The Pennsylvania Supreme Court last week ruled that a municipality’s “distressed” status under Act 47 does not insulate it from Act 111 interest arbitration awards exceeding the municipality’s recovery plan.

The case involved the City of Scranton and various police and fire unions contesting the City’s obligation to pay lump sum bonuses, salary increases, and adjustments of health insurance deductibles covering a five-year period. The court found that an Act 111 "award" is not an "arbitration settlement" under Section 252 of Act 47, and examined the statutory construction issue in light of competing public policy considerations. The court explained:

Certainly, the City and its amici advance a forceful argument that the purpose of Act 47 — alleviation of destabilizing financial distress of local governments — establishes a compelling public policy. Nevertheless, this Court has long recognized the also compelling public purpose underlying Act 111, namely, mitigation of the potential for disruptive labor strife among critical public-safety employees.

Ultimately, the court held in its 6-1 decision that “the policies underlying Act 111 interest arbitration are too strong and engrained in Commonwealth public-sector labor law to be displaced by extrapolation or on account of an ambiguous reference.”

For the City of Scranton, the practical impact of the decision could be significant. Facing a projected deficit of $11 million for 2012, it must now come up with back pay and benefits that some estimate to be in the millions of dollars.

Beyond Scranton, the impact of the decision is sure to be felt statewide as distressed municipalities will no longer be able to rely on Act 47 status to protect them from excessive Act 111 arbitration awards.