Pennsylvania’s Municipalities Face Financial Cliff as Federal Funds Disappear
The Impending Financial Crisis
As federal stimulus funds from the American Rescue Plan Act (ARPA) approach their expiration, Pennsylvania municipalities may find themselves in dire need of a financial bailout. The Shapiro administration has raised alarms that without sufficient state assistance, many local governments could plunge into severe financial distress.
The Pandemic Safety Net
During the COVID-19 pandemic, state and local governments received an unprecedented wave of federal aid aimed at offsetting the turmoil inflicted on public health systems and economies. This financial lifeline was instrumental in filling revenue gaps and assisting communities in keeping their operations afloat. However, as these funds dwindle, the vulnerabilities of certain municipalities are becoming glaringly apparent.
Proposed Increased Funding
In anticipation of the impending funding cliff, the Pennsylvania Department of Community and Economic Development (DCED) is lobbying for a critical $10 million boost to the state’s special fund designed to help municipalities in distress. This proposed increase represents a mere 2.3% of Governor Josh Shapiro’s broader $430 million budget for the agency in the 2025-26 fiscal year.
Experts Weigh In
While some experts believe this increase is a step in the right direction, they argue it falls woefully short of what’s needed. Many stakeholders are calling for more proactive measures to ensure municipalities are equipped to handle their financial needs before they reach a crisis point.
Understanding Financial Distress: Act 47
Under the Municipalities Financial Recovery Act, or Act 47, municipalities facing crippling financial challenges can declare distress and gain access to important resources. The Act provides a structure for developing recovery plans, securing grants, and obtaining emergency loans.
As of now, several municipalities—such as the City of Harrisburg, City of Chester, and Borough of Newville—are enrolled in the Act 47 program. The fund dedicated to this initiative stood at $17.4 million as of March 2023.
The ARPA Windfall and Its Deadline
The federal government dispersed an eye-popping $350 billion to various levels of government through the State and Local Fiscal Recovery Funds program, established by ARPA to combat the economic fallout from the pandemic. Entities had until the end of 2024 to commit their funds, with a final spending deadline set for December 31, 2026.
These funds were critical for supporting lost revenues, public health services, and local business assistance. In fact, Pennsylvania allocated over $4.6 billion, predominantly to shore up lost revenues.
The Aftermath of Spending
Unfortunately, many municipalities have already exhausted their allocations, utilizing the funds primarily to plug budget holes. This raises significant concerns about their fiscal health moving forward. For instance, State College has managed to avoid tax increases thanks to relief funds in recent years but has recently approved a property tax rise for 2025.
William Glasgall, a public finance advisor at the Volcker Alliance, emphasized the reality: “This money is not going to be replaced. It was designed for an emergency. The emergency is gone.” The looming ARPA cliff signals a stern wake-up call for cash-strapped municipalities.
The Local Landscape
With many municipalities having already used their ARPA allocations, immediate solutions are paramount. Local governments must find alternative revenue streams and contain their expenditures. The impact of possible federal funding cuts adds another layer of uncertainty.
Diverging Perspectives
Interestingly, there are contrasting views among stakeholders. While Glasgall insists that the proposed $10 million boost is insufficient—with a quip that it would last “about three seconds”—some local officials, like David Sanko from the Pennsylvania State Association of Township Supervisors, assert that many local governments had proactively planned for the ARPA funding winds down, avoiding long-term commitments to that revenue.
State Senator Patty Kim (D, Dauphin) argues for a shift in focus, stressing the need for preventive measures to avert financial distress rather than simply responding to crises after they occur. She expressed uncertainty regarding the approval of the proposed funding increase in the legislature and cautioned about potential repercussions on Pennsylvania’s budget if federal funding cuts proceed as anticipated.
Conclusion
As Pennsylvania municipalities teeter on the edge of a financial abyss with the waning of federal funds, the call for both immediate and long-term strategies grows louder. The state’s decision-makers must not only consider reactive measures but also deliberate on proactive approaches that foster fiscal sustainability. The future of local governance in Pennsylvania hangs in the balance.
For more information about the financial landscape shaped by ARPA and municipal responses, you may want to explore resources available at the Pennsylvania Department of Community and Economic Development or Spotlight PA.
