HARRISBURG - The rules for distressed Pennsylvania municipalities could be more rigid under a proposed revision of Act 47, a Senate panel was told this week.

Under the bill, a governor could declare a state of financial emergency if an Act 47 municipality adopted a budget at odds with the recovery plan, said Gerald Cross, executive director of the Pennsylvania Economy League Central Division.

That declaration could pave the way to state receivership, as the city of Harrisburg experienced until recently. The recovery coordinator would launch the process under the bill by determining that a municipal budget isn't consistent with a recovery plan.

"There is little the coordinator can do to force compliance other than the counterproductive withholding of state funding," said Cross. "The amendment makes municipal officials much more accountable and forces them to give more than lip service to difficult plan requirements."

Shamokin and Act 47

"Act 47" is a phrase that's been tossed about in Shamokin since at least 2008, when the notion of bankruptcy was discussed amid the city's dire financial situation.

Concerned with a growing deficit that had reached $2.7 million by the end of 2007, the city applied for the Pennsylvania Economy League's early intervention program in January 2008. A subsequent report from PEL in August 2008 projected the deficit would grow to $5.7 million by the end of 2012 if the city didn't take action to reverse its out-of-balance spending and revenue.

Act 47 consideration is present again in 2014. Mayor William D. Milbrand said a few weeks ago he fears the state, which has been providing ample assistance to the city to manage its finances, will push Shamokin toward enrolling in Act 47 if it doesn't obtain a loan to cover more than $811,000 in unpaid bills from 2013.

The state would potentially gain expansive oversight over Shamokin's attempts at fiscal recovery, including forcing the city to follow a state-approved plan and perhaps appointing an adviser to guide financial decision-making. Milbrand said it could also open up the city to changes in existing collective bargaining agreements and a potential reduction in temporary or permanent staffing.

Not a panacea

Cross testified at a hearing of the Local Government Committee on legislation to rewrite Act 47, which right now governs 20 municipalities that have been declared fiscally distressed, including Scranton, Nanticoke, West Hazleton and Plymouth Township in northeastern Pennsylvania.

The measure seeks to change the relationship between state government and Act 47 municipalities and follows the recommendations of a special task force, but it's not intended as a panacea for all the ills affecting local governments, said Sen. John Blake, D-22, Archbald, a committee member.

However, representatives of several local government associations said they want lawmakers to tackle other issues, too, involving an outdated municipal tax structure, tax-exempt property and labor contracts.

The bill provides that a municipality could be under Act 47 for only five years, instead of unlimited duration, and then face a three-year exit plan that would result in fiscal solvency, receivership, bankruptcy protection or disincorporation, in rare cases.

That timetable drew support from Cross and Stephen Fehr, a researcher with Pew Charitable Trusts, who helped write a report last year examining the role of the states in helping their distressed cities.

But Amy Sturges, an official with the Pennsylvania Municipal League, said a five-year limit is arbitrary and may not fit all distressed municipalities.

Court-OK'd tax hikes

As part of an exit plan, Act 47 towns could petition county court to levy on a temporary basis either a higher earned-income tax on residents and nonresidents, an increased local services tax on residents and commuters or a payroll tax on businesses. A town could only petition for one tax option under the bill.

Cross suggested that all municipalities, distressed or not, should be allowed to at least double the local services tax as a permanent revenue source.

"A higher LST (local services tax) rate would address the reality that local services, which are the crux of the tax, are becoming increasingly expensive," he said.

Acting on a recommendation from PEL, Shamokin first sought court approval to raise its real estate millage 5 mills above the 25-mill maximum allowed by the Third Class City Code in 2009. It has received that same court approval for six consecutive years.

For 2014, the higher millage is estimated to bring in an extra $120,000 in tax revenue, city officials have said.

(Information from past News-Item coverage was included in this report.)