The dispute has escalated after the Harrisburg city council stuck down a state-sponsored series of recommendations for financial adjustment  that included a bitter pill of city employee layoffs, privatization of public lands, and spending curtailment. The Pennsylvania senate passed their version of a law that would bar a city from going under bankruptcy protection in the final days of the legislative season before breaking for the summer. The House is expected to pass the measure this week.

Today a judge will hear whether the city had a right to file for Chapter 9 bankruptcy, which it did last week; state representatives argue the city did not, but a legal team representing Harrisburg maintains it filed fairly because the takeover legislation has yet to receive the governor’s signature.

Sen. Jeffrey Piccola proposed the legislation after Harrisburg officials balked at a list of recommendations brought to them in June by a state-appointed committee charged with finding cuts to the struggling city’s budget. The committee indicated in its report that Harrisburg owes $220 million despite its 2011 General Fund budget just barely exceeding $55 million.

Piccola’s plan, Senate Bill 1151, would obviate the authority of Harrisburg elected officials, with the management board acting alone in clearing city structures and services.

The state committee appeared before the Harrisburg City Council in June suggesting the following, according to the Patriot-News:

• Sale or lease of assets of the Harrisburg Parking Authority.
• Sale of the incinerator to the Lancaster County Solid Waste Management Authority.
• Reduction of 19 city employees across city departments.
• To replace loss of revenue from sale or lease of assets, a $2 million annual payment from Dauphin County’s gaming funds and the increase of property taxes by 0.8 mills.
• Negotiate contracts to freeze wages, restructure health benefits and control the growth of personnel costs.
• Improve management infrastructure and accountability.
• Contain fast-growing employee compensation.
• Combine park maintenance operations into the Department of Public Works.
• Outsourcing commercial sanitation collection.
• Pursue payments in lieu of taxes from nonprofit entities.
• Increase property taxes only when necessary to close remaining gaps between revenues and expenditures.

The council refused to take up the recommendations.

If passed, the legislation would amend the state’s 1987 Municipal Financial Recovery Act (Act 47).

Originally, Act 47 was a process by which distressed communities could receive state financial support after accepting the terms of an Act 47 team.

Collective bargaining agreements that were finalized before an Act 47 team prepares its recommendations cannot be overruled. However, the bill places limitations on labor negotiations between public workers and the municipality that occur after a debt resolution proposal is issued:

A distressed city shall execute contracts and collective bargaining agreements in compliance with the plan. If a management board has been appointed, the distressed city shall execute contracts and agreements only with the approval of the management board.

On wage and fringe benefits for public workers, the bill states the board will consider:

[r]elevant market factors, such as the financial situation of the distressed city, inflation, productivity, size of work force and pay and benefit levels in economically and demographically comparable political subdivisions.

The bill also straightjackets municipalities seeking bankruptcy protection:

Notwithstanding any other provision of law, including section 261, no distressed city may file a petition for relief under 11 U.S.C. Ch. 9 (relating to adjustment of debts of a municipality) or any other Federal bankruptcy law, and no government agency may authorize the distressed city to become a debtor under 11

U.S.C. Ch. 9 or any other Federal bankruptcy law.

The Morning Call reports that Corbett said districts forced to keep teaching positions unfilled “have their own financial decisions they have to make.”

Corbett concluded, “I would note that many of them took federal [stimulus] money, were told the federal money would go away, made their budgets based on that, and now that money is not there.” The governor’s budget matches state spending levels of 2008-2009.

While the state’s coffers took a beating since the country’s economic downturn, enough money was available to keep funding for Pennsylvania’s mainly lower-income students from taking additional hits, says Bruce Baker, a professor of education at Rutgers who also contributes to the influential National Education Policy Center at the University of Colorado in Boulder.

After looking at budgeting priorities of various states, Baker noticed that more federal funding fed into short comes in dollar streams allocated to wealthier districts than poor districts. Once Pennsylvania’s share of the $48.3 billion states received in 2009 through the State Fiscal Stabilization Fund (SFSF) dried up, more money was cut from poorer districts while wealthier ones saw no change in state contributions to their education costs. “They’ve hammered the poor districts with [a] warped shell game,” he said.

By analogy, Baker offered this explanation to The American Independent:

For example, let’s say I have a family assistance program, where poor families get a total allocation of $800 per family per year for food assistance, and rich families still get $100 (even though they don’t need it.)   Let’s say we’ve only got two families in the system, one rich and one poor. Because of a recession, my state funding is $200 short this year, but the feds give me a stimulus of $200 to replace it. I could use my $700 in state money for the poor family, and given $100 each in federal money to each family. I’ve still honored my formula which is intended to yield $800 for the poor family and $100 for the rich one.

But, what [Corbett] did was to say that the poor family got $200 in [federal] money and $600 in state money and the rich family got $100 in state money. So, when the fed money is gone, the rich family still gets $100 in state money and the poor family gets $600 in state money – but $200 less than the previous year.

The next twist was to give the rich family $102 in state money the next year, and give the poor family $612 the next year, so each got a 2% increase in state money, but the rich family actually gets a $2 increase and the poor family gets a $188 cut in total funding.

Corbett, in his defense, maintains his budget provides more for education than what the previous governor, Democrat Ed Rendell, called for in 2009. Morning Call reports Corbett’s defenders say his budget should be interpreted as an increase in funding

Pennsylvania, like most states in the union, could not have steered through the recession without the stimulus funding. Jennifer Cohen, an education policy analyst at the New America Foundation in Washington, D.C., wrote in an email that states were allowed to roll back their education contributions to 2006 levels, with SFSF dollars filling in the void.

Formula Funding Issues

Baker’s second contention is how those additional 2 percent increases were calculated. Like many aspects of public budgeting, schools receive funding by a formula, known as “formula spending.” As Cohen explains, “most education funding formulas take into account lots of things in addition to population like poverty [and] cost of living,” to impact the communities that have lower income levels and small tax revenues.

Baker says Corbett, and other state leaders like Governors John Kasich in Ohio and Andrew Cuomo in New York, aims to provide any increased aid in a flat, “off the formula” distribution. “That is,” he says, “any increases would be a flat percent and not driven through the formula calculations that would drive more funding back to poor districts.”

The implications of going off the formula can be a mixed blessing, says Raegen Miller, an education funding analyst at the Center for American Progress. Depending on how progressive or regressive state funding mechanisms are, “that can either improve equity or exacerbate inequity,” he says. When funding decisions are made irrespective of socio-economic indicators, the money is a lump sum that is evenly distributed by the number of students — small communities can end up with more aid.

Regardless of the jargon, however, Miller warns that,  “off the formula funds aren’t subject to whatever other checks and balances you have in state and local funding.”

Sen. Jeffrey Piccola proposed the legislation after Harrisburg officials balked at a list of recommendations brought to them by a state-appointed committee charged with finding cuts to a struggling city’s budget. The committee indicates in its report that Harrisburg owes $220 million despite its 2011 General Fund budget just barely exceeding $55 million.

Piccola’s plan, Senate Bill 1151, which has the support of at least 12 co-sponsors according to his press release, would obviate the authority of Harrisburg elected officials, with the management board acting alone in clearing city structures and services. The state committee appeared before the Harrisburg City Council on Monday suggesting thefollowing, according to the Patriot-News:

• Sale or lease of assets of the Harrisburg Parking Authority.
• Sale of the incinerator to the Lancaster County Solid Waste Management Authority.
• Reduction of 19 city employees across city departments.
• To replace loss of revenue from sale or lease of assets, a $2 million annual payment from Dauphin County’s gaming funds and the increase of property taxes by 0.8 mills.
• Negotiate contracts to freeze wages, restructure health benefits and control the growth of personnel costs.
• Improve management infrastructure and accountability.
• Contain fast-growing employee compensation.
• Combine park maintenance operations into the Department of Public Works.
• Outsourcing commercial sanitation collection.
• Pursue payments in lieu of taxes from nonprofit entities.
• Increase property taxes only when necessary to close remaining gaps between revenues and expenditures.

The actual document was over 400 pages, and it appears its authors did not seek input from the city’s lawmakers. In a Patriot News commentary piece, the City Controller said:

Did [Dauphin] county write the damn thing?” city Controller Dan Miller asked about the 418-page plan.

“I mean, why did [the Act 47 team] get so in bed with the county? Their solution is the worst-case scenario if we went bankrupt. How could any judge’s ruling be any worse for the city? That makes this a great argument for bankruptcy,” Miller said, adding the kicker:

“Who’s going to vote for it?”

But in Piccola’s bill, any city that falls under the state’s 1987 Municipal Financial Recovery Act (Act 47) would not be permitted to file for bankruptcy. Originally, Act 47 was a process by which distressed communities could receive state financial support after accepting the terms of an Act 47 team.

In January, former Democratic Gov. Ed Rendell said he was “pleased” with the members of the team that would look over Harrisburg’s finances. That team includes a law firm from Ohio and another headed by the state’s former speaker of the House, Robert W. O’Donnell.

The law firm McNees Wallace & Nurick wrote a legal brief on how a city qualifies for assistance through Act 47 and the attendant consequences. A running and growing deficit of at least one percent of the city’s budget, missing payroll for 30 days, defaulting on bonds and missing payments to judgments are all considered by the Department of Community Affairs of the Commonwealth before the process scripted by Act 47 begins.

And though state senators have said they do not expect Piccola’s bill to come to a floor vote before the fall, Harrisburg has few options if it does not go through with the recommendations presented to them on Monday. From the McNees Wallace & Nurick brief:

Should a municipality fail to adopt or implement the coordinator’s plan, the municipality is no longer eligible to receive grants, loans, entitlements, or other payments from the Commonwealth or any of its agencies. Further, a failure to adopt and/or implement a coordinator’s plan could result in a suspension of all Commonwealth funding to the municipality.

There have been nearly 30 distress determinations under Act 47 since 1987.

In Michigan, a state-wide law was passed that is similar to Piccola’s SB 1151. Commonly called the Emergency Financial Manager legislation, it gives wide powers to an independent authority to order the sale of city assets and nullify collective bargaining agreements, while also merging emergency service response units like police and fire into a single group. The Michigan Messenger, a sister site of The American Independent, has reported extensively on that law and the decisions EFMs have made to resolve municipal debt.

The ad in question spends a lot of time criticizing Hagel but is rather short on Sestak’s particular shortcomings. An accompanying website mentions that Sestak once signed a letter asking President Obama to pressure Israel to relax its security measures on the Gaza border. It cites, oddly, a New York Times article that mentions the frustrating and overly burdensome restrictions that were then in place. It also mentions the fact that Sestak gave a keynote speech at an event for the Council on American-Islamic Relations (CAIR), and repeats the claim that CAIR is “a supporter of terrorism.” This claim is based largely on the fact that CAIR was once mentioned as an “unindicted coconspirator” in a terrorism-related trial, which, as the term suggests, means the group was never convicted, nor even indicted, for its any of its actions. It neglects to mention that Gov. Ed Rendell (D-Pa.) and Philadelphia Mayor Michael Nutter (D-Pa.) have also attended the CAIR event in Philadelphia in previous years and neither stands accused of hating the state of Israel.

The ad campaign is backed by the Republican Jewish Coalition, whose PAC has thus far spent money this election cycle donating to Rep. Michelle Bachmann (R-Minn.), Rep. Roy Blunt (R-Mo.), former Rep. Pat Toomey (R-Pa.), and a host of other Republicans. It has less to do with Sestak’s beliefs and more to do with an effort to sow doubts among Pennsylvania’s pro-Israel population by distorting them.

Sen. Barbara Boxer (D-Calif.) voiced her support for a $26.1 billion state-aid package Tuesday. (D. Ross Cameron/ZUMApress.com)

The bill will come up for a cloture vote — meaning it needs 60 votes to move forward — tomorrow. It is fully offset, meaning it does not add to the deficit. And it will provide much-needed and promised dollars to states to keep teachers on the job and to provide funds for Medicaid.

Without the bill, states would be forced to lay off tens of thousands of workers in the next few months. States will cut firefighters, services for the elderly and services for the disabled, Boxer said. Patients using Medicaid will pay higher co-pays. Fewer doctors will accept Medicaid patients, eventually increasing emergency-room use.

The bill is a whittled-down version of earlier jobs, education and state-aid funding bills that could not pass — Republicans refused to vote for legislation that would increase the deficit.

Here is a flash transcript of some of the remarks:

Boxer overviewing the legislation:

We’re here today to talk about critical legislation that is so important, really to every state, and I can say to my home state for sure. The legislation is clearly about jobs. It’s about protecting our critical investments in our safety, in health care, in public safety and in the education of our children. This recession has hit our cities and states very hard.

The economic downturn has forced schools across the country to make painful decisions between firing teachers, over-crowding classrooms, canceling summer school and shortening the school year. In Calif., 26,000 teachers received pink slips this summer.

The good news is, if we just get one Republican tomorrow, we will be able to mitigate this damage quite a bit. … [The legislation] would keep 140,000 teachers in the classroom [and would] also provide critical support to Medicaid programs in our states.

[Not passing this bill] will set back our efforts to help the economic recovery. This bill is fully paid for through a combination of spending cuts and closing tax loopholes. So it’s hard to understand why any [of my] colleague[s] would not [vote for it].

Rendell on the importance of the bill to Pennsylvania:

There’s a lot of debate about [whether] stimulus creates jobs. The debate should end here. Because…if these funds are not extended for an additional period of time, in Pennsylvania, we would lay off 12,000 people by the first or second week of September, [mostly teachers].

It would be particularly tragic for Pennsylvania, because we’ve done very well. In the last four months, we’ve gained jobs … We’ve seen a little momentum building. To lay off 12,000 people…it would be crippling for us.

It would be tragic and I can’t understand why our Republican colleagues [would not vote for it]. I understand pay as you go. I’ve vetoed many bills in my time as governor because they were not paid for. Republicans should be for it. No ifs, ands and buts. If they say they care about job creation, they should be for this. There’s no excuse that it’s not paid for. Stand up and be counted for the American economy.

Ritter on the importance of the benefits to Colorado:

Our state constitution requires that we balance our budget. If it’s out of balance, I have to make up the shortfall. … We’ve done that for $3.5 billion over the last few fiscal years. That’s a significant amount of money when you have a $7 billion general fund.

We have tried to do our level best to preserve essential services, vital services for our citizens. … But doing that at the same time you’re balancing your budget can be quite difficult.

I heard that there was the likelihood of an FMAP extension…and so we balanced our budget against that. And we believed in our legislature there would be that extension in place. Now, we’re down to the last hour. Our fiscal year started July 1. If this [legislation] does not happen in the next few days, it’s likely I’ll have to present a [new] balanced budget [to the legislature.] That means making $200 million in cuts immediately.

I’ll tell you where those cuts will come from. Public safety, we don’t want to cut that. Human services, prisons, health care, those are caseload-driven. So we [are left with] higher education, which has already been cut, and K-12 [which we don’t want to cut]. That’s the likelihood.

We’re looking at the very real possibility of governors [having] to make the decision about whether to extend the cuts in their education systems [that have already faced cuts].

It’s just one of the sad consequences of this. Our revenue is also starting to pick up. We have the prospect of growing in the last two quarters this year. The growth might be slow. But having said that, there’s a good chance the economy is turning around.

Rendell on the immediate impact:

There were 30 states that included [the FMAP funding] in [their] budgets, Pennsylvania included. We’d lose $850 million. … The reason we [included the funding in the first place is that] the Senate has passed [a bill containing it] twice and the House has passed it once, and the President is in support of it. We had every reason to believe it was going to get done. Then, it became a political football.

We have made bitter choices in the last three years. We’ve raised more than $1 billion in revenue and cut spending by $3.5 billion. It’s not like we’ve done nothing and are coming to Washington to say, “Bail us out!”

Boxer on the importance of the bill:

Here’s the thing for me. The question is: Whose side are you on? Are you on the side of our children?

The question to me is not a discussion over an academic issue over who’s helping whom. We all have to step up.

We know we’ve got to help [states]. We know we want to do it on a paygo basis. … We have figured out the way to do it. … We can do this. We can pay for it. That’s the key.

Boxer on valuing public employees over private employees:

I’m trying to help all workers. We’re also, before we leave here, we’re trying to get a single Republican vote on small business jobs bill. It would create tens of thousands of jobs, because it would leverage $30 billion in [loan-backing to community banks] to more than $300 billion [in loans for small businesses].

I don’t pit one kind of working person against another. … I’m willing to do what I can do and do it in a responsible way. This is responsible.

Boxer on the likelihood of passage:

I’m just going to say that Harry Reid, our leader, is very optimistic. He has not said he has secured [the 60th vote]. But he has said he’s very optimistic. The reason we hope we’ve had movement is because of the governors. The governors have really let people know we need to pass this — Republican governors, Democratic governors — and that has been very, very helpful.

From Rendell’s interview with Time’s Mark Halperin today on MSNBC’s “Morning Joe”:

They’re not afraid of the NRA. The NRA didn’t beat Barack Obama … Barack Obama carried Pennsylvania by 11 points, and we have the second highest amount of hunting licenses of any state in the union. I won by 20 percentage points when I ran for reelection.

So the NRA is a paper tiger. People should not be afraid of the NRA.

Yet when he’s asked if Obama and House Speaker Nancy Pelosi (D-Calif.) have been reluctant to push gun reforms due to the “political repercussions,” Rendell says that’s exactly the case.

Well, sure. They don’t want to upset the issues that are important on the nation’s agenda. And I agree with that. This gun control debate has been going on for awhile. It can wait while we straighten out the economy and get some health care coverage for all Americans. I understand that.

If there was a secret ballot in Congress on some of these issues, I believe you’d get 300, 350 votes for sensible gun control issues.

So the NRA instills no fear in Democrats but can sway hundreds of votes in Congress? Sounds like a paper tiger with a pretty fierce bite.

Few are saying it out loud, but the issue has a ring of class distinction surrounding it. That is, the White House has been quick to secure hundreds of billions of dollars for white-collar workers on Wall Street, but so far it’s balked at much smaller sums for state infrastructure projects or Detroit’s automakers. The message is clear: Trickle down, in the eyes of the Bush administration, trumps trickle up.

State leaders, however, are beginning to wonder when that trickle-down strategy will benefit them. Pennsylvania Gov. Ed Rendell, a Democrat, said Monday that the long string of Wall Street bailouts has done nothing to help the middle class.

“We’ve seen a lot of federal help go to a lot of different organizations in the past few months but not any of that help has produced one new job,” Rendell told reporters. “Not any of that help has produced one new order of business for an American company.”

Rendell said the governors plan to push Obama for federal help with job-creating infrastructure projects and state-funded health-care programs.

States, faced with the burden of actually balancing their annual budgets, seem to have a legitimate need for both. Unemployment is up; home values are plummeting; retail sales are down; and the strain on social services is rising with every new jobless claim. In that environment, programs like food stamps and Medicaid, which cater to low-income folks, will be hit particularly hard.

“These are the safety net for our people across the nation, and the states are responsible,” said Joe Hackney, speaker of North Carolina’s state house.

In this fiscal year, states have already made cuts totaling $53 billion, Hackney said, with $90 billion in additional cuts projected to follow this year and the next. Faced with numbers like that, governors must feel like Jan. 20 can’t come quickly enough.