Pennsylvania Official: Don't Limit Cities' Act 47 Stays

HARRISBURG, Pa. - Limiting the length of cities' stays in Pennsylvania's state-sponsored workout program for distressed communities could be counterproductive, according to an official in Gov. Tom Corbett's administration.

Separate bills are pending the state House and Senate that would limit the stay in Act 47 to five years, followed by a three-year exit plan for which the end game would be fiscal solvency, state receivership, bankruptcy protection or in extreme cases, disincorporation.

"That would be very dangerous. Municipal distress is not a premeditated thing. It ebbs and flows. For us to put something finite really ignores the realities of municipalities," Jarad Handelman, Corbett's first executive deputy general counsel, said in an interview during a recent conference on distressed municipalities at Widener School of Law.

Pennsylvania has categorized 27 communities as distressed under the Act 47 program, named after the enabling legislation, officially called the Municipal Financial Recovery Act of 1987. The state Department of Community and Economic Development oversees the program.

Only six of the 27 have exited and a dozen others have been distressed for more than 10 years. Harrisburg Councilman Brad Koplinski, a Democratic candidate for lieutenant governor, once called the program a "roach motel." The first two Act 47 communities, Aliquippa and Farrell, remain in the program.

"If Pennsylvania's goal is, as the law says, 'to foster fiscal integrity' of its local governments, Act 47 has had modest results," Pew Charitable Trusts said in a report last year. "However well-intentioned the act may be, Pennsylvania demonstrates how a combination of forces beyond a state's control as well as outdated state policies and local governments' mistakes can block progress in helping cities rise from a cycle of despair."

Harrisburg, which exited state receivership on March 1 after closing on its so-called Harrisburg Strong financial recovery plan, has returned to mainstream Act 47 oversight, according to DCED official Fred Reddig.

The 49,000-population state capital rejected its first Act 47 workout proposal in 2011, prompting Corbett to declare a state of fiscal emergency that pushed Harrisburg into receivership.

Receiver William Lynch and his team expect the city to avoid bankruptcy through the plan.

"Now the city is back under the auspices of the core Act 47 provisions," said Reddig. "The immediate crisis is gone, but there remain significant challenges in Harrisburg. The city is still distressed. There are operational issues, but the groundwork for recovery has been laid with the Strong plan."

The Harrisburg Strong plan sought to address a structural deficit estimated in the $10 million to $13 million range, although receivership officials now see the potential for a $1.8 million shortfall that it's urging the city to address.

Pittsburgh, in a reversal under new Mayor Bill Peduto, will remain in Act 47.

Predecessor Luke Ravenstahl sought to exit the program, seeing the distressed label as a stain on a city that has had 11 bond-rating upgrades in a decade-long climb from junk status, but Peduto said Act 47 status could provide leverage in labor negotiations and help the city forge long-term agreements with nonprofits for payments in lieu of taxes, or PILOT payments. Those goals mesh, he said, with limiting debt and maintaining structural balance.

"Continued participation in Act 47 is appropriate and necessary for Pittsburgh. It's far less of a stigma than bankruptcy," said Handelman.

Handelman cited the consensual Harrisburg plan as an example of the state and its cities needing to work together. "There's a great tension in Pennsylvania between state assistance and the sovereignty of local governments," he said. "All of us have to be part of the plan. The state can only dictate so much."

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