A Great Train Robbery?

In a blog this past April we wrote about Pennsylvania’s efforts to get a piece of the money that would be recirculating due to the rejection of a rail project in Florida. Pennsylvania wanted to use the money to (yet again) improve the speed of travel between Harrisburg and Philadelphia. In early May the state got $40 million to dedicate to that corridor.

So what of the western half of the state? A PENNDOT study said "increasing service from Harrisburg to Pittsburgh is a logical progression to create a successful corridor linking most of Pennsylvania". But don’t look for travel time to be anything remotely like the connection in the eastern part of the state: right now a five hour trip from Pittsburgh to Harrisburg would be reduced to a four hour trip, and even that won’t happen in one fell swoop, but rather incrementally. One consultant at a meeting on Monday discussing the idea said "the likelihood of reaching 110 mph in this corridor is unlikely at this point…what we’re really talking about is higher-speed rail."

And again, it won’t be a far stretch to imagine that there will be recurring requests for money to make the "somewhat faster" connection happen.

For Lease or Sale: Parking Garages

No, this is not an advertisement from the City of Pittsburgh, who spent much of 2010 debating a long-term lease of Public Parking Authority assets to solve its pension woes. Instead, it is a recommendation made by the Act 47 coordinator for the state’s capital city, Harrisburg, which faces a significant debt burden due largely due to its involvement with a trash incinerator. Annual debt service is $18 million a year and there is $220 million outstanding on the facility.

Avoiding a Chapter 9 bankruptcy filing, according to the Recovery Plan, requires the patience of the parties the City owes money to, a consensual debt solution, and a reopening of the three labor contracts the City has.

With a structural operating deficit 19 jobs are slated for elimination and the only way out of the debt problem is to sell the incinerator and sell or lease the assets of the Harrisburg Parking Authority. We wrote in a blog last October about a plan for Harrisburg that would have involved issuing new debt to help the City with its incinerator issue. Now it appears the 8,300 plus spaces and possibly 1,200 metered spots could go up for sale or lease. That’s about half the spaces that would have been involved in a Pittsburgh lease proposal. Harrisburg also has a revenue sharing arrangement with its Parking Authority akin to the one here in Pittsburgh, with the HPA transferring anywhere from $3.5 million to $4.0 million per year to the City in the past few years.

Time to Repeal Prevailing Wage Law

Many, perhaps most, Pennsylvania school districts are facing a financial crunch.  With taxpayers already stretched to the limit and Harrisburg contemplating large cuts to K-12 education spending, districts must watch every penny. One way the Legislature can help offset the budget cuts and assist school districts would be to repeal the prevailing wage requirement for school construction and renovation. 

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No Magic Bullets for Harrisburg

That’s the word from the team that is preparing the Act 47 recovery plan for the state’s capital city. Harrisburg was declared financially distressed in December of 2010, much of the City’s problem linked to its interrelationship with a trash incinerator and the massive amount of debt piled up from that facility.

Don’t forget, however, that the former Governor also said that there was no Santa Claus riding in to aid the City, and soon after did exactly that by delivering millions of dollars so the City would not miss a bond payment.

Ironically, one of the tools that usually comes with a financial distress plan-viewed as a magic bullet or perhaps a trump card by many-may be unavailable to Harrisburg. The statute allows an Act 47 municipality to petition the courts for an increase in its earned income tax so that non-residents that work in the municipality would pay a "commuter tax". However, the director of the Governor’s Center for Local Government Services noted "…the big problem with that for Harrisburg is that so many of the city’sneighboring municipalities raised their own wage taxes several years ago to eliminate the archaic occupation assessment tax".

Under state law a non-resident would only be subject for the difference between the earned income tax in his own home municipality and the place where the earned income tax is higher. It is a complication we pointed out in 2003 for Pittsburgh prior to its entrance into Act 47 given the presence of home rule communities that could raise their wage taxes.

According to the newspaper report there is even a suggestion of a countywide local option sales tax, which would presumably make Dauphin County the third such county in Pennsylvania to have a higher sales tax rate than the rest of the state. That would be quite a stretch if County officials had to approve the tax if the revenues were going to flow disproportionately to the City of Harrisburg. It would also require a separate state law since Act 47 only mentions property and wage taxes. In that case Harrisburg’s tax plan would be similar to Pittsburgh’s where separate state laws like Act 222 (which created the payroll tax and allowed the Local Services Tax to increase) and Act 187 (which reformed the wage tax sharing between the City and the Pittsburgh Schools) defined the tax structure.

Op-Ed Misfires on Commuter Tax

A recent opinion piece in the Harrisburg Patriot News states "Harrisburg needs to have financial options to raise revenue. One of those options, despite the renewed opposition by some elected officials, is a commuter tax…If a modest commuter tax is part of a broader and comprehensive plan to finally get the city on the mend, then our local representatives should be out making the case for it…"

Harrisburg has serious financial problems, for sure. The city was declared distressed under Act 47 in December of 2010 and the specter of Chapter 9 bankruptcy is very real. The editorial points out that Harrisburg has already taken advantage, as many other cities and towns have, of the state permitting an increase in the Local Services Tax to $52 on every person who works in Harrisburg regardless of where they live. That boost came about in 2005 when Pittsburgh was a newly minted Act 47 municipality and complained that it was not fair for people who work in the City to be paying a $10 occupational privilege tax. The tax was increased, renamed, and the General Assembly allowed all municipalities that wanted to increase the tax up to $52 to do so. The proceeds of the tax were directed toward public safety and public works functions.

A "commuter" tax under Act 47 would be percentage based on wages, but if a court was to permit Harrisburg to levy the tax it would have to enact a commensurate increase on residents of Harrisburg by the same percentage. It does not fall exclusively on people living outside the city who work there. It would not be long before residents paying a higher wage tax would see that there is a bit of false advertising in the name of sharing the tax burden.

And besides, where is the proof that more revenue will solve the City’s problems? The close to two and a half decades’ history of Act 47 shows that there are twenty municipalities in Act 47, some for a very long time, and only six municipalities have seen their distress status rescinded. Chances are that many of these places had or still have a higher wage tax under Act 47 yet still linger under supervision.

Is the Capital City Headed for Bankruptcy?

Just last week, the state’s capital city, Harrisburg (population 47k), was declared financially distressed under Act 47.  Harrisburg becomes the 20th city since the statute became law in 1987 to be so designated, joining Pittsburgh, Reading, and Scranton among others.

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Distressing Times

"…it is our recommendation that the City of Harrisburg be declared financially distressed"-Governor’s Center for Local Government Services, Consultative Evaluation for the City of Harrisburg, October 20, 2010

If the Department of Community and Economic Development follows through on the recommendation of its Center for Local Government Services, Harrisburg will become the 20th active participant in Act 47 distressed status. Since Homestead (in Allegheny County) came out of Act 47 in March of 2007, three new entrants (including Harrisburg) have gone in.

Act 47 lays out eleven criteria of which a municipality must meet one in order to be declared distressed. Harrisburg asserted that it had met three of the ten, but the evaluation found that only one-that the City had defaulted in payment of principal or interest on bonds or notes due to an authority-to satisfy the petition.

The evaluation found that of five comparable PA cities (one of which, Chester, is also in distressed status) Harrisburg has "a low and diminishing ability for the residents to produce the necessary resources to support services at current levels".

Tale of Two Cities, Two Parking Authorities

Stop us if you have heard this one. A private interest make a cash offer for a parking system, and the Council turns it down. Then there is a new plan hatched whereby the assets of the Parking Authority, the assets that were not sold, are pledged as collateral in order to help the host city through difficult financial times.

It is happening in Pittsburgh, as we have documented in our last three Policy Briefs, but it is also occurring in the capital city of Pennsylvania, Harrisburg. We have written previously about the debt issues plaguing the City of Harrisburg and how bankruptcy and Act 47 have been mentioned as real possibilities.

Now there is a plan for the Harrisburg Parking Authority to issue new bonds and refinance existing debt (there is an uncanny, almost eerie similarity between that Authority and Pittsburgh’s where existing debt is just over $100 million and plans on the table call for issuing $200 million in new debt) to help the City. According to one news report "…up to $60 million in new money to be used for ‘certain qualified purposes.’ The authority could make a payment to the city to help it pay down some $288 million in incinerator debt."

The solicitor from the Harrisburg Parking Authority also said that any parking rate increases would be smaller than those imposed by a private owner and would keep a public asset public, much like the sentiments expressed by Pittsburgh City Council and the Controller with their alternative plan.

Are these two cities and their parking authorities flattering each other through imitation?

Money on Demand

History is repeating itself in the City of Harrisburg, and at an alarming rate: we wrote recently that the Commonwealth had agreed to expedite payments so that the capital city would not miss a bond payment. Just last week the City got additional help from the Harrisburg School District, the Harrisburg Authority, and the Parking Authority in order to meet payroll this week.

"It ameliorates the immediate crisis" was what the Mayor’s press secretary said. Note that he said immediate, which implies there are still long term problems. The City still is trying to secure a line of credit to pay its bills through the end of 2010. This follows on the heels of the Mayor’s official application to DCED to place the City in Act 47 distressed status. If approved Harrisburg will be the state’s 20th municipality in Act 47, and the first new entrant into distressed status in almost a year (Reading went into Act 47 status in November of 2009).

If placed in Act 47, Harrisburg would be given priority for aid and could even get emergency financial aid from the state, much like the quick cash that has been extended in the recent weeks.

Comparing Municipality Employee Counts

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Our recent report on municipal financial statistics (Report # 2010-04) shed light on the spending and revenues of a cross section sample of twenty municipalities in Allegheny County.  The report noted that, compared to the City of Pittsburgh, municipalities in our sample spent much less and collected less in revenues on a per capita basis.  Another metric to consider is the number of full-time employees each municipality has per 1,000 residents and to see how that stacks up against the City, other municipalities and cities across Pennsylvania. 



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