The Harrisburg City Council on Tuesday night voted 4-3 to hire Montgomery County attorney Mark Schwartz and authorized him to file a petition for Chapter 9 bankruptcy protection.
The four council members who voted for both actions — Brad Koplinski, Eugenia Smith, Wanda Williams and Susan Brown-Wilson — also have voted against fiscal recovery plans crafted by a state-appointed Act 47 team and Mayor Linda Thompson.
The majority members argued the proposed plans did not do enough to solve the city’s ballooning debt while protecting creditors. The primary concern was that receivership would lead to a full-scale sale of city assets, resulting in the loss of future revenue.
A bill designed to give the state the power to put third-class cities in receivership for failing to act on Act 47 recovery plan is in the state Senate. Senate Bill 1151 is expected to be voted on when the Senate reconvenes Oct. 17, and the governor has said he will sign the takeover legislation.
“This is our only option,” said Koplinski, who added that Harrisburg would have had to file for bankruptcy in three to five years anyway under the proposed plans.
Koplinski said bond insurer Assured Guaranty Municipal Corp., a primary backer of the city’s $310 million of incinerator debt, should look at forgiving at least $100 million of the debt under a plan. The majority also wants a 1 percent county sales tax to make up for revenue that would be lost if the city’s incinerator and parking system are sold or leased.
Schwartz said he has been drafting Chapter 9 papers but did not indicate when he might file.
“As soon as I can do it,” he said.
Robert Philbin, a spokesman for Thompson, called the council’s decision a very unpopular move, citing a recent ABC27 poll that shows only 13 percent of city voters think bankruptcy is the best option for the city.
The three council members who voted against bankruptcy voiced concerns that the filing would lead to more lawsuits against the city before this situation even gets into bankruptcy court.
“We still need a plan, and one of our creditors has to approve that plan,” said Councilwoman Patty Kim.
During the 2011-12 budget approval process in June, the General Assembly amended the state’s fiscal code to include a provision that would block third-class distressed cities from filing for bankruptcy protection for a year. Gov. Tom Corbett signed the bill.
That amendment, Senate Bill 907, states that a municipality can still file for protection, but it would risk losing state funding.
Schwartz said it is unconstitutional for the state to legislate against Harrisburg and keep it from filing for bankruptcy. He said he believes bankruptcy court will lead to real negotiations with creditors on the city’s debt problem.
The council has agreed to pay Schwartz $300 per hour to represent it. His normal fee is $525 per hour, he said.
“It’s about saving the city,” Brown-Wilson said of the bankruptcy decision. “I’m tired of waiting around.”