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Entries in Chapter 9 (1)

Wednesday
Oct122011

Harrisburg Joins List of Cities Filing for Bankruptcy

Hemera/Thinkstock(HARRISBURG, Pa.) -- Harrisburg, Pa., facing $458 million in creditors and claims, has declared bankruptcy, becoming the sixth municipality to seek a Chapter 9 filing this year.

Harrisburg’s City Council voted 4-3 on Tuesday to file for bankruptcy, though the city attorney noted that the correct procedure was not followed, and thus the filing would not be binding, according to Bloomberg. Harrisburg, the state’s capital, faces a state takeover of its finances.

The outcome of this filing is uncertain, with court and state action likely to contest the filing, according to a note by Alan Schankel, managing director of Janney Capital Markets.

Harrisburg fell victim to the “incinerator from hell” -- a waste-to-energy incinerator whose renovation caused the town to go $310 million into debt, five times as much money as the city has in its general fund, according to the Stateline newspaper. In December, Pennsylvania declared the city financially distressed.

The state’s Senate is scheduled to vote next week on a bill permitting Pennsylvania to place the city into receivership, which the governor said he would sign, forcing it to follow the state’s proposed recovery plan.

Few cities actually declare bankruptcy protection. Since 1937, when Chapter 9 filings first became an option for municipalities, there have been only 625 filings, according to Chicago attorney James Spiotto, who has written books on the subject. Including Harrisburg, six communities this year have filed for bankruptcy. Six filed in 2010.

Boise County, Idaho filed for bankruptcy in March and Central Falls, R.I., filed on Aug. 1.

Vallejo, Calif., declared bankruptcy in May 2008 and is still emerging from it. Jefferson County, Ala., narrowly avoided bankruptcy after a three-year battle over a $3.1 billion sewer debt. On Sept. 16, Jefferson County Commissioners approved a settlement with creditors avoiding what would have been the largest municipal bankruptcy in U.S. history.

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