(Reuters) – An emergency hearing on the bankruptcy filing by the city of Harrisburg was set for Monday after the city's mayor late on Thursday submitted a petition to have the filing dismissed.
Harrisburg filed for Chapter 9 bankruptcy on Wednesday after a 4-3 vote by the City Council. Mayor Linda Thompson opposed the filing and has challenged its legality.
In Thursday's court documents, the mayor asserted the bankruptcy petition was invalid. The bankruptcy court granted the request for an emergency conference to address the matter and a hearing to dismiss the case. The mayor's petition said pleadings to the court would be filed shortly.
The hearing was set for 9:30 a.m. ET on Monday.
The filing has stirred up a host of conflicting views and debate about the legality of the council's move. Thompson has said she is "ashamed" of the council's behavior.
Pennsylvania's governor, Tom Corbett, has said the city would be better off if it agreed to a rescue plan under a state program for distressed cities, which has seen Philadelphia and other cities through crises.
The state filed on Friday its objection to Harrisburg's bankruptcy. The state said it did not dispute that the city faced "serious financial difficulties" but said state law prohibits a bankruptcy filing by the city.
Harrisburg's crisis has been a year in the making. The city of about 50,000 is hampered by $300 million in debt incurred from an expensive revamp of its incinerator and is struggling to fund key city services.
Harrisburg is one of a handful of municipalities that has flirted with bankruptcy in the wake of the recession of 2008 that devastated budgets in state and local communities. Some say it could become a touchstone for whether other cities will follow this path to extract concessions from creditors and others.
Mark Schwartz, an attorney for the city council, in an interview with Reuters Insider on Thursday, said the Chapter 9 filing was "absolutely" legal, rejecting charges from the mayor and Harrisburg's surrounding Dauphin County that the council did not have the authority for the filing.
City Controller Dan Miller told Reuters Insider that the filing was the right move for the debt-strapped city.
On Thursday, Charles Zwally, special council for Dauphin County, said the county was weighing its options, saying that "we don't believe that they are authorized to file."
Bond insurer Assured Guaranty also questioned the legality of the filing.
At the root of Harrisburg's troubles is a financing scheme used to fund a state-of-the-art renovation of its trash-burning plant that left the city deeply in debt.
The incinerator is owned by the Harrisburg Authority, a separate municipal entity, but the city and Dauphin County guarantee much of that debt.
In December 2010, with Harrisburg facing the prospect of bond defaults, deep service cuts, or worse, Pennsylvania officials put the city under its Act 47 law, which obliges faltering cities to implement plans to ward off Chapter 9 municipal bankruptcy filings.
In July, the City Council rejected a state-approved rescue plan, which called on the city to renegotiate labor deals, cut jobs, and sell or lease the city's major assets -- its parking garages and the incinerator. In August, the council again rejected a similar plan.
(Reporting by Chip Barnett, David Gaffen and Edith Honan in New York, Tom Hals in Wilmington, Delaware, and Jessica Hall in Harrisburg; Editing by Leslie Adler)
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