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Harrisburg, Pennsylvania files for bankruptcy
By Catholic Online (NEWS CONSORTIUM)
October 12th, 2011
Catholic Online (www.catholic.org)
October 12th, 2011
Catholic Online (www.catholic.org)
Harrisburg, the capital of Pennsylvania has battled economic woes
recently. In order to stave off a state takeover of its beleaguered
budget, the city for a rare Chapter 9 municipal bankruptcy on Wednesday.
The city previously defaulted on its debt, cited a "continued erosion
of its finances," in a resolution that was passed, approving the
bankruptcy.
The Chapter 9 bankruptcy filing was passed by a narrow 4-3 vote. The resolution said bankruptcy will provide the city with "the necessary protection from its creditors while it develops and negotiates a plan for adjusting its debts," , Kirk Petroski, the acting city clerk of Harrisburg said.
According to Bloomberg News, the acting city attorney Jason Hess said the measure wouldn't be binding because the city council didn't follow procedure.
The city's fiscal troubles were triggered by an overhaul of the budget and a trash-to-energy incinerator that didn't increase revenue by as much as expected, Bloomberg reported. The state had been considering a takeover of the city's finances and forcing the installation of a fiscal rescue plan.
Chapter 9 filings by municipalities are very rare. According to Alan Gover, a partner at White & Case who has advised municipalities on restructuring options, there have only been 35 such filings since 1981.
"The reason is that Chapter 9 cannot do for municipalities what Chapter 11 can do for troubled businesses -- smoothly downsize and if necessary redo the balance sheet by converting debt to equity," Gover said in an email. "The business of municipal government is providing basic civil services that cannot be easily eliminated without serious repercussions...Unless the citizens want to become a company town by privatizing all their public assets, the bargaining table will serve them better than the courtroom."
Some council members who voted against the Harrisburg bill expressed concern about whether or not the city can afford the costly legal expenses it could entail.
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