July 10 (Bloomberg) -- The receiver of Harrisburg, Pennsylvania asked a court to force council members of the insolvent city to raise taxes.
An increase in the earned income tax to 1.5 percent from 0.5 percent is key to a plan to stabilize Harrisburg’s finances, according to the receiver, William B. Lynch. The city is insolvent, mainly because it guaranteed repayment of more than $300 million in bonds tied to a waste-to-energy plant that doesn’t generate enough money to cover its debt.
Without the tax increase, “the city’s operating shortfall will be that much greater and will be so substantial that it will seriously jeopardize any ability of the city to achieve a consensual recovery plan resolution,” attorneys for Lynch wrote in today’s filing in state court in Harrisburg.
Lynch is trying to implement a financial recovery plan given preliminary approval by state Judge Bonnie Leadbetter. Under the proposal, the city would raise taxes and either sell or lease assets it controls, including parking garages and the waste-to-energy plant.
The law which authorized Pennsylvania Governor Thomas W. Corbett to appoint Lynch doesn’t give the receiver power to impose taxes. For that reason, Lynch is asking Leadbetter to order the council to approve the levy.
The increase would raise about $5.1 million in 2013 and $6.86 million from 2014 through 2016, or about 10 percent of the city’s operating budget, according to the court documents.
Lynch and Harrisburg Mayor Linda Thompson have been fighting the city council over the best way to end the city’s fiscal troubles. The council put the city into bankruptcy last year. Lawyers for Thompson and Corbett persuaded a federal judge to have the case thrown out.
Leadbetter lacks the authority to impose the tax, said Mark D. Schwartz, an attorney for the city council.
“It’s not like they have followed the law before,” Schwartz said in an interview.
The receiver case is TD Bank NA v. Harrisburg Authority, 2010-CV-11737, Court of Common Pleas, Dauphin County, Pennsylvania (Harrisburg).
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