PA lawmakers again deny bankruptcy option for state's capital

HARRISBURG Mon Jul 2, 2012 10:42am EDT

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HARRISBURG (Reuters) - City leaders in Pennsylvania's cash-strapped capital Harrisburg who wanted to keep open the option to seek bankruptcy protection for the city of 50,000, were thwarted by state legislators over the weekend who extended the bankruptcy filing ban until November 30.

"The legislature made a decision," Governor Tom Corbett told reporters late on Saturday after signing the bill and Pennsylvania's new $27.7 billion budget into law.

"Harrisburg's problems need to be addressed and we will provide whatever help we can to the receiver in an appropriate form under the law."

The ban is the latest chapter in the city's battle with the state and within the ranks of the city's own officials, to retain control of its finances. It has been struggling under some $320 million of debt stemming from expensive upgrades and repairs to its trash incinerator.

The city council filed for bankruptcy in October, but a bankruptcy judge rejected the petition a month later because state lawmakers had passed a law prohibiting municipalities of a certain size from seeking legal protection from creditors.

Should Harrisburg seek bankruptcy protection while the ban is law, it would lose any state funding it receives.

As Pennsylvania took control of Harrisburg's finances, Corbett appointed a receiver, David Unkovic, to find a way for the city to escape the mountains of debt it accumulated via its trash incinerator renovations.

Unkovic resigned after four months and was recently replaced by retired U.S. Air Force Major General William Lynch. Last week, Lynch echoed Harrisburg's elected officials, saying the option - as a last resort - to seek bankruptcy protection for the Keystone state's capital was necessary.

ALL WANT BANKRUPTCY OPTION

Harrisburg officials are still fighting the constitutionality of the receiver's presence saying that his appointment by Pennsylvania and Governor Corbett's unfettered powers violates the U.S. Constitution.

Brad Koplinski, one of the city councilmen who last autumn petitioned U.S. Bankruptcy Court for permission to seek bankruptcy protection, said he was angry about the governor's decision to extend the bankruptcy ban.

"Lynch has said he wants the bankruptcy option. Why would Governor Corbett send his general into combat to negotiate with our city's creditors without the heaviest artillery? We are trading in our tanks for pea shooters and our nuclear missiles for slingshots," Koplinski told Reuters.

Harrisburg Mayor Linda Thompson slightly changed course a month ago and said that while she remained opposed to bankruptcy, she wanted to have the threat of bankruptcy to be able to more effectively negotiate with creditors.

Lynch opposes the extension although he said bankruptcy was not a preferred option. He intends to continue implementation of the court-approved recovery plan. If he were to proceed to bankruptcy, it would take much time before he would be prepared to file anything with the court, he said.

Mark Schwartz, the attorney who filed the city's first bankruptcy missive, called Corbett's action hypocritical.

"There is not one cent for the city of Harrisburg (in Pennsylvania's new budget) and now the extension of the ban. They are simply putting their fingers in a dam," Schwartz said. "We'll see the fiscal equivalent of the (1889) Johnstown Flood thanks to the lack of state leadership."

(Reporting by Mark Shade, Editing by Maureen Bavdek)

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