Harrisburg’s Plan B

In a recent blog we noted how Harrisburg’s City Council said "no thanks" to the proposed recovery plan its state-appointed Act 47 coordinator had written. Of course, rejection does not mean the state folds up its tent and the Act 47 status disappears. According to Act 47 rejection in a home rule or optional plan municipality (which Harrisburg is) it is incumbent upon the municipality’s CEO to develop a plan within two weeks time.

So what is in the alternative plan? Asset sales, including off-loading the problematic trash incinerator and parking garages, are on the list. The Mayor also wants payments in lieu of taxes from tax-exempt facilities, and with the City serving as the seat of state government that hinges on the Governor and the General Assembly increasing its payments to about $5 million annually.

There is a commuter tax, which, as we have pointed out before, is a misnomer because an increase in the earned income tax under Act 47 falls on residents of the distressed municipality as well as those that work there.

The Mayor is not going to pursue a countywide 1% sales tax a la the Regional Asset District Tax or the add-on in Philadelphia (which is now up to 2 points) because "of the unlikely success of such a passage of such a law" according to the Mayor’s statement at the beginning of the alternative plan.

The Recovery Road Show

Friday marked the release of what will likely become the final Act 47 recovery plan for the City of Harrisburg and a lot of work lies ahead on debt levels, worker benefits, and financial management for the state’s capital community.

Is there anything Harrisburg can take from the largest city in Act 47 status, western Pennsylvania’s own Pittsburgh? A lot of the situation is going to be unique. But Harrisburg, like many local governments, is a labor-intense enterprise so much of the change on the cost side is going to be focused on headcount, salaries, and benefits. Based on the employee headcount and Census population, Harrisburg has 10.7 employees per 1,000 people this year. Five years ago the rate was 13.4; the City’s headcount fell while population bumped up. By comparison in Pittsburgh, where population fell and headcount went up a tiny amount over that same time frame, the per 1,000 person employee count stands at 10.9, up slightly from 10.6.

The similarity in employee to population right now is likely to diverge as the Act 47 plan comes into effect. As with many changes to employee benefits like post-retirement health care, change often comes to new hires. That’s what Pittsburgh did in 2005 when post-retirement health care coverage was ended for police and fire coming into the employment ranks and those retiring after the adoption of the plan would have higher coverage obligations. That too, is what is proposed for Harrisburg under their Act 47 plan.

Finally, on pensions the ability to collect benefits is virtually identical between the cities (50 years of age, 20 years of service for police and fire, though non-uniformed employees in Pittsburgh can retire with benefits at age 60 where in Harrisburg it is 65) but there is a big difference in the funding health of the plans. Pittsburgh has a funded ratio (AA/AAL) of 34% on average for its three plans, while Harrisburg has more assets than liabilities and has a funded ratio of 116%.

The Best Laid Plans Not Good Enough

govt city

When the Secretary of Pennsylvania’s Department of Community and Economic Development rejected Pittsburgh’s petition to have its Act 47 designation lifted last July, he noted that the City needed “a blueprint for it to exit Act 47 and address pending legacy costs of debt, pensions, post retirement benefits, [and] workers’ compensation”.

 

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Is there Wiggle Room for the City’s Unions?

If the City does not adopt the Amended Act 47 plan by June 30th, one City Council member foresees a major problem: the City’s public safety unions will begin contract negotiations (under Act 111) in what would best be described as a state of flux. The City would be fiscally distressed, but it would not have a plan to guide its upcoming years. Therefore, the Council member feels that "The police and fire unions will go into arbitration and the arbitrator will probably provide them with an award that we cannot afford".

Could this happen? We know that under Act 47, Section 252 a collective bargaining agreement "executed after the adoption of a plan shall not in any manner violate, expand, or diminish its provisions". Now the City is in Act 47 and has been since 2004, so it would be a stretch to think that an arbitrator could infer that the police and fire union could be awarded contract provisions that could deviate from the requirements of Act 47 because the amendment has not been adopted.

Note that the language says "after the adoption of a plan"; reason would point to the plan adopted in 2004, no matter how many times it gets amended in the future. DCED data shows that several municipalities across the state (Aliquippa, Johnstown, and West Hazelton) are operating under amended plans. Section 249 of the statute notes that an amendment can be "initiated by the coordinator, the chief executive officer or the governing body". The official DCED order of July, 2008 states that "it is ordered that the distress status for the City of Pittsburgh…shall be continued". That grew out of City Council’s request to have Act 47 lifted and, failing that, to have a blueprint provided by the state to guide the City out of troubled financial waters. That’s what the City got: elected officials and public sector unions just don’t like it.