Thursday, December 16, 2010

Third Essay: Act 47 Emergency Room Admitting More, But Not Releasing Patients

The ambulances are starting to blare as they pick up more aging, diseased bodies for trips to critical care units that patients never leave.

On December 15, 2010, the state Department of Economic and Community Development has admitted our capital city, Harrisburg, into the Act 47, officially the "Municipalities Financial Recovery Act of 1987."  

Act 47 is not a state bail-out, and it is not a state takeover of city finances.  City leaders still must lead the show.  Act 47 involves state participation and oversight, a long-term recovery plan, limitations on future collective bargaining agreements, and the ability to levy a commuter tax. 

With court approval, participating municipalities may also raise property and income taxes past statutory caps.  Specifically, Act 47 binds management and unions to negotiate collective bargaining agreements within the constraints of the recovery plan.  It also gives participating municipalities preferred status for state grants and economic development programs.

All of this sounds helpful, but over the last 23 years, Act 47 has a lackluster record of resuscitating our cities to fiscal health.  Act 47 offers some helpful recovery medicines, but still is more of a haphazard critical care unit that treats only select diseases and tends to not discharge its patients.  In fact, no municipality that has ever entered Act 47 has left.

Harrisburg joins the City of Reading, which entered Act 47 last year.  Other dominos likely will fall because of small cities’ systemic inadequacies and structural deficits aided and abetted by rigid state laws and mandatory arbitration decisions. 

In March of 2010, Westfall Township in Pike County became the first municipality in Pennsylvania to declare bankruptcy, the next protracted, uncertain option after Act 47.  Harrisburg officials candidly have been discussing bankruptcy as a valid option for the capital city. 

Aside from the fact that there is no guarantee or efficient timeline for the federal government to approve Chapter 9 bankruptcy applications, bankruptcy would leave a community with a black eye, if not crippled legs, for a generation to come.  

Consider the dire ramifications of dismal bond ratings and investors avoiding such municipalities like the plague.  Consider also the stigma of bankruptcy chasing away young families and would-be homeowners, entrepreneurs, businesses, and developers.

No municipality that has entered Act 47 should be blamed for doing so.  It makes preeminent sense for Harrisburg and Reading, for example, to enter Act 47.  The point is that Act 47 or bankruptcy may be in the financial best interest of some cities because, sadly, they have so few options for the future. 

That's the sad reality because they do not have the tools necessary to thrive.

Neither Act 47, nor bankruptcy, however, is ideal, or pretty, or easy, or conducive to building thriving urban communities.  They are stop-gap measures that absorb more and more municipalities unless the state approves comprehensive reform.

Embarrassingly, 20 Pennsylvania municipalities, including 12 cities -- ten third class cities, one second class city (Pittsburgh), and one second class A city (Scranton), six boroughs, and two townships, are Act 47 communities today.  Although it is called a “Recovery Act”, few recover and none leave.  Like the Hotel California, you can check out anytime you like, but you can never leave.  Eleven municipalities have been in Act 47 for more than ten years, and six have been in Act 47 for more than 20 years. 
In their order of admission from 1987 until today, the 20 Act 47 municipalities include the following, with the vast majority in the geographic “T” of Pennsylvania.  Unless otherwise noted, the following are cities, and the names of the respective counties are in parentheses: Farrell (Mercer),  Aliquippa (Beaver), Clairton (Allegheny), Borough of Braddock (Allegheny), Borough of Franklin (Cambria), Borough of Rankin (Allegheny), Duquesne (Allegheny), Scranton (Lackawanna), Johnstown (Cambria), Borough of Millbourne (Delaware), Chester (Delaware), Borough of Greenville (Mercer), Borough of West Hazleton (Luzerne), Pittsburgh (Allegheny), Township of Plymouth (Luzerne), Nanticoke (Luzerne County), New Castle (Lawrence), Westfall Township (Pike County), Reading (Berks County), and now Harrisburg (Dauphin County).

A crisis is at hand for Pennsylvania’s smaller cities with no end in sight, and the Pennsylvania Economy League’s 2009 report, Structuring Healthy Communities Case Study, should be required reading for anyone trying to responsibly report, opine, or legislate on the issue.   

Because of its tools, such as a commuter tax, which the City of Philadelphia, which is not in Act 47, imposes because of special state enabling legislation, Act 47 tends to encourage a race to the bottom.  After all, if City A can only balance its budget with the capabilities that only Act 47 gives it, then it might as well enter the program.  After it enters the programs and, for example, gets comfortable balancing its budget with a commuter tax, what incentive does it have to leave the program?  So, despite the enduring stigma of being a distressed city, City A stays in critical care for years if not decades.  

Throughout the 2000s and beyond, in Bethlehem, Easton, Lancaster, Reading, and York, annual property tax revenues are not enough to pay for annual public safety costs.  To minimize increases in regressive property taxes, cities must rely on operational supplements; they dip into other city funds or funds of related entities, such as sewer authorities, raise parking, trash, inspection, and sewer fees, or incur further or refinance debt just to maintain a modicum of safety.  

This is not just robbing Peter to pay Paul.  This is robbing the 12 other apostles as well.

Let me be clear.  By doing so, such municipalities are not breaking laws or doing anything shady.  It's simply no way to run a city, and the same people, often the long-time middle or lower class homeowner, is left footing the bill.  

If these cities were patients, they would be in critical care, suffering simultaneously from five serious illnesses with the acronym CHEMO: (1) Cancer – in the form of annual bouts with devastating state mandated spikes in pension and health care costs; (2) Hypertension – high blood pressure associated with having trouble making next pay roll, bond payment, or contractual obligation; (3) Emphysema --  no chance to annex lands or breathe outward and little chance to get the oxygen of new private investments), (4) Malnutrition  -- stagnant tax revenues, ever creeping increases in tax exempt properties, with 50% of the value of Harrisburg’s properties being tax exempt, and a disturbing over-dependence on one scarce food source – property taxes), and (5) Osteoarthritis – lack of flexibility or options and aging, brittle infrastructures.

Ironically, although Act 47 is not a proven answer fiscal sustainability, the weight of perceived failure compounded with each new municipality, especially the capital city, entering it may eventually convince state government to decisively act. 
If 12 Act 47 cities, including Pittsburgh, Scranton, Harrisburg, and Reading, are not enough to compel comprehensive reform, will 14, being 1/4th of all of Pennsylvania’s cities, be enough?

What if, in an act of protest, the mayors and councils of Bethlehem, Easton, Lancaster, and York simultaneously drop the keys of their respective cities on the steps of the state capitol?  Would that get the state’s attention?  Would 16 cities, then, be enough?

How about 20? Or would it take 28, representing half of all of our cities, to spur reform? 

How dire does the situation need to get before comprehensive state legislation occurs?  
If nothing is done, more cities assuredly will enter the critical care purgatory of Act 47 if not federal bankruptcy.   
As a state government and citizenry, we need to get teed off so we can tee up our struggling cities and towns in the “T”, which represent about 5 million people in their metropolitan statistical areas and are the backbone of Pennsylvania.  

To do so requires that the state legislature create a new bi-partisan Core Communities Caucus, a first of its kind, to advance a first-ever legislative package of state development incentives, enabling legislation, and other reforms.  The idea for such a caucus originated with and is supported by the Pennsylvania League of Cities and Municipalities.

It is important that this caucus be bi-partisan because Pennsylvania is neither a red state, nor a blue state; it is purple.  Without concerted bi-partisan reform efforts and support, our core communities will founder.

It also is important that the legislative priorities be packaged together and not be advanced in piecemeal form.  There is not one single initiative or panacea that will save our small cities.  Rather, a comprehensive recovery plan of radical surgery, high dose nutrients, intense physical therapy, and newfound flexibility is needed. 

To recover, our core communities desperately need five “Cs” -- high nutrient Carrots (tax abatements to incent private development), Curbs, containments, or cuts (comprehensive retiree pension and other reforms that consolidate local plans and curb long-term pension and health care liabilities and costs),  Catalysts (grants, low interest loans, tax credits and other programs seeded by the state), Capabilities (comprehensive local pension reform and a balanced diet of revenue options), and Commonsense (a shared acknowledgment that our core communities, representing five million people in their Metropolitan Statistical Areas, are too big to fail).

Such a package should be promoted as a Core Communities Blueprint For The Twenty-First Century, Core Communities Contract With Pennsylvania, or Core Communities Contract To Tee Up The T In Pennsylvania.  

Combined, ten proposals to tee up the “T” represent a balance of aggressive private development incentives, coupled with pension reform and prudent revenue tools so core communities’ property taxes are stabilized, public safety levels are maintained, pension obligations can be met, aging infrastructures are rebuilt, waterways and rail corridors become assets, historic architecture is preserved, housing markets rebound, the private market flourishes, and bond ratings improve.

In sum, the proposals would be aimed restoring our small cities, county seats, and boroughs to their traditional roles as economic engines meshed with tight-knit, historically preserved neighborhoods.

The costs of inaction – more cities and towns becoming and staying distressed, county seats dragging adjacent municipalities and counties down with them, younger generations being penalized educationally and economically for where they were born, indefinite junk bond credit ratings, untold squashed economic and community development opportunities, a rash of foreclosures, plummeting property values, suspicious fires and insurance fraud – are more than the costs of the state approving ten bold measures to tee up the “T.”

Our community cores – these cities and their sibling towns -- are too important to fail.  If nothing is done, a massive epidemic is assured, with more and more cities checking into the Act 47 emergency room, but never being released.
An urban development, strategic planning, and public relations consultant, Matthew Jackson is the author of The Crisis: A Plea From York Town To Save Our Cities And Towns. 

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