On November 23, 2020, Pennsylvania Governor Tom Wolf enacted Act 114 of 2020 which, among other things, amended the Local Government Unit Debt Act (the “Debt Act”) to change the provisions pertaining to a governmental entity’s ability to obtain a Tax Anticipation Note (“TAN”).  Previously, a local governmental entity (such as a municipality or a school district) would work with a financial institution to enter into a TAN with that institution.  Under the terms of the TAN, the local entity would pledge to pay the financial institution a significant portion of its tax revenues over the course of the entity’s fiscal year based on the installment provisions in the TAN.  In exchange, the local entity would receive a lump sum of money upfront at the beginning of the fiscal year.  TANs are subject to certain limitations under the Debt Act.  For example, the total amount of TANS issued to a local entity in a single fiscal year cannot exceed eighty-five percent (85%) of the taxes that the local entity anticipates that it will receive in the fiscal year.

Further, the local entity must certify the estimated amount of taxes it anticipates it will receive.  The estimate must be based on the local entity’s collection experience as well as the economic conditions existing in the local entity.  Presently, this would include the uncertainty surrounding the current economic climate due to the pandemic.  The final maturity date of the TAN cannot extend beyond the last day of the fiscal year for which the TAN is issued.  For example, if a Borough entered into a TAN on January 15, 2018, the maturity date could not extend past December 31, 2018 as that was the final date of the fiscal year 2018.

As a result of the ongoing COVID-19 pandemic, many local entities are experiencing significant uncertainty as to the collection of taxes and revenues.  Due to high unemployment and other factors surrounding the pandemic, it is very difficult for local governmental entities to properly ascertain the amount of taxes it anticipates collecting.  Whereas, in the past, a local entity could have a reasonable certainty as to the amount of tax revenue it could collect each year, the COVID-19 pandemic has thrown that certainty into upheaval.

In recognition of this, Act 114 amends the Debt Act to provide more flexibility to local entities.  First, Act 114 allows local government units to issue TAN with a final maturity date no later than the last day of the 2022 fiscal year, during the 2021 calendar year only.  As a practical example, a school district may issue a TAN at any time during the calendar year of 2021 and have the final maturity date of the TAN extended to June 30, 2022.  A municipality, which operates on a fiscal year that is identical to a calendar year, would be able to issue a TAN at any time during the 2021 calendar year and have that TAN’s final maturity date be as late as December 31, 2022.

Next, Act 114 amends the aforementioned certification requirement to permit a local entity to include additional factors in its certification to state that the local entity anticipates that the taxes levied during the 2021 fiscal year may not be received until after the 2021 fiscal year ends due to several factors including:

  • The extension of tax filing deadlines
  • Administrative breakdowns during the COVID-19 pandemic
  • Unexpected severe economic contraction
  • The inability to timely enforce collection due to the COVID-19 pandemic.

It must be noted that a local entity is still limited to issuing TANs in an amount no greater than eighty-five percent (85%) of its taxes levied and revenues raised.  Notably, a local entity can issue multiple TANs so long as each one meets the requirements of the Debt Act, as amended by Act 114, and the TANs do not exceed eighty-five percent (85%) in the aggregate.  Finally, to take advantage of the provisions of Act 114, a local entity must issue a TAN on or before December 31, 2021.

Maiello Brungo & Maiello understands that local governmental entities are experiencing significant financial uncertainties because of the COVID-19 pandemic.  Our public sector attorneys can assist your governmental entity with questions related to finance, taxation, and revenues.  If you have any questions about any of these issues, please contact our firm as soon as possible.

Donald A. Walsh
Donald A. Walsh, Jr.

Donald Walsh is the Director of Real Estate Tax at MBM. He concentrates his practice in real estate, real estate tax law, commercial litigation, and business law. He has extensive experience in commercial real estate tax assessment appeals.