municipal analysts group of new york how states deal with local government distress february 7, 2014

Municipal Analysts Group of New York

How States Deal with Local Government

Distress

FEBRUARY 7, 2014

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Pennsylvania Economy LeaguePennsylvania Economy League

• Over 77 year old independent, nonprofit, public policy research and development organization with offices throughout the state.

• Working with Pennsylvania's public and private sectors, PEL provides independent research and analysis on emerging issues to stimulate public and private action to make Pennsylvania a better place to live, work, and do business.

• A regionally based statewide organization, PEL's goal is to create a knowledgeable corporate and civic community that will help ensure the economic competitiveness of the Commonwealth and its regions.

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• Pennsylvania uses several tools to identify and assist municipalities in distress

• Early Intervention Program (EIP)

• Act 47 – Municipalities Financial Recovery Act

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EIP program

• EIP is designed to assist municipalities experiencing

financial difficulties

• Develop comprehensive multi-year financial plans• Establish short-term and long-term goals

• Perform management audits of operating departments

• Keep municipalities from entering Act 47

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Act 47 process

• Municipalities petition for inclusion

• Commonwealth (DCED) makes the decision

• Coordinator appointed

• Plan developed

• Plan adopted

• Coordinator to insure plan implementation

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Act 47 Recovery Plan

• Stabilize municipality’s financial position

• Insure provision of services

• Pay debt obligations

• Institute sound fiscal and management practices

• Create long-term management capacity

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• Early Intervention Program (EIP)

• EIP clients:

Plains Township West Wyoming BoroughHanover Township Coopersburg BoroughCity of Hazleton Gettysburg BoroughCity of Lebanon City of Shamokin

Exeter Borough City of AltoonaExeter Township Township of CumberlandTownship of North Codorus

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Act 47 Coordinator for:• City of Scranton• City of Nanticoke• Borough of West Hazleton• City of Harrisburg• City of Farrell• City of Duquesne• City of Altoona

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Bankruptcy• Chapter 9 is not Chapter 7• States must allow local government to file• 25 states do not allow or have no statutes to allow

local governments to file• 12 states permit local governments to file• 12 states permit local governments to file under

certain and/or specified conditions

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Alternative Approaches to Distress Monitoring

•Individual Control Boards (New York, DC)

•Receivership (Massachusetts, Michigan)

•Fiscal Monitor (Indiana)

•None (California)

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• Pennsylvania’s local government structure and its current tax system makes recovery very difficult for municipalities that have suffered fundamental economic decline

• Tax-exempt properties typically represent a high proportion of their tax base

• Distressed municipalities often have significant unfunded pension, OPEB, and other legacy costs

• Current collective bargaining statutes limit ability to achieve cost containment of personnel expenses in a timely manner

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Typical Attributes of Act 47 Municipalities:• Very high proportion of expenditures in wages and

benefits with limited options to control these costs• Lack of professional managers and/or depth of

professional staff• Poor financial management and information systems

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Typical Attributes of Act 47 Municipalities:• No incentive for cooperation with other municipalities

and no incentive for other municipalities to cooperate with distressed municipalities

• Lack of access to capital markets and to financial institutions

• Reliance on one-time options to address structural deficits

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Act 47 is not a “takeover” or “bailout” by the Commonwealth•Recovery Plan is prepared by the Coordinator in cooperation with the municipality and DCED and is adopted as an ordinance•Governing body still runs the municipality•Coordinator serves to insure Recovery Plan implementation and to build capacity for an exit from Act 47

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Extraordinary Authorities of Act 47:

•Taxing Powers – Real Estate and Earned Income

•Collective Bargaining Agreements

•Economic and Community Development Priority

•Commonwealth Grants and Loans


Challenges of the Act 47 Process:

• Recovery time period uncertain

• Legacy costs are very high

• Continuing population and economic decline

• Municipal officials’ compliance can be difficult

• Difficulty in collective bargaining agreements

• “Catch 47”


A Tale of Three Cities

“It was the best of times, it was the worst of times.”

• Scranton

• Harrisburg

• Altoona

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QUESTIONS?QUESTIONS?

municipal analysts group of new york how states deal with local government distress february 7, 2014

Documents

california slide

plan implementation

local governments

local government distress

recovery plan

financial difficulties

pennsylvanias public

management practices