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Harrisburg City Council Seeks to Reinstate Bankruptcy Appeal

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Feb. 26 (Bloomberg) -- Harrisburg, Pennsylvania’s city council asked a federal appeals court for permission to challenge the dismissal of its bankruptcy case.

Attorney Mark Schwartz yesterday asked the U.S. Court of Appeals in Philadelphia to overturn a lower-court ruling that blocked the city, the state’s capital, from appealing the dismissal. Two lower-court judges denied the council the chance to appeal, saying Schwartz missed a deadline.

U.S. Bankruptcy Judge Mary D. France in Harrisburg dismissed the bankruptcy on Nov. 23, saying it wasn’t authorized by state law. She later refused to let Schwartz challenge her ruling, saying that he waited too long. Her decision was upheld by U.S. District Judge Sylvia H. Rambo, who called the effort to appeal to district court “potentially frivolous.”

Harrisburg, a city of 49,500, faces debt greater than its general fund, in part because of an overhaul and expansion of an incinerator that doesn’t generate enough revenue. Guaranteed debt is about $242 million, with $65 million overdue, according to the bankruptcy petition.

The receiver appointed by the state to help fix Harrisburg’s financial problems is set to appear in a Pennsylvania court March 1 to seek approval of a preliminary recovery plan. David Unkovic, chief lawyer for the Pennsylvania economic development department, filed the plan this month as part of a process set up by the state legislature.

In an e-mail, Schwartz said he also filed papers seeking to participate in the state court hearing.

Court Protection

France dismissed the bankruptcy case, finding that the council violated a state law barring Harrisburg and similar-sized cities from seeking federal court protection from creditors until after June 2012. France also ruled that the council didn’t follow the city’s procedures for filing a court case.

Under the U.S. Bankruptcy Code, states are allowed to set rules regulating when their cities can file bankruptcy.

The council has been fighting with Mayor Linda Thompson over how best to fix the city’s financial problems. Thompson opposed the bankruptcy and didn’t oppose the appointment of the receiver.

Beverly Weiss Manne, an attorney for the mayor, didn’t immediately return a call for comment yesterday on the request for an appeal.

Receiver Power

State law gives the receiver the power to impose his plan on city officials without their consent after winning approval from a state judge. The law doesn’t let him break union or other contracts.

Unkovic’s plan, unlike previous proposals rejected by the city, doesn’t say which assets may be sold. He’s asking for bids on parking, water and sewer systems, and the waste-to-energy incinerator run by a Covanta Holding Corp. unit. Once he has bids in hand, he would enter “serious negotiations” with creditors on any debt that wouldn’t be covered by sales or leases, he told residents in a meeting. He said he would also seek talks with municipal unions.

The council’s case is City of Harrisburg v. AFSCME District Council 90, 12-cv-00130, U.S. District Court, Middle District of Pennsylvania (Harrisburg). The bankruptcy case is In re City of Harrisburg, Pennsylvania, 1:11-bk-06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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