Case Study
Pennsylvania Department of Community and Economic Development Act 47
Recovery Plan Coordinator for the City of Pittsburgh
In August 2003, Pittsburgh laid off 446 full and part-time employees, including nearly 100 police officers. City recreation centers were shuttered, public swimming pools closed, and services from police mounted patrol to graffiti-removal eliminated. In the fall of 2003, the City’s credit ratings were downgraded repeatedly, leaving Pittsburghas the nation’s only major city to hold speculative “junk bond” ratings. The City’s most recent independent financial audit has even questioned Pittsburgh’s ability to continue as a going concern.
In response, the City filed for distressed status in accordance with the Pennsylvania Municipalities Financial Recovery Act, Act 47 (“Act 47”). Following a detailed review of the City’s finances, the Pennsylvania Secretary of Community and Economic Development (DCED) found that Pittsburgh qualified as financially “distressed”, triggering the requirement to develop a Recovery Plan. In late January 2004, PFM and a regional law firm joint venture partner were appointed Coordinator for the City under Act 47, and engaged by DCED to develop a multi-year Recovery Plan.
This Recovery Plan is unprecedented in its size and scope under Act 47, asPittsburghis the largest municipality ever to enter Pennsylvania’s distressed municipalities program. The Act 47 team has spent over 2,500 hours developing solutions for the City’s financial crisis. Members of the Act 47 team have visited City facilities to interview City managers and employees, met with officials of all nine City unions, and interacted regularly with members of City Council and senior Administration officials. Act 47 team members have also met individually and in groups with civic and community organizations, governmental and economic development agencies, and representatives of regional business and professional groups. A line-by-line, multi-year budget projection model has been developed, and current City operations have been evaluated against national best practices.
The final 234 page final document includes more than 200 specific recommendations to close annual deficits projected to grow from approximately $72 million in 2005 to nearly $115 million for FY2009 alone (against a current revenue base of approximately $365 million), incorporating the following major strategies:
- Scores of changes to the way the City does business, ranging from Fire Bureau restructuring, to fleet reduction, to elimination of non-essential programs;
- 29 intergovernmental cooperation initiatives, from multi-agency joint purchasing to 911 call center merger with AlleghenyCountyto shared crossing guard funding with the PittsburghSchool District;
- Multiple managed competition measures, ranging from fleet services reform to EMSand parking ticket billing and collections outsourcing;
- A workforce cost containment strategy, including measures to moderate wage growth and control fast-rising benefits expenditures;
- Strengthened financial management practices and strategic investment in long-term fiscal health, including capitalization of a Productivity Bank to finance City government efficiency investments and formalization of a Fund Balance policy toward the gradual rebuilding of prudent reserves; and,
- A comprehensive tax policy agenda to generate new, sustainable revenues while minimizing adverse impacts on economic competitiveness and job creation.
Following a public hearing and comment period, the final Recovery Plan developed by the PFM and Eckert Seamans team was filed June 11, 2004, and approved by City Council and the Mayor by the end of that month. The Pittsburgh Post-Gazette has stated that the “…Act 47 Plan is fiscally sound, and seeks to counter successive Pittsburgh budgets that were tilted the other way”, while the Pittsburgh Business Times has written that “the recovery plan leaves us feeling optimistic Pittsburgh will, someday, put its financial house in order and move on to the business of being a great city.” Subsequently, the City has regained its investment grade credit rating. PFM and Eckert Seamans continue to serve as Recovery Plan Coordinator to oversee implementation of the Plan.