Governor’s Approval of Act 47 update a ‘Satisfactory Step’ in the Overhaul of PA’s Municipal Financial Recovery Program

SCRANTON, Nov. 3, 2014 – The governor’s approval of legislation to change how the commonwealth helps local governments in financial distress is a step in the right direction, state Sen. John Blake said today.

The governor signed House Bill 1773 into law Friday. The measure amends PA’s Municipal Financial Recovery Act, which is better known as Act 47.

“Since Act 47’s inception, too many communities have needed state oversight due to fiscal distress and too few of them have emerged from distressed status,” Blake said. “There is a shared responsibility for this – state and local – though the reason communities enter Act 47 has much to do with the lack of sustained growth in local and regional economies.

“Getting HB 1773 signed into law is an important and satisfactory step toward improving the nature and the scope of the engagement between the state and local governments and to address the fiscal distress that severely impedes economic growth.”

Blake said some of the notable changes to Act 47 include:

  • Allowing a financial coordinator under Chapter 2 or a receiver under Chapter 7 of the law to examine the financial records of authorities incorporated by a distressed municipality and other organizations performing an associated government function – as the financial position of these entities can have bearing on the finances of the distressed community.
  • Requiring annual reviews of the performance of state-contracted financial coordinators to ensure contract compliance and quality in the conduct of their work with Act 47 communities.
  • Requiring coordinators to conduct an in-depth analysis of the local tax base and all local revenue sources in order to make recommendations, as necessary and appropriate, to modify revenue sources, including the subjects and the rates of taxation in the distressed community.
  • Requiring coordinators to evaluate opportunities for enhanced cooperation and changes in land use planning and zoning, including regional approaches that would promote economic development within and around the Act 47 community.
  • Offering options for Act 47 communities to consider changes to local revenue that may ensure a fairer distribution of the burden on different classifications of taxpayers in order to foster economic growth, not stifle it.

Sen. Blake said the new law’s 10-year horizon of engagement with the commonwealth is also vital.

“To keep communities from entering distressed status, we’ve incorporated into statute, for the first time, the state’s early intervention program. Further, Act 47 communities will get preference and priority when they apply for grants from all state agencies,” Blake said. “After the 2-year early intervention period, a municipality can be in Act 47 for five years and then receive a three-year extension, if warranted.”

State receivership or bankruptcy remain options at the end of the five year period under the amended law if an Act 47 community cannot right its financial condition, but emergence from Act 47 is the ultimate goal, the senator said.

The urgency of critical analysis and decision-making by local government officials is very important in order to hasten exit from distressed status, he said.

“This new law does not solve all of the ills of local governments and their fiscal distress – nor does it address all of the underlying causes of that – but we needed to update Act 47 and retool the relationship between the state and our distressed communities.

“When we return in the next legislative session we need to take up comprehensive Community Reinvestment Improvement Zone legislation to drive investment into the core business districts of our cities and we need to address comprehensive municipal pension reform as those legacy costs impose the most stress on the budgets of our small cities,” Blake said.

The global financial services company, Fitch Ratings, said the amended Act 47 law is “a positive.”

“It should increase pressure on both local and state managers to resolve the issues that led to the municipalities’ financial distress more promptly,” the company said in an Oct. 20 press release.

Sen. Blake acknowledged the work of Sen. John Eichelberger (R-Hollidaysburg); Rep. Chris Ross (R-Chester); and Rep. Bob Freeman (D-Easton) as well as Michael Gasbarre, executive director of the PA Local Government Commission and his staff, all of whom started the Act 47 overhaul more than three years ago.

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Sen. Blake Hears Pros, Cons of Bills to Improve State Oversight of Muni Financial Deals

HARRISBURG, Sept. 9, 2013 – Officials representing school districts, associations, public finance firms and the City of Philadelphia pressed state Sen. John Blake and members of the Senate Local Government Committee today to tread carefully on legislation designed to better safeguard local governments venturing into complicated financial deals with taxpayer dollars.

The hearing followed similar recent public meetings that emphasized the need for better state oversight of municipal financial deals, especially those involving interest rate management agreements, or swaps.

Blake (D-Lackawanna/Luzerne/Monroe) introduced Senate Bill 902 in May as part of a package of bills that would better shield school districts and municipalities from bad deals that could – and have – cost taxpayers millions of dollars.

“There remains exposure to the Pennsylvania taxpayer if we don’t do something here,” Blake said. “And that’s what prompts the legislation that is before you. We need to ensure greater transparency and accountability when local governments or local municipal authorities incur debt that is to be paid off by taxpayers.”

SB 902 would allow the State Ethics Commission to investigate alleged ethical violations by people involved in municipal financial transactions. The Ethics Commission does not have this jurisdiction today.  It would further require that any debt incurred by a municipal authority be used solely for the public purposes intended at the time of the borrowing.

School districts and local governments throughout the state have been tied up in more than $17 billion in swaps deals between 2003 and last year.

While some swaps deals benefitted a number of local school districts and municipal authorities, Blake said the problem is some of these deals have not turned out well for taxpayers. Or, the deals impose refinancing difficulties because they inhibit local organizations from exiting them.

“Disentanglement is the word,” Blake said. “When local leaders try to get out of past deals they can get stuck, and it can end up costing taxpayers millions more on the way out than it cost them on the way in.”

Sen. Blake noted the testimony of former state Auditor General Jack Wagner, who said he believes swaps “are nothing more than a form of gambling with public funds,” and the differences between the Bethlehem Area and the Great Valley school districts.

Former Bethlehem School Board Vice President Judith Dexter said swaps “almost bankrupted” the school district while Great Valley Director of Business Affairs Charles Linderman said swaps have helped his district pay for important projects and have “resulted in a positive cash flow for the district.”

“With regard to the reforms suggested on local government debt and swaps, we need to consider all the testimony received today and get this right. We need to ensure capital markets can meet the needs of local governments while not exposing taxpayers to unnecessary risks and costs,” Blake said.

Blake’s SB 902 is part of a package of bipartisan bills proposed by Sens. Rob Teplitz (D-Dauphin), John Eichelberger (R-Bedford) and Mike Folmer (R-Lebanon).

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Blake, Eichelberger Taxpayer Protection Bills Clear Committee

HARRISBURG, June 26, 2013 Legislation to protect Pennsylvania’s taxpayers from irresponsible financial transactions by local governments or their related municipal authorities moved one step closer to becoming law today.

Sens. John Blake (D-Lackawanna/Luzerne/Monroe) and John H. Eichelberger Jr. (R-Bedford/Blair/Huntingdon/Fulton/Mifflin) today had two bills of a four-bill municipal debt reform package pass the Senate Local Government Committee, of which Eichelberger is the chairman and Blake is a member. The committee unanimously passed both bills that will now start to move through the legislative process.

Senate Bill 901 grants greater oversight of municipal borrowing processes to the PA Department of Community and Economic Development (DCED). It would also limit local government guarantees of bonds and loans taken out by municipal authorities, and prohibit the charging of fees for those guarantees.

Senate Bill 902 would give the state Ethics Commission and other law enforcement officials the power to investigate circumstances of conflict of interest if local officials are found to have benefitted personally from decisions they made in an official capacity involving public funds. It would also require that proceeds from borrowings carried out by local municipal authorities not be used for purposes unrelated to the project for which the debt was incurred.

“We moved one step closer today to providing needed taxpayer protections and improved oversight on local government financing deals,” said Blake, the prime sponsor of SB 902.

“These bills need to be signed into law to correct flaws or omissions in previous laws and to ensure Pennsylvania’s local government officials are properly accountable to the taxpayers and ratepayers they serve. In addition, SB 901 will ensure that DCED is better positioned — and resourced — to monitor and approve financial transactions that occur to advance the public interest and to meet the needs of our local communities,” Eichelberger said.

The lawmakers have been working with Local Government Committee Democratic Chairman Sen. Rob Teplitz (D-Dauphin) as well as with Sen. Mike Folmer (R-Berks/Chester/Dauphin/Lancaster/Lebanon) on a package of reform proposals that resulted from hearings last fall on the Harrisburg incinerator financing debacle that undermined the fiscal security of the City of Harrisburg. Additional bills authored by Teplitz and Folmer involving so called “swap” transactions by local governments and local municipal authorities will be the subject of additional hearings later this year.

“Today’s votes on SB 901 and SB 902 demonstrated strong bi-partisan support, and we will continue to work together to ensure the entire four-bill reform package gets to the governor’s desk,” Eichelberger said.

 

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 Contacts:

 Mark Shade (Sen. Blake) – 717-787-9220 or mshade@pasenate.com

Lee Derr (Sen. Eichelberger) – 717-787-5490 or lderr@pasen.gov