Thread: PA. Capitol Backruptcy Filling Not Legal

Harrisburg, Pa., City Council Files for Bankruptcy, But Mayor Says Petition Is Illegal

Published October 12, 2011
Associated Press

HARRISBURG, Pa. -- 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.

http://www.foxnews.com/politics/2011/10 ... z1abyUn7zJ

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Harrisburg mayor petitions against bankruptcy

By Chip Barnett | Reuters – 37 mins ago...

(Reuters) - Harrisburg Mayor Linda Thompson fired the first salvo against the city's bankruptcy filing, submitting a court petition late Thursday asking for the filing to be dismissed.

On Tuesday, in a bid to resolve its debt crisis, the Pennsylvania capital's City Council vote 4-3 to file for Chapter 9 municipal bankruptcy and hired a special lawyer to file documents with the court.

The filing has stirred up a host of conflicting views and debate about the legality of the council's move. Mayor Thompson has said she is "ashamed" of the council's behavior.

In Thursday's court documents, the mayor asserted the bankruptcy petition was invalid and requested an immediate conference to address the matter and a hearing to dismiss the case.

The mayor's petition said pleadings to the court would be filed shortly.

The Pennsylvania capital's crisis has been a year in the making. The city of about 50,000 is hampered by $300 million in debt incurred from an expensive revamp of its incinerator and is struggling to fund key city services.

Harrisburg is one of a handful of municipalities that has flirted with bankruptcy in the wake of the recession of 2008 that devastated budgets in state and local communities. Some say it could become a touchstone for whether other cities will follow this path to extract concessions from creditors and others.

In an interview with Reuters Insider on Thursday, Mark Schwartz, an attorney for the city council, said the Chapter 9 filing was "absolutely" legal, rejecting charges from the mayor and the surrounding Dauphin County that the council did not have the authority to take such a step.

City Controller Dan Miller concurred, telling Reuters Insider that the filing was the right move for the debt-strapped city.

"What I really advocate for is to use the leverage of bankruptcy." he said. "It would be great if we didn't have to go into bankruptcy and as we know, Jefferson County, Alabama, never went into bankruptcy although they voted three times to enter bankruptcy and I would like us to do the same thing."

On Thursday, Charles Zwally, special council for Dauphin County, said the county was weighing its options.

"We're reviewing it now and we're advising the county...We don't believe that they are authorized to file," he said.

Bond insurer Assured Guaranty also questioned the legality of the filing.

Pennsylvania Governor Tom Corbett has said the city would be better off if it agreed to a rescue plan under the state's Act 47 program for distressed cities which has seen Philadelphia and other cities through crises. His office opposes the bankruptcy.

"The governor and the bond insurer and the creditors are all jostling for, they're still pushing their lawsuits which basically should be stayed by this proceeding," said Schwartz.

At the root of Harrisburg's troubles is a financing scheme used to fund a state-of-the-art renovation of its trash-burning plant that left the city deeply in debt.

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

In December 2010, with Harrisburg facing the prospect of bond defaults, deep service cuts, or worse, Pennsylvania officials put the city under its Act 47 law, which obliges faltering cities to implement plans to ward off Chapter 9 municipal bankruptcy filings.

In July, the City Council rejected a state-approved rescue plan, which called on the city to renegotiate labor deals, cut jobs, and sell or lease the city's major assets -- its parking garages and the incinerator. In August, the council again rejected a similar plan.

http://news.yahoo.com/harrisburg-mayor- ... 17766.html

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