Harrisburg Act 47 Exit Plan Comments Submitted by the Harrisburg Regional Chamber & CREDC

The July 9, 2018 City of Harrisburg Act 47 Exit Plan (PLAN) submitted to the City by the DCED Recovery Coordinator has been reviewed by the Harrisburg Regional Chamber & CREDC staff and discussed by the Chamber & CREDC’s Boards of Directors and Government Relations Committee. Chamber & CREDC appreciates the opportunity to submit comments, which are listed below.

Recommendations

Based on the Chamber’s perception of the City’s reaction to the PLAN, it appears that the City will not accept it as written. In that regard, the Chamber respectfully requests that the DCED Recovery Coordinator for the City of Harrisburg work with the Mayor, city staff and members of City Council prior to the September deadline to develop a mutually acceptable plan that will prevent the City’s return to Receivership.

The Chamber believes the specter of Receivership is far worse than simply staying in the Act 47 program. Staying in Act 47 for three more years, which may not be long enough, would provide access to the expertise of the Recovery Coordinator, special taxing authority, as well as utilizing Commonwealth assistance to improve its operations and fiscal condition. Conversely, entering Receivership may send the undesirable message that Harrisburg, and by association, the region, is in poor economic condition.

The obvious issue with the PLAN, as presented, is that a significant increase in real estate taxes would be required if no other revenue stream is created to fill the void left by the Act 47 taxing authority. The Chamber believes this recommendation is a result of unintended consequences of the requirements in the Act 47 law that calls for a specific timeline and criteria be contained in an Act 47 Exit Plan. The Act 47 Coordinator has no option but to make the property tax recommendation as a possible revenue source. No easy fix exists at this time, and the Chamber believes it would be prudent for plans to acknowledge on-going discussions in the General Assembly to revisit Act 47 through the legislative process as a solution for Harrisburg’s dilemma.

In discussing revenue streams, the PLAN identifies the real estate tax increase as the third of three options. The other two options include 1) development and implementation of a home-rule charter, thereby changing the form of Harrisburg City Government, or 2) action by the General Assembly to permit Harrisburg to continue to collect the higher Earned Income Tax (EIT) and Local Services Tax (LST) currently being collected under the authority of Act 47 and Commonwealth Court.  A legislatively-approved alternative may not be realistic in time for preparation of the 2019 City Budget. Additionally, a Home Rule Process could take several years.

Chamber & CREDC supports the continued collection of the LST at the current level under Act 47 and Commonwealth Court approvals. That rate is $3.00 per week or $156.00 per year on all employees working in the City of Harrisburg. The Chamber believes it is fair to assess this tax in a City where the daily workforce is larger than the number of residents in the City, with most workers commuting from outside of City limits. Maintenance of roads, public safety, trash collection and other core functions of City Government are necessary to support the needs of a workforce of roughly 50,000 people.

This requires legislative action which could come in a variety of different options that are and will be discussed in the weeks ahead including special legislation, extension of time limitation currently in place for municipalities to stay in Act 47 or other methods yet to be determined.

Chamber & CREDC has no stated position on the current elevated level of the EIT, leaving that decision to elected leaders in the City and the Act 47 Coordinator.

It is important to note, that Harrisburg has had a long term structural deficit that was often over looked because it never manifested itself in budget discussions to any large degree. Prior City administrations have creatively borrowed against assets, refinanced and used many other mechanisms to fill the structural deficit that appears to be about $6 million annually. It is likely that these early attempts compounded over time have in part (along with the RRF) created the dire fiscal situation Harrisburg found itself in in the late 2000s, leading to Act 47 and Receivership in the early 2010s.

Additional Recommendations

It is also important to note that there are a number of other recommendations in the plan that should be explored and implemented where possible by the City. A number of small steps can make a big impact cutting expenditures to the bottom line of City operations.

A few of these recommendations include using a small portion of the City Fund Balance to pay debt obligation when possible, creating and funding the OPEB Trust, and reducing the rate of return on the police pension (the Chamber believes a sustainable 8% is unrealistic).

There is also a series of operational improvements that should be explored and implemented where possible over time. Improvements in the areas of hiring, financial processes, development of a capital improvement plan, housing strategy, police staffing and staffing in general may result in significant budgetary savings and operational efficiencies over time.  Additionally, the Chamber strongly believes the recommendations on regionalization are worth a serious discussion.

The process to evaluate these recommendations and implement where feasible will take time, but the City should prioritize those that are feasible, and implement those that will result in operational benefit and/or monetary savings as part of a long term plan. The process should continue beyond 2021. Continuous improvement is good management for all organizations in the private, not for profit and public sectors.

The Chamber believes that “so goes a region’s core city, so goes the region.” It is important to our region’s collective future that Harrisburg continues on its journey to recovery. Chamber & CREDC is open to discussions on how it may be able to help, but it does have confidence in the talented teams at Pennsylvania DCED and at the City. By working together, the journey will be very successful.

It is the hope of the Harrisburg Regional Chamber & CREDC that both parties can arrive at a mutually agreed upon course that will avoid a return to Receivership while establishing a path to long term fiscal stability and growth for Harrisburg.