Reading seeks to join Farrell, New Castle as distressed city under Pa.’s Act 47 law

READING, Pa. (AP) — In early September, Reading became the latest Pennsylvania community to file for designation as a distressed city, under the terms of the state’s Act 47 law.

If approved, the designation will give the city more options to deal with its growing financial problems.

But it’s far from the first municipality to do so — 24 other cities, boroughs and townships have gone into Act 47 since Gov. Robert P. Casey Sr. signed the “Financially Distressed Municipalities Act” in July 1987.

Although six of the 12 boroughs have since had their distressed designation withdrawn, all 10 of the cities and both townships that applied are still there, for various reasons.

Leaders in several of those cities said the program does help, though it has some pitfalls.

“Without it, we would not have been able to pay the bills,” said Holly M. Quinn, city administrator in Nanticoke, in Luzerne County about 75 miles northeast of Harrisburg and a few miles southwest of Wilkes-Barre.

Nanticoke filed for Act 47 protection in 2006 and received an immediate $700,000 emergency loan.

Nanticoke, like Reading and many other Pennsylvania cities, had a hefty structural deficit — regular tax revenues weren’t enough to cover the city’s bills.

Going into the program gave it several options — including the loan — that it wouldn’t have otherwise.

“We didn’t have much choice; it was a matter of survival,” said Lavon Saternow, city manager of Farrell, in Mercer County along Pennsylvania’s border with Ohio.

Farrell, with fewer than 6,000 residents, is the smallest of the cities in the program, but it was the first one to enter it. Farrell sought protection in 1987 after its largest employer went bankrupt and laid off 2,000 employees.

Farrell received an emergency loan and, like the other cities, took advantage of the state-paid financial consultants, put a recovery plan in place, levied a nonresident tax and cut the budget, partly by layoffs.

It once had 14 paid firefighters; it now has two. It keeps two firefighters on duty around the clock, filling in with volunteers.

“It has worked well for us,” Saternow said of Act 47. “It has been a good solution for us, and we are certainly glad for it.”

Anthony G. Mastrangelo, mayor of New Castle in Lawrence County about 15 miles southeast of Farrell, said he appreciates the focus that the program brings.

“You develop initiatives for each department when you go into it,” he said. “We have 150 initiatives in New Castle. They’re guidelines. It’s very helpful, because you’re focused on what you have to do.”

And the state paid for much-needed upgrades to its ancient computer system, he said.

Act 47 “is a step in the right direction,” said Curt Davis, city administrator of Johnstown in Cambria County less than 70 miles east of Pittsburgh.

Johnstown went downhill when it lost its major employer, Bethlehem Steel, and entered Act 47 in 1992. Its population has dropped to 20,000 from 62,000.

Davis said the community’s work force has been cut dramatically, and the city is hoping a massive master plan for economic development will save the town, especially since 50 percent of its land is tax exempt, compared with about 32 percent in Reading.

Cities need to meet at least one of the 11 criteria to get a distressed city designation. Davis said all 56 cities in Pennsylvania already meet at least two of those 11.

Why have all 10 cities that joined the Act 47 protection program — three of them more than 20 years ago — never left it?

For most, the answer is simple: They can’t afford to and don’t have to.

The problem: Leaving Act 47 would mean giving up the wage tax the program allows Johnstown to levy on out-of-town residents working there. Most Act 47 cities assess that tax. Its nonresident tax is only 0.15 percent — compared with 3 percent for Duquesne, Allegheny County — but it generates $1 million of Johnstown’s $10 million to $12 million general budget.

State-paid consultants guide cities under Act 47. “People who oversee this program talk about getting out,” said Saternow of Farrell, under state protection for going on 22 years.

“To us, other than the stigma, there’s not a great incentive to get out,” she said. “The only consideration is that we would lose that nonresident tax. What we could replace it with I can’t imagine.” In Farrell, the tax is 0.4 percent.