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In Pennsylvania, lawmakers fight for right to declare bankruptcy

MahurinEcon_Thumb1_2090.jpg
MahurinEcon_Thumb1_2090.jpg

Pennsylvania’s capital, Harrisburg, is fighting for its legal right to declare bankruptcy as state lawmakers try to finalize a bill that would make doing so illegal and strip much of the city’s power to self-govern.

The dispute has escalated after the Harrisburg city council stuck down a state-sponsored series of recommendations for financial adjustment that included a bitter pill of city employee layoffs, privatization of public lands, and spending curtailment. The Pennsylvania senate passed their version of a law that would bar a city from going under bankruptcy protection in the final days of the legislative season before breaking for the summer. The House is expected to pass the measure this week.

Today a judge will hear whether the city had a right to file for Chapter 9 bankruptcy, which it did last week; state representatives argue the city did not, but a legal team representing Harrisburg maintains it filed fairly because the takeover legislation has yet to receive the governor’s signature.

Sen. Jeffrey Piccola proposed the legislation after Harrisburg officials balked at a list of recommendations brought to them in June by a state-appointed committee charged with finding cuts to the struggling city’s budget. The committee in its report that Harrisburg owes $220 million despite its 2011 General Fund budget just barely exceeding $55 million.

Piccola’s plan, Senate Bill 1151, would obviate the authority of Harrisburg elected officials, with the management board acting alone in clearing city structures and services.

The state committee appeared before the Harrisburg City Council in June suggesting the following, according to the Patriot-News:

  • Sale or lease of assets of the Harrisburg Parking Authority.
  • Sale of the incinerator to the Lancaster County Solid Waste Management Authority.
  • Reduction of 19 city employees across city departments.
  • To replace loss of revenue from sale or lease of assets, a $2 million annual payment from Dauphin County’s gaming funds and the increase of property taxes by 0.8 mills.
  • Negotiate contracts to freeze wages, restructure health benefits and control the growth of personnel costs.
  • Improve management infrastructure and accountability.
  • Contain fast-growing employee compensation.
  • Combine park maintenance operations into the Department of Public Works.
  • Outsourcing commercial sanitation collection.
  • Pursue payments in lieu of taxes from nonprofit entities.
  • Increase property taxes only when necessary to close remaining gaps between revenues and expenditures.

The council refused to take up the recommendations.

If passed, the legislation would amend the state’s 1987 Municipal Financial Recovery Act (Act 47).

Originally, Act 47 was a process by which distressed communities could receive state financial support after accepting the terms of an Act 47 team.

Collective bargaining agreements that were finalized before an Act 47 team prepares its recommendations cannot be overruled. However, the bill places limitations on labor negotiations between public workers and the municipality that occur after a debt resolution proposal is issued:

A distressed city shall execute contracts and collective bargaining agreements in compliance with the plan. If a management board has been appointed, the distressed city shall execute contracts and agreements only with the approval of the management board.

On wage and fringe benefits for public workers, the bill states the board will consider:

[r]elevant market factors, such as the financial situation of the distressed city, inflation, productivity, size of work force and pay and benefit levels in economically and demographically comparable political subdivisions.

The bill also straightjackets municipalities seeking bankruptcy protection:

Notwithstanding any other provision of law, including section 261, no distressed city may file a petition for relief under 11 U.S.C. Ch. 9 (relating to adjustment of debts of a municipality) or any other Federal bankruptcy law, and no government agency may authorize the distressed city to become a debtor under 11

U.S.C. Ch. 9 or any other Federal bankruptcy law.

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