Pennsylvania state capital goes bankrupt

The capital city of the Keystone State has run out of money. Lawmakers in Harrisburg, PA today voted to file for municipal bankruptcy protection as the state capital of Pennsylvania has accumulated hundreds of millions of dollars in debt.

The Harrisburg council narrowly voted 4-3 today to file for bankruptcy, a decision that both attorneys and residents warned against.

“This was a last resort,” Mark D. Schwartz, lawyer for the city council, tells Bloomberg. “They’re at their wits’ end.”

While some attorneys are questioning if the file adheres to legal loopholes set in place to avoid Harrisburg from going bankrupt, others say that in the meantime it will keep the city temporarily afloat while the legalities are examines. To Reuters, Schwartz says the move will try to give the city “bargaining power” with Harrisburg’s slew of creditors and the state itself.

That is, of course, if the filing is approved.

“From our perspective, it is an illegal action,” said Kelli Roberts, a spokeswoman for Gov. Tom Corbett, adding that the governor’s general counsel was evaluating options for a response. “It won’t stand.”

A new state law requires cities to seek state approval to file for bankruptcy; the decision today out of Harrisburg resulted from a council board’s consensus. In a joint email issued to Bloomberg from county commissioners, they say the vote is “nothing more than a delay tactic to avoid making the tough decisions necessary to resolve the city’s debt crisis.”

With a failed garbage-to-energy conversion program putting the city $300 million in debt — piled upon tons more of financial troubles caused by a crumbling economy — a desperate measure was expected to come out of the south-central PA hub for some time. Christopher Ryon, a portfolio manager at Thornburg Investment Management, tells The Wall Street Journal, “This has been one of the slowest moving train wrecks in my memory.”

A bankruptcy, however, was considered by many to be an improper route to revitalize the city. An ABC affiliate in the capital city said that only 13 percent of the citizens in town were in favor of a bankruptcy filing; nearly a quarter of the city, on the other hand, said that state intervention was the route to take — over half of the city said that the local government should try to come up with a compromise themselves.

Three of the seven council members voted against the bankruptcy, too. Representative Patty Kim was one of the trio, and she tells Bloomberg it didn’t make sense to vote in favor of the filing.

“We still don’t have money, and we still haven’t moved one foot forward,” says Kim.

Two other municipalities in America have filed for bankruptcy in 2011 so far — Boise County, Idaho, and Central Falls, Rhode Island — and while Harrisburg is far from a megalopolis, the filing comes as a cause for concern give that the city on the Susquehanna river is the home to the Pennsylvania government.

“We are talking about the state capital, so it’s not small potatoes, but it’s not a large county or the largest city in Pennsylvania,” Eric Montarti of the Allegheny Institute for Public Policy adds to Politico.

Pennsylvania Governor Thomas Corbett has repeatedly spoken out against the bankruptcy, however. Today to Bloomberg, spokeswoman Roberts adds that the governor believes bankruptcy will “adversely affect the credit rating of the county and surrounding municipalities.”

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