Act 47 Coordinator Recommends Three Year Exit Plan for Harrisburg

Act 47 Coordinator Recommends Three Year Exit Plan for Harrisburg

A blog from two weeks ago recapped the history of Harrisburg’s finances since 2010 and its options under Act 47 distressed status due to the amendments to Act 47 on how long a municipality could stay in.  When the decision point arrives, a municipality can have its distressed status terminated, be disincorporated, be placed in a fiscal emergency condition, or have a three year exit plan crafted.

The financial condition report released yesterday recommends the three year exit plan option (Harrisburg was declared to be in a fiscal emergency pre-2014) that would take the City’s distressed status until 2021.  This current budget year the City is projected to incur a $9 million operating deficit, with $63 million in revenues and $72 million in expenditures (2017 was budgeted to end with a $4.2 million deficit but actual results were $2.9 million).  Of the City’s general fund expenditures legacy costs (retiree healthcare, pensions, and debt service) represent a third.  The total outstanding debt principal is just over $77 million and, quite surprisingly, its three pensions are very well funded as measured by funded ratio (two of the three are more than 100% funded).  The City is putting about $6 million per year into retiree health care obligations.

The issue that the coordinators want to address is the expenditures are expected to increase 5% and revenues at 1.3% (recall from the Brief on Pittsburgh’s release that one of the factors to be considered in releasing a municipality is that there will be five years of positive operating results forecast)  While in Act 47 higher earned income and local services taxes can be levied but those go away once the status is terminated.  That’s why there has been an urge for Harrisburg to adopt a home rule charter so that they can have a higher than 1% earned income tax on residents.  Maybe other good things to think about for a charter would be sunset review of departments and functions, supermajority or taxpayer approval of tax increases, and zero based budgeting.