Harrisburg Seeks Bankruptcy, Citing 'Overwhelming Debt'

Harrisburg Seeking Chapter 9 Bankruptcy for 'Overwhelming Debt'

October 12, 2011

AP - Pennsylvania's financially distressed capital city is seeking Chapter 9 bankruptcy, citing overwhelming debt, but Harrisburg's mayor and top city lawyer said the filing signed by a City Council member was not legal.

The petition docketed by U.S. Middle District bankruptcy court Wednesday listed about $458 million in creditors and claims, and said the city faced "imminent jeopardy" from six pending legal actions by creditors related to a debt-saddled trash incinerator.

"The city does not have the ability to pay those money judgments or any significant portion thereof and still provide health and safety services to its citizens and other essential government services," wrote attorney Mark D. Schwartz, who did not immediately return messages seeking comment.

The filing was signed by Councilwoman Susan Wilson after a 4-3 vote by the council in favor of a resolution to authorize it late Tuesday.

A spokesman for Mayor Linda Thompson said Wednesday the council lacks the legal authority to seek bankruptcy.

"There are procedural matters the solicitor objects to, as far as how the resolution was handled, and the quote-unquote hiring of counsel," said Robert Philbin, Thompson's communications director. "The solicitor also says only the mayor, in conjunction with the solicitor, can file for bankruptcy on behalf of the City of Harrisburg."

Philbin said city solicitor Jason Hess believes the bankruptcy filing "will fall on its own."

The trash incinerator is owned by the Harrisburg Authority, and Schwartz wrote that the principal amount the city has guaranteed is about $242 million, with $65 million past due.

"The magnitude of that debt is sufficiently large that it dwarfs the city's other liabilities," Schwartz wrote. "Under the guaranties, the city would need to cover a combined $83 million of past due payments and the 2011 debt service."

The filing said talks with creditors were not likely to produce a solution.

"The size of the outstanding bond debt is overwhelming," it said. "Negotiations are impracticable with one group of creditors where negotiations with another key group have hit an impasse."

The legal move comes the week before the state Senate is expected to take up a House-passed bill to authorize Gov. Tom Corbett or his designee to assume many of the city's financial functions in response to the stalemate between Thompson and a council majority over how best to resolve the financial crisis.

That bill would empower the governor to declare a state of fiscal emergency and install someone to make many of the critical decisions about government spending and operations when a third-class city such as Harrisburg can't work out a plan under the Pennsylvania Municipalities Financial Recovery Act, or Act 47.

Sen. Jeff Piccola, R-Dauphin, who helped craft that bill, said state law prohibits third-class cities from filing for bankruptcy. He said the City Council majority has acted recklessly.

"Rather than wasting precious time on illegal filings and engaging expensive attorneys, the majority of City Council should be about working with the Mayor and the Commonwealth to resolve this crisis via the Act 47 process," Piccola said.

Harrisburg's Act 47 plan has been repeatedly rejected by the City Council.