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Judge to weigh bankruptcy petition for Pa. capital

October 16, 2011

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HARRISBURG, Pa.—A federal judge will hear arguments Monday morning over whether Pennsylvania's cash-strapped capital can move ahead with a bankruptcy petition.

The state of Pennsylvania and Harrisburg's mayor are fighting a 4-to-3 City Council vote that authorized the city to file for bankruptcy protection. The city of 50,000 is saddled with hundreds of millions of dollars in debt, and six pending lawsuits, mostly related to an aging trash incinerator.

The U.S. Environmental Protection Agency shut down the incinerator in 2000 for excessive pollution, and then officials backed a plan to spend $125 million on upgrades that were supposed to fix the problems and return the incinerator to profitability. But the fixes only led to more problems and debt.

Philadelphia attorney Neal Colton filed the state's objections to the bankruptcy on Friday, saying a state law expressly forbids it.

Harrisburg Mayor Linda Thompson believes the petition isn't valid and wants the judge to dismiss it.

Monday's bankruptcy hearing will center on legal fine points, not pollution or the specific claims by creditors.

The City Council majority and Thompson have clashed over a recovery plan developed with state officials, leading area state lawmakers to push a bill that would let the governor declare a state of fiscal emergency and install someone to make decisions about government services and spending.

That measure, supported by Gov. Tom Corbett, has passed the House and is expected to be taken up by the Senate this week.

Municipal bankruptcies are rare, with only a few dozen filed in the United States in the past three decades, and some of those were dismissed. Among them are Orange County, Calif., which took the action in 1994, and Vallejo, Calif., three years ago.

More recently, a state receiver filed for bankruptcy for Central Falls, R.I., in August, and the recovery plan includes cost cutting, higher taxes and pension reductions. Jefferson County, Ala., is considering Chapter 9 as a solution to a $3.1 billion sewer debt problem.

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