The Bond Buyer
BYLINE: Paul Burton
As Scranton, Pa.’s City Council and Parking Authority squabble over a $1.4 million allocation the agency says it needs to avoid default, one accountant in the city says Scranton itself should seek bankruptcy protection.
“The city should immediately explore a Chapter 9 bankruptcy filing or negotiate reductions in compensation to union employees,” said consultant Gary Lewis of Deloitte who lives in Scranton and is considering running for City Council next year.
Lewis says the city’s structural deficit could reach almost $20 million this year, combining a roughly $10 million deficit in fiscal 2011 with an $8 million increase in departmental expenditures. “My whole point is that a Chapter 9 filing would allow the city to restructure its debts,” Lewis said in an interview.
Messages were left with Mayor Chris Doherty seeking comment. Lewis said Doherty opposed bankruptcy because it would put an “indelible stain” on the city.
Doherty’s administration has sought the $1.4 million parking allocation from the council through emergency legislation. The council, however, wanted Scranton Parking Authority executive director Robert Scopelliti and city business administrator Ryan McGowan to appear at last Thursday’s council meeting, which they didn’t. According to Scranton’s Times-Tribune, council member Pat Rogan and council solicitor Boyd Hughes even suggested allowing the authority to go into default. No action was taken.
At Thursday’s meeting, the council adopted an ordinance to issue up to $26.6 million in bonds to raise the $18.5 million needed to cover the general fund shortfall. The excess amount would cover any contingencies for possible high interest rates.
In a companion bill, the council advanced an ordinance authorizing a dedicated tax millage to pay for the unfunded debt. The council will consider that amount this Thursday.
Scranton, a city of 76,000 and the seat of Lackawanna County in northeast Pennsylvania, received a major fiscal setback last October when the state Supreme Court ruled that a law requiring binding arbitration to settle police and firefighter contract disputes eclipses the city’s financial recovery plan under the Act 47 program for distressed communities. Scranton, one of 27 such communities in Pennsylvania, has been under Act 47 oversight for 20 years.
Lewis projects city revenues at $57 million for 2012 and expenses at $76 million. He said total employee compensation, including health care benefits, will rise to $47.2 million. Political and business leaders on Monday cited the Scranton ruling when they called for state legislation aimed at fixing Act 47.
“Last year’s Pennsylvania Supreme Court decision now allows a municipality’s financial condition to be ignored. The proposed legislation reinstates a very important tool that distressed communities need if they are to regain fiscal health – the requirement to bargain within the confines of the recovery plan of the community,” said John Garner Jr., executive director of the Pennsylvania League of Cities and Municipalities.
“The problems are similar to Altoona, Harrisburg and other distressed communities with fleeing manufacturing and industry to southern states and even Asia,” said David Fiorenza, a Villanova School of Business professor and former chief financial officer of Radnor Township, Pa. He called bankruptcy an option for Scranton, but “far down on the list.” Scranton fire and public safety expenses are at 60% of the general fund budget. “Unions need to understand that cities will pull the trigger on layoffs and expense cuts first as an easy out instead of long term budget and growth realignment,” he said.
Scranton can break free of Act 47. “If the state and national economies re-emerge in the next four years, Scranton can start to walk on its own,” Fiorenza said.
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