Corbett launches state takeover of Pa. capital

AP News
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Posted: Oct 24, 2011 9:29 PM
Corbett launches state takeover of Pa. capital

Gov. Tom Corbett launched a state takeover of the heavily indebted capital city on Monday by declaring a fiscal emergency in Harrisburg _ a move viewed as the state's most aggressive intervention yet into the affairs of a Pennsylvania city and one that raises new legal questions.

Corbett, a Republican, made the declaration four days after signing a law that grants him the ability to take unprecedented control over much of Harrisburg's finances, including the ability to use the city's money to ensure that government continues to operate services, issue paychecks to employees and make pension and debt payments.

"City Council's failure to enact a recovery plan in order to deal with the city's distressed finances has led me to declare a fiscal emergency," Corbett said in a statement. "This action ensures that vital services will continue and public safety will be protected."

For now, Corbett will wait to take action on the city's finances until his secretary of community and economic development, Alan Walker, develops an emergency action plan in the next 10 days, a Corbett spokeswoman said.

Ultimately, the law allows Corbett able to pursue an even tighter grip on the city: Appointing a receiver who would have the power to sell city assets, approve contracts and file for federal bankruptcy protection, but not raise taxes, with a goal of forcing it to pay down the approximately $300 million debt tied to the city's ill-starred trash incinerator.

The likelihood of Corbett's takeover hastened a move by a divided City Council _ in defiance of Corbett _ to file a Chapter 9 bankruptcy petition in federal court earlier this month as a way to force creditors to forgive a substantial part of the debt.

But the new municipal takeover law, which opponents say is unconstitutional, opens up a legal gray area as to how much authority the state can wield over Harrisburg while the city has protection from creditors.

"Those are open questions that I'm pretty sure have never come up in one of these cases before," said Widener University law professor Juliet Moringiello, who studies bankruptcy law.

The judge has yet to decide whether Harrisburg's petition will be accepted and has set a Nov. 23 court date for oral arguments on legal questions surrounding the filing.

Neil Grover, a lawyer who lives in the city and co-founded the taxpayers' group Debt Watch Harrisburg, said he was disappointed at the latest turn of events and worried about how the governor will use the sweeping powers given to him.

"We're concerned about the extraordinary powers the legislation gives the governor as of this moment, and they are extraordinary," Grover said.

The first concern, he said, is over how Corbett will apply the law, although Grover also suggested that he is doubtful that the Corbett administration has much room to maneuver given the authority of a bankruptcy court.

Mayor Linda Thompson, a Democrat who opposes the bankruptcy filing and has sought Corbett's backing in her stalemate with the City Council, called on council members to give her an acceptable plan to take to the state and avert the full breadth of a takeover.

"If we don't attempt to solve our own fiscal problems, the alternatives will be far worse," she said in a statement Monday.

Corbett's declaration started a 30-day clock for Harrisburg, a city of about 50,000 residents 100 miles west of Philadelphia on the Susquehanna River in the southern part of the state.

If the 30 days pass without an agreement between the city and the state on a financial plan, the state Commonwealth Court could authorize the appointment of a receiver named by the governor.

The major question is who will pay off the incinerator debt.

Already, the city has missed tens of millions of dollars in payments on the incinerator debt _ its missed payments even exceed its approved operating budget of $55 million this year. But the City Council has rejected a state-sanctioned plan to pay down the debt and has been unable to agree on a repayment strategy with Thompson, prompting the Republican-controlled Legislature to speed the takeover bill to Corbett's desk.

Republican lawmakers worried that Harrisburg would seek court approval of a tax on people who commute into the city for work, or that a bankruptcy filing would raise borrowing costs for other local governments and inflict losses on Dauphin County, which is suing the city for debt payments it fronted.

Harrisburg's plight can be traced primarily to a history of bad financial decisions in a city that, for decades, watched its population and industrial core shrink, leaving it with a heavily tax-exempt property base and more than a quarter of its families living in poverty, or nearly three times the national rate, according to census figures.

The trash incinerator began operating on the city's industrial southern edge in 1972, generating steam heat for steel mills and downtown office buildings. In the 1980s, it began generating electricity.

But it was beset by mechanical and environmental problems for years. Faced with a permanent shutdown in 2003 ordered by federal environmental regulators, City Council voted for an expensive overhaul of the already debt-saddled incinerator in hopes that it would one day emerge as a profitable investment.

The renovation took longer than expected, and the city needed to borrow tens of millions of dollars more to complete it. Today, Harrisburg city residents pay among the highest trash-disposal rates in the nation, while the facility doesn't generate nearly enough money to pay the debt.