By Samantha Cook, Staff Writer
In 2003, the City of Pittsburgh filed for the status of a “financially distressed municipality.” Now, over 14 years later, Mayor Peduto is celebrating its exit from Pennsylvania’s Act 47 program.
The Pennsylvania Municipalities Financial Recovery Act, otherwise known as Act 47, was a program implemented by the Pennsylvania General Assembly in 1987. Its goal was to bolster cities and municipalities that were struggling from severe debt and economic stagnation by offering technical and financial assistance from the state, amongst other remedial financial measures.[1]
Western Pennsylvania is no stranger to Act 47. Since 1987, Ambridge, Wilkinsburg, East Pittsburgh, North Braddock, Homestead, Clairton, and Altoona have all been designated as distressed under Act 47, and they have subsequently recovered and rescinded their status. Aliquippa, Braddock, Rankin, Duquesne, Johnstown, and, until recently, the City of Pittsburgh, are all working to fulfill the requirements of the program. [2]
In order to qualify for the assistance program, a municipality must meet the approval of the Department of Community and Economic Development (DCED). In order to do so, the municipality must satisfy at least one of a set of criteria, such as having experienced a consistent 1% deficit for three fiscal years, missed payroll for more than 30 days, failed to make payments to creditors for thirty days past the date of the judgment, or filed for municipal debt readjustment, among others.[3]
Under Act 47, the distressed municipality must appoint a coordinator, typically an employee of the municipal district or an outside consultant.[4] Once appointed, the coordinator must quantify the financial deficits and give a public presentation as to his initial findings.[5] Based on these findings, the coordinator must then develop and carry out a plan for the municipality to reach financial stability.[6] Municipalities failing to adopt or implement the recovery plan will not receive the loans or other payments from the Commonwealth. [7]
Pittsburgh’s entry into the Act 47 program came during a time of massive layoffs, a sharp decline in services and recreation, and growing financial deficits. In 2003, the city terminated 446 employees, including almost 100 police officers.[8] Social services, like recreation centers, swimming pools, mounted police, and salt boxes were closing down, and Pittsburgh’s credit rating plummeted to the lowest of any major city in the United States. Legacy human resources costs, like payroll, pensions, and health insurance continued to grow amidst declining tax revenue.[9] The city had depleted its cash reserves.
Pittsburgh was approved for Act 47 assistance — the largest municipality ever to enter the program. [10]
The state appointed a financial services firm and a law firm to help the city develop its path to financial wellbeing. The Recovery Plan is a multifaceted agreement between Pittsburgh and the Commonwealth of Pennsylvania that laid out specific steps that the city would have to take to earn its assistance.
The plan included steps as simple as a general reduction in materials and supplies, and projects as complex as a complete restructuring of the employee health benefits program.[11] Other corrective measures included slowing annual wage increases not to exceed the rate of inflation, sharing services with other county and municipal governments, and negotiating refinancing options for the city’s debt.[12]
In 2007, City Council petitioned to rescind Pittsburgh’s distressed status and end government oversight. While the Recovery Plan was successful in driving budget surpluses, the DCED acknowledged that Pittsburgh still had looming obligations to retired employees that would consume millions of dollars from its future revenues.[13] The Recovery Plan was re-baselined in 2014, but the goals remained largely the same: cut spending while improving infrastructure and keeping satisfied Pittsburgh’s predominantly unionized workforce; increase revenue without raising property taxes; and contribute to the pension fund without taking on more debt.[14]
How did Pittsburgh rise out of this seemingly impossible trap? First, the City revamped its spending model, now treating 40% of the city’s capital expenditures as operating expenses. This means that the capital budget is now dedicated to longer-lasting projects, like the upkeep of 137 bridges.[15] By 2016, Pittsburgh was also able to re-negotiate seven of the City’s nine collective agreements to comply with the 2014 Recovery Plan. [16]
Second, because Pittsburgh’s largest source of revenue, Allegheny County’s property reassessment in 2012 increased the value of taxable real estate by 49%. [17] [18] Despite suffering loss of revenue in its first year, the City was able to gradually increase revenues from the property tax without hiking the rate. Third, in 2010, the City started to dedicate $13.4 million of annual revenues from parking taxes towards the pension fund, and committed to setting aside $26.8 million to address legacy costs by 2018.[19] These were a few of many critical steps that Pittsburgh took to address its financial pain points by 2014. It was not until February of 2018 that the Secretary of Community and Economic Development found that Pittsburgh had complied with its Recovery Plan, and that termination of the distressed status was due. [20]
With the City’s withdrawal from Act 47, it loses the oversight of the Commonwealth, which played an integral role in guiding it to its recovery. Former Mayor Tom Murphy said that he doesn’t believe the oversight committee has yet resolved Pittsburgh’s most critical financial problems.[21] Mayor Peduto, however, believes that it’s time to withdraw. With new financial reform, and without strict governmental oversight, Pittsburgh will have the much-needed freedom to negotiate with its unions and take back its financial autonomy.
Sources
[1] http://www.legis.state.pa.us/cfdocs/legis/LI/uconsCheck.cfm?txtType=HTM&yr=1987&sessInd=0&smthLwInd=0&act=47&chpt=1&sctn=2&subsctn=0
[2] https://dced.pa.gov/local-government/act-47-financial-distress/
[3] http://www.legis.state.pa.us/cfdocs/legis/LI/uconsCheck.cfm?txtType=HTM&yr=1987&sessInd=0&smthLwInd=0&act=47&chpt=2&sctn=1&subsctn=0
[4] 53 Pa. Stat. Ann. § 11701.221(b) (2017).
[5] 53 Pa. Stat. Ann. § 11701.221(d) (2017).
[6] Id.
[7] 53 Pa. Stat. Ann. § 11701.251(a) (2017).
[8] https://dced.pa.gov/download/Recovery%20Plan%20Final%20Filing%20June%2011%20Pdf/?wpdmdl=58398
[9] Id.
[10] http://www.post-gazette.com/news/state/2014/10/16/Pennsylvania-Legislature-approves-Act-47-overhaul/stories/201410160315
[11] Id.
[12] Id.
[13] https://dced.pa.gov/download/city-of-pittsburgh-2014-amended-recovery-plan-adopted-2014-06-24-pdf/?wpdmdl=58397
[14] Id.
[15] Id.
[16] http://apps.pittsburghpa.gov/redtail/images/1000_2017_Rescission_Report_PFM_Final.pdf
[17] Id.
[18] https://www.alleghenycounty.us/real-estate/property-assessments/index.aspx
[19] https://dced.pa.gov/download/city-of-pittsburgh-2014-amended-recovery-plan-adopted-2014-06-24-pdf/?wpdmdl=58397
[20] http://www.wtae.com/article/financially-distressed-no-more-pittsburgh-exits-act-47/17045385
[21] http://triblive.com/local/allegheny/12959772-74/pittsburgh-no-longer-financially-distressed-according-to-state-oversight-team
