- The Washington Times - Monday, December 29, 2003

PITTSBURGH (AP) — Pennsylvania ruled yesterday that Pittsburgh is financially distressed, a designation that will provide the city a state-appointed recovery coordinator within 30 days and an economic recovery plan within four months.

The designation by the Pennsylvania Department of Community and Economic Development was expected since a consultant hired by the state said earlier this month the city likely met the criteria under what is known as Act 47.

To be declared distressed, cities must meet at least one criterion under the act. Pittsburgh, which has a projected $42 million deficit for next year, meets three: The city’s spending exceeded revenues for at least three years, it had a 5 percent deficit for two successive years, and it had at least a 1 percent deficit for three years.

“Act 47 is not a state takeover,” Dennis Yablonsky, secretary of the department, said in a statement. “The state’s role is to provide strong oversight and develop a partnership with the city in order to ensure that residents receive vital services.”

Mayor Tom Murphy, Democrat, had asked for the designation, which could empower the city to levy new taxes on its own rather than get state approval before doing so. He did so despite the calls from legislators that he cut spending more.

“As we have been saying throughout this process … the [financial distress] declaration is a decisive determination that this city simply cannot cut its way to solvency,” Mr. Murphy said. “We will continue to work in good faith to develop the modernized tax structure that this city must have to survive and grow.”

Mr. Murphy has said the city must stop relying on property taxes as a primary source of revenue because of the city’s changing business face.

The city’s major steel mills — once a primary source of property tax revenue — are gone, and the city economy is now fueled by hospitals and universities whose nonprofit or not-for-profit status render them wholly or partially exempt from property and some other taxes.

Mr. Murphy has tried unsuccessfully to get the legislature to approve a new payroll tax, among other levies.

Some lawmakers have criticized Mr. Murphy for not reigning in spending, but he has said Pittsburgh laid off one in five city workers from 1993 to 2002 and 640 in the past few months. He also closed numerous city facilities, from police stations to pools.

Pittsburgh’s credit rating hit junk-bond status in October.

Since the state law was enacted in 1987, more than a dozen communities have been granted Act 47 protection. The law does not prevent a town from filing for bankruptcy, but that has not happened since Act 47 was enacted.

Scranton, with a population of 90,000, was previously the largest city operating under the law. Mayor Christopher Doherty credits it with helping Scranton improve its bond rating and refinance $12 million in debt.

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