Governor Corbett Signs into Law an Amendment to Act 47 Concerning Distressed Municipalities in Pennsylvania

by Saul Ewing Arnstein & Lehr LLP

On July 5, 2012, Governor Tom Corbett signed into law Senate Bill No. 1321, designated as Act 133 of 2012 ("Act 133"), which amends the Municipalities Financial Recovery Act, P.L. 246, No. 47, as amended ("Act 47"), to (i) clarify that all arbitration settlements, including Act 111 arbitration awards, are subject to the limits of Act 47; (ii) identify when collective bargaining agreements and arbitration settlements awarded pursuant to the Policemen and Firemen Collective Bargaining Act, P.L. 237, No. 111, as amended ("Act 111"), may deviate from an approved Act 47 plan; and (iii) require the Secretary of the Department of Community and Economic Development ("DCED") to approve or deny any municipality's application to file a municipal debt adjustment action under Chapter 9 of the federal Bankruptcy Code. Act 133 will go into effect 60 days after enactment.

Arbitration Awards are subject to Act 47

Act 133 amends Act 47 by changing the definition of "arbitration settlement" to include an adjustment or settlement of a collective bargaining agreement or dispute, including a final or binding arbitration award under Act 111 or other determination. As such, Act 133 makes clear that an arbitration settlement must operate within the confines of Act 47, except in certain circumstances as discussed below. Act 133 is the legislative response to the decision of the Pennsylvania Supreme Court in Scranton vs. Firefighters Local Union No. 60.

When Arbitration Settlements under Act 111 may deviate from an Act 47 Plan

Act 133 delineates when an arbitration settlement for policemen and firemen under Act 111 may deviate from an approved Act 47 plan. In particular, an Act 111 arbitration settlement may deviate from an Act 47 plan only if:

  • it will not cause the affected distressed municipality to exceed any limits on expenditures for individual collective bargaining units imposed under the Act 47 recovery plan (except if a limit is determined to be "arbitrary, capricious or established in bad faith");
  • it will not jeopardize the financial stability of the distressed municipality; and
  • it does not conflict with the Act 47 policy objectives of relieving the financial distress of the distressed municipality involved.

Act 133 requires that a board of arbitration, appointed under Act 111, provide findings of fact supported by substantial evidence in determining whether an Act 111 arbitration settlement satisfies the criteria stated above, including whether a limit is "arbitrary, capricious or established in bad faith." The testimony of experts in the field of municipal finance is permitted and admissible as evidence before the board and is necessary for any Act 111 arbitration settlement to deviate from the Act 47 plan. The board of arbitration's decision as to deviation may be appealed to Commonwealth Court.

DCED Secretary Must Approve or Deny Applications to file a Chapter 9 Bankruptcy Petition

Act 47 authorizes municipalities to apply to DCED to file for bankruptcy under Chapter 9 of the federal Bankruptcy Code if certain conditions are met. Act 133 empowers the Secretary of DCED to approve or deny within 30 days of any such application. Failure by the Secretary of DCED to act within the 30-day time period shall be deemed a denial of the application.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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