Whether comparatively easier or very difficult as is now the case, entering Chapter 9 bankruptcy is a huge step with possible unforeseen negative consequences. For one thing, the judge involved might require asset sales, labor contract renegotiations or other actions the municipality would rather than not be forced to undertake. But once in Chapter 9 protection, some exposure to such risks has to be contemplated. Then too, the stigma attached could hamper future municipal borrowings for many years and thus reduce the ability to provide needed capital intensive services. Being a bankrupt community could make attracting new residents and businesses harder.
This is what we wrote in February of 2010 when the possibility of Harrisburg declaring municipal bankruptcy was rather slim. Eight months later, in October of 2010, the City was declared to be in Act 47 status and fiscally distressed. Since then there has been a coordinator’s recovery plan that was rejected and a mayoral plan that was rejected. There was also a sweeping change to Act 47 that would apply to cities of the third class, of which Harrisburg is one. Then just last night Harrisburg’s City Council voted 4-3 to file for Chapter 9.
Whether the motion to file or the changes to state law win the day to determine whether Harrisburg can get into a bankruptcy court is probably going to be decided by courts prior to then. Obviously the fact that Council did not like the coordinator’s recommendations to address its structural deficit and debt payments as a result of the City’s relationship to the financing of a trash incineration facility moved them closer to this point. The coordinator’s plan stated that to avoid bankruptcy the City would need "cooperation from its creditors, a consensual debt solution, and immediate reopening of labor contracts". If the matter does make it in front of a bankruptcy judge it is a good possibility that a solution would hinge upon similar themes.
