§ 115.6. Emergency loans.
(a) After a determination of distress, but prior to the adoption of a recovery plan, the distressed municipality or the coordinator may apply for an interest-free short-term loan to assist with immediate cash shortfalls. Prior to issuing an emergency loan, the Department may conduct a consultative investigation to determine whether emergency funds are warranted and the amount of emergency funds needed. Short-term loans will be available if the applicant verifies that one of the following conditions exists:
(1) The municipality is in imminent danger of insolvency.
(2) There is a clear and present danger to the health and safety of the residents.
(b) An emergency loan shall come due within 9 months from the date of the loan. Based upon a detailed analysis of the municipality’s financial condition, the coordinator’s recovery plan may recommend conversion of all or part of an emergency loan to long-term loan.
(c) A distressed municipality or a coordinator on behalf of the municipality may apply to the Department for a long-term loan under the coordinator’s or municipality’s adopted recovery plan. An application for a long-term loan will be considered based upon the following criteria:
(1) The erosion of the municipal tax base measured over a 3-year period.
(2) A measurement of the change in locally generated municipal revenue over the 3-year period immediately preceding the filing of a financial distress petition.
(3) Measurable efforts of the municipality to raise revenue and cut expenditures prior to filing a petition for a determination of distress.
(4) Detailed financial analysis reported by the appointed municipal distress coordinator, that the municipality is clearly unable to repay a short-term loan.
(d) When municipal distress can be traced to a particular event, such as a major plant closing or a natural disaster, the difference between locally generated revenues before and after the event will be measured.
(e) When municipal distress cannot be traced to a particular event, locally generated revenues will be measured for a period of at least 3 years prior to the date of the petition for determination of distress was filed.
(f) The revenue sources to be used for the measurement made in this section will include real estate tax revenues, total real estate assessments, earned income tax revenue and occupational privilege tax revenue and other measurements that reflect specific conditions and employment trends within the municipality. Measurements will be adjusted for changes in tax rates, assessment valuations, changes of accounting bases or other factors affecting tax valuation.
(g) A public hearing will be held by the Department within 30 days after it receives an application for a long-term loan. The public hearing will provide a forum for considering the merits of the application and other relevant matters pertaining to the applicant’s financial status.
(h) If the Department determines that a long-term loan is in order, the maximum loan amount will be set and the applicant will be notified.
(i) The following procedures apply to the receipt of loans:
(1) A loan will be awarded only under a fully executed loan agreement and note between the Department and the applying municipality.
(2) The application for emergency and long-term loans shall be made in accordance with a resolution properly adopted by the governing body of the applicant municipality.
(3) If the Department approves a loan application, it will notify the applying municipality of the amount which may be awarded. The municipality shall then enact an ordinance authorizing the governing body to incur the indebtedness specified therein. The ordinance shall be enacted in compliance with notice requirements in the municipal code governing the municipality at the time of enactment.
(4) The ordinance authorizing the incurrence of indebtedness shall pledge the municipality’s full faith, credit and taxing power to satisfy the obligation incurred under the ordinance.
(5) The ordinance, along with the municipality’s final application for the loan, shall be submitted to the Department for approval.
(6) Upon approval of the documents specified in paragraph (5), the municipality shall execute a loan agreement and note with the Department for the amount approved by the Department.
(7) Upon execution of the loan agreement and note, the municipality shall file a financing statement for the loan amount, under 3 Pa.C.S. § § 1101—9507 (relating to the Uniform Commercial Code), further securing its indebtedness.
(8) The financing statement shall be filed once in the Office of the Prothonotary of the county in which the municipality is located, and once in the Office of the Secretary of the Commonwealth.
(j) The coordinator shall set forth a proposed payback schedule for long-term loans required to be addressed in the coordinator’s recovery plan. The payback schedule is subject to approval by the Department. There should be a multi-year ‘‘phase-in’’ process of loan repayment, and other adjustments as needed, such as tax increases, service cutbacks, employe reductions and negotiated creditor and debt adjustments.
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