The prohibition ends November 30th.

That is the prohibition on the City of Harrisburg from filing Chapter 9 municipal bankruptcy. Originally set to end on June 30, 2012, the law barring the City of Harrisburg (and all other 3rd Class cities) from filing for bankruptcy was extended five more months to November 30, 2012, which is a mere weeks away.

Receiver William Lynch has been very overt about his desire to have the threat of Chapter 9 municipal bankruptcy at his disposal. Months ago he stated, “I’m not in favor of any kind of prohibition on bankruptcy because it limits my abilities and the tools I have in my kit.”

Tools for negotiating with vested parties, which is precisely what the Receiver and his team are in the midst of doing. Over the past few months,  the Office of the Receiver has embarked on an aggressive strategy of monetizing the City’s assets, that is the Incinerator and the parking system; working with the City’s elected officials to raise the Earned Income Tax on residents of Harrisburg; and mediating with the unions there by isolating the City’s most recalcitrant creditors—Dauphin County and the bond insurer Assured Guaranty (AGM). This approach is especially significant in regard to dealing with AGM. If the Receiver can declare that all has reasonably been done by the City to develop and execute a recovery plan to the satisfaction of the State, then that leaves the “big guy”—as the Receiver’s financial advisor Steven Goldfield called AGM—standing alone as the last one to get on board or not. This is when the tool of Chapter 9 becomes integral.

And it’s a tool likely indeed to be in the Receiver’s kit in matter of weeks. As the sunset on the State ban has advanced, heads have turned toward the PA Legislature, which has already once seen fit to extend what many have declared a handicap to the City’s fiscal recovery. However, with the House and Senate having wrapped up substantive business before the General Election, it seemed clear that no such extension would be passed again. Still, it is best to have confirmation, and that’s precisely what the PA Speaker of the House, Sam Smith, and House Majority Leader, Mike Turzai did.

During a post-election day visit to the Capitol newsroom on November 7th, both representatives declared that the issue of disallowing municipalbankruptcy wouldn’t be addressed again this year. Smith stated the PA Legislature will do “nothing legislative” to maintain the ban on Chapter 9. Thus, it’s safe to say, the prohibition ends on November 30th.

With the prohibition soon to be gone, the Receiver will now have his most powerful tool to negotiate with the big guys. Any municipal bankruptcy filing will have to be authorized by the Secretary of the Department of Community and Economic Development, but the sentiment is the same—the City of Harrisburg is poised, ready, and able to throw down the red 9 if it comes to that.

Roxbury News video of Speaker of the House Smith & Majority Leader Turzai: