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April 12, 2014

Farrell, other cities seek end to 'distressed' label

HARRISBURG — A program for financially troubled cities is something like a governmental Hotel California: You can check in, but you can never leave. Folks in Farrell know this better than most.

The Mercer County city along the Ohio border, with a population of about 5,000, was the first in the state to be declared financially distressed. Twenty-six years later, it’s still under state supervision.

And it isn’t unique. There are 20 cities and smaller municipalities labeled financially distressed under the state program known as Act 47. Of those, 13 have been so designated for more than a decade.

Johnstown was labeled financially distressed in 1992. Greenville in Mercer County was added in 2002, as was New Castle.

While some smaller municipalities have managed to escape the financially distressed tag in the first place, no city that’s entered the recovery program has been able to leave.

“Being an Act 47 community has its disadvantages. We want out,” said Farrell Mayor Olive McKeithan. “We think it’s scaring away businesses.”

Bills in the House and Senate would reform the program and give cities like Farrell no choice but to get out — one way or another.

The distressed cities program brings state oversight and requires local leaders to create plans for recovery. It also allows officials to collect more taxes — including local income taxes — than they otherwise would.

But McKeithan and others point to negatives — including the stigma associated with the program.

The Farrell mayor has lived in the city close to 50 years. That’s not long enough to be considered a true local, but it’s long enough to have witnessed the community slide that followed closing of the Sharon Steel mill that employed 2,700 workers. The mill has since reopened and now operates as NLMK Pennsylvania that employs around 600 — which is still a sharp drop in employment numbers.

In a bid to get a handle on operating costs, Farrell officials have taken aim at the cost of police protection — which consumes about one-third of the city budget. City Council has hired a consulting firm to conduct a comprehensive study of the city’s police service, Southwest Mercer County Regional Police Department, a regional force shared with the neighboring communities.

As a financially distressed city, Farrell collects a higher personal income tax rate than it could otherwise.

State Rep. Bryan Barbin, D-Cambria County, which includes Johnstown, said the state’s approach to helping financially distressed communities has been long on planning assistance but short on actual aid. Johnstown’s on its sixth recovery plan; the most recent was adopted by the City Council last October.

Johnstown has struggled with a shift in its tax base, Barbin said. As factories have closed, larger pieces of property have been taken on by nonprofits — hospitals, schools, universities and government. Those nonprofits don’t pay property taxes.

“The ones left paying are the middle and working class,” he said.

With the cities forced to levy higher taxes, it’s only encouraged more people to move to the suburbs, exacerbating the problems for those who remain, Barbin said.

Bills now being considered in the Legislature seek to improve matters, if only by giving the program a definitive end.

Proposals calls for an eight-year window for municipalities to enter and exit the rescue plan. In the worst cases, the Secretary of the Department of Community and Economic Development could identify a local government as “non-viable.” If a judge agrees, the local government would be dissolved and replaced with state oversight.

That “disincorporation” clause gave pause to many lawmakers in the House when legislation was being prepared for a vote earlier this month, said Rep. Chris Sainato, D-Lawrence County.

State Rep. Mark Longietti, D-Mercer County, agreed that it’s heavy handed.

“These small cities need help, they don’t need a hammer to the head,” Longietti said.

Sen. John Eichelberger, R-Blair County, said during a recent local government committee meeting that finding a municipality to be “non-viable” is intended to be rare. But, he said, “there has to be an end-game” to protect taxpayers who live in places allowed to collect extra taxes because of financial problems.

Eichelberger said the bills now being considered represent the first attempt to update the program since it was created in 1987. The recommendations came from a panel that spent most of last year studying the program for distressed communities.

Other proposals would create an early-intervention program to offer quick help to cities heading into financial crisis, and allow cities to raise some taxes. For example, one proposal gives officials the option of tripling the local service tax, deducted by employers from everyone who works in a city, from $52 to $156 a year.

Sen. John Blake, R-Lackawanna County, said authors of the reform legislation took pains to only include improvements they thought could get enough support to pass the General Assembly.

Some western Pennsylvania lawmakers remain skeptical.

Barbin said the state ought to make more money available for financially distressed cities to balance their budgets, rather than proffer new plans and set deadlines.

Randy Seitz, chief executive officer of Penn-Northwest Development Corp., doesn’t see the same stigma in the financially distressed label that others do. Seitz, who works to lure businesses to Mercer County communities, including Farrell and Greenville, said the program isn’t likely to scare away a business that would otherwise locate in a community.

But Seitz said he wishes the state would give more flexible funds to local economic development efforts so officials could quickly respond to leads about businesses seeking to relocate.

It’s sentiment echoed by Longietti. He has proposed revising a city redevelopment program to give first priority to those in the financially distressed program.

John Finnerty reports from the CNHI Harrisburg Bureau for The Meadville Tribune and other Pennsylvania newspapers owned by Community Newspaper Holdings Inc. Email him at and follow him on Twitter @cnhipa.

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