Corbett launches state takeover of Pa. capital

HARRISBURG, Pa. (AP) - October 24, 2011

Corbett, a Republican, made the declaration four days after signing a law that grants him the ability to take unprecedented control over much of Harrisburg's finances, including the ability to use the city's money to ensure that government continues to operate services, issue paychecks to employees and make pension and debt payments.

"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," Corbett said in a statement. "This action ensures that vital services will continue and public safety will be protected."

The likelihood of Corbett's takeover hastened a move by a divided City Council - in defiance of Corbett - to file a Chapter 9 bankruptcy petition in federal court earlier this month. The judge has yet to decide whether the petition will be accepted.

If it is, Corbett may not be able to pursue an even tighter grip on the city that the law authorizes: Appointing a receiver who would have the power to sell city assets, approve contracts and file for federal bankruptcy protection, but not raise taxes, with a goal of forcing it to pay down the approximately $300 million debt tied to the city's ill-starred trash incinerator.

Already, the city has missed tens of millions of dollars in payments on the incinerator debt, but the City Council has rejected a state-sanctioned financial recovery plan to pay down the debt and has been unable to agree on a repayment strategy with Democratic Mayor Linda Thompson.

Neil Grover, a lawyer who lives in the city and co-founded the taxpayers' group Debt Watch Harrisburg, said he was disappointed at the latest turn of events and worried about how the governor will use the sweeping powers given to him by a law that opponents say is unconstitutional.

"We're concerned about the extraordinary powers the legislation gives the governor as of this moment, and they are extraordinary," Grover said.

The first concern, he said, is over how Corbett will apply the law, although Grover also suggested that he is doubtful that the Corbett administration has much room to maneuver given the authority of a bankruptcy court.

Thompson, who has sought Corbett's backing in her stalemate with the City Council, called on council members to give her an acceptable plan to take to the state and avert the full breadth of a takeover.

"If we don't attempt to solve our own fiscal problems, the alternatives will be far worse," she said in a statement Monday.

The bankruptcy filing, which Thompson and Corbett oppose, cites "imminent jeopardy" from six creditor lawsuits related to the trash incinerator by Harrisburg, a city of about 50,000 residents 100 miles west of Philadelphia on the Susquehanna River in the southern part of the state.

City Council has pressed for creditors, including Dauphin County, which has backed part of the debt, and the bond insurer, Assured Guaranty Municipal Corp., to forgive a substantial part of the debt.

The law, approved by the Republican-controlled Legislature, was a response to City Council's unprecedented rejection of the state's financial recovery plan.

Corbett delegated his authority to his secretary of community and economic development, Alan Walker, who also now has 10 days to develop an emergency action plan for the city.

If 30 days pass without an agreement between the city and the state on a financial plan, the state Commonwealth Court could authorize the appointment of a receiver named by the governor.

Harrisburg's plight can be traced primarily to a history of bad financial decisions in a city that, for decades, watched its population and industrial core shrink, leaving it with a heavily tax-exempt property base and more than a quarter of its families living in poverty, or nearly three times the national rate, according to census figures.

The trash incinerator began operating on the city's industrial southern edge in 1972, generating steam heat for steel mills and downtown office buildings. In the 1980s, it began generating electricity.

But it was beset by mechanical and environmental problems for years. Faced with a permanent shutdown in 2003 ordered by federal environmental regulators, City Council voted for an expensive overhaul of the already debt-saddled incinerator in hopes that it would one day emerge as a profitable investment.

The renovation took longer than expected, and the city needed to borrow tens of millions of dollars more to complete it. Today, Harrisburg city residents pay among the highest trash-disposal rates in the nation, while the facility doesn't generate nearly enough money to pay the debt.

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