June 26, 2012 / 7:51 PM / 5 years ago

Harrisburg, Pennsylvania leaders sue to block receiver

HARRISBURG - (Reuters) - The City Council in Pennsylvania's capital of Harrisburg sued the state on Tuesday to halt work by a receiver overseeing the city's fiscal recovery plan.

The federal lawsuit challenges the state's takeover of Harrisburg, claiming that state lawmakers' approval in October of a receiver was unconstitutional.

"Neither the governor nor the Republican-controlled legislature have the right to impose their will on the city of Harrisburg just because they disagree with the position of the democratically elected City Council," City Council President Wanda Williams said in a statement.

Paul Rossi, an attorney who filed the suit on behalf of the City Council, said the legislature gave Pennsylvania Governor Tom Corbett unfettered powers to decide whether to put Harrisburg into receivership, which the council alleges violated due process under the U.S. Constitution.

The council asked in the suit for an injunction that could stop the work of state-appointed receiver, retired U.S. Air Force Major General William Lynch.

Five of the seven city council members, including Williams, joined in the suit, filed in the U.S. District Court for the Middle District of Pennsylvania. Also signing on as plaintiffs were City Controller Dan Miller and City Treasurer John Campbell.

The lawsuit marks 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 roughly $320 million of debt stemming from renovations 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.

As Pennsylvania took control of Harrisburg's finances, Corbett appointed a receiver, David Unkovic, who resigned after four months on the job. The state court judge who is overseeing the city's recovery plan then approved Lynch to take over in May.

Before he quit as receiver, Unkovic had laid out deadlines for the sale or lease of city assets - its incinerator, parking garages and water and sewer system - to raise funds.

Some city officials, including those filing the lawsuit, say that the plan will strip the city of key assets and leave it with nothing if it goes into bankruptcy.

After Unkovic resigned, Corbett said the plan was proceeding uninterrupted. So far, Lynch's office has not provided any updated schedule for the asset sales despite multiple requests from Reuters.

Lynch spokesman Cory Angell said that Lynch and other officials in the Pennsylvania Department of Community & Economic Development, which oversees distressed municipalities in receivership, believe setting out fixed dates for the sale is unrealistic because the timeline can shift as parties negotiate.

Both Lynch and Corbett are named as defendants in the new suit.

The latest suit "is just a lot of extra background noise. It takes from people's time and energy as they're trying to implement the recovery plan," Angell said.

Three Harrisburg residents previously challenged the receivership in court, but a judge threw that case out, saying the private citizens could not sue on behalf of the city.

"This issue has already been dismissed by the courts and we believe this suit will be as well," Corbett's spokeswoman Kelli Roberts said.

Additional reporting by Hilary Russ; editing by Carol Bishopric

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