Connellsville underwent an early intervention
EDITOR'S NOTE: This is the first in a series of articles concerning the City of Connellsville, its financial problems and what the future might hold. Today: City participates in Early Intervention Program.
Six years ago, Connellsville was facing an impending cash crisis with a structural deficit considered by a state organization to be one of the highest ever seen in a third-class city in the region.
At that time, the city asked the Pennsylvania Department of Community & Economic Development to conduct an Early Intervention Program in which the department studied Connellsville's structural deficit — the gap between ongoing revenues and ongoing expenditures — and provided suggestions to help the city.
Now, where does the city stand?
Last year, when the city started preparation of its 2013 budget, officials were presented with some disturbing news. Several tax revenues, including the earned income taxes, were significantly off pace.
In December 2012, council passed a $3.68 million budget, keeping real estate taxes at 6.66 mills and opted to take out a tax anticipation loan for $675,000. However, the city had not paid off the prior year's tax anticipation loan of $450,000, only making payment of the interest due. The city was permitted by Scottdale Bank and Trust to roll the $450,000 loan over into the 2013 loan.
A look back
According to the DCED, the Early Intervention Program is designed for the DCED's Governor's Center for Local Government Services to provide support to a municipality and to intervene to resolve a municipality's fiscal difficulties without that municipality entering the Act 47 program.
Act 47, which is known as The Financially Distressed Municipalities Act, empowers the DCED to declare certain municipalities as financially distressed. It provides for the restructuring of debt of financially distressed municipalities, limits the ability of financially distressed municipalities to obtain government funding, authorizes municipalities to participate in federal debt adjustment actions and bankruptcy actions under certain circumstances and provides for consolidation or merger of contiguous municipalities to relieve financial distress.
“They (Connellsville) weren't in a situation where they were eligible to enter Act 47,” said Michael Foreman, with the DCED Southwest Regional office and who conducted the Early Intervention Program. “The purpose is to allow them to put in place administration and manageable improvements and an ability to live within their financial means.”
According to the executive summary from the Early Intervention Program report, core revenues grew in Connellsville by $282,414 from 2002 to 2006. However, during that same time period, core expenditures grew by $521,722.
Some of the recommendations the DCED presented the city included:
• Combining departments. (The recreation department and the street department merged in 2008.)
• Keeping 15 full-time police officers staffed throughout 2008. (The city had 16 police officers in 2007. The city continues to have 15 full-time officers and has kept in compliance with the police contract of 15 officers.)
• Reducing the number of paid firefighters. (The fire department went from five paid positions in 2008 to one paid position in 2013.)
• Developing a rental property inspection program. (In 2009, the city implemented a Landlord Registration and Occupancy Ordinance. The ordinance requires landlords to obtain a $10 annual license for each rental unit and maintain an accurate list of occupants of each rental unit. All owners must register with Tom Currey, the code enforcement officer, by April 1 of each year. The ordinance requires landlords to “keep and maintain all rental units in compliance with all applicable state laws and regulations and local ordinances and to keep such property in good and safe condition. The owner/landlord shall be responsible for regularly performing all maintenance, including lawn mowing and ice and snow removal, and for making any and all repairs in and around the premises.” The ordinance is still in effect.
• Increasing the millage rate by 1.5 mills for the 2008 budget. (This, the city did not do. The city kept its millage rate at 6.66 mills, which is where it still stands.)
The experts speak
Some regional and state experts say many factors can lead to a structural deficit. The culprits are normally a combination of stagnant revenues and rising expenses.
“In Pennsylvania, the status quo is having a municipality spending beyond its means,” said Eric Montarti, senior policy analyst for the Allegheny Institute for Public Policy, a nonprofit research and education organization to defend the interests of taxpayers, citizens and businesses against an intrusive government.
“The bigger things are the employee pensions and health-care costs, legacy costs they've committed to,” said Nathan Benefield, director of policy analysis for the Commonwealth Foundation, a free-market think tank for Pennsylvania. “In some cases, it's the city declining, population loss or revenue loss.”
“No matter how they (a city) control their expenses, it's going to rise,” said Richard Schuettler, with the Pennsylvania Municipal League, a nonprofit organization established in 1900 as an advocate for Pennsylvania's third-class cities. “So, do you cut services to the community or do you raise revenues?”
The DCED's report found that 92 percent of the growth of the city's core expenditures was for police and fire services. Also, Connellsville has not had a tax increase since 1987.
“They can make all the right decisions and all of those cuts and find themselves in the same situation,” Schuettler said, adding that every circumstance is different. For example, Erie, which is a third-class city with a population of approximately 100,000, was looking at a similar dire situation from which they were able to free themselves.
According to U.S. Census numbers, Connellsville had a population of 7,637 in 2010.
The DCED's Early Intervention Program doesn't only illustrate problems with a municipality's budget, it also works with a municipality to help it come back to stable levels.
The program was established in 2004 to assist local governments in addressing financial management and fiscal difficulties in a timely and planned manner in order to avert a fiscal crisis. It provides for an analysis of their historic and current fiscal position and a three- to five-year financial plan with accompanying recommendations that if implemented will maintain fiscal stability. Grants are available through the program as well.
A five-year plan
Foreman said Connellsville was part of a five-year plan where he would have discussions with the city clerk and monitor the grant money. The DCED was able to provide the city a matching grant of $22,500 to upgrade its computer information technology.
“We had to look at different needs,” Foreman said. “We gave them a grant for that — accounting, budgeting, upgrade the telephone system — gave them an opportunity to upgrade so they can better information on a timely basis.”
Foreman said if invited by the city, the DCED would assist in another intervention program.
“This is a challenging time for municipal governments,” said Steven Kratz, DCED press secretary. “They have the ability to be more proactive, certainly recognize that municipalities are facing tough issues. Our goal is to intervene and work with them before they get to a point where it's too late.”
As of January, 11 counties, 27 cities, 15 boroughs and seven townships have participated in the Early Intervention Program. Some municipalities reportedly have been able to successfully avoid a worsening of their financial situation through the Early Intervention Program remedies. Several have entered Act 47.
“I believe the city is making a good, honest effort to work with the limited tax base, continue to be challenged to match revenues with expenditures,” Foreman said of Connellsville. He added that Connellsville, like other municipalities, will have to work to stay within their means.
“It varies. Some municipalities completely turned things around, some had to come back to another phase of early intervention for another grant and three-to-five-year projection,” Kratz said.
Benefield said to get out of such a situation is normally a short-term fix for a long-term problem, because costs will always continue to rise.
“They can raise taxes, which can drive more businesses and revenue away, or they can reform pensions or spending cuts,” Benefield said, adding that overcoming and recovering from a deficit is politically difficult as well. “Some of it is legality, some of it is political pressure, like changing retirement plans, layoffs, government employee unions.”
“I'm not sure how much help the Early Intervention Program gave the city,” said Connellsville Councilman Brad Geyer, who is also director of the city's finances. “Really, they only told us to cut services and raise taxes. We all know that is the simple solution.”
Geyer believes council had stabilized the finances until problems with some tax collection by Central Tax Bureau, or Centax, arose last year. The former tax collection agency went out of business and Southwest Regional Tax Bureau has taken over collection duties for various business and mercantile taxes.
“We would be in a much stronger position right now if Centax would have continued to collect the business and mercantile taxes,” Geyer said. “However, they left us nearly $250,000 short.”
NEXT: From 2008 to 2012, real estate taxes and residential taxes collected in Connellsville were less than what was budgeted by city officials for each of those years.
Mark Hofmann is a staff writer with Trib Total Media. He can be reached at 724-626-3539 or email@example.com.