Harrisburg, Pa.’s mayor, council split over bankruptcy (w/ related video)

City council members for state capital Harrisburg, Pa., filed for Chapter 9 bankruptcy on Wednesday, but the city’s mayor says the filing is illegitimate. Meanwhile, legislation has been proposed that would allow the state to appoint a receiver who would take over the city’s financial operation from both council and mayor.

According to bankruptcy documents, the city is about $458 million in debt, most of it from creditors and six pending legal actions by creditors over outstanding bond issues related to the Harrisburg Materials, Energy, Recycling and Recovery Facilities, a trash incinerator the city was forced to overhaul a few years ago. The city council filed the bankruptcy claim, signed by City Councilmember Susan Wilson, in federal court after hiring Bryn Mawr, Pa.-based attorney Mark Schwartz.

However, Harrisburg Mayor Linda Thompson opposed the move, saying in a statement on the city’s website that the city’s Acting Solicitor Jason Hess had advised her that the council’s actions “were of ‘no force and effect’ because the passage of those resolutions, without having been approved by the Office of the Solicitor prior to introduction, is a violation of City Ordinance 1-201.1(d).” “This action clearly violates city law and is indicative of the careless disregard for procedure and process that has come to represent the actions of [several] council members,” Thompson said in the statement. “I will proceed with the implementation of my recovery plan, and I welcome any constructive ideas members of city council might bring to the current recovery plan.” Schwartz said in a letter to Hess that, because Hess had not officially been appointed solicitor, the council had the right to waive his opinion.

Thompson also said the bankruptcy option is “hugely unpopular with registered voters in the city of Harrisburg,” but Councilmember Brad Koplinski, one of the supporters of the bankruptcy filing, says they have no choice. The recovery plans presented by Thompson and the state under the state’s Financially Distressed Municipalities Act of 1987, commonly known as Act 47, would still leave debt and mandate the sale of city assets without providing a new source of revenue to make up for the loss of those assets, Koplinski says. “The revenues were overestimated, the liabilities and expenses were underestimated, and after the assets are sold and the bondholders are paid, our city would have to undergo substantial increases in taxes and fees to maintain the capital and operating budgets. This would be unsustainable, and we would have to file for bankruptcy in three to five years, anyway,” Koplinski says. “By filing now, we’re able to make sure that all the stakeholders are able to get around the table, and have a fair and impartial federal bankruptcy judge determine what is equitable and the right thing for Harrisburg and its taxpayers.”

Koplinski also says legislation that the state’s legislature is expected to consider next week that could allow the state to appoint a receiver to take over the city’s finances would eliminate potential sources of revenues, limit the city’s ability to negotiate with creditors and make it harder to file bankruptcy if needed. He also says a state-appointed receiver would have unlimited power to sell all city assets, and still potentially file bankruptcy. “That’s unfair and un-American,” he says.

State Rep. Glen Grell (R-Cumberland), one of the sponsors of the proposed legislation, said in a press conference that it was unfortunate that the mayor and council had come to an impasse, and the state had tried to encourage the parties to reach a resolution on their own. “But, it’s become apparent that that’s not going to happen,” he said. “Unfortunately, Harrisburg has the distinction of being the only community in Pennsylvania ever to seek state assistance under Act 47 and to refuse or fail to implement a recovery plan.”

The legislation, proposed on Sept. 27, would allow the governor to declare a state of fiscal emergency in the city and immediately direct the secretary of the Department of Community and Economic Development to develop an emergency action plan to provide for the city’s vital and necessary services, including police and emergency services, water and sewer services, trash pickup and other services. The governor also could petition Commonwealth Court to appoint a receiver for the city in the event the city council fails within a month of the declaration to adopt a plan to bring the city on the path to recovery. “[Co-sponsor of the bill State] Sen. [Jeff] Piccola and I have the same goal in mind, to break the political stalemate and get the city of Harrisburg on the road to financial recovery,” Grell said in a statement when the plan was announced. “The city, and for that matter the entire region, cannot afford to have more delay. Harrisburg’s fiscal condition impacts us all.”

Read Thompson’s statement and Grell’s statement and watch his press conference about the Harrisburg situation below.