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Harrisburg, Penn Council rejects state rescue plan

By Edith Honan

NEW YORK (Reuters) - The Harrisburg City Council on Tuesday rejected a rescue plan that called for Pennsylvania's deeply indebted state capital to sell its most valuable assets to pay off its debt and avoid bankruptcy.

By a vote of 4 to 3 the Harrisburg City Council rejected a plan -- prepared by the Novak Consulting Group -- to sell a deeply indebted incinerator at the center of its fiscal woes, renegotiate labor deals, cut jobs, and sell or lease its parking garage, council members told Reuters.

The majority of the council said the plan had placed too much of a burden on Harrisburg taxpayers, and said they hoped to work with Mayor Linda Thompson to draft an alternative plan that would call for more shared pain.

Thompson must present an alternative plan to the council within two weeks.

"This was not a global and complete solution," said Councilman Brad Koplinski, who voted against the plan, adding it did not ask enough of other stakeholders and did not address all of Harrisburg's debt. He suggested a sales tax increase, which was not included in the plan, as a way to raise revenue.

The mayor did not immediately respond to a request for comment.

Last December, with Harrisburg facing the prospect of bond defaults, deep service cuts, or worse, Pennsylvania officials put the city under its so-called Act 47 law, which obliges faltering cities to implement plans to ward off Chapter 9 bankruptcy filings.

At the center of Harrisburg's troubles is a financing scheme to fund its state-of-the-art trash-burning plant, which left the city with roughly $300 million in debt.

The incinerator is owned by the Harrisburg Authority, a separate municipal entity, but the city and surrounding Dauphin County guarantee much of that debt.

A bankruptcy filing, an expensive option that could freeze the city and surrounding areas out of the municipal bond market, has been opposed by some state lawmakers.

Harrisburg -- a city of 50,000 about 100 miles west of Philadelphia -- is one of a handful of U.S. cities and counties that have teetered toward economic collapse in the wake of the 2007-2009 recession.

Two years ago, Vallejo, California, filed for bankruptcy. Alabama's Jefferson County is in talks with its creditors to avoid what would be the largest municipal bankruptcy in U.S. history.

(Reporting by Edith Honan; Editing by Gary Hill)

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