Harrisburg Bankruptcy Petition Filed as Debt-Saddled City Faces State Takeover

Pennsylvania's capital city filed for bankruptcy on Wednesday, as Harrisburg faces a debt crisis and hundreds of millions of dollars in creditors and claims.

A Pennsylvania attorney, Mark D. Schwartz, filed Harrisburg's petition for Chapter 9 protection, named for the part of the bankruptcy code for municipalities.

The Harrisburg City Council Tuesday night voted to give Schwartz the authority to file the petition, according to a local report.

This was a last resort, Schwartz said in an interview after the council voted, according to Bloomberg News.

A spokesman for Mayor Linda Thompson said Schwartz has no authority to file a bankruptcy petition on behalf of the city.

The city solicitor says that the hiring of that attorney and the actions the attorney's taken have no standing under city law and will have no effect, Robert Philbin, director of communications for Harrisburg, told IBTimes.

Cities are rarely forced to file for bankruptcy, but it does occur. The largest municipal bankruptcy in history so far was initiated in 1994 for Orange County, Calif., because of a local official who borrowed money to make risky investments.

A City in Debt

The city meets the ... definition of insolvency, because it has repeatedly failed to pay the guaranteed incinerator bond debt as it has become due, the petition said.

Harrisburg, a city of nearly 50,000, incurred its debt through a trash-to-energy incinerator project that has failed to bring in enough revenue. The city's total guaranteed debt is $242 million, with $65 million overdue, according to the petition.

The size of the outstanding bond debt is overwhelming, the petition said.

Harrisburg also faces $458 million in creditors and claims.

Further complicating Harrisburg's situation is six pending court cases from creditors seeking payments that are beyond the ability of the city to pay, now or ever under current circumstances, according to the petition.

State Action

Thompson, Harrisburg's mayor, and the City Council have been at odds over the best plan to address the city's financial situation. In August, the City Council rejected Thompson's recovery plan, which included a property tax hike.

Without a local recovery plan, the Republican-controlled Pennsylvania state government is set to pass legislation allowing the state to take over Harrisburg.

Under the takeover plan, Gov. Tom Corbett would be able to declare a fiscal emergency and institute an advisory board with an appointed receiver.