Mairi V. Luce, a partner at Duane Morris, provided the panel an example of a Pennsylvania state statute that affects municipal insolvency filings, which serves as a microcosm of how political and legislative pressures can create what appears to be a contradiction.

In order to file for Chapter 9, the state within which the municipality resides has to permit that specific type of municipalities to file. While Pennsylvania permits municipalities to file for relief under Chapter 9, the municipalities must first qualify to file by complying with a state statute. As a result, chapter 9 has been used very little in Pennsylvania.

“What’s interesting about Pennsylvania,” said Luce, “is a very arcane or little-known statute, Pa. Act 47, the distressed debt statute for municipalities that are in economic distress. It was enacted in 1987 during a period in which coal- and steel-producing regions in Western Pennsylvania had to shut down plants due to economic stress. The Act was created as a way for those municipalities to restructure. But years later, many municipalities have never left Act 47: Out of 26 that went in, only nine have emerged. A couple of million people in the commonwealth, including people who live in places like Harrisburg, Pittsburgh and Scranton, are living under Act 47.”

Luce says people have gotten excited about chapter 9 filings, with the cases in Detroit and in Jefferson County, Alabama; along with a number of cases in California, but in Pennsylvania, chapter 9 is rarely used as a tool for municipalities to recover from economic stress.

Now the Pennsylvania Legislature has revised Act 47, giving further taxing powers to municipalities so they can raise additional revenue and exit Act 47 more quickly. It remains to be seen whether this will help Pennsylvania municipalities recover more quickly from economic distress.

Concluded Luce: “Pennsylvania’s use of Act 47 reflects a microcosm of what we have been discussing on this panel. How Main Street can look so different from Wall Street. Act 47 explains why municipalities in Pennsylvania don’t file for chapter 9, even in a state of distress—another seeming contradiction.”