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  • CHRIS PARKER/TIMES NEWS Lansford Borough Councilman Tommy Vadyak, far right, advised council to seek the state's help in filing for bankruptcy on Dec. 30. Council discussed his suggestion, but believes its financial situation isn't that bad.
    CHRIS PARKER/TIMES NEWS Lansford Borough Councilman Tommy Vadyak, far right, advised council to seek the state's help in filing for bankruptcy on Dec. 30. Council discussed his suggestion, but believes its financial situation isn't that bad.
Published January 22. 2011 09:00AM

As Lansford Borough Council on Dec. 30 steeled itself to adopt a budget that anticipates more spending than income, and that carries a 3.06-mill tax increase, officials briefly considered asking the state help file for bankruptcy.

Council members ultimately decided the borough's fiscal distress was by far not acute enough to take that route, proposed by councilman Tommy Vadyak. But the borough's financial picture doesn't rule out the possibility of asking the state for some sort of help in the future.

Lansford isn't alone in its fiscal worries.

Just one municipality, Westfall Township, Pike County, has filed for bankruptcy in the past five years, according to the state Department of Community and Economic Development. However, there is a less drastic step a fiscally derailed municipality can take to get back on track.

Act 47 is legislation, enacted in 1987, that provides loan and grant funds to financially distressed local governments as well as technical assistance to formulate financial recovery plans. It allows DCED to declare a municipality financially distressed; provides for debt restructuring; limits the ability of the troubled communities to obtain government funding; authorizes them under certain circumstances to participate in federal debt adjustment and bankruptcy actions, and provides for the consolidation or merger of contiguous municipalities to relieve financial distress, according to DCED.

Twenty municipalities have entered the program since its inception.

Since 2006, four municipalities - including Westfall, which filed for bankruptcy in 2009 - were determined by DCED to be in financial distress under the Act 47 Recovery Plan. They are Nanticoke, Luzerne County; New Castle, Lawrence County; Reading, Berks County; and Harrisburg, Dauphin County.

Shenandoah was among the first municipalities to be designated as financially distressed under the program in May 1988. The designation was rescinded when the community got back on its fiscal feet in April, 1993.

"Act 47 is the state's safety net to deal with communities experiencing severe fiscal difficulty to avoid Chapter 9 (bankruptcy)," said DCED spokeswoman Jamie Yates. "However, if a community does enter Chapter 9 they are automatically in Act 47 and the two processes work together."

Once a community files for inclusion under Act 47, a public hearing is held and DCED prepares a consultative report.

"The governing body, chief executive, electorate, certain classes of creditors when certain situations occur (trustees of a bond issue of payments are not made timely), and employees (if payroll was missed)" all can ask the state to designate the municipality as financially distressed enough for Act 47, Yates said.

The hearing is usually scheduled from two weeks to a month after the filing; the DCED secretary has 30 after the hearing to render a decision. If he rules that the community is indeed financially distressed, he has another 30 days to appoint a coordinator to guide it through the Act 47 process.

"The coordinators are charged with immersing themselves into city operations, developing a comprehensive recovery plan and implementing the recommendations within that plan," said Yates.

However, the day-to-day operations remain with council.

Should a municipality ever reach the point where it needs to file for bankruptcy, the Act 47 process is woven into the Federal Bankruptcy Court proceedings.

But sometimes, a financial downslide can be caught early and headed off.

DCED offers an Early Intervention Program that helps communities that are in a financial hole before it becomes so deep that Act 47 is warranted, Yates said. The program "reviews past fiscal trends, develops a five-year projection and provides attendant recommendations that, if implemented, would return the municipality to a point of fiscal stability," Yates said.

The legislation points to three reasons a municipality could tumble into financial distress: Long-term economic deterioration (such as loss of its tax base or loss of population); a sudden catastrophic situation (the bankruptcy of a major employer, for example), or managerial deficiencies (such as no financial management system to identify problems before they occur, or limited capacity and/or misappropriation of funds), Yates said.

In Lansford's case, the dollar squeeze is the result of several factors. The recent recession-fueled economic stress has meant more people are unable to pay their municipal property taxes and trash fees, leaving municipalities with bills to pay but not enough revenue to pay them. Further, the costs of insurances, vehicles, energy and other necessities are rising at a fast clip while revenues are not keeping up.

In 2008, property tax collections stood at 87.79 percent. That fell to 85.78 percent in 2009, but picked up to 87.67 percent in 2010.

The borough's 2011 budget anticipates $1,575,873 in revenue and $1,578,161 in expenses. The 3.06 mill tax increase brought the property tax rate to 32.47 mills, meaning the owner of a property assessed at $25,000 will pay $811.75 in real estate tax this year, up $76.50 from 2010.

Council members have frozen additional purchases, and are hoping that an audit this month will help pinpoint trouble areas.

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