PA Capital City Files Chapter 9 Bankruptcy Petition
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PA Capital City Files Bankruptcy Petition

October 20, 2011


Harrisburg, Pennsylvania’s capital city, filed a petition for Chapter 9 bankrutpcy protection last week, according to Reuters. But sources note that the court might reject the petition for various legal reasons. First, Harrisburg’s mayor, Linda Thompson, has declared in statements that the city council has no authority to file a bankruptcy petition on the city’s behalf.

The bankruptcy petition was filed after a 4-3 vote by the city council, by a city council member. According to Thompson, though, the city’s mayor and solicitor must jointly file a bankruptcy petition in order for it to have legal weight.

The second potential roadblock to Harrisburg’s Chapter 9 bankruptcy case is Pennsylvania state law, which prohibits so-called “third class” cities from seeking bankruptcy protection. Harrisburg, it seems, falls into the “third class” category.

Because of the various impediments to Harrisburg’s debt relief, the mayor’s communications director has reportedly predicted that the bankruptcy filing will fail on its own, without anyone contesting the filing.

Infrastructure Problems & “Imminent Jeopardy”

Still, though, the city clearly needs help with its debts. Currently on the hook for $458 million in creditors and claims, Harrisburg can attribute most of its financial woes to an overhaul of its trash incinerator. The city is apparently already $65 million past due on payments for the revamp, with a total guaranteed debt of $242 million.

Worries about that debt and others led the city council to announce last week that it was in “imminent jeopardy” of failing to provide for the safety and health of its citizens if required to repay its existing debts.

If the bankruptcy petition is denied, it is unclear how Harrisburg will resolve its debt problems. Creditor negotiations seem unlikely because such a large portion of its debts involve the incinerator (owned by Harrisburg Authority); according to sources, the city and Harrisburg Authority have not been able to come to an agreement about how to settle the debt.

Intervention from the State

Pennsylvania’s state Senate is expected to vote this week on a measure that would allow Governor Tom Corbett to take control of the city’s financial functions, most likely by appointing a person to make major financial decisions for the city.

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