Harrisburg, mayor petitions against bankruptcy

Reuters News
Posted: Oct 14, 2011 10:38 AM
Harrisburg, mayor petitions against bankruptcy

By Chip Barnett

(Reuters) - Harrisburg Mayor Linda Thompson fired the first salvo against the city's bankruptcy filing, submitting a court petition late Thursday asking for the filing to be dismissed.

On Tuesday, in a bid to resolve its debt crisis, the Pennsylvania capital's City Council vote 4-3 to file for Chapter 9 municipal bankruptcy and hired a special lawyer to file documents with the court.

The filing has stirred up a host of conflicting views and debate about the legality of the council's move. Mayor Thompson has said she is "ashamed" of the council's behavior.

In Thursday's court documents, the mayor asserted the bankruptcy petition was invalid and requested an immediate conference to address the matter and a hearing to dismiss the case.

The mayor's petition said pleadings to the court would be filed shortly.

The Pennsylvania capital's crisis has been a year in the making. The city of about 50,000 is hampered by $300 million in debt incurred from an expensive revamp of its incinerator and is struggling to fund key city services.

Harrisburg is one of a handful of municipalities that has flirted with bankruptcy in the wake of the recession of 2008 that devastated budgets in state and local communities. Some say it could become a touchstone for whether other cities will follow this path to extract concessions from creditors and others.

In an interview with Reuters Insider on Thursday, Mark Schwartz, an attorney for the city council, said the Chapter 9 filing was "absolutely" legal, rejecting charges from the mayor and the surrounding Dauphin County that the council did not have the authority to take such a step.

City Controller Dan Miller concurred, telling Reuters Insider that the filing was the right move for the debt-strapped city.

"What I really advocate for is to use the leverage of bankruptcy." he said. "It would be great if we didn't have to go into bankruptcy and as we know, Jefferson County, Alabama, never went into bankruptcy although they voted three times to enter bankruptcy and I would like us to do the same thing."

On Thursday, Charles Zwally, special council for Dauphin County, said the county was weighing its options.

"We're reviewing it now and we're advising the county...We don't believe that they are authorized to file," he said.

Bond insurer Assured Guaranty also questioned the legality of the filing.

Pennsylvania Governor Tom Corbett has said the city would be better off if it agreed to a rescue plan under the state's Act 47 program for distressed cities which has seen Philadelphia and other cities through crises. His office opposes the bankruptcy.

"The governor and the bond insurer and the creditors are all jostling for, they're still pushing their lawsuits which basically should be stayed by this proceeding," said Schwartz.

At the root of Harrisburg's troubles is a financing scheme used to fund a state-of-the-art renovation of its trash-burning plant that left the city deeply in debt.

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

In December 2010, with Harrisburg facing the prospect of bond defaults, deep service cuts, or worse, Pennsylvania officials put the city under its Act 47 law, which obliges faltering cities to implement plans to ward off Chapter 9 municipal bankruptcy filings.

In July, the City Council rejected a state-approved rescue plan, which called on the city to renegotiate labor deals, cut jobs, and sell or lease the city's major assets -- its parking garages and the incinerator. In August, the council again rejected a similar plan.

(Reporting by Chip Barnett, David Gaffen and Edith Honan in New York, Tom Hals in Wilmington, Delaware, and Jessica Hall in Harrisburg)