Act 47 - Distressed Status

Act 47 - Distressed Status



     You may have heard people mention something called "Act 47", or "Distressed Status" mentioned among those in power in the City Of Johnstown. Act 47, otherwise known as the Municipalities Financial Recovery Act of 1987, is the state law that the City of Johnstown has been under since 1993. Under the Act a community may file for what is called “distressed” status if it meets any one of several criteria. The City of Johnstown filed under three criteria according to the Act. The criteria that Johnstown used was: a municipal deficit, expenditures exceeding revenues and the ever so hard to quantify, a significant decrease in the level of municipal service. Currently, there are 20 municipalities being overseen under this legislation. Since the inception of Act 47, only 6 communities have emerged from distressed status. Think about it, of all these communities being overseen by the state's "recovery" team, only 6 have been allowed to drop from the "Distressed" designation by the state since 1987.

     When a community files for distressed status the Department of Community and Economic Development (DCED) appoints a recovery team with a recovery coordinator to oversee a recovery plan developed by that same team, so in essence they get to write their own rules. The recovery plan contains numerous recommendations to assist the financial recovery of the community. The recovery team can pick and choose which recommendations to force upon the community and which ones to ignore. Recovery plans are usually good for 3 years and need to be adopted by the municipality, if they choose not to adopt the plan formulated by the recovery team the municipality can write their own, but that one has to be approved by DCED.
If a community fails to adhere to the recovery plan they can be sanctioned by the state and state monies can be withheld. Again, it is the determinations of the recovery team what failing to adhere to actually means.
Johnstown’s recovery team leader is Attorney Jim Roberts of the firm Eckert, Seamans, Cherin and Mellott. This same firm also oversees at least two other recovery programs, New Castle and Pittsburgh. When records where last checked through the state of Pennsylvania this firm was paid in excess of $800,000 from 1993 to 2005. 

     In its purest form Act 47 is designed to assist communities who are in dire financial straits.
The problem with the Act is that there is no exit mechanism, a community has to ask to be released and the only person who can make that release is the Secretary of DCED. Think about it, of all these communities being overseen by the state's "recovery" team, only 6 have been allowed to drop from the "Distressed" designation by the state since 1987. There are no incentives to come out of distressed status, in fact it has been compared to municipal welfare. Act 47 has been manipulated by municipalities and recovery teams to their own benefit. Where else can you tell somebody under threat of law that they have to continue to use your services? The recovery team says you have to remain distressed and oh by the way we will remain your state paid for recovery team. Pretty good gig if you can get it.

     In the past several years Johnstown experienced increased revenues with budgetary surpluses and increased services which negated the reasons the city filed for distressed status. In fact, the employees of the city forced a hearing on the issue in front of DCED. At the end of the day DCED decided not to end the distressed status and keep paying for the recovery team. Johnstown’s previous administrations have even admitted publically that the only reason they were staying distressed was to keep the bargaining units in check.
The recovery team has very rarely if ever chastised the city for financial missteps, sweetheart parking deals, where the city only collected pennies on the dollar for well over $100,000 in unpaid parking fees, the debacle which is the point stadium, the Veritas steel fiasco, the overrun on the demolition of the Swank Building and the coup de grace sale of the sewage treatment plant for less than $0.50 on the dollar. When the members of IAFF Local 463, which represents the Johnstown Fire Fighters, commissioned an independent study of the sewage treatment plant the forensic accounting firm was amazed that the city would sale the only thing that was making them money.

     Additionally, IAFF Local 463 has offered several money saving and/or money making ideas to the city. Some of these ideas were novel in nature and some were already being done by other cities in Pennsylvania. None of these were acted upon, nor did the recovery team ever acknowledge them, so much for financial recovery and oversight.

     Act 47 not only holds all the cards, it allows the city administration to sit back and do virtually nothing. The old, “our hands are tied” quote has been heard several times over the years by various city administrators and council people. “We’d like to make sure people are safe but our hands are tied by Act 47.” 

    Thank you once again, there will be more to follow so stay tuned.

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