Thread: Capitol of Pennsylvania Files for Bankruptcy Protection

Capitol of Pennsylvania Files for Bankruptcy Protection

Mac Slavo
October 12th, 2011
SHTFplan.com
55 Comments



Back in December of 2010 we published a report in which well known bank and economic analyst Meredith Whitney warned of the coming debt defaults of local and state governments:

It has tenticles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States and certainly the largest threat to the US economy.

In less than a year the Capitol of the State that once hosted the Constitutional Convention, Harrisburg, Pennsylvania, has become the first major government body to file for bankruptcy:

The city of Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection following a vote by City Council, according to a lawyer for the council.

Mark D. Schwartz, a Bryn Mawr, Pennsylvania-based lawyer and former head of municipal bonds for Prudential Financial Inc.’s mid-Atlantic region, said he filed the documents by fax to a federal bankruptcy court last night. The filing couldn’t be confirmed with the U.S. Bankruptcy Court in Harrisburg.

The state capital of 49,500 faces a debt burden five times its general-fund budget because of an overhaul and expansion of a trash-to-energy incinerator that doesn’t generate enough revenue.

“This was a last resort,â€

[b][color=darkred][size=150]Broke is Broke in any Launguage

Spanish - Se rompió
Russian - ЛомалÑ

It Begins: Harrisburg Files For Bankruptcy Protection

Submitted by Tyler Durden
10/12/2011 07:24 -0400
Comments: 108 / Reads: 8,624

We are confident the spinmasters will spin the first major domino in the muni crisis as bullish: after all it "removes uncertainty." Bloomberg reports http://www.businessweek.com/news/2011-1 ... -says.html that "The city of Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection following a vote by the City Council, according to a lawyer for the council.Mark D. Schwartz, a Bryn Mawr, Pennsylvania-based lawyer and a former public finance banker for Prudential Financial Inc., said he filed the documents by fax to a federal bankruptcy court last night. The filing couldn’t be confirmed with the U.S. Bankruptcy Court in Harrisburg.The state capital of 49,500 faces a debt burden five times its general-fund budget because of an overhaul and expansion of a trash-to-energy incinerator that doesn’t generate enough revenue. “This was a last resort,’’ Schwartz said in an interview after the council voted 4-3 to seek bankruptcy protection. “They’re at their wits’ end.’’While bankruptcy would mean the loss of state aid under a law passed in June, it would be preferable to a proposed recovery plan, said Councilwoman Susan Brown-Wilson." Well, at least Jefferson County will not have the dubious legacy of being the first muni to push everyone else over. And now that the precedent has been set (yes, Virginia, it can be done) watch as tens if not hundreds of other cash-strapped towns, cities, localities and other entities follow suit promptly to quite promptly.

More:

“We’re not incompetent,â€

Pennsylvania's State Capital Seeks Bankruptcy Amid 'Overwhelming Debt'

Wednesday, 12 Oct 2011 09:38 AM

Pennsylvania's capital, Harrisburg, filed for a rare municipal bankruptcy on Wednesday in a desperate bid to resolve its debt crisis, but it now faces a showdown with the state over control of the city.

Harrisburg becomes one of the most-high profile cities to opt for the little-used chapter of the U.S. bankruptcy code, most notably used nearly 20 years ago by Orange County, California. Alabama's Jefferson County last month settled with its creditors to avoid what would have been the biggest-ever municipal bankruptcy.

The Pennsylvania capital's crisis has been a year in the making as the city of about 50,000 struggles to pay for critical services as well as roughly $300 million in debt that funded an incinerator project that failed to generate expected cash.

Bankruptcy gives the city "bargaining power" with its creditors and with the state, which is considering a takeover, said Mark Schwartz, an attorney for the council.

"They were tired of being humiliated and denigrated," he said of the council members who voted for a bankruptcy filing on Tuesday.

Orange County, California, filed the largest Chapter 9 bankruptcy in 1994 after it suffered more than $1 billion in investment losses. Vallejo, California, with 120,000 residents, filed for Chapter 9 in 2008, and Central Falls, the smallest city in Rhode Island, the smallest U.S. state, filed earlier this year.

Harrisburg's city council approved the bankruptcy filing in a 4-3 vote. It was opposed by the mayor, and many questioned whether the action, which appears likely to be challenged, was legal.

The bankruptcy has the potential to stoke political passions as it will likely pit firefighters and police against municipal bond investors, who are often perceived to be wealthy retirees, said Peter Kaufman, president of Gordian Group and a financial restructuring specialist.

Pennsylvania Governor Tom Corbett has said the city would be better off if it agreed to a rescue plan under the state's program for distressed cities, and his office stressed its opposition to the bankruptcy.

Pennsylvania's state senate will vote on a bill next week that calls for an eventual takeover of Harrisburg and the forced implementation of a fiscal rescue plan. The state house has already passed the bill.

The city council has rejected rescue plans, one backed by the state and one by the city's mayor. Those plans would have called on Harrisburg to renegotiate labor deals, cut jobs, and sell or lease its most valuable assets, including the incinerator and parking garages.

The city council said those plans demanded too much of Harrisburg residents and did not ask enough of the county, bondholders and the bond insurer, Assured Guaranty.

A spokesman for Mayor Linda Thompson said the council's actions could accelerate state approval of a takeover.

"(The bankruptcy) is hugely unpopular, but the council ... is an independent body," said spokesman Robert Philbin.

He also said the city's solicitor had raised questions about the legality of the vote during the meeting on Tuesday. The solicitor, Jason Hess, was not immediately available for comment.

City Controller Dan Miller said on Wednesday, however, the filing was the right move for Harrisburg.

"I think it's the only real option that we had," said Miller, adding that the previous plans rejected by city council would have benefited creditors at the expense of the city.

"They wanted to sell all of our assets and make Harrisburg destitute for decades to come," he said.

Harrisburg's bankruptcy filing wants to go where prior municipal bankruptcies have not: toward cutting the principal owed to bondholders, Kaufman said.

"For perhaps the first time a municipality is talking about compromising its bondholders. That would be very big news, indeed, if it transpired," he said.

Daniel Berger, senior market strategist at Municipal Market Data, said there was very little trading in Harrisburg's bonds on Wednesday. "Investors have written off these bonds for years as distressed credits," he said.

WAVE OF MUNICIPAL BANKRUPTCIES?

About a year ago, many restructuring specialists were gearing up for a wave of municipal bankruptcies to provide much needed work as corporate bankruptcies ground to a halt.

The economy was barely growing, towns and counties were burdened with increased demands for services, and revenue was declining.

Financial analyst Meredith Whitney, one of the few on Wall Street who foresaw the 2008 financial crisis, said last year she expected a wave of municipal bond defaults.

Chapter 9 bankruptcies remain uncommon, however. The process is very expensive, and not all states allow local governments to file for bankruptcy. Governments also have a power ailing companies do not have: the ability to tax.

Despite Harrisburg's filing, municipal bankruptcies will likely remain rare, said Richard Ciccarone, chief research officer and municipal bond specialist with McDonnell Investment Management LLC.

"Bankruptcy proved to be a bad deal for Vallejo," he said. He said it left the city with fewer critical services, such as police protection.

http://www.moneynews.com/StreetTalk/Har ... /id/414123

Harrisburg’s Residents Weigh Bankruptcy Against ‘Fiscal Suicide’

Thursday, 13 Oct 2011 10:07 AM

Elliott Ross pointed to the sidewalk outside his Harrisburg, Pennsylvania, military surplus store, where parking meters are set to be installed to raise money for a city drowning in debt.

The state Legislature is considering taking over the town of 49,500, and Ross applauded the City Council’s bid to file for bankruptcy, a shot at sparing taxpayers the full cost of a money-losing incinerator project that has left Harrisburg laden with debt.

“It’s going to come back to the city,â€

Pennsylvania state capital files for bankruptcy protection


The State Capitol complex dominates the skyline of Harrisburg, Pa., which is taking the rare step of filing for bankruptcy protection from creditors.

By Patrick Rizzo
The potent brew of a weak recovery, falling revenues and high debt has claimed another municipal victim.

This time, it's Harrisburg, Pa., the state capital with a population of 46,000, whose city council voted late Tuesday to file for Chapter 9 municipal bankruptcy protection, according to The Patriot News.

“This really is our only option out there,â€

Related Thread
Harrisburg, Pa., City Council Files for Bankruptcy, But Mayor Says Petition Is Illegal
http://www.alipac.us/ftopicp-1275133.html#1275133

Harrisburg, Pa., Officially Taken Over by State

Thursday, 20 Oct 2011 01:02 PM

Pennsylvania Governor Tom Corbett signed legislation Thursday that allows for the takeover of the state's capital city of Harrisburg, setting up a legal confrontation between the state and the city.

The bill paves the way for the governor to declare a state of fiscal emergency that leads to a recovery plan for Harrisburg, which filed for bankruptcy last week.

Harrisburg, a city of about 50,000, is struggling to pay for essential services as well as about $300 million in debt that funded an incinerator project that failed to generate expected cash.

The Harrisburg City Council voted 4-3 on Oct. 11 to file for a Chapter 9 municipal bankruptcy as a way of resolving a massive debt crisis brought on by the funding of an incinerator that hasn't generated enough cash.

The action immediately generated conflict between the City Council and the mayor, Linda Thompson, the state legislature, and the governor, who dispute the legality of the Council's action in filing for bankruptcy.

A U.S. bankruptcy judge set a Nov. 23 hearing date on the legality of the bankruptcy.

Mark Schwartz, a lawyer hired by the City Council to handle the Chapter 9 bankruptcy case, called the governor's signing of the takeover act "absolutely perverse."

"It's too little, too late," he said in a telephone interview on Thursday, dismissing the new law as "clearly unconstitutional."

Schwartz added that the legislation really didn't do anything since the governor "must now get approval from the bankruptcy court" to take over the city.

Governor Corbett signed the bill in a private ceremony, according to the governor's spokeswoman, Kelli Roberts.

"The bill signed into law today will help to enforce Act 47 when municipalities fail to adopt a fiscal recovery plan, making it clear that if there is a failure to act, the state will intervene," Corbett said in a statement.

Under the law, the governor can declare a fiscal emergency after it is determined the city is insolvent or near insolvency, unable to provide vital services and has not adopted a fiscal recovery plan.

"I remain a strong proponent for municipal governments tackling their own problems and coming together to develop a fiscal recovery plan when necessary," Corbett said. "But when that fails to happen, the state has to take action to ensure public safety."

When a fiscal emergency is declared, the State Department of Community and Economic Development Secretary is granted powers to develop an Emergency Action Plan to coordinate essential services. These services include pension and debt payments.

The governor can then petition the state court for the city to be placed into receivership. The receiver will have 30 days to develop a fiscal recovery plan that is submitted to the court. Once approved, the receiver can implement the plan to take control of the municipality's finances relating to the plan.

Throughout the process, if the city adopts and implements an acceptable fiscal recovery plan, a takeover is averted.

Mayor Thompson said the city will comply with the law. Thompson opposed the bankruptcy filing.

The mayor said in a statement that she will use the current financial recovery plan as the starting point for any discussions, saying implementation of some version of the plan is preferable to entering into receivership or bankruptcy.

"If we don't attempt to solve our own problems, the alternatives will be far worse," Thompson said.

A legislative panel estimated the cost of placing Harrisburg into receivership would be between $2.15 million and $2.55 million in the first year. The costs would be about $1 million for the state and between $1.15 million to $1.55 million for Harrisburg.

"This is all process and no money," Schwartz said. "There's not 10 cents for Harrisburg."

The troubled incinerator is owned by the Harrisburg Authority, a separate municipal entity, but the city and the surrounding Dauphin County guarantee much of that debt.

Twenty years ago, there was a similar conflict between Bridgeport, Connecticut, and its state government when the city chose to file for bankruptcy to deal with sinking revenue and escalating demand for services fueled by a recession.

Connecticut objected to the move and a judge subsequently ruled Bridgeport was not insolvent and therefore did not meet technical requirements for filing under Chapter 9.

http://www.moneynews.com/Headline/Harri ... /id/415197

Cash-Strapped PA Capital Cancels Christmas Parade...

Harrisburg Nixes Holiday Parade Over Low Cash

October 21, 2011 11:30 AM


(The state capitol in Harrisburg. File photo)

HARRISBURG, Pa. (AP) — Santa Claus won’t be making his annual early visit to Pennsylvania’s capital city.

Officials in Harrisburg have canceled the city’s annual holiday parade because organizers haven’t raised enough money.

Last year, the cash-strapped capital started requiring special events to pay for themselves. Parks and recreation director Brenda Alton says not enough sponsors have ponied up to keep the floats afloat.

Mayor Linda Thompson says she’s hopeful the parade can be pulled off in 2012.

The parade has traditionally marked the start of the holiday season with floats, bands and balloons and the arrival of Santa Claus.

Parade organizers in the suburban Philadelphia town of Hatboro say a shortage of donations may force them to cut back their parade. Santa may have to hoof it rather than ride a float.

http://philadelphia.cbslocal.com/2011/1 ... -low-cash/