Pennsylvania's state capital Harrisburg has declared bankruptcy, according to a court filing seen Wednesday, a rare move that raised the specter of a string of local government defaults.
The city -- whose finances have been ravaged by the costs of upgrading a once-mothballed trash incinerator -- filed late Tuesday to seek protection from creditors. The city reportedly owes around $310 million.
According to experts it is only the fourth bankruptcy filing by a sizable municipality in the last three decades, although such moves are much more common among townships and smaller entities.
The most recent filing was by the city of Vallejo, California in 2008, according to James Spiotto of Chapman and Cutler law firm, who runs a tally of municipal bankruptcy filings.
Some economists had warned of a looming spate of municipal bankruptcies this year as tax and property revenues fell with the economic downturn and the federal government's $787 billion stimulus package faded.
In the end Harrisburg's efforts to avoid being the first in that chain of dominos appears to have been hampered by politics as much as debt levels.
The state of Pennsylvania and Harrisburg's mayor Linda Thompson had urged the city to raise tax revenues and sell off assets -- listed as being in the order of $100-$500 million in the bankruptcy filing -- to pay creditors.
On the auction block was the incinerator, which it is thought would sell for $150 million.
The city had also examined leasing two parking garages for 30 or 40 year terms, and considered selling about 8,000 historical artifacts destined for a museum that was planned but never built.
According to mayoral spokesman Robert Philbin, the artifacts sale could bring as much as $500,000.
But wary of the impact of asset sales on a city already ravaged by the economic downturn, the city council voted by a reported margin of four to three on Tuesday to opt for bankruptcy.
"The choice is to sell our assets and leave us even more destitute," said Harrisburg City Controller Dan Miller. "Give up our control of parking and the incinerator? If that's the choice, this is why we did this."
Those backing the bankruptcy believe the city has little room for tax increases.
Officials say that property taxes form the bulk of the Harrisburg's revenue, but more than half of the city's property is not taxable because it is owned by state government or the county courthouse.
And with more than half of the city's residents living in poverty, tax increases on the remaining properties would be politically fraught.
But the spat is far from over. The state or the town's mayor could seek to legally block the filing.
Philbin said city council had no authority to file for bankruptcy without the approval of the mayor.
"Frankly, it means that it's going to go nowhere," Philbin said. "The market in general is confused by these unusual tactics."
At a state level there were also complaints.
"The bottom line, it's going to be in the bankruptcy court's hands" whether it was filed in accordance with state laws, said Mike Gasparre, director of the Pennsylvania Local Government Commission.
The court filing was submitted by lawyer Mark Schwartz and was signed off by city council budget and finance chair Susan Wilson.
Located in the south-central portion of the state, the city is home to around 50,000 people.