Harrisburg vs Pennsylvania set for court on Monday

Fri Oct 14, 2011 6:08pm EDT

City of Harrisburg Mayor Linda Thompson holds a news conference in Harrisburg, Pennsylvania, October 12, 2011. REUTERS/Daniel Shanken

City of Harrisburg Mayor Linda Thompson holds a news conference in Harrisburg, Pennsylvania, October 12, 2011.

Credit: Reuters/Daniel Shanken

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(Reuters) - Pennsylvania blasted Harrisburg's bankruptcy filing as "brazenly" disregarding state law and the mayor won a day in court Monday in her bid to throw out the City Council's decision to seek bankruptcy protection.

The Pennsylvania state capital's smoldering debt crisis spiraled into a battle for political control after Harrisburg filed for Chapter 9 bankruptcy following a 4-3 vote by the City Council on Tuesday.

The state on Friday objected to the move in a court filing, joining the mayor, the county and bondholders in opposition. It called for a "quick end to this ill-advised and transparent gambit" designed to send a message to creditors.

The mayor also asserted the bankruptcy petition was invalid because the City Council did not follow proper procedure.

The bankruptcy court granted the mayor's request for an emergency conference at 9:30 a.m. EDT on Monday to address the legality of the filing.

Harrisburg's crisis has been a year in the making. The city of about 50,000 is hampered by $300 million in debt incurred from an expensive revamp of its incinerator and is struggling to fund key city services.

Pennsylvania's governor, Tom Corbett, has said the city would be better off if it agreed to a rescue plan under a state program for distressed cities, which has seen Philadelphia and other cities through crises.

Mark Schwartz, an attorney for the City Council told Reuters on Friday that Philadelphia and other struggling cities operate under state oversight. Yet next week the state senate is poised to vote on a bill that would take that further and see the state take over Harrisburg.

"It's all about control," said Schwartz. "That's in part why I filed so quickly."

Pennsylvania argued in court papers that the city was making a "frontal attack" on state law, which was amended this year to prevent the city from seeking bankruptcy protection until July 1, 2012. The governor's office did not immediately return a call for comment.

Schwartz said the amended statute "falls on its face," and even if it is upheld it only allows the state to cut off funding to the city.

Noting that the city is responsible for providing various services to state government buildings, Schwartz said "I hope the governor has taken classes in how to use a fire hose."

The bankruptcy court may determine it is not the best venue for the case if it turns on questions of state law, said one legal expert.

"I expect the bankruptcy court will decide it does not have jurisdiction to determine the constitutionality of the Pennsylvania law and will proceed to dismiss the Chapter 9 filing," Slate Dabney, an attorney with King & Spalding LLP, who is not involved with the case.

(Reporting by Chip Barnett, David Gaffen and Edith Honan in New York, Tom Hals in Wilmington, Delaware, and Jessica Hall in Harrisburg; Editing by Edward Tobin, Leslie Adler, Jan Paschal and Diane Craft)

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