NEW YORK--(BUSINESS WIRE)--Legislation awaiting the governor's signature is a positive for local governments that are under Pennsylvania's independent control board supervision, according to Fitch Ratings. It should increase pressure on both local and state managers to resolve the issues that led to the municipalities' financial distress more promptly.
The proposed change will limit Act 47 supervision to eight years. In our view, a municipality that cannot improve its financial operations sufficiently to run on its own within that period of time likely needs more radical change than the program can provide. After the eight-year period is up, the Act 47 coordinator can recommend receivership, bankruptcy, or dissolution.
Some local governments in the state have been under Act 47 since the 1980s and are still distressed. In our view, this demonstrates the limitations of the program's effectiveness. For example, after 20 years under Act 47 supervision, Scranton defaulted on a payment it guaranteed to make for city parking authority bonds.
While this type of control board structure offers the ability to make changes that would be difficult for locally elected managers to make on their own, Act 47 is less potent than the most powerful control boards. For example, it lacks the ability to amend existing labor contracts.
We note that not all governments under Act 47 supervision remain distressed. For example, Pittsburgh was highly stressed when it entered the program nearly 11 years ago. Our GO rating at the time was 'BB'. Since then, financial operations have improved significantly, and our rating has been 'A'/Stable since 2010. Pittsburgh can be marked as a success for Act 47, although the city remains in the program despite having the tools, in our view, to maintain stable credit quality without it.
Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.