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City of Harrisburg Page | 389Act 47 Recovery Plan

Combined Solution

Throughout the development of this Recovery Plan, the Act 47 Coordinator has discussed the needto solve two problems – the existing structural deficit and the crushing debt of the RRF. This chapterdescribes how the two solutions work in tandem to meet the requirements of Act 47 and eliminatedeficits across all funds.

Structural Deficit

The City of Harrisburg is facing a severe structural deficit crisis. Tax and fee revenues and othermoney received by the City have not been enough to meet its current operating costs. The City hasclosed the budget deficit in prior years by making one time transfers and, when ultimately forced, byeliminating personnel. The City is dependent upon transfers of funds from its operation of water,sewer and sanitation services and the Coordinated Parking Fund. Now these funds are facingoperating deficits as well. Clearly, these annual transfers to the General Fund do not represent along term, fiscally responsible means of balancing the City’s annual operating budget.

Based on the financial analysis completed by the Act 47 Coordinator, the estimated gap between2011 General Fund revenues and expenditures is $3.46 million. The City also has a 2010 deficitcarryover of more than $2 million. The 2012 General Fund projected deficit is $5.3 million.

To put this crisis in perspective, the projected deficit is equal to the following: 37.2% of current real estate taxes; 1.7 times the current earned income taxes collected; Nearly 10% of total estimated 2011 General Fund revenues; Over 9% of total estimated 2011 General Fund expenditures; or 22.5% of total 2011 budgeted salaries and wages.

To address the deficit, this Recovery Plan identifies over 150 non-tax priority initiatives the City mustimplement. In the aggregate, these expenditure-focused measures will eliminate much of the City’srecurring deficit and put the City on a course to fiscal stability.

However, as discussed in detail in the Workforce chapter, the City must move quickly to pursue legalaction and void the premature extensions of the collective bargaining agreements entered into by theprior administration. Voiding the premature extensions allows the City to thoughtfully enter into realnegotiations with each of the Collective Bargaining Units. If the contract extensions continue ineffect, there will be zero financial impact and zero cost savings from 28 initiatives in this RecoveryPlan until after 2014, since none of these initiatives can be implemented under the existing collectivebargaining agreements. Therefore, the financial impact of the initiatives detailed in this RecoveryPlan is based on the assumption that the contract extensions are void or voidable and the existingcontracts are continued through the following dates: FOP through December 31, 2011; IAFFthrough December 31, 2012; and AFSCME through December 31, 2011.

Combined Solution I.pdf


Combined Solution

Throughout the development of this Recovery Plan, the Act 47 Coordinator has discussed the needto solve two problems – the existing structural deficit and the crushing debt of the RRF. This chapterdescribes how the two solutions work in tandem to meet the requirements of Act 47 and eliminatedeficits across all funds.

Structural Deficit

The City of Harrisburg is facing a severe structural deficit crisis. Tax and fee revenues and othermoney received by the City have not been enough to meet its current operating costs. The City hasclosed the budget deficit in prior years by making one time transfers and, when ultimately forced, byeliminating personnel. The City is dependent upon transfers of funds from its operation of water,sewer and sanitation services and the Coordinated Parking Fund. Now these funds are facingoperating deficits as well. Clearly, these annual transfers to the General Fund do not represent along term, fiscally responsible means of balancing the City’s annual operating budget.

Based on the financial analysis completed by the Act 47 Coordinator, the estimated gap between2011 General Fund revenues and expenditures is $3.46 million. The City also has a 2010 deficitcarryover of more than $2 million. The 2012 General Fund projected deficit is $5.3 million.

To put this crisis in perspective, the projected deficit is equal to the following: 37.2% of current real estate taxes; 1.7 times the current earned income taxes collected; Nearly 10% of total estimated 2011 General Fund revenues; Over 9% of total estimated 2011 General Fund expenditures; or 22.5% of total 2011 budgeted salaries and wages.

To address the deficit, this Recovery Plan identifies nearly 150 non-tax priority initiatives the Citymust implement. In the aggregate, these expenditure-focused measures will eliminate much of theCity’s recurring deficit and put the City on a course to fiscal stability. A complete list of initiativescontained in this Recovery Plan can be found in Appendix F.

However, as discussed in detail in the Workforce chapter, the City must move quickly to pursue legalaction and void the premature extensions of the collective bargaining agreements entered into by theprior administration. Voiding the premature extensions allows the City to thoughtfully enter into realnegotiations with each of the Collective Bargaining Units. If the contract extensions continue ineffect, there will be zero financial impact and zero cost savings from 28 initiatives in this RecoveryPlan until after 2014, since none of these initiatives can be implemented under the existing collectivebargaining agreements. Therefore, the financial impact of the initiatives detailed in this RecoveryPlan is based on the assumption that the contract extensions are void or voidable and the existingcontracts are continued through the following dates: FOP through December 31, 2011; IAFFthrough December 31, 2012; and AFSCME through December 31, 2011.

Combined Solution II.pdf

Page | 390 City of HarrisburgAct 47 Recovery Plan

Voiding the contracts, combined with the initiatives of the Recovery Plan, will eliminate most of theCity’s projected baseline deficit. However, for 2011 these initiatives alone will be unable to close thecombined 2010 and 2011 budget gap, as shown below.

Combined Fund Projections with Initiatives, 2011 – 2015

($5,559,705) ($6,162,679)

($7,429,757)

($10,069,513)

($12,584,259)

$0

($2,426,167)

($3,463,995)

($4,981,476)($5,863,065)

$0$518,936

$1,330,183$710,875

($458,506)

($14,000,000)

($12,000,000)

($10,000,000)

($8,000,000)

($6,000,000)

($4,000,000)

($2,000,000)

$0

$2,000,000

$4,000,000

2011 2012 2013 2014 2015

Baseline Operational Deficit Deficit After Initiatives Contracts Not Voided

Deficit After Initiatives Contracts Voided

Due to the City’s current debt load, unfunded borrowing is not recommended as a reasonable orviable solution to address the 2011 shortfall. Rather, it is the recommendation of this Recovery Planthat the City pursue a one-time revenue source such as the sale or lease of assets.

Absent a one-time infusion of revenues in 2011, the City will be unable to pay vendors or employeesbeginning in the fourth quarter of 2011.

Execution of these actions (e.g. elimination of current 2011 operating deficit, voiding contractextensions and implementing all Recovery Plan initiatives) will result in a budget surplus by 2012, asshown above. With careful management, these surpluses will compound and help the City reverseits current negative fund balance and provide a source of one time funds for capital improvements.



Voiding the contracts, combined with the initiatives of the Recovery Plan, will eliminate most of theCity’s projected baseline deficit. However, for 2011 these initiatives alone will be unable to close thecombined 2010 and 2011 budget gap, as shown below.

Combined Fund Projections with Initiatives, 2011 – 2015

($3,466,454)

($6,036,362)

($7,164,987)

($9,649,417)

($12,007,003)

$0

($2,595,584)

($3,674,959)

($5,037,114)

($5,761,543)

$0$334,352

$1,046,287$580,285

($434,767)

($14,000,000)

($12,000,000)

($10,000,000)

($8,000,000)

($6,000,000)

($4,000,000)

($2,000,000)

$0

$2,000,000

2011 2012 2013 2014 2015

Baseline Operational Def icit Def icit Af ter Initiatives Contracts Not Voided Def icit Af ter Initiatives Contracts Voided

Due to the City’s current debt load, unfunded borrowing is not recommended as a reasonable orviable solution to address the 2011 shortfall. Rather, it is the recommendation of this Recovery Planthat the City pursue a one-time revenue source such as the sale or lease of assets.

Absent a one-time infusion of revenues in 2011, the City will be unable to pay vendors or employeesbeginning in the fourth quarter of 2011.

Execution of these actions (e.g. elimination of current 2011 operating deficit, voiding contractextensions and implementing all Recovery Plan initiatives) will result in a budget surplus by 2012, asshown above. With careful management, these surpluses will compound and help the City reverseits current negative fund balance and provide a source of one time funds for capital improvements.



Projected Annual Surpluses and Fund Balance, 2011 – 2015

$0$518,936

$1,330,183

$710,875

($458,506)$0

$518,936

$1,849,119

$2,559,994

$2,101,489

($1,000,000)

($500,000)

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

2011 2012 2013 2014 2015

Deficit After Initiatives Contracts Voided Fund Balance

If collective bargaining agreements are not substantially altered via negotiations, the City will beforced to raise additional revenue through significant tax increases. From a policy perspective, thelevel of poverty in the community makes these significant tax increases unadvisable. In order togenerate adequate revenue without voiding contract extensions, the City would need to raiseproperty taxes by nearly 20% or raise the EIT by nearly 80% for 2012, with additional increases ineach of the following years.



Projected Annual Surpluses and Fund Balance, 2011 – 2015

$0

$334,352

$1,046,287

$580,285

($434,767)

$0

$334,352

$1,380,638

$1,960,923

$1,526,156

($1,000,000)

($500,000)

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

2011 2012 2013 2014 2015

Def icit Af ter Initiatives Contracts Voided Fund Balance

If collective bargaining agreements are not substantially altered via negotiations, the City will beforced to raise additional revenue through significant tax increases. From a policy perspective, thelevel of poverty in the community makes these significant tax increases unadvisable. In order togenerate adequate revenue without voiding contract extensions, the City would need to raiseproperty taxes by nearly 20% or raise the EIT by more than 80% for 2012, with additional increasesin each of the following years.



Required Cumulative Tax IncreasesWithout Voiding Contract Extensions

18.6%26.5%

38.1%44.9%

77.4%

110.5%

158.8%

187.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

200.0%

2012 2013 2014 2015

Real Estate Tax Mills EIT

As described in the CIP chapter of this Recovery Plan, the City is in dire need of capital funding torepair, restore and maintain its significant infrastructure. Conservatively, over $4.5 million is neededannually to address basic capital needs. Therefore, it is recommended that a significant portion offund balance be used to fund priority capital needs, as determined by the development of a detailedcapital improvement plan.

Debt

As discussed in the Debt Solution chapter of this Recovery Plan, the impact of solving the default onthe RRF debt is a reduction of available revenue for the City’s General Fund by a minimum of $2.5million a year. The necessary recovery of these lost revenues is accomplished throughimplementing the first three initiatives contained in the Debt Solution chapter – a combination ofincreased taxes and a new revenue stream.

Projected Projected Projected Projected

2012 2013 2014 2015

Net City Operating Surplus/(Deficit) $518,936 $1,330,183 $710,875 ($458,506)

Net Effect From Lease/ Sale of HPA ($2,500,000) ($2,500,000) ($2,500,000) ($2,500,000)

Additional Initiatives Required $3,000,000 $3,000,000 $3,000,000 $3,000,000

Net City Annual Surplus/(Deficit) $1,018,936 $1,830,183 $1,210,875 $41,494



Required Cumulative Tax IncreasesWithout Voiding Contract Extensions

19.9%

28.1%

38.6%44.1%

82.8%

117.2%

160.6%

183.7%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

200.0%

2012 2013 2014 2015

Real Estate Tax Mills EIT

As described in the CIP chapter of this Recovery Plan, the City is in dire need of capital funding torepair, restore and maintain its significant infrastructure. Conservatively, over $4.5 million is neededannually to address basic capital needs. Therefore, it is recommended that a significant portion offund balance be used to fund priority capital needs, as determined by the development of a detailedcapital improvement plan.

Debt

The impact of solving the default on the RRF debt is a reduction of available revenue for the City’sGeneral Fund by a minimum of $2.5 million a year. The necessary recovery of these lost revenuesis accomplished through implementing the initiatives contained in the Debt Solution section – acombination of increased taxes and a new revenue stream.

Projected Projected Projected Projected

2012 2013 2014 2015

Net City Operating Surplus/(Deficit) $334,352 $1,046,287 $580,285 ($434,767)

Net Effect From Lease/ Sale of HPA ($2,500,000) ($2,500,000) ($2,500,000) ($2,500,000)

Additional Initiatives Required $3,000,000 $3,000,000 $3,000,000 $3,000,000

Net City Annual Surplus/(Deficit) $834,352 $1,546,287 $1,080,285 $65,233
