An “Act 47” for Schools

Legislation has passed both houses of the General Assembly that would put in place financial recovery and receivership provisions for the state’s 500 school districts, though it is a safe bet that, like the fiscal distress provisions that could apply to all of the state’s 2,000-plus municipalities, not all will ever encounter any sort of fiscal oversight or guidance.

A side-by-side comparison of Act 47 and the proposed school legislation is instructive:

Act 47

Proposed Legislation

Steering Department

Community and Economic Development

Education

Person Who Determines Status

Secretary of Community and Economic Development

Secretary of Education

Title of Official in Charge of Recovery

Coordinator

Chief Recovery Officer

Key Document

Recovery Plan

Financial Recovery Plan

There are some key differences as well: under Act 47, there are parties besides the state that have standing to make a case that a municipality has qualified for distress. In the proposed legislation, it appears only the Department of Education can make the case. There is no cap on the number of municipalities that can be in Act 47 at one time (right now there are over 20) whereas the legislation for schools says that "no more than nine" can be in financial recovery, or the more drastic receivership, at one time. While Act 47 spells out much of the criteria on what it means to be distressed, the State Board of Education is supposed to determine the criteria for "moderate" or "severe" distress. And what causes the cessation of distress/recovery? For both, it is the determination of the respective Secretary.

Big Changes to Act 47

That’s true in the case of cities of the third class, a municipal classification that differentiates cities from those of the first class (Philly), second class (Pittsburgh), and second class a (Scranton) and allows legislation to appear as something other than tailored to a specific city.

Harrisburg-a third class city and the latest entrant into Act 47 distressed status-has yet to approve a recovery plan. Its council rejected to one written by the Act 47 coordinator, and then the revised plan written by the Mayor. As a result there is legislation pending that would make provisions for the state’s capital city by permitting the Governor to declare a fiscal emergency and eventually appoint a receiver for the city. What follows is a consent agreement between the city’s officials and the receiver which is supposed to outline the terms for a long-term stability plan. No "commuter tax" is permitted and there is a prohibition on filing for Chapter 9 bankruptcy. Failure to follow through leads to interactions with the courts and a follow up plan by the receiver and mandatory directions to the council and mayor.

Unless the history of Act 47 communities is significantly abridged on DCED’s website Harrisburg seems to be one of the few municipalities that has gone the route of rejecting the coordinator’s plan and having one written by a municipal official, only to see that one rejected as well (the City of Scranton had sanctions taken against it at one point). One has to suspect that the state is using the current legislation to nudge the City toward accepting a plan noting "…local officials are unwilling or unable to accept a solvency plan developed for the benefit of the community".

Whatever happens, the track record on Act 47 is clear: for every one municipality that has exited Act 47 there are three still in. And seven municipalities that are still in have had their original recovery plan amended some point after their initial one was written (Johnstown is on its 5th). So what does that say about the prospects for financial recovery in Harrisburg and other places?