1. Municipal Analysts Group of New York How States Deal with Local Government Distress FEBRUARY 7, 2014

2. 2 Pennsylvania 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.

3. 3 Pennsylvania Economy League Pennsylvania uses several tools to identify and assist municipalities in distress Early Intervention Program (EIP) Act 47 – Municipalities Financial Recovery Act

4. 4 Pennsylvania Economy League 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

5. 5 Pennsylvania Economy League Act 47 process Municipalities petition for inclusion Commonwealth (DCED) makes the decision Coordinator appointed Plan developed Plan adopted Coordinator to insure plan implementation

6. 6 Pennsylvania Economy League 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

7. 7 Pennsylvania Economy League Early Intervention Program (EIP) EIP clients: Plains TownshipWest Wyoming Borough Hanover TownshipCoopersburg Borough City of HazletonGettysburg Borough City of LebanonCity of Shamokin Exeter BoroughCity of Altoona Exeter TownshipTownship of Cumberland Township of North Codorus

8. 8 Pennsylvania Economy League 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

9. 9 Pennsylvania Economy League 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

10. 10 Pennsylvania Economy League Alternative Approaches to Distress Monitoring Individual Control Boards (New York, DC) Receivership (Massachusetts, Michigan) Fiscal Monitor (Indiana) None (California)

11. 11 Pennsylvania Economy League 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

12. 12 Pennsylvania Economy League 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

13. 13 Pennsylvania Economy League 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

14. 14 Pennsylvania Economy League 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

15. 15 Pennsylvania Economy League Extraordinary Authorities of Act 47: Taxing Powers – Real Estate and Earned Income Collective Bargaining Agreements Economic and Community Development Priority Commonwealth Grants and Loans

16. Pennsylvania Economy League 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”

17. Pennsylvania Economy League A Tale of Three Cities “It was the best of times, it was the worst of times.” Scranton Harrisburg Altoona

18. 18 QUESTIONS?