Pennsylvania Capital in Limbo on Second Failed Debt Plan Vote

For the second time in as many months, Harrisburg’s city council narrowly voted against adopting a debt plan designed to keep the struggling municipality out of Chapter 9 bankruptcy. And the move could very well leave the city unable to meet debt obligations coming up mid-month, including payroll.

Opponents of the latest plan championed by Harrisburg Mayor Linda Thompson as an alternative to filing for municipal bankruptcy protection, continued to criticize plans they believe put investors on better footing than rank-and-file residents when dealing with the Pennsylvania capital’s debt. Harrisburg officials continue to pursue the long-shot options of landing significant short-term loans to push the problem off, at least temporarily.

Thompson had offered up a debt plan slightly different from the one proposed by the state, both with the aim of preventing a massive default. But council members were resistant to ideas such as a significant property tax hike and the selling of city-owned parking garages and proverbial money pit in the form of a trash incinerator, which was included in both plans. The failed trash incinerator project, sold to voters as a potential cash-generator, stands as the primary cause of Harrisburg's massive debt problems.

Pennsylvania state lawmakers hurried earlier this summer to pass S.B. 907, which would strip any third-level city—Harrisburg fits that distinction—of state funding if it files for bankruptcy before July 2012. Some city lawmakers remained unfazed in the belief that bankruptcy remains a viable option that should be explored, despite the ramifications. State officials appear concerned that a Chapter 9 filing by Harrisburg would sully the reputation of the state capital and increase the cost of borrowing for the city in the future, as well as many other similar-sized Pennsylvania cities.

Brian Shappell, NACM staff writer