Harrisburg Mayor Asks Federal Judge to Vacate Order Starting Bankruptcy
By Steven Church – Oct 17, 2011 10:03 AM ET
Linda D. Thompson, the mayor of Harrisburg, Pennsylvania, asked a judge to vacate the order starting the city’s bankruptcy, saying in a court filing that the case is illegal and can’t officially begin.
Thompson and lawyers for the state are seeking an immediate end to the Chapter 9 bankruptcy, which began Oct. 11 after four members of the state capital’s city council voted to hire a lawyer to file the case. Thompson says the council members didn’t follow proper procedures and the state says the bankruptcy violates a law passed earlier this year by legislators.
Thompson argued that the under Pennsylvania’s municipal code, Harrisburg is a city with a “strong mayor” form of government, in which the city council does not have authority to file a court case using a resolution, which is a type of political action typical used to set policy.
The mayor asked the judge overseeing the case, U.S. Bankruptcy Judge Mary D. France, to either cancel, or delay the official notice informing the public that a bankruptcy case has been filed.
Chapter 9 gives municipalities advantages in bankruptcy that private companies don’t have. For example, a bankruptcy judge can’t appoint a trustee to run a city.
The code also imposes a burden that corporations don’t face: cities must have permission from their state government to file for bankruptcy, Robert G. Flanders Jr., an attorney with Hinckley Allen Snyder LLP said in an interview. Flanders is a former Rhode Island Supreme Court judge who was appointed by the state as the receiver for the city of Central Falls, Rhode Island, which filed bankruptcy in August.
In June, Pennsylvania passed a law that barred a Harrisburg bankruptcy filing until July. France may need to rule that law wasn’t valid to justify allowing the bankruptcy to go forward, lawyers said.
This week, Pennsylvania legislators will consider a bill that would let Corbett name a receiver who would develop a recovery plan. That official would be able to sell assets, hire advisers and suspend the authority of elected officials who interfere.
Pennsylvania Representative Glenn Grell of Hampden Township in Cumberland County said state intervention is in the best interest of city residents because it will put a long-term plan in place. That plan was rejected by the council.
Bankruptcy is a better option than the pain of a state- imposed recovery plan, said Councilwoman Susan Brown-Wilson, who backed the filing.
The city of 49,500, seat of Dauphin County, faces a debt five times its general-fund budget because of an overhaul and expansion of the incinerator, which doesn’t generate enough revenue. Its guaranteed debt is about $242 million, with $65 million of it overdue, according to the bankruptcy petition.
The Pennsylvania law barring Harrisburg from filing bankruptcy was passed on June 30, the last day of the legislature’s session before it broke for the summer.
France will also consider whether the bankruptcy complies with other aspects of federal law as laid out in the bankruptcy code. The code requires the city to negotiate in good faith with its creditors and be unable to pay its bills as they come due.
The case is In re City of Harrisburg, Pennsylvania, 11- 06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).
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