The judge, of the U.S. Bankruptcy Court for the Middle District of Pennsylvania, ruled that state's fiscal code, which was passed as part of the 2011-12 state budget process in June, was constitutional in barring Harrisburg and other distressed third class cities from filing for bankruptcy until July.

The fiscal code bill is passed as part of every state budget.

If the judge had ruled it was unconstitutional, the petition still was likely to get denied on the basis that the city didn't follow procedure, according to state law. Under the strong-mayor form of third class city government under state law, the council cannot file legal action on behalf of the city without the mayor's approval.

The commonwealth argued that the fiscal code provision on bankruptcy was put in to prevent a "knee-jerk" reaction from other distressed municipalities that fail to negotiate resolutions.

The state has expressed concern about the impact of a bankruptcy relief case on the rest of Pennsylvania in the current economic environment.

Mark Schwartz, attorney for the council, argued the wording in the law was prospective and doesn't apply to Harrisburg, but rather future municipalities that are determined to be distressed.

"This was a Hail Mary pass attached to a salad," Schwartz said, using the judge's words to refer to all of the agencies impacted by the fiscal code bill.

Thompson did not support bankruptcy because she said she believes Harrisburg's debt crisis, which includes more than $300 million of incinerator debt and a growing structural deficit, is solvable through the Act 47 process.

The mayor last year authorized the city's entrance into the state's distressed cities program.

She called today a "day to give thanks," following the judge's decision to dismiss the bankruptcy petition.

The council should be focusing on the 2012 budget now and working with a state receiver to get the city back to solvency, Thompson said. The mayor presented her budget proposal Tuesday night. It includes a 0.8-mill property tax increase.

The council must adopt the budget by Dec. 31. It takes effect in January.

Chuck Ardo, a spokesman for the majority of the council, said they were disappointed by the judge's decision and will decide what they will do next. An appeal in federal court is one possibility.

Ardo represents the four members who voted for the bankruptcy petition and against the two previous Act 47 plans. Those members are Susan Brown-Wilson, Brad Koplinski, Eugenia Smith and Wanda Williams.

Meanwhile, a hearing has been set for Dec. 1 before the Commonwealth Court to decide whether David Unkovic, chief counsel for the state Department of Community and Economic Development, will be appointed as the city's receiver.

Unkovic was nominated last week by DCED Secretary C. Alan Walker under the direction of Gov. Tom Corbett.

It will be Unkovic's job, if appointed, to manage the city's fiscal decisions. An advisory panel will include the mayor, the president of the council and representatives of the state and county commissioners.

Once appointed by the court, the receiver has 30 days under state law to craft a recovery plan for the city.

"You have a chance here to get back in the room and move this city forward," Thompson said at a news conference today , referring to the council members.