While Pennsylvania officials prepared to implement a takeover of Harrisburg after a deadline passed for the city to submit a recovery plan, another domino fell in the capital city.

Moody’s Investors Service on Tuesday, concluding a review it began last month, downgraded to Ba3 from Ba1 the Harrisburg Authority’s $69.4 million of water refunding bonds, then withdrew the rating, citing the authority’s failure to issue its 2009 and 2010 audited statements.

The Harrisburg Authority operates the water system and the incinerator — the city’s $310 million of debt relates largely to cost overruns for a retrofit on the latter. Water system funds are held separately from other authority operations, including the incinerator.

Under a new state law, meanwhile, Gov. Tom Corbett, who on Oct. 24 declared a state of fiscal emergency in Harrisburg, can direct the Department of Community and Economic Development to petition the Commonwealth Court for approval to name a receiver.

Corbett has been interviewing candidates for the position and may decide this week.

“We’re moving forward,” DCED spokesman said Steven Kratz said Tuesday. “The exact date isn’t certain, but we anticipate appealing to the court before Thanksgiving.”

The law requires the Commonwealth Court, a statewide intermediate appellate court, to hold a hearing within 15 days and to grant the petition for receivership. The court would have 60 days after the filing of the petition to issue an order. The court order would direct the receiver to develop a recovery plan and submit it to the court, the city, and DCED Secretary Alan Walker.

Walker released an emergency action plan for the city on Nov. 3 to ensure that vital municipal services are maintained. It also directed a hiring freeze, overtime restrictions, and a limit on capital project expenditures.

Harrisburg canceled a last-ditch meeting on Monday when the four City Council members — Brad Koplinski, Wanda Williams, Susan Brown-Wilson, and Eugenia Smith — who constitute a majority bloc on the seven-member board failed to show at a meeting that included Mayor Linda Thompson and major creditors.

The four have three times rejected a recovery plan proposed under the Act 47 program for distressed communities, in which Harrisburg enrolled last December.

The city has skipped about $60 million in bond payments to the incinerator, according to court filings. Dauphin County, bond insurer Assured Guaranty Municipal Corp., and the Harrisburg Authority have lawsuits pending against the city.

The City Council filed for bankruptcy protection on Oct. 12, a move Thompson, Corbett, and major creditors oppose. Judge Mary France of the U.S. Bankruptcy Court for the Middle District of Pennsylvania has scheduled a hearing for next Wednesday on the legitimacy of the bankruptcy filing.

City Council attorney Mark Schwartz said approval of the bankruptcy filing by France would effectively halt any state takeover action.

“It seems to me that the bankruptcy would make for an immediate stay of any procedure with respect to the city,” he said Tuesday.

Robert Lee of Tucker Arensburg PC, who is representing Thompson in bankruptcy court, said appointing a receivership would cost about $2.5 million, with the city to absorb roughly 60% of that.

“The receiver must develop a detailed plan and sell any and all assets for the best interests of the creditors,” Lee said at a City Hall press conference.

Any financial plan implemented would most likely include selling or leasing the incinerator and the city’s revenue-producing parking garages. Nearby Lancaster County has offered an estimated $124 million, without debt assumption, for the incinerator.

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