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State: Scranton’s Financial Recovery On Pace For Exit From Distressed Status

July 30, 2018

SCRANTON — With finances in better shape today than at any other time since 1992, the city is on track for a successful exit from state Act 47 oversight within two years, the recovery coordinator told council today.

Still, challenges remain — notably some pending, big-ticket lawsuits that could blow big holes in budgets and require tax increases down the road, said Pennsylvania Economy League Executive Director Gerald Cross.

But these lawsuits filed by residents seem far from resolutions and won’t preclude a successful exit from Act 47 “sooner rather than later,” Cross said.

The city has turned the corner from its fiscal-cliff crisis of 2012, when the city had payless paydays and teetered on the brink of bankruptcy, he said. Mayor Bill Courtright and the current and immediate-past councils have implemented a complete reversal in the city’s financial condition, Cross said.

“The (annual budget) gap is not as big as it was. The gap is manageable. The gap is in the realm of normal city operations for Pennsylvania,” Cross said.

The exit plan is silent on pending big-ticket lawsuits because they “don’t have an impact just yet,” he said.

A lawsuit claiming the city annually violates a state cap on Act 511 taxes by many millions “strikes at the heart of city revenues,” Cross said.

Another suit claims sewer-sale proceeds were improperly disbursed. A third lawsuit claims the annual $300 trash fee is arbitrary and excessive. Any of these cases resulting in a big budget hole would mean the city likely would have to cut expenditures or raise taxes, most likely property taxes, Cross said.

Other areas of concern include:

n Lackawanna County’s outdated reassessments subject the city to levy real estate taxes under an “outdated and inequitable” system. PEL urges the city to continue pushing for the county to do a reassessment.

n The city still must create a stormwater management system and impose a fee to pay for it. A stormwater study is underway.

n Legacy costs will continue to rise. But it’s not realistic to expect that costs won’t ever rise. Managing increases is the key, and PEL has faith in the city to do so.

“Being on council as long as I have, this is by far the most positive report financially that we’ve received from PEL,” council President Pat Rogan said. “I’m grateful for the amount of progress that we’ve made. I’m sure others and the newspaper will probably harp on the areas of concern. But, all in all, the city has made tremendous progress over the last number of years.”

Looking ahead, the city will continue to work on replacing the punitive, much-despised business privilege/mercantile taxes with a broader based payroll tax. This tax swap, a tool allowed under Act 47, must be completed before the city sheds the distress designation, or it no longer becomes an option for the city.

“It’s a matter of taking advantage of your opportunities where you find them now. It’s not a ‘ship is sinking’ exercise. It’s not a ‘plugging the dike’ exercise,” Cross said. “It’s really an opportunity now to take advantage of the status of Act 47.”

After exiting Act 47, the city also may continue imposing a tripled Local Services Tax of $156 a year on most anyone who works in the city, so long as the pension system remains financially distressed, he said. The city won’t need court approval each year for the $152 LST after an Act 47 exit, Cross said.

The PEL exit plan, adopted by the city in June 2017, aimed to have the city successfully erase the distressed label within three years. The exit plan says that while Scranton made significant recovery progress in the prior three years, the city still needs continued PEL oversight, “to moderate the impact of the city’s legacy costs on its annual operating budget and improve the city’s ability to achieve long-term financial sustainability.”

Contact the writer: jlockwood@timesshamrock.com; 570-348-9100 x5185; @jlockwoodTT on Twitter

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