Pa.’s troubled capital city seeks state’s help in sorting out dire financial problems

By Marc Levy, AP
Friday, October 1, 2010

Pa.’s troubled capital city seeks state’s help

HARRISBURG, Pa. — The mayor of Pennsylvania’s deeply indebted and deficit-ridden state capital said Friday that she is reluctantly seeking the state’s help in sorting out the city’s dire situation.

Mayor Linda Thompson said that she is out of options and that she hopes the step will give banks the confidence to loan her $7 million so the city can meet its next payroll in less than two weeks and other obligations over the next six months.

The “pattern of operating deficits was unsustainable, and the political situation was threatening the shutdown of the city,” Thompson told a city hall news conference with Gov. Ed Rendell at her side. “This was a gut-wrenching and agonizing decision, but in the end the only decision I could make if the capital city was to keep functioning.”

Rendell said his administration would try to hold a public hearing in 14 days — the minimum period required — and make a swift decision on whether Harrisburg will be awarded distressed city status under a 1987 law that established protections for municipalities.

Harrisburg, a city of 47,000 about 100 miles west of Philadelphia, already faces lawsuits from bondholder representatives seeking to collect tens of millions of dollars in overdue debt payments, and Thompson and the City Council are stuck in a bitter stalemate.

Seeking distressed city status does not preclude the city from eventually declaring Chapter 9 bankruptcy, as some city officials have advocated as a tactic to force concessions from lenders on Harrisburg’s costly trash incinerator.

Thompson has said she opposes bankruptcy and advocates selling city assets, such as parking garages or an island in the Susquehanna River that is home to ball fields, to help pay off some debt.

The city is running a budget deficit this year and owes more than $280 million on a recently renovated trash incinerator that it has no strategy on how to pay off.

In September, Rendell stepped in with financial help after Thompson riled municipal bond markets by putting Harrisburg on track to become the nation’s second-largest borrower to default on a general obligation bond this year.

Thompson had framed the decision to skip a $3.3 million general obligation bond payment as a choice to keep crucial services operating and city employees, firefighters and police on the payroll.

More than two dozen Pennsylvania municipalities, including Pittsburgh, Scranton and Reading, have entered the state’s distressed city program in just over two decades. It involves help with financial planning and analysis, but isn’t designed to be a bailout, even though the state can extend grant or loan money if there is an imminent danger of insolvency, or to the health and safety of residents.

A coordinator is appointed to formulate a plan for the city to meet its financial obligations. A plan must be approved by the city, or state aid can be cut off.

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