The commonwealth and Mayor Linda Thompson’s office will argue that the council did not have the legal right under the city code or state law to file for the Chapter 9 petition. The state and Thompson supported the adoption of the Act 47 fiscal-recovery plan council rejected. Thompson’s plan mirrors the Act 47 plan that calls for selling or leasing city assets, cuts in services and increases in fees and taxes. The mayor also wants the option of instituting a commuter tax on workers who live outside the city. But bankruptcy could be the end result even if a takeover should take place, said Juliet Moringiello, a bankruptcy law professor at Widener University School of Law. Council members supported bankruptcy because a court could approve a plan that calls for bondholders to accept less than what they are owed. “There is a third option out there. It might be possible the receiver tries to get through a plan and not all the creditors agree to it,” Moringiello said. “It could be in the best interest of the receiver to file for bankruptcy. The receiver for Central Falls, R.I., filed its bankruptcy.” No municipality that has entered the Act 47 program has exited it, and some towns use the program as a crutch, said Fiorenza, who also is a member of the Pennsylvania and National Government Finance Officers Association. That could be a valid argument the council uses in bankruptcy court, he said. A takeover still is better for the city than bankruptcy, though, because Harrisburg would continue to get state assistance in developing a fiscal-recovery plan and bankruptcy paints a bad picture for the capital city, Fiorenza said. “Act 47 brings into play people who work in economic development throughout the entire commonwealth. So, [a takeover] would bring a broader sense of what kind of city it can be,” he said. “With bankruptcy, I think just the perception of the public throughout the commonwealth and the nation lends itself to failure. It’s failure with people’s tax money.” Harrisburg and Jefferson County, Ala., filed for municipal bankruptcies during the past month, but Chapter 9 filings are rare. A decision regarding Harrisburg’s legal right to file for bankruptcy will not set a precedent because the city’s situation is so unique, Moringiello said. “If it were about the judge granting orders for relief and plan confirmation issues, it might be precedental. But we’re not there yet and we might not ever be,” she said. Harrisburg essentially already is in bankruptcy, as its filing has stayed lawsuits creditors filed against the city, Moringiello said. “The city is in bankruptcy. What it hasn’t gotten yet is an order for relief. Once an individual is in bankruptcy, it gets an order of relief. For Chapter 9, [municipalities] gets the benefit of an
2011 Media Report Villanova School of Business Page 231