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.