Harrisburg, Pa., council set to vote on recovery plan

Reuters News
Posted: Aug 31, 2011 5:03 PM
Harrisburg, Pa., council set to vote on recovery plan

By Edith Honan

HARRISBURG, Pennsylvania (Reuters) - Pennsylvania's debt-laden capital of Harrisburg is due to vote on a rescue plan on Wednesday amid warnings it could miss a bond payment and run out of money to pay city workers in September.

Harrisburg -- a city of 50,000 about 100 miles west of Philadelphia -- is one of a handful of U.S. cities and counties that have teetered toward economic collapse in the wake of the 2007-09 recession. A string of failures could rattle the $2.9 trillion U.S. municipal debt market.

The Harrisburg City Council -- which in July rejected a state-approved rescue plan -- is due to vote on Wednesday night on a similar plan put forward by Mayor Linda Thompson.

In an August 23 letter to the mayor, Pennsylvania Governor Tom Corbett threw his support behind the mayor's plan and threatened a state takeover of the city's finances if the council rejects it. Corbett also warned there would be no bailout.

"This is the last best chance for all stakeholders to agree on a process and a plan," Corbett said. "Indeed, if the city continues down the path of irresponsible economic decision making, it is probable that legislative action will result in the city losing control of it's ability to make such decisions."

"If there is no plan approved at this point...the Commonwealth will not bail the city out," Corbett said in the letter.

At the root of Harrisburg's troubles is a complicated financing scheme used to fund a state-of-the-art revamp of its trash-burning plant that left the city with $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.

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

But in July, the Harrisburg City Council rejected a state-approved rescue plan, which called on the city to sell the incinerator, renegotiate labor deals, cut jobs, and lease its parking garage.

The city is saddled with about $300 million in incinerator debt, and is due to make a $3.3 million general obligation bond payment on September 15.

(Reporting by Edith Honan; Editing by Andrew Hay)