Legislation awaiting the governor's signature is a positive for local governments that are under Pennsylvania's independent control board supervision, according to Fitch Ratings.
It should increase pressure on both local and state managers to resolve the issues that led to the municipalities' financial distress more promptly.
The proposed change will limit Act 47 supervision to eight years. In Fitch's view, a municipality that cannot improve its financial operations sufficiently to run on its own within that period of time likely needs more radical change than the program can provide.
After the eight-year period is up, the Act 47 coordinator can recommend receivership, bankruptcy, or dissolution. Some local governments in the state have been under Act 47 since the 1980s and are still distressed.
Fitch said this demonstrates the limitations of the program's effectiveness. For example, after 20 years under Act 47 supervision, Scranton defaulted on a payment it guaranteed to make for city parking authority bonds.
While this type of control board structure offers the ability to make changes that would be difficult for locally elected managers to make on their own, Act 47 is less potent than the most powerful control boards. For example, it lacks the ability to amend existing labor contracts.
Not all governments under Act 47 supervision remain distressed. For example, Pittsburgh was highly stressed when it entered the program nearly 11 years ago. Fitch's GO rating at the time was BB. Since then, financial operations have improved significantly, and the rating has been A/stable since 2010. Pittsburgh can be marked as a success for Act 47, although the city remains in the program despite having the tools to maintain stable credit quality without it.
