Gov. Tom Corbett late Thursday night signed a bill to prevent Harrisburg and other distressed small-to-medium-sized cities in Pennsylvania from filing for bankruptcy protection — at least for the next year — under the threat of losing all state aid.
Both branches of the legislature approved such a measure, though it fell short of what Sen. Jeffrey Piccola, R-Halifax, had sought.
Instead of requiring communities to accept recovery plans under a program called Act 47, which Piccola wanted, the General Assembly passed a fiscal code bill filed by Sen. Patrick Browne, R-Allentown.
That legislation prohibits municipalities in the program from filing for Chapter 9 bankruptcy before July 1, 2012. Should it do so, the state would suspend all funding to the local government.
Browne’s bill, which Piccola backed, passed the Senate 33 to 17 and the House 109 to 89. The law applies to so-called third-class cities, Harrisburg’s population category under the state’s tiered system. Harrisburg’s population is about 48,000.
Some Harrisburg officials say denying the financially troubled capital city the bankruptcy option would strip them of leverage in dealing with creditors. The City Council last week authorized Mayor Linda Thompson to prepare bankruptcy papers, should it choose that option.
Advocating his own bill earlier in the week, Piccola said a Harrisburg bankruptcy filing “would have a disastrous effect on municipalities all over the commonwealth of Pennsylvania by affecting the bond rating and causing them to have to pay a higher rate of interest if they chose to borrow money for much-needed projects.”
Piccola doesn’t think the state overreached in passing the bill. “This notion that somehow, cities have sovereignty, that there’s some kind of independence … Cities are instrumentalities of the commonwealth. And we frequently change the rules under which they operate and that is essentially all we are doing,” he said.
Harrisburg entered Act 47 last December. Its City Council has until July 23 to act on recommendations from Novak Consulting Group of Cincinnati, which has advised against bankruptcy and favors selling and leasing assets. Novak has until July 8 to deliver a revised plan.
Bonds outstanding on Harrisburg’s incinerator total $220 million. The city also owes a combined $75.5 million to Dauphin County, bond insurer Assured Guaranty Municipal Corp., and the facility’s operator, the Harrisburg Authority.
Thompson has praised the recovery plan in general but opposes the merging of mayoral, council, treasurer, and controller staffs, and is against outsourcing parks and recreation services.
Julia Novak, president of Novak Consulting, said at a public hearing on Tuesday that the Act 47 committee is no longer recommending that Harrisburg lay off 27 police officers and 12 additional firefighters, as needed, should it adopt the recovery plan and still face a budget deficit.
The council had objected to police and fire layoffs.