The decision preserved the ability of a Receiver appointed under Act 47 to do what is necessary to restore a municipality to fiscal and operational health in the future.
Published on: Fri 5th Apr, 2024 By: Campbell Durrant, P.C.
By: Ben Patchen, Esq.
In Siger v. City of Chester, the Pennsylvania Supreme Court for the first time reviewed the extent of a Receiver’s authority under Act 47. The Siger Court could have limited the effectiveness of Receivership under Act 47, as it has done in the past with other Act 47 provisions. Instead, relying upon a record that established that the City was operationally dysfunctional, the Supreme Court’s decision preserved the legislature’s intent behind Act 47 and reinforced an Act 47 Receiver’s ability to implement initiatives that the Receiver has determined to be necessary to restore a municipality to fiscal and operational health. The Siger Court made clear that not only is a City official, elected or appointed, prohibited from interfering with the goals or any provision of the Receiver’s fiscal recovery plan or to act in any way contrary to that plan, but all powers of such officials is “suspended” to the extent such powers do the same. The decision reinforces the legislative intent behind Act 47, but it also provides a clear reminder of why municipalities cannot ignore fiscal distress and must reign in all costs, not the least of which are labor and personnel costs, including legacy costs.
The Department of Community and Economic Development (DCED) administers the Municipalities Financial Recovery Act, also known as Act 47. Under Act 47, DCED has a responsibility to assist municipalities that are experiencing severe financial difficulties in order to ensure the health, safety and welfare of their citizens. Act 47 has three main options for assisting municipalities facing various levels of financial distress. The first option is the Strategic Management Planning Program (STMP). The STMP is a voluntary program designed to provide a preemptive step to develop long-term financial management, administrative, service delivery and economic development strategies to avert a fiscal crisis and provide fiscal stability. The SMMP program, formerly known as the Early Intervention Program (EIP), is a voluntary program in which municipalities may seek the assistance of the Department of Community and Economic Development (DCED) in addressing indicators of distress prior to possible entrance into Act 47. The program is open to municipalities of all classes and sizes. The SMMP provides matching grants to assist municipalities experiencing financial difficulties to develop multiyear fiscal plans and establish both short-term and long-term objectives.
The second option under Act 47 is the appointment of a coordinator. If DCED determines that a municipal meets the criteria of being in “fiscal distress” under Act 47, it appoints a Coordinator who must prepare a fiscal recovery plan for the municipality to follow until it exits Act 47. The Coordinator’s plan must include initiatives to alleviate the financially distressed status of the municipality. Unlike the plan developed by an Act 47 Receiver, the recommendations in an Act 47 Coordinator’s plan are not binding.
The third option under Act 47 is the declaration of a fiscal emergency and appointment of a Receiver. A fiscal emergency declaration results when the Governor determines that the criteria stated in Act 47 are satisfied. After such a declaration, DCED nominates a Receiver who then must be approved by the Commonwealth Court. The Receiver then develops a Financial Recovery Plan that also must be approved by the Commonwealth Court. In Siger, the Receiver for the City of Chester, two years after his appointment and only days after the City declared bankruptcy, sought approval of a modified Recovery Plan designed to address operational and administrative issues and problems that had to be corrected. The Commonwealth Court approved most of the modified plan except several provisions that the City argued interfered with the powers of the elected officials under the City’s Home Rule Charter. The City also argued that the Receiver’s powers under Act 47 were limited to financial issues, as opposed to fixing operational issues in the City, and that the Receiver’s plan, which removed Councilmembers from their dual roles as department directors, violated the Home Rule Charter and was unconstitutional.
Relying upon the record that the Receiver and his legal team developed in the Commonwealth Court, the Supreme Court confirmed the need for the Receiver’s dual strategy as it stated that “…the credible evidence of record demonstrates that aside from the severe financial distress plaguing the City, the City also suffers from a municipal government that is internally dysfunctional.” The Court further confirmed that City’s “current administrative organization and allocation of duties is the single greatest operational obstacle to the City’s ability to provide vital and necessary services” to its residents. Thus, the Court found that “…the credible evidence establishes that Receiver’s proposed initiatives are necessary … to save the City from the brink of financial doom.” The Siger Court made clear the broad extent to which the authority of City elected and appointed officials is suspended under the Receivership provisions of Act 47. The Opinion held that, consistent with the plain language in Act 47, City elected officials’ authority is suspended not only where there is a specific and existing relevant recovery plan provision, but also where its exercise conflicts with the “goals of the recovery plan.”
Takeaways:
· In Siger v. City of Chester, the Pennsylvania Supreme Court upheld the broad powers of the Receiver under Act 47 and confirmed that the Receiver’s plan must be followed by the elected officials.
· The Siger decision highlights why all municipalities must pay close attention to labor and personnel costs, particularly pension and post-retirement legacy costs, in order to avoid the downward spiral of fiscal distress, and that if a municipality is experiencing fiscal distress, it should view Act 47 as a tool to help municipalities who are in fiscal distress to eliminate such distress.
· A way to avoid fiscal distress and Act 47 status is for municipalities to pay close attention to growing labor costs and to be proactive in planning, collective bargaining negotiations, and interest arbitration to do what is necessary to eliminate those costs and to control the compounding impact of such costs over time.
Bottom Line:
On January 29, 2024 the Pennsylvania Supreme Court issued its first decision regarding the scope of an Act 47 Receiver’s power. The Court upheld the broad powers of an Act 47 Receiver and confirmed that the Receiver’s plan must be followed by elected officials and that elected officials’ authority is suspended when their authority conflicts with a recovery plan or when their authority conflicts with the goals of a recovery plan.
