Listen To This Article:
After 32 years in state-designated financial distress, Aliquippa faces a three-year deadline to either prove financial solvency or to have the state take over official control.
The city’s challenge is not insignificant. It ended two of the last five years more than $100,000 in the red, and projections for this and the next three years show even more significant deficits if major steps are not taken.
In addition, there are instances of the city borrowing from Peter to pay Paul-type measures being taken to keep it afloat. In January, city council requested a $385,000 advance from the Municipal Water Authority of Aliquippa.
The MWAA took over collecting garbage fees in the last quarter of 2018 to allow the city to cut off water service for delinquent accounts to get better collection rates.
The city claimed the $385,000 would be compensation for delayed collection during the transfer. But the authority’s calculation showed only $193,411.73 would have been collected, and its solicitor said it was illegal to loan the city any additional money.
In March of last year, the Pennsylvania State Police executed a search warrant on Aliquippa City Hall as part of a grand jury investigation that includes inquiries into the government’s finances.
Despite formidable challenges remaining after decades in the program, the city’s state coordinator remains optimistic Aliquippa will successfully exit its distressed status on its own. At a public meeting held last month, she presented her detailed exit plan the board must adopt by ordinance possibly at its May meeting.
City officials are required to examine a variety of ways to increase revenue and cut costs. And voters may even have input on recreating its governance.
One bright spot for the city is the county’s pending reassessment, now tied up in an appeal, which would allow the city to lower its current 30-mill tax rate, its maximum allowed under law.
Aliquippa’s program exit deadline is June 30, 2022.
THE STATE’S SECOND-LONGEST DESIGNATION
The Municipalities Financial Recovery Act, Act 47 of 1987, was established to provide a broad-based program of fiscal management oversight, technical assistance, planning and financial aid to municipalities experiencing severe fiscal distress.
As the steel industry imploded, so went Aliquippa’s finances.
Aliquippa was the state’s second community to receive the designation in December 1987, one month behind Farrell in Mercer County. Farrell exited the status last month after residents voted to change its form of government to a home rule charter and changed its tax structure.
Ambridge is the only other Beaver County municipality to have been designated distressed, entering the program in 1990 and exiting in 1993.
Debbie Grass of Grass Root Solutions (GRS) is Aliquippa’s recovery coordinator, responsible for monitoring the city’s finances, consulting and advising officials, and reviewing, updating and monitoring the recovery plan.
In 2014, the state amended the act, calling for designated municipalities to create a five-year exit plan. At the end of those five years, the one-time, three-year extension option was possible.
Grass said only two further options now await Aliquippa: one is financial stability and program exit; the other is receivership, meaning the state will appoint a receiver, or someone who will take over sole control of the city’s decisions.
A receivership would last until the city became financially solvent and control would then be transferred back to city officials, Grass said.
“This is not something we want to see happen,” she said, calling it a “last-choice option.” In 2012, Harrisburg became the only state municipality to go into receivership. It exited more than two years afterward.
The amended act also allows for the option of a town’s disincorporation, but Grass said that because Aliquippa provides public services such as police and fire coverage, that option does not apply to the city.
She said she expects the city’s status will be reviewed each year until the deadline. “We won’t wait three years,” she said.
At the end of the extension – if the city doesn’t exit in the meantime – Grass said she’d make a joint recommendation and the state DCED secretary will ultimately decide Aliquippa’s outcome.
Grass said the city has been “very close” to exiting its distressed status many times, but has faced a number of significant setbacks. She cited 9/11 and the recession beginning in 2008 as examples of when Aliquippa lost ground.
SUCCESSFUL EXIT BRINGS NEW CHALLENGES
Though no longer being categorized as distressed, Aliquippa would face a whole new set of challenges.
If Aliquippa successfully exits distressed status, it will lose several benefits of the program, Grass said. They include the coordinator’s involvement and ability to provide expert advice in various areas of need.
The city also would lose its priority status for various grants and its current ability to forgo matching funds for other grants.
It also will lose its ability to assess a higher Local Services Tax than other communities, which will cost the city about $100,000 annually. Under the Act 47 amendment, Aliquippa was able to raise the rate from $52 to $104 in 2016.
Grass said the city could lobby the General Assembly to allow it to keep the higher rate, which successfully happened in another state community.
In addition, Aliquippa would lose cost containment during collective-bargaining.
“That’s why we’re trying to be very, very cautious of when we exit,” she said, adding that officials are making sure the city is positioned so that no financial harm is done when those benefits are lost.
Grass said the city has taken steps to increase revenue collection, reduce staff, limit benefit costs, and adjust the benefit structure for future legacy costs. She said the city’s budget has become more conservative.
“The city has done a good job in following remediations,” Grass said. “And that’s why they’re in a good position to exit.”
But although Aliquippa has been able to generate slightly more revenue than expenditures for the last two years, Grass wrote in its Financial Condition Evaluation for DCED that “the cash reserves and fund balance have been greatly depleted. There are also huge and crushing facility and infrastructure needs that must be addressed.”
CONSIDERING OTHER GOVERNMENT MODELS
Grass said officials are required to consider restructuring to other forms of government, but are not required to change the city’s structure.
She said of 53 third-class cities in the state, only 18 still operate with Aliquippa’s commission form in which each of the five council members, including the mayor, heads a department. Also of those 53, 19 have become home rule municipalities through the home rule charter process.
Local governments without home rule can only act where specifically allowed by law, but home rule municipalities can act anywhere except where they are specifically limited by law.
Home rule allows much more control over government structure, citizen participation, and tax adjustment. A home rule charter could allow Aliquippa to not rely as heavily on property taxes, and the city could increase its earned income tax as Farrell did.
Grass said changing the city’s government structure to a home rule charter as Farrell did would be up to a two-year process that should start with a public vote this fall.
Voters would be asked whether to create a government study commission, and they’d also be asked to elect seven, nine or 11 community members at the same time.
She called the home rule route “a very long, in-depth public education process” before residents would ultimately vote on a measure.
Aliquippa voters approved it becoming a third-class city starting in 1988 so it could take advantage of a two-tier property tax system. That allowed it to assess a different levy on land and on buildings. It was an attempt to force J&L Steel to sell off vacant land, but the strategy was unsuccessful.
Now, the two-tier property tax is available in all municipal codes.
Grass’ report noted other problems with its commission form of government.
Because there is no distinction between legislative and administrative government functions, administrative decisions can be politicized and also create a lack of checks and balances.
The lack of central management also causes a dearth of cohesion between departments, she wrote. And finally, elected council members and the mayor may not have the skills and experience to do the job to which they’re assigned.
OTHER EXIT STRATEGIES
Beyond government restructuring, city officials have a long list of exit plan strategies to analyze, and no shortage of hard decisions.
They include, as laid out in the exit plan:
– Adopting a strong city administrator ordinance with qualifications and responsibilities, as well as empowering that person to make decisions and run day-to-day city operations without interference from elected officials.
– Developing a long-term capital improvement and funding program addressing compliance issues and possible funding sources.
– Enhancing revenue generation by possibly moving from business taxes to a payroll preparation tax; implementing a stormwater utility fee; marketing community services such as adding a fire department assist fee to a local EMS providers’ billing; and adding commercial fire code and rental inspections fees.
– Continuing to use labor counsel to negotiate collective bargaining units, and limiting all department personnel to current staffing levels or lower.
– Calculating more accurate revenue projections and expenditures. A review found “several substantial discrepancies identified between budget and actual numbers” in a review of recently audited statements.
– Participating in multi-community services such as through the Beaver County Council of Governments, and possibly through marketing the fire department’s services to other towns with fee-based contracts.
Grass said one of the most successful things going on in Aliquippa is in the area of economic development, what she called long-term relief.
In 2016, the city created the Aliquippa Economic Development Corp. and began working with the Beaver County Corporation for Economic Development. Along with other groups, it has been addressing blight by demolishing buildings, and also addressing other community, economic and social needs throughout the city.
As part of the so-called Neighborhood Partnership Program, BNY-Mellon has designated $500,000 a year for six years for the work. And another $365,000 grant through DCED’s Keystone Communities Program is being used for demolition.
In March of last year, county officials confirmed to BeaverCountian.com that County Assessor Kevin McIlwain had been asked to assist state police in an ongoing investigation into properties involved in program.
The city also has identified two priority redevelopment sites: Possible residential development at The Bricks site near the intersection of Temple Street and Carrol Street; and possible commercial development at the Franklin Avenue site near the intersection of Franklin and the Route 51 ramps.
Grass presented the board with the 76-page exit plan last month, which laid out all the above recommendations and summaries, financial statements and history. In it, she reiterates that “conditions are such that a three-year exit plan in accordance with Section 256 is warranted.”
But her recommendation section ends with a seemingly incongruous conclusion.
“Although the City has implemented initiatives consistent with the Recovery Plan and made a concerted effort to contain costs, there is considerable uncertainty about whether the City can achieve: cash solvency, budgetary solvency, long-term solvency; or service-level solvency.”
BeaverCountian.com investigative reporter John Paul contributed to this report. The City of Aliquippa Exit Strategy public meeting, which can be watched in full at the top of this article, was recorded by BeaverCountian.com multimedia contributor Matthew LaComb.