Pa. Governor Corbett Signs City Takeover Bill

After Harrisburg files for bankruptcy, state lawmakers pass a bill that allows a receiver to enact a recovery plan.
by | October 20, 2011
 

Pennsylvania Gov. Tom Corbett signed into law legislation that brings the troubled capital of Harrisburg another step closer to state takeover -- at the same time that it's seeking bankruptcy protection.

Corbett signed the legislation this morning after it sailed through both chambers of the state legislature. The new law gives him the power to declare a city in a state of fiscal emergency and appoint a state receiver to administer a recovery plan.

The latest development essentially puts Harrisburg on two simultaneous tracks as it seeks to rectify its finances. Last week the city council voted – by a slim margin – to file for Chapter 9 bankruptcy. Local leaders made that move as they saw the state takeover bill gaining steam, and they viewed bankruptcy as a preferable alternative.

Previously, Harrisburg has failed to implement state-supported fiscal recovery plans. With the new law, the state would have grater power to force the city to take those steps.

The two tracks represent the power struggle between city council members and state officials over the future of the city that has acquired more than $300 million in debt tied to a failed incinerator project.

“I remain a strong proponent for municipal governments tackling their own problems and coming together to develop a fiscal recovery plan when necessary,” Corbett said in the statement. “But when that fails to happen, the state has to take action to ensure public safety.

The legislation gives the governor the authority to declare a fiscal emergency if a city is insolvent or projected to become insolvent within six months; has failed to adopt a fiscal recovery plan; or is unable to provide vital services. The first two criteria apply to Harrisburg.

Once an emergency is declared, a city would have a chance to develop a recover plan approved by the state’s economic development secretary. Failure to do that would result in state takeover.

The legislation doesn’t specifically name Harrisburg, but it applies to third-class cities – the category under which Harrisburg falls -- and is clearly tailored towards the failing capital.

If an emergency is declared, the governor can petition a state court to place the city into receivership. A receiver would develop a recovery plan and would have broad authority to implement it, once approved by the court. The state’s economic secretary would have the authority to develop a plan to preserve public safety and vital services.

Mark Schwartz, the attorney hired by the city council to pursue bankruptcy, told Governing last week that the state legislation won’t affect the city’s plan to move forward with bankruptcy. Interestingly, a spokesman for the governor told Bloomberg BusinessWeek that the bankruptcy won't affect the state's plans.

Some critics of the bankruptcy maneuver, including Harrisburg Mayor Linda Thompson, argue that the filing was illegal and the council never had the authority to order a bankruptcy filing in the first place. Attorneys representing Thompson, as well as the state government, will likely make that case in federal bankruptcy court.

Mary France, the federal judge presiding over the case, will be the one who decides whether the filing was acceptable. The next hearing in this case is scheduled for Nov. 23.

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