Bankruptcy for Harrisburg, Pa., denied

A federal judge ruled today that Harrisburg, Pa., cannot file for bankruptcy to get out of its outstanding debt of $300 million, Reuters reported.

In October, the Harrisburg City Council filed for Chapter 9 bankruptcy over the objections of Mayor Linda D. Thompson, Harrisburg’s Fraternal Order of Police and the local affiliate of the American Federation of State, County and Municipal Employees, which represents non-professional city workers, Bloomberg News reported.

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“For Chapter 9 bankruptcy to work, all of the branches of the municipality must be on the same page,” U.S. Bankruptcy Judge Mary D. France said today, Bloomberg News reported. “Therefore I find that city council was not authorized to file the petition on Oct. 11.” France also noted that seeking bankruptcy protection went against state law, The Associated Press reported.

According to Reuters:

The filing was watched as a barometer for other municipalities seeking potentially to tap this option to deal with mounting debts. Only 26 states allow local governments to file for bankruptcy.

A spokesperson for Pennsylvania Gov. Tom Corbett said the governor was "not surprised" by the ruling and is "moving forward with the receiver process to ensure Harrisburg is put back on sound fiscal footing as soon as possible," Reuters reported. Corbett’s administration has already selected David Unkovic, chief lawyer for the state economic development department, to be receiver for the city, though the appointment still needs to be approved by a Pennsylvania court, Bloomberg News reported.

“The mayor fully deserves what she is going to get” from the receiver being appointed in state court, the City Council’s attorney, Mark Schwartz, told Bloomberg News after the ruling. “She is going to get somebody who will pick this city’s bones.”

A City Council member told the AP that the group may decide to appeal.

Debt defaults by state and local governments have increased to more than $1.3 billion since Sept. 30, more than two times the amount in any of the three previous quarters, according to data from Richard Lehmann, publisher of the Distressed Debt Securities Newsletter in Miami Lakes, Fla., Bloomberg News reported.

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