What will it take for Harrisburg to exit Act 47, Pennsylvania’s program for cash-strapped municipalities?
Don’t ask the citizens of Farrell. Located in the Shenango Valley, along the Ohio border, the city entered the program in 1987 and hasn’t left. In 2013, the Farrell City Council approved an amended version of the consulting plan guiding its recovery, which said it was “in a position to move out of the Act 47 program over the next four to five years.” Residents had heard that before—in 2006, consultants had said the city was poised to exit within a few years, too. But this time was different. Within a year of the update, state lawmakers adopted a five-year deadline for all municipalities in the program. “We’re stuck now,” Michael Ceci, the Farrell city manager, said recently. “The most recent amendment is it.”
Farrell’s fortunes, like those of many other Pennsylvania towns and cities, rose and fell with the U.S. steel industry. In 1992, the Sharon Steel Corp., a major local employer, filed for bankruptcy. By 2010, the city’s population had fallen to just above 5,000, from a height of more than 15,000 in the 1920s. A key benefit of Act 47, in this context, has been the ability to levy an additional four-tenths of a percent of income tax on non-residents—primarily people coming from Ohio to work in the remaining factories. According to Ceci, the hike, which provides a quarter-million dollars of Farrell’s $3 million budget, has been the program’s only meaningful advantage. “I get no other benefit,” he said. Yet, under the new deadlines, the city must eliminate this hike by 2018. Future budgets will have to be balanced through some combination of cuts and higher taxes on people who live there.
Two years ago, a state court approved Harrisburg’s own blueprint for financial recovery, branded the Harrisburg Strong Plan. The plan cautiously promised four years of balanced budgets, but a few weeks shy of the anniversary, Mayor Eric Papenfuse, who took office in 2014, announced it wasn’t working. Speaking in an annual “State of the City” address downtown, he swaddled this claim in some impressive rhetoric, comparing the need to amend the plan with the need for a Bill of Rights to amend the Constitution at the country’s founding. But Harrisburg’s plan, like Farrell’s, was already no stranger to revision. The Strong Plan updated a 2012 plan, itself modeled on plans from 2011, which in turn had replaced an emergency plan from 2010, a few months before the city entered Act 47.
Every city has its own circumstances, but financial trouble ultimately comes from the same two quarters: growing expenses and sluggish or declining revenue. When Harrisburg first sent up its distress flare, the worst problems were on the expense side. Though the Strong Plan has its detractors, there’s no question it addressed many of these woes. Most famously, it paid off hundreds of millions owed on the city incinerator, but it also targeted other, smaller obligations. (Among these were ballooning overtime costs for city firefighters; in his speech, Papenfuse noted these had dropped from $2.8 million two years ago to below $900,000.) This year, like last year, the city plans to underspend its budget. Halfway through its second year under the plan, Harrisburg appears to have expenses under control.
At the same time, cutting expenses isn’t the only key to recovery. As Papenfuse also said, the city is “starving for capacity,” with a workforce that has shrunk from 667 a decade ago to 369 today. The problem now is on the revenue side. The Strong Plan provided for two primary sources of new money—a higher income tax on residents and proceeds from more expensive parking downtown. But for months, city officials have been warning that the money isn’t coming in as expected. The balanced budget now threatens to fall apart in 2016.
Is the Strong Plan working? The first part of the plan, captioned “Guiding Principles,” concluded with a “cautionary comment”: no matter how comprehensive the plan was, it couldn’t replace the “dedicated and diligent services by public officials and other civic leaders.” But cities like Farrell offer their own cautionary tale. No matter how dedicated the public officials, they can only tax so much and cut so far. Most recently, Farrell decided to jettison its library, handing its management over to an area non-profit. “This city has done absolutely everything it can in terms of cuts,” Ceci said. At the same time, he fears what will happen as the city shifts the tax burden from commuters to residents. Why would anyone move to town?
Nobody likes it when money is tight, but one benefit of being in recovery is that it can force citizens to think about what level of government they’re willing to pay for. Harrisburg’s leadership, in the form of the recovery plan and, more recently, in Papenfuse, has drawn conclusions about what services to provide. They include filling in more potholes, tearing down more blighted properties, and hiring more police and public works employees. At the same time, Papenfuse has stirred the pot by saying the plan doesn’t quite cover their costs. He has already aired an initial suggestion on how to make up the difference—an extra $2-per-week tax on people who work in Harrisburg, and a plan to get more businesses to switch trash accounts from private haulers to the city. But the true price of closing the gap, and who should pay it, are questions we should expect to revisit in the months to come.
