PA Doesn’t Have an “Act 47” Problem, It Has a Municipal Finance Problem

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Here’s an important point from Eric Boehm’s article on a potential state takeover of 4 distressed school districts:

Act 47 has not been particularly successful — only three of the 27 municipalities in the program have left it — and lawmakers are trying to retool it by restoring the state’s ability to target collective bargaining agreements as part of the financial recovery process.

If distressed municipalities aren’t improving enough to leave the program, then obviously there is more to the problem than collective bargaining agreements.

The root of the problem is this: Pennsylvania’s local government tax bases are way too small. There are 2562 municipalities – more local governments than in any other state. 78% of them have less than 5000 residents.

The fact that 4 out of 10 Pennsylvanians live in a distressed municipality should be a red flag that a tax base of less than 5000 people is too small to maintain decent quality local public services.

Such a small tax base leaves local governments no wiggle room when recessions hit. A larger county tax base would give local governments more of a buffer against unexpected risks. A larger tax base would also have a better bond rating.

Since none of the Act 47 reform proposals address the obvious problem that local governments are too small and thus have no capacity to weather risk, I see no reason to expect any of them to work.

This entry was posted in Budget.

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