NEW YORK – Harrisburg sought bankruptcy protection Tuesday night after its City Council voted to authorize a filing, said Mark Schwartz, the attorney representing the council. The move comes as Pennsylvania’s capital looks to avert a takeover by the state.
Harrisburg’s council voted 4 to 3 to file for Chapter 9 protection as soon as possible.
Schwartz filed the petition at 10:30 p.m., right after the meeting. Susan Brown-Wilson, chairwoman of the council's budget and finance committee, also signed the document. "The city's primary goal in filing this Chapter 9 petition is to provide for some treatment of the outstanding guaranteed bond debt and to resolve the litigation through a confirmed plan and discharge," the document said.
The city, with a population of 49,000, faces $310 million of debt related to escalating costs of an incinerator retrofit project. That includes bonds outstanding on the incinerator plus balances owed to Dauphin County, bond insurer Assured Guaranty Municipal Corp., and the facility’s operator, the Harrisburg Authority. The city’s involvement began in 2003 when it approved a $125 million loan.
The council’s vote came against the advice of acting city Solicitor Jason Hess, who said the resolutions to hire Schwartz and approve the bankruptcy filing are not binding.
"The main issue revolves around special revenue bonds, which were issued to raise money to construct an incinerator. These bonds may have special treatment in Chapter 9 as opposed to general obligation bonds," said Jonathan Henes, a restructuring partner at Kirkland & Ellis LLP in New York. "The holders of those bonds may say they're entitled to any revenue out of the incinerator. This creates a complex situation in Harrisburg, where you have multiple parties with multiple debt -- the incinerator bonds, the GO debt, and the budget shortfall."
Brown-Wilson, Brad Koplinski, Eugenia Smith, and Wanda Williams — the same four council members that three times opposed a proposed financial recovery plan under the state’s Act 47 program for distressed communities, voted in favor of the bankruptcy filing, while proponents of the Act 47 measure — Gloria Martin-Roberts, Patty Kim, and Kelly Summerford — voted no Tuesday.
Koplinski, who introduced both resolutions, said Assured Guaranty must make at least $100 million in concessions for any plan to succeed.
Pennsylvania’s General Assembly is expected next week to approve a bill that would call for a three-person receivership to oversee Harrisburg’s finances.
Messages seeking comment were left with Mayor Linda Thompson, who has opposed filing for bankruptcy.
