As Harrisburg exits receivership, a bid to leave Act 47, too

After more than two years under the watchful eye of state officials seeking to deliver it from hundreds of millions of dollars in debt, Pennsylvania’s capital city has left state receivership.

A state judge ruled the city has emerged from fiscal emergency as the result of a bond deal to unload its most oppressive debt. Harrisburg remains in the state’s Act 47 program for financially distressed municipalities, but Mayor Eric Papenfuse said the state receiver’s team has put the city on a path to leave that program, too.

“I think it is absolutely achievable. I certainly hope and expect it to be within my first term,” said Papenfuse. “And I think that will be another milestone of almost unprecedented proportions for a third-class city like Harrisburg to emerge.”

Harrisburg entered state receivership upon passage of a state law in 2011 empowering the governor to declare a fiscal emergency in the city and put a court-approved monitor in charge of its recovery.

At the time, the law’s author, former Republican state Sen. Jeffrey Piccola of Dauphin County, said it gave some teeth to the state’s Act 47 program. On Wednesday, Gov. Tom Corbett agreed the law was instrumental in spurring Harrisburg’s fiscal recovery.

“I think we’ve set somewhat of a template of how we can go through this process and hopefully get these cities out of Act 47 as we work on trying to grow their economy and deal with the issues that they’re facing,” said Corbett. But he added that he doesn’t think state receivership is the missing tool for other cities still in Act 47.

Neither does Harrisburg’s receiver, William Lynch, a retired Air Force major general. Lynch said he doesn’t favor the “concept” of state takeover to bring cities out of Act 47, adding that Harrisburg’s debt situation was unique – tied up in multiple refinancings of a trash incinerator, among other things. Other cities in Act 47 face different challenges – namely, underfunded municipal pension obligations.

Pittsburgh Mayor Bill Peduto and state Auditor General Eugene DePasquale are calling on state lawmakers to help municipalities address unfunded pension liabilities. DePasquale said that, taken together, Pennsylvania’s municipal unfunded obligations amount to $6.7 billion.

“Pittsburgh, Scranton, Johnstown, New Castle, and others – all of those are [Act} 47 communities, and all of those have significant pension liabilities,” said Fred Reddig, who oversees the Act 47 program from within the state’s Department of Community and Economic Development.

By contrast, Harrisburg’s pension fund is relatively sound, Reddig said.

Six boroughs have emerged from Act 47, but no city of Harrisburg’s size has ever left the program after entering it. “It’s possible,” Reddig said, when asked if the capital city could wipe its hands clean of the program anytime soon. “I’m saying, the next four years – it is possible, yes.”