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Review of cases indicates Jeannette won't likely succeed in bankruptcy

| Wednesday, Feb. 13, 2013, 12:01 a.m.

If the City of Jeannette files for municipal bankruptcy, the odds it will succeed are slim, a review of bankruptcy cases since 1980 indicates.

Since then, more than 82 municipalities have filed Chapter 9 bankruptcy, and judges have dismissed all but a handful, according to court records.

The latest was the City of Harrisburg in 2010. A bankruptcy court judge threw out the petition because the state had not followed the proper procedures.

Dr. Robert Strauss, a professor of economics and public policy at Carnegie Mellon University, said all small cities such as Jeannette have the same financial problems and face the same hurdles in filing for Chapter 9.

“When you're not growing, you slowly, inexorably, run out of cash,” he said. “Jeannette has got a problem. They may not be as crazy as Harrisburg. I think Jeannette will have grave difficulty before a judge in bankruptcy court will approve it if they haven't gone through Act 47.

Pennsylvania is one of 19 states that allow municipal bankruptcy. The law was enacted during the Great Depression when cities nationwide were struggling for survival.

“The reality is we don't have a plan. We don't have a policy in this state that will solve the problem,” Strauss said.

Council members said they may consider other actions to save money before deciding whether to file for bankruptcy or seek protection under the Financially Distressed Municipalities Act, commonly known as Act 47.

The city has been under the state's Early Intervention Program for distressed municipalities. More than $133,000 in grants from the Department of Community and Economic Development paid for a consultant to make recommendations for pulling the city out of its financial spiral. The city ignored most of the recommendations but may have to reconsider, Councilman Bill Bedont said this week.

Those recommendations included reducing the police department from 12 officers to eight and dissolving the paid fire department and the sanitation department.

While Act 47 is an option for Jeannette, the process is time-consuming, said Mike Foreman of the Department of Community and Economic Development.

First, the city must file a petition with the state to enter the program. The department would conduct a field investigation of the city's finances, hold a public hearing and then must have approval from the agency's secretary. Once in Act 47, the city could be under state oversight for decades.

Cities under Act 47 include Pittsburgh, Clairton, Braddock, Rankin and Duquesne in Allegheny County. Pittsburgh has been under state direction since 2003. Clairton and Braddock entered the program in 1988, and Rankin joined a year later. Duquesne has been under state control for 22 years, according to Department of Community and Economic Development records.

Jeannette council meets at 6 p.m. Wednesday to “adjust” its 2013 budget to pay hundreds of thousands of dollars of debt.

Council could take several steps to reduce costs:

• Laying off all paid on-call firefighters and relying on volunteers. Wages for on-call firefighters peaked at $60,000 in 2010 after rising from more than $42,000 in 2005. Last year, taxpayers paid $55,000.

• Laying off three part-time police officers.

• Instituting rolling layoffs of city employees.

• Abolishing the sanitation department, which costs taxpayers more than $788,000 annually, and hiring a private contractor to collect garbage.

In the meantime, the city is considering two options to increase revenue.

Council may buy an automated payment machine for the city parking lot. Last year, the city eliminated fees for the lot and parking meters in the business district.

“This is in the preliminary planning stages,” said Mayor Robert Carter.

The machine costs $14,500 and is similar to those used in Pittsburgh, Indiana University of Pennsylvania and West Virginia University in Morgantown. Motorists pay for a specific time period and get a receipt to place on their vehicle's windshield.

Councilman Mark Levander said the city will start fining residents who refuse to use city-sanctioned garbage bags. The fines range from $300 to $1,000.

Richard Gazarik is a staff writer for Trib Total Media. He can be reached at 724-830-6292 or at rgazarik@tribweb.com.

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