City of Pittsburgh Frees itself from Distressed Status after Fourteen Years under Act 47

27 Feb

February 12, 2018 marked an exciting day for City of Pittsburgh staff, as Governor Wolf announced that Pittsburgh is no longer considered to be a distressed community under Act 47. During his yearly budget address in November 2017, Mayor Peduto announced his intention of requesting the PA Department of Community & Economic Development to remove Pittsburgh’s distressed status since city officials have been more diligent about financial responsibility, including through city council developing best financial practices that involved standards for fund balances and realistic revenue projections.

As a refresher: The Municipalities Financial Recovery Act, Act 47 of 1987, is a Pennsylvania state program that gives economically struggling cities strong financial oversight, generally as a result of huge debt burdens, increasing and poorly funded pensions, and other legacy cost issues. Originally entering into Act 47 in 2003 under then Mayor Tom Murphy Jr – resulting from the city operating under a debt burden of more than 20% of its operating budget —, for fourteen years Pittsburgh has operated under Act 47 with limited control over the city’s budget, working to establish a recovery plan to cut costs, and reducing the municipal workforce and debt/pension expenses.

In June 2014, DCED’s Governor’s Center for Local Government Services issued an amended and revised report titled “Municipalities Financial Recovery Act Amended Recovery Plan,” that was designed to transition the city one step closer to shedding the distressed status. The Recovery Plan set five mandated objectives the city to hit in order to lose Act 47 status:

  1. Eliminate the operating deficits in the baseline multi-year financial projection while preserving basic services.
  2. Gradually reduce the City’s debt burden to provide more resources to support daily operations.
  3. Keep the City’s fund balance at an appropriate level to avoid the need for cash flow borrowings and provide an adequate buffer against unanticipated revenue shortfalls or expenditure increases.
  4. Gradually increase the City’s pension fund contributions to the levels recommended by its actuary.
  5. Direct more funding to the City’s capital budget, with the priority to invest more in the City’s roads, bridges, police and fire stations and other core infrastructure.

As of 2011, Pittsburgh’s annual general fund returned to having greater revenues than expenses however, DCED ruled previously that “the path out of Act 47 oversight is not solely defined by the absence of operating deficits…,” and as a result, Pittsburgh remained under Act 47 supervision until this year. However, since entering into Act 47, the city decreased the size of its workforce by approximately 26%, according to Peduto.

1

So what’s next for Pittsburgh? Pittsburgh is the second city and 14th municipality to successfully exit the program and regain autonomy over the city’s budget[1]. Many city officials see this as an opportunity for the city to shine, nationally, as an example of a rust belt city that has remade itself and overcome financial turmoil. Additionally, this ruling gives the city more power to issue and leverage bonds in the future, which will be especially important over the next few years as state and federal funds continue to shrink. Proving fiscal responsibility demonstrates to Wall Street, investors, out of state developers, and potential new residents that Pittsburgh truly is an up and coming, innovative, and attractive city. In addition, departing Act 47 will allow city leaders more influence over budget priorities, including adding additional police officers and increasing the number of annual infrastructure improvements.

More importantly, this monumental occasion has led Peduto to call on institutions like UPMC, Highmark, Carnegie Mellon University and the University of Pittsburgh to contribute more financially to the city, for moving forward with projects around addressing the affordable housing shortage, improving pre-K education for all, and developing safe water initiatives[2]. As Peduto stated, “we’re investing in what we believe to be the core issues of our city and we’re asking our partners to do the same.” This is an ideal time for city officials to consider negotiating and entering into a formal Community Benefit Agreement with these institutions to ensure sufficient investment over the next decade that all Pittsburgh residents can benefit from.

Articles & Reports Referenced:

http://wesa.fm/post/after-14-years-financial-distress-peduto-asks-state-rescind-pittsburghs-act-47-label#stream/0

http://www.post-gazette.com/local/city/2018/02/12/Pittsburgh-leaves-Act-47-Tom-Wolf-Bill-Peduto-Dennis-Davin-Intergovernmental-Cooperation-Authority/stories/201802120076

https://www.governor.pa.gov/governor-wolf-announces-pittsburgh-emerged-distressed-status-act-47/

https://dced.pa.gov/download/city-of-pittsburgh-2014-amended-recovery-plan-adopted-2014-06-24-pdf/?wpdmdl=58397


[1] Since 2015, five municipalities, including Pittsburgh, have recovered from distressed status including Altoona, Blair County; Plymouth, Luzerne County; Nanticoke, Luzerne County; and Clairton, Allegheny County.

[2] A WESA article from 11/13/17 stated that UPMC, Highmark, and the University of Pittsburgh all responded back to Peduto’s request for further investment and “emphasized their existing partnerships with the city and expressed willingness to do more.”

Kathryn Schlesinger

Transit Research and Policy Fellow at Pittsburgh Community Reinvestment Group
Kathryn originally hails from sunny south Florida, where she spent her childhood and teenage years playing travel softball on the Lady Gators, dedicating fifteen plus years to classical piano, and exploring the outdoors as much as possible. Kathryn then attended the University of Pittsburgh where she enjoyed the change in scenery and the discovery of the existence of seasons. She graduated with a B.A. in Environmental Studies and History, as well as a GIS Certificate. Currently, she works within PCRG’s mobility initiative GoBurgh, but is also expanding her knowledge into land use and housing.