If acknowledging a problem and asking for help are the first steps in solving it, then the City of Harrisburg, Pennsylvania has set the wheels in motion towards its fiscal recovery.
On December 15, Pennsylvania’s Department of Community and Economic Development (DCED) Secretary Austin Burke confirmed that the city is “fiscally distressed” under the provisions of Pennsylvania’s Municipalities Financial Recovery Act – known as Act 47 – according to a city press release. “This decision allows the commonwealth to provide oversight and develop a formal partnership with the city to ensure that taxpayers receive vital services.”
A city facing dire financial circumstances can appealing to the state’s DCED, which reviews the facts and determines whether or not the situation is serious enough to merit intervention. After reviewing Harrisburg’s books, the state agreed: this city needs help in restoring its economic health.
“Declaring fiscal distress is an incremental step in trying to resolve a municipality’s financial crisis prior to filing for Chapter 9 bankruptcy protection,” explains James Spiotto, an attorney with the Chicago law firm of Chapman and Cutler LLP, who specializes in special litigation, bankruptcies and workouts.
Since 1987, he says, 26 cities have declared financial distress under Pennsylvania’s Act 47. Of these, six have emerged with their financial emergency designation rescinded.
“Act 47 provides a structured approach to dealing with a municipality’s financial problems, with a system of supervision in place to help the city create and abide by a reasonable budget and financial plan,” says Spiotto. Depending upon the municipality’s individual situation, the Act can also provide grants, emergency loans, and consolidation or merger of economically nonviable municipal entities.
Harrisburg, Pennsylvania’s capital city, has a population of 47,368 according to 2009 U.S. Census Bureau estimates, reflecting a three percent decline since 2000. The city’s major employers include the Commonwealth of Pennsylvania, Dauphin County, Tyco Electronics, and Pinnacle Health Systems.
Other states have similar oversight authorities and systems in place to assist municipalities facing financial crises. Perhaps one of the most well-known programs is New York’s Municipal Assistance Corporation, a state agency that issued $10 billion in debt to help New York City remain solvent in the 1970s.
As James Spiotto told MuniNet in June 2010, “municipalities turn to Chapter 9 bankruptcy protection only when all other alternatives have been exhausted and insolvency appears otherwise incurable.” (See “Municipal Bankruptcy Remains Last Resort Despite Troubled Economy.”) Through its participation in Pennsylvania’s Municipal Financial Recovery Act, Harrisburg is proactively seeking ways to preserve its solvency.