As Harrisburg looks for assistance through Pennsylvania’s distressed communities program, the city also will seek a $7 million short-term loan to help meet payroll and other immediate costs.

Mayor Linda Thompson on Friday applied to enter Harrisburg into Act 47 under the state’s Municipalities Financial Recovery Act of 1987 because the city is unable to pay $282 million of outstanding incinerator debt. Thompson is also trying to close a $4.3 million budget deficit in the last three months of the fiscal year. The Harrisburg Authority issued the incinerator bonds, which the city guarantees.

In a joint press conference on Friday with Gov. Edward Rendell, Thompson said the city’s dire finances left her with no option but to apply for Act 47 in order to avoid a city-wide shutdown.

“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,” Thompson said during the press conference, which was videotaped by Roxbury News. “If I had not taken this step now, we would have been unable to meet payroll 12 days from now. Nor would we have been able to meet other basic financial obligations that the city of Harrisburg has encumbered.”

The mayor said the city will need to find about $7 million, potentially through the sale of a tax anticipation note, in order to meet expenses for the rest of 2010 and the first quarter of 2011. Rendell said he would speak directly with banks to help facilitate a short-term borrowing and that the mayor’s Act 47 application should strengthen the city’s standing with lenders. For Rendell, keeping Harrisburg afloat is necessary for the fiscal reputation of all Pennsylvania municipalities.

“It is our capital city,” Rendell said during the press conference. “If Harrisburg fails, then every other municipality in Pennsylvania is in jeopardy. If Harrisburg defaults on its bonds, every other municipality in Pennsylvania will have trouble getting bond funding and borrowing. And that is a consequence that no governor could stand by and let happen.”

The Act 47 announcement follows a City Council meeting on Tuesday in which the council halted Thompson’s initiative to have Scott Balice Strategies create a debt restructuring plan for Harrisburg. The council also approved a resolution to hire a bankruptcy attorney or other professional to help advise the council on a potential Chapter 9 bankruptcy filing or entering the city into Act 47.

Councilman Brad Koplinski filed that resolution. He believes Thompson’s Act 47 application is a mistake and that the city should take “a reasonable and measured look at Act 47 and Chapter 9 together, in tandem.”

“She promised us a plan of action and today we got a plan for surrender,” Koplinski said in a phone interview. “We’re still going to move forward with our search for bankruptcy counsel. We still think it’s a tool to review that process.”

Rendell said the Department of Community and Economic Development, which oversees the state’s Act 47 program, may hold a public hearing on Harrisburg’s potential entrance into the state aid program on Oct. 15 or Oct. 18. The department then has 30 days to approve Harrisburg’s Act 47 application, according to Fred Reddig, executive director of the Governor’s Center for Local Government Services.

If the state approves the application, DCED would appoint a consulting firm to work with Thompson and the City Council to draft a financial recovery plan, which could include a possible earned-income tax or a property-tax increase. The mayor and the council would then weigh in on that plan. If the parties are unable to sign off on that recovery strategy, the state can withhold all aid to Harrisburg.

“All that money can be suspended and cut off from the city and obviously we hope that that’s a step that never has to be taken,” Rendell said.

City Controller Dan Miller, a vocal Thompson critic, said Act 47 might help Harrisburg, though he has concerns about the program. “Harrisburg needs a realistic budget; there’s no question about it,” Miller said in a phone interview. “And it needs some fundamental changes.”

Dauphin County, where Harrisburg is located, is co-guarantor on much of the incinerator debt. A county spokeswoman had no comment on the Act 47 application. Assured Guaranty Municipal Corp. insures the incinerator bonds.

“The company views Harrisburg’s ­action to seek protection under Act 47 as a positive first step to develop a restructuring plan that allows the city and the authority to meet their obligations to bondholders, AGM, and the county,” ­Assured Guaranty said.

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