Harrisburg, Pennsylvania has joined the growing ranks of American municipalities declaring bankruptcy since the 2008 recession rocked the American economy.
The municipal area of Harrisburg, PA has filed a petition for Chapter 9 bankruptcy with the U.S. Bankruptcy Court. The filing indicated that Harrisburg is in debt to over $400M (a debt five times its annual budget, according to the National Journal), and is being acted against by six different creditors seeking restitution.
Most of the debt is associated with a failed garbage incinerator built in the city that Council had hoped would generate greater revenue. ABC News is reporting that "Harrisburg fell victim to the 'incinerator from hell,'" a waste-to-energy incinerator that left the city paying for more than $310M in renovations. The massive amount needed to sustain the failing incinerator led the State of Pennsylvania to declare the city "financially distressed."
The State had offered financial assistance to Harrisburg in the hopes the city would avoid any declaration of bankruptcy, although City Council rejected them. They feared any strings attached to the assistance would result in significantly cut services and offloaded costs to residents, something council would not consider.
Council voted 4-3 to declare bankruptcy, although questions remain from some quarters in City Hall and in the Capital Building whether the filing was executed properly, and therefore, legally binding.
“I have been on the record as saying that bankruptcy is simply not an option," State Senator Jeffrey Piccola told PennLive.com. "It’s illegal under Pennsylvania law, which prohibits third class cities from filing for bankruptcy."
And Piccola is not the only one questioning the legality of the move. A spokesman for Governor Corbett, Kelli Roberts, told the New York Times that "the filing violated the state’s fiscal code, which was amended this year to bar cities like Harrisburg from filing for Chapter 9 bankruptcy.
“'For us, this filing is illegal,' Ms. Roberts said. 'It’s very clear.'”
Harrisburg is not the only municipality to recently declare bankruptcy, although the measure remains relatively rare. ABC reports that "since 1937, when Chapter 9 filings first became an option for municipalities, there have been only 625 filings, according to Chicago attorney James Spiotto."
But in 2011 alone, Boise County, Idaho has filed for bankruptcy protection, in addition to Central Falls, Rhode Island. Jefferson County, Alabama is currently negotiating with creditors to avoid a similar move. And while these are not major counties or cities like New York, Los Angeles, or Dallas, the trend towards municipal bankruptcy has seen a significant increase in the past year.
Whether the State will allow Harrisburg to declare bankruptcy, or intervene to prevent that from happening, will be determined in the coming weeks.