The Harrisburg City Council will appeal a federal judge’s ruling that invalidated the bankruptcy filing of Pennsylvania’s capital city, according to its attorney.
Mark Schwartz, representing the council, filed the motion on Saturday with the U.S. District Court for Middle District of Pennsylvania. Bankruptcy Judge Mary France ruled on Nov. 23 that its Oct. 11 Chapter 9 filing was illegal, citing state law restrictions and the objections by Mayor Linda Thompson.
“With all due respect, I feel that the decision was in error. There are issues regarding this case that the judge is not used to dealing with,” said Schwartz, a solo practitioner from Bryn Mawr, Pa. “Moreover, this is a case that could very well end up in the U.S. Supreme Court.”
The state, major creditors and Thompson had challenged the council’s bankruptcy filing.
“The commonwealth will be filing a challenge to the right of City Council to file the appeal. I expect that our pleading will be filed” Tuesday, Neal Colton of Cozen O’Connor LP, who has represented Gov. Tom Corbett, said Monday.
“The mayor is focused on a financial recovery plan for the city of Harrisburg. She is working on that plan with the receiver at this time and considers this latest action by some members of the City Council a sidebar to the real issue of solving the city’s fiscal situation,” said Thompson spokesman Robert Philbin. “Mayor Thompson is focused on results for the citizens of Harrisburg, not posturing attorneys.”
On Dec. 5, the Commonwealth Court of Pennsylvania confirmed Corbett’s nominee, former Department of Community and Economic Development chief counsel David Unkovic, as Harrisburg receiver. Unkovic has 30 days to craft a financial recovery plan for the city.
France’s ruling invoked a state law, passed last fall, that bars cities designated as financially distressed under the Act 47 workout program from filing for bankruptcy. The ban holds until June 30, 2012.
She also said that the “City Council’s usurpation of the executive power of the mayor by commencing litigation on behalf of the city of Harrisburg violated the Charter Law and the Third Class City Code.”
Harrisburg, with a population of about 49,500, is considered a third-class city under the state’s system of categorizing its municipalities by population tiers.
During a confirmation hearing, Unkovic described as “troubling” the incinerator retrofit bond deals central to the city’s $300 million of debt. Harrisburg, according to bankruptcy court documents, has skipped $60 million in bond payments.
Schwartz on Monday repeated his call for investigations by the Internal Revenue Service and the Securities and Exchange Commission into the bond deals. “I’m looking at an orgy of financing documents,” he said.
Meanwhile, the Harrisburg Authority, the agency that operates the incinerator, might have difficulty refinancing bonds on its water system if city officials can’t finish their 2009 and 2010 financial audits, an official told the City Council last week.
Moody’s Investors Service in November withdrew its rating on the authority’s $69.4 million Series 2008 bonds after downgrading them to negative Ba3.
“It’s very, very important that we get these audits taken care of,” said Shannon Murray, the authority’s interim executive director.
Moody’s also confirmed the Ba3 rating on the Harrisburg Parking Authority’s outstanding guaranteed parking revenue bonds, Series T of 2007 with a negative outlook, affecting $18 million of outstanding debt.
Moody’s had placed the rating on review for possible downgrade on Oct. 20, citing the bankruptcy filing.
“Despite the denial of the city’s bankruptcy petition, Moody’s believes there is still uncertainty around the city’s financial recovery and that risks remain to the authority’s credit quality,” the rating agency said in a statement it released Friday.
