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W-B’s Act 47 Request Denied

September 1, 2018

W-B's Act 47 Request Denied

WILKES-BARRE — The state Department of Community and Economic Development has denied Mayor Tony George’s request to declare the city financially distressed.

“I’m kind of shocked,” George said. “They understand we’re

$3.5 million in debt this year,” and larger deficits are projected down the road.

City Administrator Ted Wampole said he and the mayor were informed of DCED Secretary Dennis Davin’s decision during a teleconference Friday morning with DCED Deputy Secretary Rich Vilello and C. Kim Bracey, executive director of the Governor’s Center for Local Government Services.

Read the state’s letter to Mayor Tony George

In a letter to George, Davin said Wilkes-Barre’s citizens “deserve every opportunity for the city to retain its financial independence, and keeping Wilkes-Barre out of Act 47 at this time provides that opportunity.”

George sent a request to Davin on June 29 asking him to deem the city financially distressed as defined under the Municipalities Financial Recovery Act of 1987, commonly referred to as Act 47, citing projected budget deficits as a major reason for his request.

Act 47 allows distressed municipalities certain revenue-collection advantages other cities don’t have, such as increasing the local services tax — the $1 tax withheld weekly from people employed within city limits — and imposing an earned income tax on people who work in the city but reside outside its borders, commonly called a commuter tax.

Impact of testimony

DCED Press Secretary Michael Gerber said the department — based on testimony presented at an Aug. 1 public hearing, written testimony, and an extensive review and analysis of the city’s financial data — found several actions the city could take before it needs to enter Act 47 “as a last resort.”

 

“Wilkes-Barre has made significant positive strides from implementing several recommendations outlined in the Early Intervention Program report prepared by Public Financial Management (PFM) and McNees Wallace and Nurick LLC in 2017, but the city has not yet implemented many other recommendations from the report,” Gerber said.

Davin’s decision gives the city the opportunity to incorporate those recommendations in the 2019 budget process, and reassess the city’s financial condition and need for Act 47 status at a future date, Gerber said, adding DCED will continue to work with and support the city through the Early Intervention Program.

DCED supplied a report containing oral and written testimony on George’s request. While most of the oral testimony supported George’s request, much of the written testimony did not.

Councilwoman Beth Gilbert was among the dissenters who sent a letter opposing distressed status.

State Rep. Eddie Day Pashinski and state Sen. John Yudichak sent a joint letter to DCED expressing their concern for the city’s financial situation, but asked DCED “to examine whether continuing with the (Early Intervention Program) would be a more appropriate course of action for the City at this time” than entering Act 47 status.

Revenue options

George said he had hoped increasing the local services tax and implementing a commuter tax — as well as taking a 10-year no-interest loan of up to $3 million available under Act 47 — would help the city regain financial footing. Now, he fears raising property taxes might be necessary.

“They think if we keep following PFM’s guidelines, we can get out of this,” George said.

Both he and Wampole said they’re concerned the administration has been trying to follow the recommendations of PFM, but the financial situation hasn’t improved significantly.

“And they said with the support of council, we can do it. That’s a sticking point,” George said.

George has noted that council earlier this year blocked a major initiative to raise revenue — the proposed sale of the Park & Lock East garage for $2 million to a private owner.

Wampole said state officials also indicated there could be additional tools at the city’s disposal, but “council would play an important part in working together with us to solve this problem.”

Unexpected result

Davin’s denial of George’s request was somewhat unexpected, given that an investigation by the Governor’s Center for Local Government Services — an arm of the DCED — recommended approving it.

Bracey presided over the hearing at City Hall, and Jim Rose, a local government policy specialist with the Governor’s Center, testified that the city should be determined to be a financially distressed municipality under Act 47 based on an investigation into city finances.

In addition to experiencing budget deficits of 1 percent or more in each of the last three years and expenditures exceeding revenues in those years, Rose pointed to other factors he said support a distressed determination, including a stagnant tax base, a decreasing fund balance, a continued decline of pension assets, negative demographic trends, and a projected $16 million cumulative deficit by 2021.

Wampole said city officials, including at least one council representative, likely will meet with officials from DCED and PFM next week to discuss plans going forward.

Contact the writer:

smocarsky@citizensvoice.com

570-821-2110, @MocarskyCV

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