(Bloomberg News) Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection after failing to pay the debt on a trash-to-energy incinerator.
The council made its 4-3 decision against the advice of a city attorney who said the panel did not follow proper procedure. It's the ninth bankruptcy filing this year by a municipal-bond issuer, and the first by a U.S. state capital since 1980 when the municipal bankruptcy laws were overhauled, said James Spiotto, a partner at Chapman & Cutler in Chicago who tracks such cases.
"This was a last resort," Mark D. Schwartz, the council's Bryn Mawr-based lawyer, said after he faxed the documents to a federal court yesterday. "They're at their wits' end."
Harrisburg is the biggest city to file for bankruptcy since Vallejo, California, filed in 2008, according to a ranking by Municipal Market Advisors, a research firm in Concord, Massachusetts. Municipalities across the nation have been battered by the financial crisis. Harrisburg's filing came less than a month after Alabama's Jefferson County Commission voted to try to avert what would have been the nation's biggest municipal bankruptcy, and nine months after Vallejo emerged.
The petition lists insurer Ambac Financial Group Inc. as a creditor due more than $70 million, and Covanta Holding Corp., with about $120 million of bonds and advances of funds to Harrisburg. The petition listed both assets and debt of between $100 million and $500 million.
'Generally Not Paying'
The city of 49,500, the seat of Dauphin County, faces a debt burden five times its general-fund budget because of an overhaul and expansion of the incinerator, which doesn't generate enough revenue. Its total guaranteed debt is about $242 million, with $65 million of it overdue, according to the petition.
"The city meets the 'generally not paying' definition of insolvency, because it has repeatedly failed to pay the guaranteed incinerator bond debt as it has become due," Harrisburg said in the filing. "Under the guarantees the city would need to cover a combined $83 million of past due payments and the 2011 debt service."
While Chapter 9 bankruptcy, named for the section of federal law that governs insolvent municipalities, would mean the loss of state aid under a law passed in June, it would be better than the pain that would be caused by a state-imposed recovery plan, said Councilwoman Susan Brown-Wilson.
'Not Incompetent'
"We're not incompetent," Brown-Wilson said. "We're just not going to let you run us over with the train anymore."