Pennsylvania Senate threatens state control of Harrisburg

Reuters News
Posted: Jun 28, 2011 7:08 PM
Pennsylvania Senate threatens state control of Harrisburg

By Edith Honan

HARRISBURG (Reuters) - As Pennsylvania's deeply indebted capital of Harrisburg weighs a rescue plan proposed by the state, the Pennsylvania Senate passed a bill on Tuesday that could force the city to accept the proposal or face a takeover.

By a vote of 29 to 21, the Senate approved legislation to create a three-member management board to take control of the city if the Harrisburg City Council fails to accept the state's recommendations. The bill has not yet been taken up by the state's lower house.

Earlier this month, a team of state-appointed advisers called upon the city to sell a major money-losing incinerator, renegotiate labor deals, cut jobs, and sell other assets.

The Harrisburg City Council, which has until July 23 to adopt the rescue plan, has requested that Mayor Linda Thompson prepare for bankruptcy as an option of last resort.

A bankruptcy filing could carry a stigma that might freeze Harrisburg, a city of 50,000 people about 100 miles west of Philadelphia, out of the municipal debt market.

State Senator Jeffrey Piccola, a sponsor of the takeover bill, said in a statement that it was a response to the fact the city was still considering a bankruptcy filing.

"We've watched and waited for the city of Harrisburg to act responsibly for over a year. Instead, they have thumbed their noses at the Act 47 program and process," Piccola said.

Last December, with Harrisburg facing the prospect of bond defaults, deep service cuts, or worse, Pennsylvania officials put Harrisburg under its so-called Act 47 law, which obliges faltering cities to implement plans to ward off Chapter 9 bankruptcy filings.

In a news conference on Tuesday, the mayor said she agreed with most of the Act 47 recommendations and opposes bankruptcy. But she said Piccola "has to respect the publicly elected officials in this city."

At the root of Harrisburg's troubles is a financing scheme to fund its state-of-the-art trash-burning plant, which left the city with roughly $300 million in debt.

The incinerator is owned by the Harrisburg Authority, a separate municipal entity, but the city and the surrounding Dauphin County guarantee much of that debt.

(Reporting by Edith Honan; Editing by Ellen Wulfhorst and Jerry Norton)