Harrisburg, Pennsylvania, Mayor Eric Papenfuse declared an immediate hiring freeze for his city's government and called for renewed scrutiny of all non-essential spending after the just-passed state budget did not give him the relief he seeks.

Papenfuse also hopes to work with state lawmakers over the summer for a package that would provide the distressed capital city long-term taxing powers.

Eric Papenfuse, mayor of Harrisburg, Pennsylvania.
"I believe that while time is running out and that we have entered a crisis, it does not have to be cataclysmic. It does not have to be fatal," said Harrisburg Mayor Eric Papenfuse.


Harrisburg's five-year run under the state-sponsored workout program for distressed communities, known commonly as Act 47, will end in September.

The mayor said he would work with the city's state-appointed coordinator, Marita Kelley, on a three-year exit plan.

At a press conference on Monday outside City Hall, Papenfuse warned of "perilous times" for the city.

"I believe that while time is running out and that we have entered a crisis, it does not have to be cataclysmic. It does not have to be fatal," he said after declaring a state of fiscal crisis.

Harrisburg filed for bankruptcy in 2011, but a federal judge nullified the move. Harrisburg went on to negotiate a five-year recovery plan under state-appointed receiver William Lynch. The Commonwealth Court of Pennsylvania approved the plan in September 2013.

The $32.7 billion fiscal budget that Gov. Tom Wolf signed last Friday -- the only on-time budget during Wolf's four years in office -- lacked a Papenfuse-sought provision allowing the city to exit the state-sponsored Act 47 program for distressed cities while keeping its special taxing authority.

Under a three-year exit plan now on the table, Harrisburg would phase out an additional 1% on earned income from both residents and non-residents and a $104 increase to the local services tax rate on employees within the city, both of which the Commonwealth Court granted as part of the recovery plan.

Alan Schankel, a managing director at Janney Capital Markets, said he has not seen a municipality exit Act 47 while retaining special provisions.

"It seems to me that [Harrisburg's] not ready to exit Act 47 if they need the extra taxing authority," said Schankel, who called Act 47 "a reasonably good program."

The state Department of Community and Economic Development oversees Act 47, named for the 1987 enabling law. Sixteen municipalities are now in the program. Pittsburgh in February became the 14th community to exit.

Papenfuse said shedding the distressed-city label would remove a stigma and help attract more businesses.

"That's reasonable, but stigma is not really measurable," said Schankel. "The benefit from taxing authority is."

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