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Pennsylvania state capital files for bankruptcy protection

Carolyn Kaster / ASSOCIATED PRESS

The State Capitol complex dominates the skyline of Harrisburg, Pa., which is taking the rare step of filing for bankruptcy protection from creditors.

The potent brew of a weak recovery, falling revenues and high debt has claimed another municipal victim.

This time, it's Harrisburg, Pa., the state capital with a population of 46,000, whose city council voted late Tuesday to file for Chapter 9 municipal bankruptcy protection, according to The Patriot News.

“This really is our only option out there,” Councilman Brad Koplinski told the newspaper. “I believe this is the only thing that will work.”

The Associated Press said Wednesday that Harrisburg had indeed filed the petition, which cited "overwhelming debt," adding that the city was in "imminent jeopardy" from creditor claims. 

Chapter 9, which was enacted just after the Great Depression, is designed to give municipalities some breathing room to negotiate with creditors and resolve outstanding debt issues. It's relatively rare. Only about 600 municipalities have filed for Chapter 9 since the law was enacted in 1937.

The City of Harrisburg was facing a state takeover amid its financial problems. Reuters reported that it "faces a $300 million debt crisis tied to a project to revamp its incinerator and has been plagued with cash flow problems."

Harrisburg joins Central Falls, R.I., in Chapter 9. The tiny New England town, facing a huge shortfall to pay for pensions and retiree benfits, filed for protection from creditors in August.

The Patriot News reported that Harrisburg has hired a Philadelphia lawyer, Mark Schwartz, to handle the bankruptcy filing. Reuters reported that Schwartz said Wednesday the filing would give the city "bargaining power" with creditors and the state.

"They were tired of being humiliated and denigrated," Schwartz told Reuters, referring to the city council.

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Details on the Chapter 9 filing, with Dan Miller, Harrisburg, Pa., controller, who discusses the liabilities of $500 million and $100 million in assets.