comments

Bill aims to get Pa.'s financially distressed municipalities through Act 47, or else

Jeff Frantz | jfrantz@pennlive.com By Jeff Frantz | jfrantz@pennlive.com The Patriot-News
Email the author | Follow on Twitter
on April 10, 2014 at 4:50 PM, updated April 10, 2014 at 5:11 PM

Pennsylvania's Act 47 law was designed to turn around financially distressed municipalities.

Instead, it's become a holding zone where cities and boroughs linger for 20 years or more with a label that scares away investment and traps elected officials clutching the few extra taxing powers the act provides.

As state lawmakers look to overhaul Act 47 for the first time since it passed in 1987, they want to include "teeth" to force municipalities to work through -- and exit -- the process. If a city won't or can't make it out on the other side within eight years, the proposed bill would allow a judge to disincorporate a municipality -- essentially dissolving the local government and leaving the community as a ward of the state.

That would be an extreme case, said Sen. John Eichelberger Jr., R-Blair, whose Senate Local Government Committee held a hearing Thursday on proposals to overhaul Act 47. Disincorporation would only occur after a municipality had proven that it couldn't govern itself and provide the most basic levels of services.

But that would truly be the end of the line, Eichelberger said.

The goal of the legislation is to get more communities help before they would need Act 47, Eichelberger said, by expanding access to the state's Early Intervention Program. When a municipality does need to enter Act 47, the recovery coordinator would be tasked with putting together a five year recovery plan to get the municipality out of Act 47. If a judge approves, a municipality could receive a one-time three year extension.

If the municipality fails to follow the recovery plan -- or if the fiscal challenges are too daunting -- the proposal would bring a receivership (like what happened in Harrisburg) or bankruptcy into play.

teplitz.jpegSen. Rob Teplitz

"Cities get into Act 47 too late and then linger there too long," said Sen. Rob Teplitz, D-Dauphin. "We have to address that. We also have to address the underlying systemic issues that cause municipalities to get into distress in the first place."

But organizations representing municipalities said that because the bills -- SB 1157 and HB 1773 -- only address Act 47 procedure, municipalities will still be stuck with those underlying problems.

"We do not see anything in these bills that will change the fate of distressed municipalities," said Amy Sturges, of the PA Municipal League and the State Association of Township Commissioners.

"We are concerned that the five year limitation and the alternative steps of disincorporation and receivership will force municipalities out of Act 47 prematurely and eventually the cycle will begin again."

Elam Herr, of the PA State Association of Township Supervisors, was more blunt: "If we can't address the labor issues, if we can't address … the mandates, if we can't address the tax exempt properties, we go nowhere."

Neil Grover, Harrisburg's solicitor, said cities that have a large percentage of tax exempt properties should be able to use a different taxing menu than other municipalities that can rely on property taxes. Grover would also like to see municipalities be given the option of charging nonprofits a "host fee" in a way that wouldn't force municipalities to treat a "$1 billion hospital the same as a soup kitchen."

The proposals would essentially grandfather Harrisburg's receiver's plan, since it has already been approved by the courts and contracts have been signed with debt holders.

The bills would allow municipalities some greater leeway in imposing some taxes -- such as an alcohol consumption tax -- in lieu of increasing the earned income tax.

Gerald Cross, of the Pennsylvania Economy League, which has served as Act 47 coordinator for municipalities including Harrisburg and Scranton, said municipalities should have the possibility of doing both. For example, Cross said, last year, York would have brought in an extra $1.2 million by raising the local service tax the maximum that would be allowed under the new bill. That $1.2 million is about 50 percent of what the city receives in EIT.

Eichelberger was quick to say the proposals are not designed as a panacea for all that ails distressed municipalities. Senators from both parties stressed the need to craft a bill that could pass both chambers and win the governor's approval.

When asked after the hearing, Eichelberger said other issues, like a separate bill addressing the arbitration process for municipalities negating with unionized employees, are a heavier lift.