New Act 47 could increase financial scrutiny of Pennsylvania’s state, local, governments

    Fitch Ratings released a statement after the state legislature passed a measure changing the Commonwealth’s municipal distress recovery program.

    Some financial experts say they’ll expect struggling municipalities to recover faster once pending changes to Pennsylvania’s recovery program take effect.

    Gov. Tom Corbett is expected to sign the measure amending Act 47, the legislation that created the program in 1987.

    Fitch Ratings released a statement highlighting the legislative action a few days after the measure cleared the state Senate.

    “(The changes) should increase pressure on both local and state managers to resolve the issues that led to the municipalities’ financial distress more promptly,” the statement read.

    Critics dispute potential benefits of the amendments, absent reforms to arbitration and municipal pension laws, or a reversal of trends – declining populations, tax bases, housing stock and local economies – that exacerbate poor financial management.

    The process of using Act 47 provisions to get out of distress has worked for just seven of 29 communities that have tried it.

    And some municipalities still engaged in Act 47 have been there for more than two decades.

    The Fitch release noted the underwhelming track record, and that it “demonstrates the limitations of the program’s effectiveness,” despite improvements by some local governments – such as Pittsburgh – that remain under Act 47 state oversight.

    But Pennsylvania lawmakers say their goal was to improve results.

    The Fitch statement noted the new time limits included in the measure – not as direct impetus for faster recovery, but more of a barometer for the severity of a municpality’s distress and necessary remedy.

    “A municipality that cannot improve its financial operations sufficiently to run on its own within that period of time likely needs more radical change than the program can provide,” the statement read.

    As amended, that would include a merger, dissolution or bankruptcy.

     

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