City Council in Pa. capital again seeks bankruptcy

AP News
Posted: Dec 11, 2011 9:46 AM
City Council in Pa. capital again seeks bankruptcy

The City Council has appealed a judge's decision to throw out the bankruptcy petition of Pennsylvania's debt-choked capital city, its attorney said.

The appeal was filed Saturday in federal court, City Council attorney Mark Schwartz said in an email.

Last month, a federal bankruptcy judge ruled that Harrisburg may not seek bankruptcy protection, calling such a filing illegal. That ruling cleared the way for the state to take over the city.

The judge said the city had been legally barred by a separate state law, signed June 30 by Gov. Tom Corbett, from seeking bankruptcy protection and, in any case, had no authority to go over the mayor's head to file it.

Schwartz said he felt that decision was wrong.

"As I have said, with all due respect, I feel that the decision was in error," he said. "Moreover, this is a case that could very well end up in the U.S. Supreme Court."

Harrisburg is dogged by a number of financial problems, but the $300 million 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 the site or to finance an overhaul, the 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. Beset by environmental problems and fines for years, it was shut down by federal regulators in 2003.

Now Harrisburg city residents now pay among the highest trash-disposal rates in the nation, while the incinerator can't generate nearly enough money to pay the debt.

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. The Republican governor and Democratic Mayor Linda Thompson had opposed the petition.

This month, three Harrisburg residents had filed a lawsuit to prevent the state from taking over the city's finances.

But the next day, a state Commonwealth Court judge approved Corbett's appointment of a municipal bond attorney to lead the state's takeover of Harrisburg. The receiver, David Unkovic, would have the authority to sell city assets and sign contracts, though a judge must approve his plans. He wouldn't be empowered to raise taxes.

Corbett and state lawmakers moved forward with the takeover after city officials failed to reach an agreement on a repayment plan under a state program for financially struggling municipalities.