On November 23, 2011, the Bankruptcy Court for the Middle District of Pennsylvania dismissed Harrisburg, Pennsylvania’s chapter 9 bankruptcy petition because Harrisburg was not specifically authorized to file for Chapter 9 as required by the Bankruptcy Code. Harrisburg’s failed attempt to remain in Chapter 9 highlights the political factors and state law constraints that municipalities must consider prior to seeking bankruptcy relief. This article will discuss the origins of Harrisburg’s debt crisis, the Harrisburg City Council’s attempt to file for Chapter 9 without the Mayor’s approval, the legal obstacles placed in the path of the City Council’s bankruptcy filing, and the lessons that other distressed municipalities and creditors can learn from Harrisburg’s experience.

Harrisburg’s Debt Crisis and Bankruptcy Filing

Harrisburg’s debt crisis stemmed from the city’s decision to guarantee revenue bonds tied to a waste-to-energy incinerator owned by the city’s public utility, the Harrisburg Authority. As a result, Harrisburg looked to the Pennsylvania Municipalities Financial Recovery Act or “Act 47” for relief. Act 47 both provides for state government aid to distressed municipalities and governs access to Chapter 9 of the Bankruptcy Code. For a city to receive state aid under Act 47, the Commonwealth of Pennsylvania must first determine that the city is financially distressed, in which case Pennsylvania appoints a coordinator to develop a fiscal recovery plan....