(Reuters) – The City Council of Harrisburg, the cash-poor capital of Pennsylvania, on Friday advertised for attorneys who could advise it on whether to file for bankruptcy or enroll in the state “distressed cities” program.
Democratic City Councilman Brad Koplinski noted in a telephone interview that municipal bankruptcies are quite rare, saying only around 500 have been filed since The Great Depression.
Still, “It’s important to get all the facts on bankruptcies and Act 47,” he said, referring to Pennsylvania’s program for so-called distressed cities. “We’ve had a great number of mistaken impressions about bankruptcies in general,” he said.
“It’s a misconception that the judge will make us sell assets or raise taxes,” Koplinski said.
States are not allowed to file for bankruptcy and only 26 states allow local governments to do so.
Democratic Mayor Linda Thompson has taken a different approach — asking the state to enroll Harrisburg in its distressed city program.
But the councilman noted that it is up to the council to determine whether to file for Act 47, likening the role of the legislature under this law to that of a company’s board of directors and the mayor to a chief executive officer.
Some 19 Pennsylvania cities, townships and boroughs were under Act 47 in July — and some have found it hard to exit.
Act 47 aims to ward off bankruptcy filings by requiring deficit-riddled cities and towns to devise long-term plans to rescue their finances under strict oversight by the state.
Harrisburg’s financial problems are unusual because they partly stem from its decision to serve as the primary guarantor of $288 million of debt for a struggling incinerator plant.
Bankruptcy attorneys who wish to advise Harrisburg will have until October 19 to send in their proposals, and the council will hold interviews during the week of October 25.
Next Tuesday, Harrisburg officials will present their case to be included in the distressed cities program to the state.
Democratic Governor Ed Rendell on October 1 said that while bankruptcy protection was theoretically possible under Act 47, that was a highly undesirable strategy.
Lawyers and credit analysts say they often advise counties, cities, towns, villages and the like to avoid bankruptcies because the process is so uncertain, so long and so costly.
These experts say they counsel politicians to reject bankruptcies because they lose so much control to the judge. After a bankruptcy, bond investors for years may shun a municipality’s new debt, forcing it to take out bank loans.
(Additional reporting by Jon Hurdle in Trenton; Editing by Kenneth Barry)
http://www.reuters.com/article/idUSTRE69761720101008
