Pa. capital takeover challenged in federal court

AP News
Posted: Dec 01, 2011 5:31 PM
Pa. capital takeover challenged in federal court

The state takeover of Pennsylvania's financially troubled capital city received a fresh challenge Thursday, as three Harrisburg residents filed a federal lawsuit calling it an unconstitutional violation of their rights and asking for it to be stopped.

The suit names Gov. Tom Corbett, who signed a law on Oct. 20 enabling an unprecedented takeover of Harrisburg, and the Corbett appointee who, if confirmed, would have broad authority to force the city to pay down a massive debt tied to its trash incinerator.

The lawsuit was filed by a former mayoral candidate, a firefighters' union president and a religious leader. It alleges that the law and the state's takeover violate the plaintiffs' constitutional rights to due process and equal protection.

A Corbett administration spokeswoman defended the law as "well within the jurisdiction of the state" as it seeks to put the city back on solid financial footing.

The suit is the latest twist in a battle over who will end up footing the $300 million incinerator debt that dwarfs the city's annual operating budget.

The first attempt to stop the takeover failed last week when a federal bankruptcy judge threw out a petition by a divided City Council to get federal bankruptcy protection for Harrisburg. The judge said the city had been legally barred by a separate state law _ signed June 30 by Corbett _ from seeking bankruptcy protection and, in any case, had no authority to go over the mayor's head to file it.

The Republican governor and Democratic Mayor Linda Thompson had opposed the filing. Supporters of the bankruptcy petition viewed it as the best way to force creditors, such as Dauphin County and bond insurer Assured Guaranty Municipal Corp., to assume part of the incinerator debt.

Also Thursday, a state judge heard arguments in Corbett's case to appoint longtime municipal finance lawyer David Unkovic as Harrisburg's receiver.

The Corbett administration has already ordered several layoffs and increases in parking fines and business license fees. If confirmed, Unkovic would have even more power, including the authority to sell city assets, sign contracts and file for bankruptcy, but not raise taxes. His plans would still require court approval.

Under questioning in court, Unkovic called the financing of the incinerator "disturbing." Asked by reporters later to elaborate on what he meant, Unkovic said he was not prepared to go into detail.

"When you look at the structure of the debt overall and the types of financings that were done over the years, it raises questions about what the ultimate solution was for that incinerator, and whether these financings really were viewed even by the participants at that time as solutions to the problem or whether they were dealing with a short-term problem and moving it down the road a bit," he said.

Thompson and City Council had been unable to come up with a debt repayment plan, as the city fell tens of millions of dollars behind on debt payments and lawsuits piled up.

State lawmakers from suburban Harrisburg began writing the takeover legislation when they became concerned that the city would seek court approval to impose a tax on commuters and file a bankruptcy petition that could otherwise hurt their constituents.

Harrisburg is dogged by a number of financial problems, but the debt on its nearly 40-year-old trash incinerator is the most pressing. Faced with the costly decision to abandon the polluting incinerator and clean up the site, or finance an overhaul, City Council voted for the latter in hopes that it would one day emerge as a profitable investment.

But the renovation went awry and ended up being far more expensive than initially anticipated. Meanwhile, Harrisburg city residents now pay among the highest trash-disposal rates in the nation, while the facility can't generate nearly enough money to pay the debt.