisions. Meantime, the dysfunction has made the city into a national punch-line.
Last Friday, TV host Keith Olbermann skewered Thompson for her summer prayer meeting.
"Remarkably, it did not simply rain dollar bills, even after the prayer and fast," he said. Thompson shot back, saying at a civic event that she would keep Olbermann and his ratings in her prayers.
For Harrisburg residents, however, the situation is no laughing matter.
"It looks like we've elected incompetent leaders," said Kathleen Penles, a 60-year old retired state worker and Harrisburg resident. "It is very embarrassing."
(Editing by Blake Morrison)
(Reporting By Edith Honan and Kristina Cooke)