Faced with projections of operational deficits and the exhaustion of its unreserved fund balance at the end of 2012, Altoona City Council is checking out an option it has long resisted: Act 47, the Distressed Municipalities Program.
An official from the state will outline the program on Wednesday to council members at a special meeting, while also presenting information on "early intervention" designed to keep municipalities out of distress.
"Going distressed" after many years of struggle may turn out to be the right choice, but it's hardly a panacea for what ails Altoona, according to City Manager Joe Weakland and others.
Program nuts and bolts
The Distressed Municipalities Program is intended to be temporary, but every city entering since it began in 1987 has remained in it, which is an indication of problems, officials said.
It shows "something's broken," said City Councilman Mark Geis.
The municipalities enter the program because it's their only choice, according to Rick Schuettler, deputy executive director of the Pennsylvania League of Cities and Municipalities.
They stay not because it solves the systemic problems that plague them, but because they become dependent on the meager help the program provides, Weakland said.
The systemic problems center around loss of people and businesses to suburban areas - losses that limit the growth of the tax base, even as the cities must maintain infrastructure designed originally to serve those larger populations.
Inflation of employee salaries and benefits, partly due to the arbitration rulings that favored unions, along with large swaths of tax-exempt property, have aggravated those basic problems.
The program is designed not to solve those systemic problems but to solve problems stemming from "bozo" management, according to Professor David Miller, director of the Center for Metropolitan Studies at the University of Pittsburgh's Graduate School of Public and International Affairs.
Altoona doesn't have a management problem, but a systemic one, according to the Pennsylvania Economy League, which has studied the city's finances over several years.
Ultimately, the thrust of the program is simple: Decrease expenses and raise revenues, Miller said.
"It's not rocket science," he said.
The program calls for a state coordinator, who would help draw up a recovery plan City Council would need to approve.
The coordinator first looks at expenses, to identify savings that will allow the municipality to maintain services critical to health and safety, said Fred Reddig, executive director of the Governor's Center for Local Government Services, an arm of the Department of Community and Economic Development.
The program can provide relief from the state's 30-mill hard cap on property tax and the 0.5 percent limit on regular earned income tax; allow the city to claim earned income tax paid by those who work in the city but live in another municipality; and make grants and loans available.
What it can't do is forgive a municipality's debt, because based on the U.S. Constitution, that kind of protection from creditors is limited to the bankruptcy courts, according to Juliet Moringiello, professor of law at Widener University's Harrisburg campus.
Even after taking advantage of the relief offered by the program, though, cities may find themselves in a "spiraling downward movement," because the recovery plans they require will inevitably call for cost cuts, Weakland said.
Altoona has shed 32 workers by attrition over the past decade. Further police cuts could lead to an increase in crime, according to Weakland. More crime makes a community less attractive, leading to further loss of population, he said.
That in turn leads to loss of income tax, triggering reduction in code enforcement, leading to deterioration of property and further loss of population, Weakland said.
The real answer needs to be something that can reverse the systemic problems, he said.
"It has to be some kind of regional approach," Weakland said. "At a minimum, regional cooperation on such things as fire protection, law enforcement, code enforcement" and highway maintenance.
He's not confident about such cooperation taking place.
"We're light years away from that," he said.
Actual mergers with other municipalities would be the "ultimate," he said. "That's never going to happen, unless there's a state mandate. And that's never going to happen."
The city needs to realize that Act 47 is no more than temporary help, said Scott Campanaro, president of the city's non-uniformed workers union.
"It's a life preserver," he said. "A stepping stone to get out of this morass."
If the city enters the program, it needs an "exit strategy," he said. That should be in the form of a mid-term plan and a long-term plan, he said.
The mid-term plan might focus on filing a lawsuit to force Blair County to reassess, he said. The county hasn't done a reassessment for 54 years, creating inevitable inequities and making the 30-mill property tax cap far more restrictive than the law intends it to be, according to expert opinion.
The long-term plan would need to focus on joining or leading third-class cities in a lobbying effort to change the state codes that make operating those cities financially "untenable," Campanaro said.
Arbitration issues
A recent state Supreme Court ruling in a Scranton case prohibits distress recovery plans from superseding arbitrators' ruling on salary and benefits for police and firefighters, some say.
That decision took away the most valuable component of the program, according to Schuettler, who called the ability to override binding arbitration a "huge tool."
The league is currently working with lawmakers to reinstate it, he said.
Weakland, however,
doesn't think the Scranton decision changed much.
"It was always my understanding that whether [an arbitration ruling] conforms to the recovery plan or not, you've got to do what the arbitrator says," he said.
He thinks it's an "excellent" idea, though, for lawmakers to change the act so the Scranton decision no longer would apply.
Minimum manning in the fire department - which requires at least 13 firefighters to be on duty at all times - was a problematic result of arbitration, because it results in "a whopping amount of overtime," he said.
The department posts a duty roster of 15, but often vacations, sickness, injury or call-offs dip that number below 13, which forces the city to pay time-and-a-half, except in late summer and early fall, when there's no overtime pay by contract agreement.
Thinking for the future
While he agrees the distress program isn't a panacea, Miller believes it can still embody long-term thinking.
Long-term thinking has influenced recent recovery plans, which de-emphasized tax and fee increases in recognition that most distressed municipalities already have high taxes and fees, he said.
Raising them tends to cripple those municipalities in their competition with neighbors, he said.
Many recent plans instead have focused on promoting economic development, selling services and cooperating with municipalities and counties, he said.
Weakland thinks the odds are good the city will enter the distressed program.
Geis hopes to avoid it.
"There's a negative stigma," Geis said. "It would be an act of desperation."
Since the state adopted early intervention in 2004, 60 municipalities have availed themselves of the help and all but three have avoided going distressed so far, according to Reddig.
Until now, the stigma of distress has helped to postpone even serious consideration of distress here. That resistance may have been wise, according to Miller.
If Altoona enters now, its recovery plan will likely require cooperation with other stakeholders, including the county, neighboring municipalities, nonprofits and city unions, Miller said.
And at least some are likely to ask whether Altoona has done all it can to avoid distress.
"Altoona is in a position of saying, 'Yes, we have,'" Miller said. "It has a track record of not running away."
The earlier efforts to make things work included financial maneuvers like cashing out workers' compensation reserve money, borrowing to pave streets and extracting an annual $2 million payment from the Altoona Water Authority by threatening to privatize the water and sewer systems.
So now may be the right time, according to Miller.
"[But] it's not a magic bullet," Weakland said.
"[Yet] in terms of options, they're exercising the only option they have," Schuettler said.
