"They're in trouble, and putting the bad image of bankruptcy aside, this is a way for them to resolve the issue," he said.
Harrisburg needs $310 million to make bond payments, restructure debt and repay the county and Hamilton, Bermuda- based insurer Assured Guaranty Municipal Corp., which made payments the city skipped on the waste-to-energy facility. Schwartz said he expects Assured Guaranty will reduce the value of its debt.
"Why should they be first in line?" he said.
In an opinion article published yesterday in a local newspaper, the Patriot-News, the four council members who voted for bankruptcy said Assured Guaranty and bondholders should forgive at least $100 million of the debt.
They also said there should be a countywide sales tax of 1 percent to help pay off the debt. Schwartz, in the interview, said that could forestall asset sales.
State Stepping In
The Pennsylvania Senate still plans to take up legislation next week that would place Harrisburg in receivership, said a spokesman, Erik Arneson, in an e-mail today.
The council in July and August rejected fiscal rescue blueprints from consultants hired by the state and Mayor Linda Thompson, triggering the legislative response.
The bill would let Corbett declare a fiscal emergency and name a receiver who would develop a recovery plan. The manager would be able to sell assets, hire advisers and suspend the authority of elected officials who interfere. Unlike in Michigan, the receiver wouldn't be able to change union contracts.
Cravath Swaine
Richard Levin and Paul Zumbro of Cravath Swaine & Moore LLP, the New York-based law firm that was advising Harrisburg free on municipal bankruptcy issues, said they aren't involved in today's filing. "The council retained Pennsylvania counsel," Levin said. He declined to say if Cravath had dropped out, or the reverse.