City of Scranton unlikely to make required 6.3 million payment to its Pension fund ! Here is the situation Scranton faces - 195 million in outstanding debt. And another 100 million of unfunded pension debt. Another 28 millionis needed to pay off a Court ordered settlement with the Fire and Police Unions ( back pay but with pension implications as well - perhaps several million more on the Scranton tab ) and the above mentioned year end Pension fund Contribution. Add another half million required by law when the 6.3 million Pension contribution is not paid by December 31 , 2013......How long before we see a bankruptcy filing ? Might the recovery be 30 cents on the dollar - which is close to the value of the pension plan assets ?

http://thetimes-tribune.com/news/scranton-unlikely-to-make-required-payment-to-pension-fund-1.1585710

Scranton unlikely to make required payment to pension fund

BY TERRIE MORGAN-BESECKER (STAFF WRITER)

Published: November 14, 2013

It's unlikely Scranton will make the required $6.3 million contribution to its pension plans by the end of the year, meaning city taxpayers will have to pay an additional $504,000 in interest into the composite pension fund.

The city has until Dec. 31 to make the payment, but its failure to secure a $27 million loan that's earmarked to pay that debt and a $21 million back-pay award to firefighters and police officers leaves little chance it can make good on the payment, Larry Durkin, solicitor for the city's composite pension board, told members Wednesday. The board represents the police, fire and non-uniform pension plans.

Mr. Durkin sent a letter to city officials on Tuesday, reminding them of the urgent nature of the matter.

"I know they are aware of this. I'm trying to convey to them this needs to be a priority payment. ... This has to be paid first" over other debts, he said.

The interest penalty, which equates to 8 percent, would be due under a state law that requires all municipalities to pay their state-mandated contribution, known as the minimum municipal obligation (MMO), by the end of the year. Any municipality that fails to do so must pay interest on the amount due from Jan. 1 through Dec. 31 of the year it was due.

Gerald Cross of the Pennsylvania Economy League, the city's Act 47 distressed city coordinator, suggested the city pay a portion of the MMO to lessen the interest penalty. It does not appear it will be able to that, Mr. Cross said.

Mr. Cross said part of the problem is the city has a payroll due on Jan. 2, 2014, and needs to ensure there is enough money to meet that obligation. He said the city expects to pay the full MMO within the first weeks of January, after it receives its tax anticipation note. Unfortunately that will be too late to avoid the interest penalty, but there is little other choice.

"If we spend money on pension payments and don't get revenue in, we don't want to miss a payroll. We're being ultra conservative," he said.

In other business Wednesday, the board rejected a request by board member John Hazzouri to alter its mix of investments from a 60-40 mix of bonds and stock, to a 50-50 mix. Mr. Hazzouri made the suggestion in hopes of increasing investment performance.

The fund's stock investments have performed exceptionally well this year, earning a 30 percent return as of Oct. 31. Board members were reluctant to alter the mix, however, because of the fund's precarious financial state, which deteriorated significantly in 2013.

The composite fund had a total market value of $46.1 million as of Dec. 31, 2012. That dipped to $40.8 million as of September 30 this year. The fund's condition improved as of October 31, with a market value of $43.8 million. That boost primarily came from $3.1 million in state aid that was received.

Board members are also concerned about a financial hit the fund will take based on the back pay award for police and firefighters. The award will affect the pension because retirees are entitled to a portion of all pay increases. The amount owed to retirees has not yet been calculated, but it is expected to be at least several million dollars, Mr. Durkin said.

Thursday, November 14, 2013 2:12 PM

Scranton Unlikely to Make Required Pension Contribution; Mish Proposal: Offer the Union 35 Cents On the Dollar

It is really disheartening to watch Scranton public officials make matters worse for city taxpayers.

I spoke about Scranton a couple days ago in Moody's Warns of Scranton Bankruptcy; Fitch Downgrades Chicago Citing Pension Problems; Liberal Fantasyland.

Here is a synopsis of the details.

• Scranton has more than $195 million in outstanding debt, according to Moody’s.
• Scranton also faces more than $100 million in unfunded pension debt, on top of the $195 million in other debt owed.
• Adding to Scranton’s financial woes is the need to borrow another $28 million to pay a court-mandated settlement with the city’s police and firefighter unions.

Unsolvable Mess

That is an unsolvable mess, except by shedding pension and other obligations in bankruptcy.

Meanwhile, the problem just got worse (how could it not), and city officials still do not see the light.

City Unlikely to Make Required Payment to Pension Fund

The Times-Tribue reports Scranton Unlikely to Make Required Payment to Pension Fund.

 It's unlikely Scranton will make the required $6.3 million contribution to its pension plans by the end of the year, meaning city taxpayers will have to pay an additional $504,000 in interest into the composite pension fund.

The city has until Dec. 31 to make the payment, but its failure to secure a $27 million loan that's earmarked to pay that debt and a $21 million back-pay award to firefighters and police officers leaves little chance it can make good on the payment, Larry Durkin, solicitor for the city's composite pension board, told members Wednesday. The board represents the police, fire and non-uniform pension plans.

Mr. Durkin sent a letter to city officials on Tuesday, reminding them of the urgent nature of the matter.

"I know they are aware of this. I'm trying to convey to them this needs to be a priority payment. ... This has to be paid first" over other debts, he said.

Union Arrogance

Note the disgusting arrogance of union solicitor Larry Durkin who demands "pension debts be paid first". I suggest the first and foremost obligation of the city is health and safety of its citizens, not the union pension plan.

I am delighted the city was unable to borrow money to meet the obligation. Bond buyers stupid enough to buy Scranton bonds, deserve one hell of a haircut in bankruptcy court.

Head in the Sand Approach 

My comment on Tuesday was "It is truly pathetic watching politicians flop like fish out of water trying to prevent something that was clearly inevitable long ago."

Union arrogance coupled with head-in-the-sand denial by city officials is seldom a good mix for taxpayers.

Board member John Hazzouri requested the city alter its mix of investments from a 60-40 mix of bonds and stock, to a 50-50 mix. "Mr. Hazzouri made the suggestion in hopes of increasing investment performance."

Fortunately, the city did not go along.

A Few Pertinent Facts

1. The market value of the portfolio is only $43.8 million
2. The fund returned 30% this year and the plan is still $100 million underfunded.
3. Stocks are in a bubble. Even if they weren't it's far too late to act because the crisis is now.

Concerns

 Board members are concerned about a financial hit the fund will take based on the back pay award for police and firefighters. The award will affect the pension because retirees are entitled to a portion of all pay increases. The amount owed to retirees has not yet been calculated, but it is expected to be at least several million dollars, Mr. Durkin said.

Obvious Solution

The obvious solution is to tell Durkin "go to hell" (politely of course). The polite way is to file bankruptcy, then not pay another dime to the pension plan.

Then the city can then sit down with the union, and work out a plan based on simple math.

Simple Math

• Plan assets: $43.8 million
• Plan liabilities: $143.8 million
• Plan funding: 30.45%

Generous Offer

The city should offer the union 35 cents on the dollar. That would be a generous offer given the plan only has assets of 30.5 cents on the dollar. In fact, 35 cents on the dollar may be extremely generous depending on plan rate-of-return assumptions.

No doubt the city is worried bankruptcy would destroy its credit rating.

So what? The solution is for Scranton to live within its means and not spend more (or make more promises) than collections allow.

If the city does that, its credit rating would quickly improve.

Mike "Mish" Shedlock