Harrisburg, in Financial Crisis, Sues Governor

     HARRISBURG, Pa. (CN) – The Harrisburg City Council sued Gov. Thomas Corbett and the receiver he appointed for the city, challenging in Federal Court a law that gives the governor and an unelected official “unfettered” powers over the financially stressed city.
     The five City Council members, the city controller and treasurer sued Corbett and the receiver he appointed for the city on May 24, William B. Lynch.
     Lead plaintiff, Council President Wanda R.D. Williams, challenged Corbett’s Senate Bill 1151, an amendment to state Act 47, which states that under certain conditions the governor may declare a state of fiscal emergency and assume “unfettered” powers to secure compliance of all elected officials.
     The City Council claims the law violates the Constitution’s due process guarantees.
     “Act 47 is the only state mechanism which affords financially distressed municipalities with technical and financial assistance from the Commonwealth,” according to the complaint.
     The Council claims that when Harrisburg filed its Act 47 application, the Act “did not require the elected representatives of the citizens of Harrisburg to adopt or implement the Recovery Plan formulated by the Act 47 Committee. The statutory penalty for a municipality’s failure to adopt the Recover Plan … was simply the cut-off of state financial assistance. Nothing in Act 47, at the time the City of Harrisburg voluntarily filed its application for distressed municipality status, threatened the suspension of representative democracy over key municipal functions within the City of Harrisburg,” according to the 26-page complaint.
     Harrisburg’s dire financial status began after the Environmental Protection Agency ordered the city’s municipal incinerator to be “shut down, fixed or mothballed, because it was found to be emitting dioxin into the environment” in 2003. Harrisburg decided to rebuild the incinerator and into a “bigger, better state-of-the-art facility, capable of disposing 800 tons of trash per day while generating electricity to be sold to nearby businesses – all based on unproven technology,” at a capacity designed also to benefit Dauphin and Cumberland Counties, the city says in its complaint.
     To fund the project, the Harrisburg Authority sold $125 million in municipal bonds to the City of Harrisburg.
     “Eight years after the risky decision to rely on unproven technology, the incinerator is up and running, but the pipelines that were supposed to transport steam from the incinerator to the city, where it would be sold to commercial buildings to generate revenue, are cracked,” the complaint states. “Further, one of the three burners was left unfinished by construction crews and exposed to rain and snow causing significant additional damage to the incinerator.
     “Instead of a fiscal boom, the incinerator project has burdened the city with an exceptionally high level of debt and leaving the city unable to finance the needed repairs to make the incinerator sufficiently profitable to service the incinerator debt.”
     The city says the $8 million in annual revenue generated by the incinerator is not enough to service debt, and that the shortfall “has triggered a debt spiral that requires the City of Harrisburg to secure or develop additional sources of revenue to service the incinerator debt as first guarantor of the incinerator bonds.”
     Since neither the Authority nor the City of Harrisburg can deal with that kind of debt, Mayor Linda Thompson applied to have Harrisburg designated as a “financially distressed municipality” in October 2010 and the official designation of Harrisburg into the Act 47 program followed in December.
     The City Council says that Act 47 requires the Commonwealth to provide a financially distressed municipality direct economic assistance, and technical expertise through a state-appointed board of financial consultants. The committee is required to “assist the municipality, and not to dictate thereto, in formulating a financial recovery plan … which is subject to the final approval and implementation by the distressed municipality’s elected representatives,” according to the complaint.
     Cities in distress are not free to exit Act 47 without state approval, and according to the complaint, “no municipality that has applied for and been designated as a ‘financially distressed municipality’ has ever exited the Act 47 process.”
     The City Council says: “The Act 47 Committee is charged with working with the community to devise a successful Recovery Plan for the distressed municipality to be adopted by the distressed municipality’s elected representatives.”
     They add: “On its face, the Commonwealth’s Recovery Plan failed to solve Harrisburg’s fiscal nightmare.”
     The Act 47 Recovery Plan offered by the Commonwealth committee sought to pay bond creditors by “selling income-producing city assets prior to bankruptcy, securing for the bond creditors increased sums of money that they would not likely receive as part of any municipal bankruptcy plan,” according to the complaint.
     The city claims the plan failed because the state sought to sell income-producing assets needed to finance future operating budgets, while depriving Harrisburg of any new revenue source to compensate for the loss of income-producing assets, such as a nonresident wage tax, which “the governor and members of the General Assembly openly opposed to be levied against their suburban employees and constituents.”
     When the City Council rejected initial and modified Recovery Plans, Corbett retaliated in October 2011 by signing Senate Bill 1151 into law, amending Act 47, the Council says.
     The amendment empowered the governor to “deprive plaintiffs and the citizens of Harrisburg [of] the political and economic rights afforded to other citizens of third class cities in order to implement the Commonwealth’s preferred Recovery Plan and to block the city from imposing a nonresident commuter tax against the General Assembly’s suburban employees and constituents,” according to the complaint.
     The bill “expressly prohibits a distressed city subject to Chapters 6 or 7 from petitioning a court of common pleas for an increase in the rate of an earned income tax imposed on nonresident workers … until the secretary terminates the distressed status of the city,” the City Council says.
     One of the principal benefits only afforded to distressed municipality under Act 47 is the authority to tax the wages of nonresidents, the complaint states.
     Senate Bill 1151 also “authorizes that the governor may declare a fiscal emergency in ‘distressed’ third class cities that fail to adopt a recovery plan or approved alternate plan approved by the Commonwealth,” the complaint states. And the governor’s “unfettered decision to decree that a ‘state of fiscal emergency’ exists within a distressed third class city, Section 604 of Senate Bill 1151 provides that the governor may exercise the authority of the elected or appointed officials of the distressed city or authority necessary to ensure the provision of vital and necessary services and may delegate the authority to the secretary or a designee of the secretary.”
     Act 47 also empowers an unelected official, receiver William Lynch to exercise the power vested in the governor.
     The City Council claims: “Senate Bill 1151 targeted the City of Harrisburg in retaliation for its lawful rejection of the Recovery Plan – a refusal all other third class cities that entered Act 47 had the right to exercise, but denied to Harrisburg.”
     The Council claims: “The City of Harrisburg is the only third class city that entered Act 47 under one set of rules and was trapped by the Commonwealth in Act 47 and forced to comply with an amended Act 47 – amendments which effectively withdraw from plaintiffs the right, as elected officials, to represent the citizens of Harrisburg with respect to municipal governance on terms equal to all other elected officials of third class cities within Pennsylvania. …
     “The mere existence of an objective fiscal emergency … does not vest any power in the governor – it is the subsequent ‘declaration’ of a fiscal emergency that strips plaintiffs’ [of] the authority as elected representatives to exercise control over key municipal functions within Harrisburg – a declaration wholly unfettered by any further legislative constraint or guidance.”
     The Council adds: “Due Process and Equal Protection Clauses of the Fourteenth Amendment … prohibit the General Assembly from delegating unfettered legislative authority to defendant governor to decree a fiscal emergency in a municipality in a manner which impairs plaintiffs’ right to represent the citizens of Harrisburg on terms equal to all other officials of third class cities within the Commonwealth of Pennsylvania.”
     The complaint cites Article III of the Pennsylvania Constitution, which states that the General Assembly “shall not pass any local or special law: (1) Regulating the affairs of counties, cities, townships, wards, boroughs, or school districts.”
     As a third class city, the complaint states, citizens may elect a mayor, City Council of 7 to 9 members, a controller and treasurer., and “Optional Third Class City Charter Law” states that “The legislative power of the city shall be exercised by the city council, except as may be otherwise provided by general law.”
     The Council members say that Act 47, as amended by Senate Bill 1151, is prohibited special legislation because it “creates a ‘class of one’ consisting of the City of Harrisburg only. The Pennsylvania Supreme Court has ruled that a ‘class-of-one’ is a per se ‘special law’ violating constraints placed on the General Assembly by the Pennsylvania Constitution.”
     According to the complaint, “The amending of Act 47 after the City of Harrisburg entered the Act 47 program under different rules that created substantive rights for the city and people of Harrisburg, violates the state constitutional prohibition against special legislation and denies to plaintiffs the equal protection of the laws, in violation of the Fourteenth Amendment.”
     The Council says that “Under the Fourteenth Amendment, plaintiffs are entitled to the equal application of state created rights, including state constitutional provisions designed to constrain legislative and executive action targeted solely at the City of Harrisburg.
     “While the municipalities are ‘creatures of the Commonwealth,’ both the state legislature and executive branches are constrained in their conduct toward municipalities by the state constitution.”
     The Council members seek a declaration that Act 47, as amended by Senate Bill 1151, is unconstitutional and void, declaratory and injunctive relief enjoining the defendants from enforcing it, plus costs and attorney’s fees.
     They are represented by Paul Rossi, of Kennett Square, Pa.

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