Old Herb Lady
13th October 2011, 08:38 AM
HARRISBURG, Pa.—Pennsylvania's capital city filed for bankruptcy protection from creditors Wednesday, in a case closely watched by other cities and towns looking for ways out of dire financial troubles.
In an unexpected move, the Harrisburg City Council voted late Tuesday night to file for Chapter 9 protection from creditors, Michael Aneiro reports on Markets Hub. Photo: Carolyn Kaster.
.Harrisburg's filing came after a faction of the city council repeatedly rejected a state-backed plan that called for selling or leasing assets to pay down debt.
Pennsylvania lawmakers were expected to pass legislation next week that essentially would amount to a state takeover of the city's financial recovery plan. But late Tuesday, a divided Harrisburg city council voted to file for Chapter 9 bankruptcy protection, becoming the second city to file this year.
The filing comes amid tensions between city officials and state lawmakers, who draw much of their power base from the suburbs. To raise revenue, some Harrisburg officials want to impose a tax on commuters into the city from the surrounding suburbs.
"There is definitely a sense of us versus them,'' said Mark Schwartz, the Harrisburg city council's lawyer, who prepared the filing. "There are members of the city council who don't want to be pushed around anymore."
Harrisburg's longstanding financial troubles and political squabbling are also a potential embarrassment to state officials who work in the city.
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The state capitol building in Harrisburg, Pa., which filed Wednesday for bankruptcy.
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The Patriot-News
Mayor Linda Thompson, who opposes the filing.
."This is really a sore spot with lawmakers because it's occurring in the capital city," said Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College in Lancaster, Pa.
A spokesman for the mayor's office said city employees and bondholders would continue to be paid despite the bankruptcy filing.
For decades cities have avoided the idea of bankruptcy for fear of ruining their standing among bond investors. But legal experts say more cities are likely to use it as a way to seek concessions.
In Jefferson County, Ala., officials last month used the threat of bankruptcy to wrest more than $1 billion in concessions from debt holders, an unprecedented haircut in the municipal-debt market. In August, Central Falls, R.I. filed for bankruptcy protection after retired city workers refused to accept an offer to cut their pensions.
Including Harrisburg, there have been 48 bankruptcies from cities, counties, towns and villages since 1980, according to James Spiotto, a partner at Chapman and Cutler LLC in Chicago and an expert on laws affecting distressed municipalities.
In most cases, the municipalities involved have been small. Different this year is that larger communities, such as the capital city of Pennsylvania and the largest county in Alabama, have considered the bankruptcy option.
More
Analysts See Filing as 'Isolated Event'
Pa. Debt-Insurance Costs Jump on Harrisburg Filing
SmartMoney: Will Muni Bond Worries Spread?
Document: Harrisburg's Bankruptcy filing
.Harrisburg, which has a population of around 47,000, is the largest municipality to file for bankruptcy since Vallejo, Calif. in 2008,according to Mr. Spiotto. Vallejo has a population of approximately 117,000
"To the extent there was a stigma associated with municipal bankruptcy, that is rapidly declining," said David Skeel, a law professor at the University of Pennsylvania.
Recent history shows Chapter 9 is no panacea; Vallejo spent three costly years resolving its 2008 bankruptcy filing. Mr. Spiotto adds that about one in every three municipal bankruptcy cases has been dismissed since 1980.
In Harrisburg, bankruptcy proponents favor taking a tougher line with the state, bondholders and the insurance companies that have backstopped the city's debt.
City Council member Brad Koplinski, one of the four who voted for bankruptcy-court protection, defended the action. "This is the only option," he said. "The taxpayers and the city have been pushed against the wall by the bondholders and the state and to some extent by the administration."
"We know it's not popular," said Mr. Koplinski, who is up for reelection in four weeks. "We felt it was the best thing to do."
Under state law, the city would have to sell off revenue-generating assets and eventually raise taxes on a population that has a poverty rate of about 29%. The plan, he said, would turn Harrisburg into a "ghost town." "Declaring bankruptcy gives the city a better set of tools," Mr. Koplinski said.
The filing will likely provoke a legal response from the state, which passed legislation earlier this year to hinder the city from filing for bankruptcy. The city must also prove to a federal bankruptcy judge that it is technically insolvent, which isn't clear cut in Harrisburg's case, legal experts say.
"From our perspective, it is an illegal action," a spokeswoman for Gov. Tom Corbett, a Republican who took office in January, said of the city's bankruptcy filing. "It won't stand."
Harrisburg is home to a majestic capitol building and dozens of state offices, but the city itself is a relatively poor place. Some Harrisburg officials say that the city's financial problems are compounded by the state, which pays reduced city property taxes on government buildings. State workers work in the city but often live elsewhere. The state-backed plan to address the city's financial mess doesn't include a bailout.
Some of Harrisburg's financial troubles can be traced to the city's trash-burning incinerator. The city agreed to guarantee much of the $310 million debt tied to an incinerator, which turns trash to energy.
The project was supposed to be self-sufficient, but its struggles left the city on the hook for the debt.
Under the state's proposed takeover, city council members would keep their positions but couldn't contradict a governor-appointed receiver's recovery plan.
Mayor Linda Thompson, who opposes bankruptcy, said Wednesday that she was "ashamed" of city council members who voted for the filing and blamed "petty politics' for the standoff.
A recent poll of about 1,000 registered Harrisburg voters showed that 13% support a bankruptcy filing.
But some residents are happy the city council took some action, after a months-long standoff with the mayor and despite the stigma attached to bankruptcy. "Thank goodness the city council finally made a decision," said Scott Balthaser, a 65-year-old retired postal worker.
"Most of us have been disappointed by the lack of leadership," said Mr. Balthaser. "We're languishing. I just want to see us get out of this mire."
http://online.wsj.com/article/SB10001424052970204002304576626752997922080.html
In an unexpected move, the Harrisburg City Council voted late Tuesday night to file for Chapter 9 protection from creditors, Michael Aneiro reports on Markets Hub. Photo: Carolyn Kaster.
.Harrisburg's filing came after a faction of the city council repeatedly rejected a state-backed plan that called for selling or leasing assets to pay down debt.
Pennsylvania lawmakers were expected to pass legislation next week that essentially would amount to a state takeover of the city's financial recovery plan. But late Tuesday, a divided Harrisburg city council voted to file for Chapter 9 bankruptcy protection, becoming the second city to file this year.
The filing comes amid tensions between city officials and state lawmakers, who draw much of their power base from the suburbs. To raise revenue, some Harrisburg officials want to impose a tax on commuters into the city from the surrounding suburbs.
"There is definitely a sense of us versus them,'' said Mark Schwartz, the Harrisburg city council's lawyer, who prepared the filing. "There are members of the city council who don't want to be pushed around anymore."
Harrisburg's longstanding financial troubles and political squabbling are also a potential embarrassment to state officials who work in the city.
Enlarge Image
Close
Reuters
The state capitol building in Harrisburg, Pa., which filed Wednesday for bankruptcy.
.Enlarge Image
Close
The Patriot-News
Mayor Linda Thompson, who opposes the filing.
."This is really a sore spot with lawmakers because it's occurring in the capital city," said Terry Madonna, director of the Center for Politics and Public Affairs at Franklin and Marshall College in Lancaster, Pa.
A spokesman for the mayor's office said city employees and bondholders would continue to be paid despite the bankruptcy filing.
For decades cities have avoided the idea of bankruptcy for fear of ruining their standing among bond investors. But legal experts say more cities are likely to use it as a way to seek concessions.
In Jefferson County, Ala., officials last month used the threat of bankruptcy to wrest more than $1 billion in concessions from debt holders, an unprecedented haircut in the municipal-debt market. In August, Central Falls, R.I. filed for bankruptcy protection after retired city workers refused to accept an offer to cut their pensions.
Including Harrisburg, there have been 48 bankruptcies from cities, counties, towns and villages since 1980, according to James Spiotto, a partner at Chapman and Cutler LLC in Chicago and an expert on laws affecting distressed municipalities.
In most cases, the municipalities involved have been small. Different this year is that larger communities, such as the capital city of Pennsylvania and the largest county in Alabama, have considered the bankruptcy option.
More
Analysts See Filing as 'Isolated Event'
Pa. Debt-Insurance Costs Jump on Harrisburg Filing
SmartMoney: Will Muni Bond Worries Spread?
Document: Harrisburg's Bankruptcy filing
.Harrisburg, which has a population of around 47,000, is the largest municipality to file for bankruptcy since Vallejo, Calif. in 2008,according to Mr. Spiotto. Vallejo has a population of approximately 117,000
"To the extent there was a stigma associated with municipal bankruptcy, that is rapidly declining," said David Skeel, a law professor at the University of Pennsylvania.
Recent history shows Chapter 9 is no panacea; Vallejo spent three costly years resolving its 2008 bankruptcy filing. Mr. Spiotto adds that about one in every three municipal bankruptcy cases has been dismissed since 1980.
In Harrisburg, bankruptcy proponents favor taking a tougher line with the state, bondholders and the insurance companies that have backstopped the city's debt.
City Council member Brad Koplinski, one of the four who voted for bankruptcy-court protection, defended the action. "This is the only option," he said. "The taxpayers and the city have been pushed against the wall by the bondholders and the state and to some extent by the administration."
"We know it's not popular," said Mr. Koplinski, who is up for reelection in four weeks. "We felt it was the best thing to do."
Under state law, the city would have to sell off revenue-generating assets and eventually raise taxes on a population that has a poverty rate of about 29%. The plan, he said, would turn Harrisburg into a "ghost town." "Declaring bankruptcy gives the city a better set of tools," Mr. Koplinski said.
The filing will likely provoke a legal response from the state, which passed legislation earlier this year to hinder the city from filing for bankruptcy. The city must also prove to a federal bankruptcy judge that it is technically insolvent, which isn't clear cut in Harrisburg's case, legal experts say.
"From our perspective, it is an illegal action," a spokeswoman for Gov. Tom Corbett, a Republican who took office in January, said of the city's bankruptcy filing. "It won't stand."
Harrisburg is home to a majestic capitol building and dozens of state offices, but the city itself is a relatively poor place. Some Harrisburg officials say that the city's financial problems are compounded by the state, which pays reduced city property taxes on government buildings. State workers work in the city but often live elsewhere. The state-backed plan to address the city's financial mess doesn't include a bailout.
Some of Harrisburg's financial troubles can be traced to the city's trash-burning incinerator. The city agreed to guarantee much of the $310 million debt tied to an incinerator, which turns trash to energy.
The project was supposed to be self-sufficient, but its struggles left the city on the hook for the debt.
Under the state's proposed takeover, city council members would keep their positions but couldn't contradict a governor-appointed receiver's recovery plan.
Mayor Linda Thompson, who opposes bankruptcy, said Wednesday that she was "ashamed" of city council members who voted for the filing and blamed "petty politics' for the standoff.
A recent poll of about 1,000 registered Harrisburg voters showed that 13% support a bankruptcy filing.
But some residents are happy the city council took some action, after a months-long standoff with the mayor and despite the stigma attached to bankruptcy. "Thank goodness the city council finally made a decision," said Scott Balthaser, a 65-year-old retired postal worker.
"Most of us have been disappointed by the lack of leadership," said Mr. Balthaser. "We're languishing. I just want to see us get out of this mire."
http://online.wsj.com/article/SB10001424052970204002304576626752997922080.html