Oct. 25 (Bloomberg) -- Pennsylvania Governor Tom Corbett declared a fiscal emergency in Harrisburg that allows him to assume financial control and name the state’s first municipal receiver.
Empowered by legislation he signed Oct. 20, Corbett today said the capital city’s fiscal distress warranted such action.
The City Council’s “failure to enact a recovery plan in order to deal with the city’s distressed finances has led me to declare a fiscal emergency,” the Republican governor said in a news release. “This action ensures that vital services will continue and public safety will be protected.”
Corbett can now direct city and state officials to comply with his plan to ensure debt obligations and payroll are met. A receiver can be named in 30 days if they fail to devise a recovery plan acceptable to the state.
Corbett’s move comes after Harrisburg became the first U.S. state capital in at least 40 years to file for bankruptcy and may signal more willingness by states to take control over local financial problems. In March, Michigan gave emergency managers expanded powers, such as nullifying union contracts.
A Harrisburg receiver would require approval from bankruptcy court, according to both Mark D. Schwartz, an attorney for the City Council, and lawyers for Mayor Linda Thompson.
The council on Oct. 11 approved a bankrupcty filing 4-3 as a bid to ward off state action after skipping payments on debt tied to a trash-to-energy incinerator project. The state and Thompson have challenged the filing, whose validity will be considered at a Nov. 23 hearing before a federal judge.
The city of 49,500 faces debt five times its general-fund budget because of an overhaul and expansion of the incinerator, which doesn’t generate enough revenue to cover the obligations. Harrisburg guaranteed about $242 million of debt related to the incinerator, with $65 million of it overdue, according to the bankruptcy filing.
The council had rejected proposals by state consultants and Thompson that would have sold assets to repay creditors and raised property taxes on residents, 29 percent of whom live in poverty.
--Editors: Stephen Merelman, Stacie Servetah
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