First distressed municipality exits Act 47

First distressed municipality exits Act 47

In July 1987 the state enacted Act 47 to aid financially troubled municipalities.  The first community to enter distressed status under the law, in November of that year, was the City of Farrell in Mercer County.  Last week, after spending 32 years in the program, the city was officially released. In the time that it spent under state fiscal supervision 14 other municipalities entered and exited distressed status.

With amendments to the statute in 2014 that placed time limits on the duration of distressed status Farrell faced the options of rescission, a three year exit plan, disincorporation or a fiscal emergency.

The city’s population is about half of what it was in 1980 and exiting Act 47 means the revenue Farrell was able to collect from non-resident earned income ($350,000 in FY 2018, about 10 percent of budgeted revenue) will disappear.

Here are a couple of interesting facts about Farrell and its time in Act 47:

The municipality was part of a multi-municipal police force but projected cost increases encouraged it to leave and form its own departmentThe rescission report noted that the municipality achieved savings of 20 percent from 2015 to 2016 through collective bargaining and overhead, which is quite surprising given the prevailing thought that economies of scale are often achieved through multi-municipal arrangements.  Taking over pension obligations for the city police department from the larger force did add to some of the city’s costs.  The city’s police and non-uniformed pension plans are well-funded, the firefighter plan has a funding ratio of 55 percent.

Mercer County has old assessed values.  The county last reassessed in the 1970s, and while the rescission report notes that Farrell has to be cognizant of property tax increases going forward (it has the third highest municipal tax rate in the county) due to the possibility of driving away more residents and businesses, the report could have encouraged Farrell to use its status as a home rule municipality to add taxpayer-friendly provisions to its charter.  Here zero-based budgeting, sunset provisions, supermajority increases for tax increases or even automatic taxpayer referenda might be beneficial for the years to come.