A bankruptcy judge in Harrisburg said Tuesday that special court approval for payments to vendors is unnecessary in Pennsylvania’s capital city.
Mary France of the U.S. Bankruptcy Court for the Middle District of Pennsylvania in Harrisburg agreed, however, to clarify that federal Chapter 9 bankruptcy law allows the city to pay routine bills without special court permission.
Mayor Linda Thompson, through a court filing by Tucker Arensberg PC, said some vendors are reluctant to do business with the city, which faces a state takeover attempt, on other than a cash-on-delivery or an up-front basis, and worry that receiving payments from it without court approval could leave them on the hook legally.
“This motion is strategic and not substantive in effect,” Mark Schwartz, the Bryn Mawr, Pa., attorney representing the City Council, said in a court filing.
“It’s much ado about nothing. I don’t know what motivates the mayor. It’s a lot of make-work,” Schwartz said after the hearing.
The citizens advocacy group Debt Watch Harrisburg also criticized Thompson for making the filing. “The hyperbole of the motion appears nothing more than a tactic to create public uncertainty and fear,” attorney Neil Grover said in a filing on behalf of the group.
While an attempted bankruptcy filing by the City Council, on which France is expected to rule Nov. 23, plays out in federal court, the city is staring at a state takeover. On Monday, city and state officials discussed how Harrisburg could file an alternative recovery plan to prevent Gov. Tom Corbett from appointing a receiver.
While they reached no consensus, they agreed to reconsider the original plan recommended under the Act 47 program for distressed communities as a starting point.
Three times the council, in 4-to-3 votes, rejected the plan, which Novak Consulting Group of Cincinnati originally devised. Thompson backed the other two versions, adding a call for a commuter tax, which the new law prohibits in Harrisburg’s case.
“Our goal was to come in and get the council to use one of the plans as a starting point, and we were successful,” Thompson said.
The state, the mayor, Dauphin County and bondholders oppose the bankruptcy filing.
Harrisburg is saddled with $310 million of debt, including $242 million of bonds related to a costly incinerator retrofit project. The city has skipped payments on $65 million of the bonds, according to court documents. Bond insurer Assured Guaranty Municipal Corp. and the county are the guarantors of the incinerator debt.
The Harrisburg Authority operates the incinerator.
Neighboring Lancaster County has offered an estimated $124 million, with no debt obligations, for the incinerator.
According to the Harrisburg Authority, three other companies, including one from Canada, have expressed interest.
Next Monday, the same group is expected to meet privately with creditors. “People want all the stakeholders to make concessions,” Thompson said.
Under the takeover legislation, the city must submit a consent agreement to Department of Community and Economic Development Secretary Alan Walker by Nov. 14 to avoid receivership, though Schwartz has contested the takeover law in bankruptcy court filings.
The four council members who have opposed Thompson and the Act 47 plan — Brad Koplinski, Wanda Williams, Eugenia Smith and Susan Brown-Wilson — favor bankruptcy, as does city Controller Dan Miller.
Koplinski, who wants bondholders to make $100 million worth of concessions, asked Pennsylvania officials Monday night to stall the consent agreement discussions until France rules on the bankruptcy filing.