Facing state takeover, Harrisburg officials talk

By Mark Shade - Reuters

HARRISBURG, Pennsylvania (Reuters) - With the threat of a state-appointed receiver deciding how Harrisburg must deal with more than $300 million in debt, the city council and mayor did something on Monday they have not done in a long time: agree.

The city, Pennsylvania's capital, filed for bankruptcy on October 12 in a desperate bid to resolve its debt crisis, setting up a showdown with the state over control of the city.

The crisis centers on the struggles of the city of about 50,000 to pay roughly $300 million in debt incurred from an expensive revamp of its incinerator.

Under the guidelines established by a new law, Harrisburg Mayor Linda Thompson and seven city council members unanimously agreed on Monday night to return to the state's original Act 47 plan as a guide for a consent agreement that could avoid a looming state takeover.

That plan recommended sale or lease of the city's parking garages, renegotiated union contracts and sale of the incinerator. But council members continued to argue over a range of issues before settling on the Act 47 guidelines.

Councilman Wanda Williams said creditors who backed the financing of the city's troubled incinerator "should have known" the project was risky and should accept concessions, while Councilman Susan Brown Wilson said she was not happy the state is preventing Harrisburg from raising new revenue through commuter, sales or drink taxes.

Harrisburg became one of the most-high profile cities to opt for the little-used Chapter 9 of the U.S. bankruptcy code, notably used nearly 20 years ago by Orange County, California.

Municipal bankruptcies are rare. But if Harrisburg is successful in winning concessions with bondholders, pensioners and other stakeholders, it could lead other financially troubled cities to seek bankruptcy.

On Monday night, the council and mayor agreed to keep talking about what should be in the consent agreement, which will be presented to Pennsylvania Department of Community and Economic Development Secretary Alan Walker on November 14.

The city will be in federal bankruptcy court on Tuesday seeking relief to pay selected vendors and employees. It also faces a November 23 hearing in federal court to determine the validity of its Chapter 9 filing.

Councilman Brad Koplinski, who argued for the city's bankruptcy filing, asked the state to "slow-track" the consent agreement process until the Chapter 9 question is settled.

He also proposed $100 million in concessions from Dauphin County and Assured Guarantee Municipal Corp, two of the biggest creditors in the incinerator deal; approval of a sales tax to generate $36 million a year; and an audit "to determine who caused this problem."

Those recommendations for the consent agreement were not voted on. More are expected when the meeting continues November 3.

(Editing by Peter Bohan)