DCED Secretary Says Harrisburg is 'Financially Distressed' Under Act 47

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Pennsylvania Department of Community & Economic Development

Dec 15, 2010, 09:00 ET

HARRISBURG, Pa., Dec. 15, 2010 /PRNewswire-USNewswire/ -- Department of Community and Economic Development Secretary Austin Burke determined today that the City of Harrisburg is "financially distressed" under the provisions of Pennsylvania's Municipalities Financial Recovery Act, or Act 47.

Harrisburg is the 20th municipality to be active in the state program, which was launched in 1987 to help troubled local governments return to financial health.

Burke now has 30 days to appoint a recovery plan coordinator for Harrisburg. Once named, the coordinator will have 90 days from contract execution to develop and propose a plan to the mayor, city council and DCED.

"This determination will bring objectivity and financial expertise to a city that desperately needs a path to fiscal recovery," Burke said. "Taxpayers, creditors and investors will take comfort in knowing that Harrisburg is headed in the right direction. We hope this renewed confidence triggers solutions to help the city meet its pending obligations.

"The ongoing guidance and support that Act 47 provides will be a vital asset for Harrisburg. The city needs more than a short-term or week-by-week fix from its creditors and obligations; it needs a comprehensive recovery plan that will lay the groundwork for long-term financial solvency."

Act 47 designation triggers procedures, guidelines and powers that help financially distressed municipalities provide vital services, meet debt and other financial obligations, and implement improved accounting, budgeting and taxing practices. State oversight emphasizes long-term fiscal management improvements, service delivery efficiencies, intergovernmental cooperation, and economic and community development priorities.

The secretary's decision was made after his review of information presented on the record that revealed Harrisburg meets two criteria set forth in Act 47:

A failure to meet its debt obligations to various parties, outlined in section 201(3) of Act 47.
Outstanding claims that exceed 30 percent of the city's budget with no ability to negotiate a resolution or adjustment, outlined in section 201(9) of Act 47.

In addition to Harrisburg meeting these criteria, Burke said ample evidence suggests the determination is necessary and appropriate. The evidence includes a "junk bond" credit rating that will keep the city from accessing vital capital; a soaring cash-flow deficit that is forecast to reach $19.2 million in 2015, and lawsuits that could force the city to apply all revenue to meet its debt obligations to the exclusion of city payroll and other operating expenses.

"The city faces a magnitude of financial pressures. Without remedies afforded to the city through Act 47, Harrisburg would not be able to provide for the health, safety and welfare of its citizens – a fundamental policy objective of Act 47," Burke said.

"Many have been passionate and vocal about the future of Harrisburg and, as we move forward with Act 47, I hope that same determination and passion to see a financially stable Harrisburg continues. It's time for everyone – the city, county, state, and anyone interested in the future of Pennsylvania's capital city – to work together and be part of the solution that gets Harrisburg back on track."

Burke stressed that although DCED will provide oversight, Act 47 is not a state takeover and the ultimate responsibility for the city's policies and day-to-day management of city affairs, remains with elected city officials.

Further, a motion filed by Debt Watch Harrisburg was not acted upon. The citizens group had asked Secretary Burke to make a concurrent designation of Act 47 and Chapter 9 bankruptcy for Harrisburg. The DCED secretary is not authorized to make a bankruptcy determination or recommendation. Any decision to file for municipal bankruptcy relief rests exclusively with the city.

Act 47 of 1987 directs the commonwealth to provide oversight and develop a formal partnership with municipalities that are experiencing financial distress to ensure that taxpayers receive vital services. Pennsylvania's oversight includes fiscal management, technical assistance, planning and financial aid, with emphasis on long-term fiscal management improvements, service delivery efficiencies, intergovernmental cooperation, and economic/community development initiatives.

For more information on the resources available for local governments experiencing financial distress, or additional information on Act 47, visit www.newpa.com or call 1-866-466-3972.

Media contact: Jamie Yates, 717-783-1132

SOURCE Pennsylvania Department of Community & Economic Development