Local Governments in Distress

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One of the most serious challenges facing Pennsylvanians today is the fiscal health of their local governments. As with most big problems, there are multiple causes for this distress: a shrinking manufacturing and commercial tax base, an aging population of both taxpayers and employees, the ongoing impact of the Great Recession on investment returns, unfunded pension obligations, escalating health care costs for retired public employees, crumbling infrastructure, and a history of lax oversight of local government investments and financial decision-making.

PCN partnered with the Fels Institute of Government at the University of Pennsylvania to produce a series to help explain these factors and to gather the experts together who might have solutions. Fels instructor Stephanie Maurer, former Deputy Auditor General for Audits for the Commonwealth of Pennsylvania, brought the focus of her graduate class in public audits to bear on this issue. They looked at every municipality that has sought the protections and support of Act 47, Pennsylvania’s “Financially Distressed Municipalities Act.” These master’s degree candidates in public administration were able to distill distinct elements that cause or exacerbate financial distress on local governments. And so this series was structured.

Our first segment looked at the basics of municipal finance – where tax revenue comes from and the current trends, where the pressures on expenses lie in local government, the commercial markets for public finance (bonds and other complex financial instruments such as “swaps” and collateralized debt obligations):


Similarly, the second segment laid groundwork on the background and details of the Act 47 program itself and the experience of those 27 governments in it, some for over 25 years! This panel also looked at the little-used but increasingly discussed remedy of Chapter 9 bankruptcy for municipal governments:


The third segment looked at the facts and numbers behind municipal pension obligations and the up-to-now largely unfunded expense of the OPEB (Other Post-Employment Benefits) obligations, which can include lifetime healthcare:


The fourth segment talked about the facts behind municipal labor costs and impact and constraints of collective bargaining agreements and pension promises to public employees. We also discussed the perennial call for consolidating the many local government entities in Pennsylvania and the trend towards shared services between local governments:


Then a panel of mayors of bigger Pennsylvania cities in Act 47 spoke to the specific challenges they face, and the potentially devastating impact of a single bad investment or catastrophic event on already stressed budgets:

 
Finally, a panel of experts will look at what might be next for Act 47 itself, including several legislative proposals to reform it.

 
Through this examination of the financial problems facing local government in Pennsylvania, PCN and its partner, the Fels Institute of Government at the University of Pennsylvania, hope to show viewers the multi-faceted nature of the challenge and the urgent need for thoughtful leadership and change in coming years.