Bloomberg News

Harrisburg Judge Says Will Decide Bankruptcy Legality Today

November 23, 2011

(Updates with comment from judge in third paragraph.)

Nov. 23 (Bloomberg) -- The judge who will decide whether Harrisburg, Pennsylvania, can stay in bankruptcy said she will issue a ruling today.

U.S. Bankruptcy Judge Mary D. France is holding a hearing today on whether the council members who voted for the bankruptcy filing violated local and state laws. France said she will let everyone know her decision after attorneys return from a lunch break. If France rules that the filing wasn’t authorized, she can dismiss the bankruptcy.

“My only role, at least at this point, is to determine whether the city of Harrisburg can be admitted under the bankruptcy code into a Chapter 9 proceeding,” France said. “It is not my responsibility right now, and I do not have the authority to make a decision about, whether this is a good idea for the city of Harrisburg.”

During the hearing, France asked lawyers on each side of the case to address whether Pennsylvania’s Act 26 of 2011 is unconstitutional. The law, which prohibits cities of Harrisburg’s size from filing for bankruptcy before July 2012, is cited by bankruptcy opponents including the city’s mayor and Pennsylvania’s governor as barring the petition.

If Act 26 is constitutional “it will be a bar” to bankruptcy, France said. If not, then the question will be whether the city council followed proper procedures for filing the case, France said.

‘Narrowed It Down’

When France took the bench this morning, she cut down some of the legal arguments made by the city council, through its attorney Mark Schwartz, said Widener Law School professor Juliet Moringiello. France dismissed Schwartz’s argument that the city had a separate legal right to file bankruptcy without authority from the state, Moringiello said today.

“She narrowed it down to the right issues,” Moringiello said in an interview. “Some of Schwartz’s arguments on statutory interpretation, she threw them right out.”

France also appeared to disagree with the state and Harrisburg’s mayor, who argued that the council couldn’t file bankruptcy by itself under the city’s code, Moringiello said.

A majority of the Harrisburg council voted to put the city into bankruptcy last month. Since then, Mayor Linda D. Thompson, Governor Tom Corbett and creditors have asked France to dismiss the bankruptcy petition, which was filed under Chapter 9 of the U.S. Bankruptcy Code.

Harrisburg, a city of 49,500, faces a debt five times its general-fund budget because of an overhaul and expansion of an incinerator that doesn’t generate enough revenue. Guaranteed debt is about $242 million, with $65 million overdue, the bankruptcy petition said.

The case is In re City of Harrisburg, Pennsylvania, 11-06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).

--Editors: Stephen Farr, Mary Romano

To contact the reporter on this story: Steven Church in U.S. Bankruptcy Court in Harrisburg, Pennsylvania, at schurch3@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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