Harrisburg’s Bankruptcy Filing Is Rejected by Judge

The ruling, by Judge Mary D. France, was a blow to the Council. A majority of its members had fought Harrisburg’s mayor, Linda D. Thompson, for months, saying she was seeking too little from creditors. A failed trash incinerator project has saddled the city with about $310 million in debt, more than quadruple its annual budget.

Brad Koplinski, a Council member who had voted to file for bankruptcy, said he and his colleagues were trying to decide whether to appeal Wednesday’s decision.

“We’re disappointed,” Mr. Koplinski said by telephone from Harrisburg. “Bankruptcy is the only thing that would guarantee a solution with shared pain.”

The City Council had tried to muscle in on the process of fixing the city’s chaotic finances, which had been run by Mayor Thompson, who is backed by the state and Gov. Tom Corbett. The Council had argued that filing for bankruptcy would be fairer to the city’s taxpayers, as it would give the city more control over how it pays off its creditors.

Council members said that creditors should have to write down part of their debts, in addition to the city’s selling off its assets to pay creditors. The highly unusual filing ran against the plan the state had enacted, which essentially designates the city as financially distressed and places its finances under state control. On Wednesday, the Council lost that fight.

The ruling in federal bankruptcy court in Harrisburg paved the way for Gov. Tom Corbett to move ahead with plans to take over the city’s finances by placing it in the hands of a state-appointed financial receiver.

Harrisburg is one of several municipalities that have filed for bankruptcy protection this year, along with Jefferson County, Ala., and Central Falls, R.I.

The state filed a petition on Nov. 18 in the Commonwealth Court of Pennsylvania laying out its arguments for why the city meets the criteria for receivership. A hearing in that case is scheduled for Dec. 1. David Unkovic, a Pennsylvania lawyer, was named in the petition as the receiver.

Kelli Roberts, a spokeswoman for Governor Corbett, said the state welcomed the ruling. She said Judge France affirmed the position of state officials that the city did not get the state or the mayor to sign off on the bankruptcy filing.

The ruling on Wednesday had little effect on the city’s current financial situation. It dismissed a stay against claims from creditors, but creditors had not been actively pursuing those claims in court, so there was no immediate effect.

“Most people predicted the judge would rule this way,” said William W. Kannel, a partner at Mintz Levin in Boston, who is an expert on bankruptcy law. “It’s very clear, states are entitled to control their municipalities’ access into Chapter 9 bankruptcy.”

Article source: http://feeds.nytimes.com/click.phdo?i=626acc7bca5fff8bd9d5dc2bd43ad7db