(Reuters) - A Pennsylvania judge on Monday ordered Harrisburg, the state's cash-strapped capital, to suspend debt service payments on its troubled incinerator and to implement a 1 percent tax hike.
Commonwealth Court Judge Bonnie Leadbetter ruled that the city should not make any further debt payments on its waste-to-energy incinerator - which helped plunge the city into at least $320 million in debt - until further notice.
An attorney for Harrisburg's state-appointed receiver, William Lynch, said during a court hearing last week that the city would be $500,000 in the hole if it made a $3.4 million debt service payment due in September.
Leadbetter also ordered the city council to enact a 1 percent hike on residents' earned income within 15 days. The increase, which city council members were fighting, is temporary but effective immediately upon implementation, for at least one year.
Revenue generated from the tax hike can only be used to fund essential city services, she ruled.
The tax hike was a key provision of Lynch's recovery plan for the city, which is under state oversight. Leadbetter is overseeing the implementation of the plan.
"We hope this will lead to some real cooperation with City Council as we go forward," Lynch said in a statement.
Leadbetter shot down one other provision of the plan that called for the city to hire a communications director at an annual salary of $75,000.
(Reporting By Hilary Russ; editing by Todd Eastham and Bob Burgdorfer)