http://thetimes-tribune.com/news/scranton-mayor-says-city-council-claims-of-bank-collusion-are-untrue-1.1343619
http://thetimes-tribune.com/news/tight-deadline-for-new-scranton-recovery-plan-seen-as-achievable-1.1343458
http://www.guardian.co.uk/world/2012/jul/14/scranton-pennsylvania-bankrupt-minimum-wage
Scranton mayor says city council claims of bank 'collusion' are untrue
Published: July 15, 2012
ARTICLE TOOLS
As Scranton might be on the verge of a breakthrough to revise a recovery plan seen as a key to obtaining financing from banks, some officials question whether any banks will want to deal with the city.
Recent comments at council meetings by the council solicitor and a councilman of "collusion" against the city to force a revised recovery plan before financing could be obtained are detrimental to city efforts to deal with banks, according to Mayor Chris Doherty, city Business Administrator Ryan McGowan and Councilman Bob McGoff.
"I wish those things weren't said because they're not beneficial to the city, and they're not true. We don't think the banks are colluding," Mr. Doherty said.
The issue arose at a July 5 council meeting, when council solicitor Boyd Hughes claimed there has been "collusion" by the city's bond counsel, Brian Koscelansky, and M&T Bank in requiring the city to adopt a new recovery plan so the bank could market a $26.6 million bond issuance to investors.
The bond issue, which was approved in May by council, was supposed to raise $18.5 million to keep the city afloat this year. That amount would have been comprised of a court-approved $9.85 million in unfunded debt and $8.6 million for refinancing current and future debt. The remainder of the $26.6 million would be for costs of bond issuance and a worst-case cushion for possible high interest rates. As a companion to this bond issue, council also in May adopted a dedicated tax millage that would be in place for 10 years to pay for the $9.85 million in unfunded debt.
At the July 5 meeting, Mr. Hughes said a new recovery plan should not be required for the unfunded debt to be provided. He said that three weeks earlier, he left messages for Mr. Koscelansky and M&T Bank asking them to proceed with providing only the unfunded debt since it is backed by a council-approved tax increase, but never received a reply.
"What they did was that they linked, and this was M&T and bond counsel, linked together that (unfunded debt) borrowing, which should be independent and totally independent of the other borrowing. But they commingled it. They put them together. They could easily separate it. In three weeks I haven't heard back from them. So I don't know why. But that's been asked of bond counsel and asked of M&T and they should proceed with that (unfunded debt) because it has nothing to with a recovery plan."
Councilman Bob McGoff said, "I would assume that if nobody responded, no one is interested."
Mr. Hughes said, "Somebody obviously is trying to link together the recovery plan to a borrowing that has nothing to do with the recovery plan. It's totally independent of it. So there's collusion going on to prevent the city from getting money until they adopt a recovery plan. It's that simple."
"It's not that simple," Mr. McGoff said.
Mr. Hughes replied, "It's so simple, it's obvious. There's collusion going on to prevent the city from getting money until they adopt a recovery plan."
At Thursday's meeting, Councilman Jack Loscombe raised the issue again by questioning why unfunded debt could not be obtained alone and said, "As our solicitor said last week, there is collusion going on." He went on to say that someone told banks not to provide financing to the city until it adopts a new recovery plan.
Efforts last week to reach Mr. Koscelansky were unsuccessful. In a statement issued Thursday before the council meeting, M&T spokesman Philip Hosmer said, "M&T had been working with the city to assist in accessing funding in the capital markets. The accusation made by Boyd Hughes is completely unfounded."
Mr. McGowan said comments of collusion are "irresponsible" and "detrimental" to efforts to secure financing and, "It's a very unfair statement to make without having it backed up with facts."
In April during a public caucus, council heard an explanation of the $26.6 million bond issue from Mr. Koscelansky. He advised council to pursue the bond issuance because the cash-strapped city could not obtain typical loans from banks, and to do so as soon as possible to ensure bills, debt and payrolls continue to be paid.
Mr. Koscelansky told council and Mr. Hughes that the unfunded debt and refinancing were combined to provide flexibility in marketing bonds and to do separate bond series at the same time for efficiency and cost savings. Council members asked why a recovery plan was included as a requirement of the bond placement, and whether the state Department of Community Affairs or the city's recovery coordinator, Pennsylvania Economy League, had any input into requiring a new recovery plan as part of the financing package. Mr. Koscelansky said there had been no substantive contact with DCED or PEL and the recovery plan requirement came from M&T Bank.
Because the city has been designated as distressed under Act 47, M&T felt it could not "effectively market the bonds without an approved recovery plan," which would be necessary to give an updated, accurate picture of the city's finances to bond investors, Mr. Koscelansky told council and Mr. Hughes.
In May, council approved a $26.6 million bond ordinance and the dedicated tax millage to repay the $9.85 unfunded debt. However, M&T walked away from the deal on June 1, after council allowed the Scranton Parking Authority to go in default on a debt, even though the city had guaranteed that debt, Mr. McGowan said. He said M&T pulled out as a direct result of council's allowing the SPA default, which council later cured by eventually covering the debt.
"No banks will work with us," Mr. McGowan said. "That (default) put a big scare into the banking community."
Mr. McGoff said that after the July 5 meeting he heard from one banker who told him, " 'After you accused us of collusion, I don't think there is one bank in this community that's going to want to do business with the city council.' So, little by little we have turned the banking community against us."
Asked whether M&T would again participate in providing to the city access to capital markets, Mr. Hosmer said in a statement, "Privacy regulations prohibit us from discussing details of client relationships."
and the Schools will be next it would appear......
http://thetimes-tribune.com/news/districts-fear-bankruptcy-as-pension-costs-to-triple-1.1343620
In five years, pension contributions for area school districts are projected to increase by $172.9 million.
With reduced levels of state funding and limits on how much districts can raise local property taxes, superintendents fear there will be one option: bankruptcy.
The recently passed 2012-13 state budget did nothing to address what many call the upcoming "pension crisis." From fiscal 2011-12 to 2015-16, contributions are set to triple. Area districts have already furloughed teachers, cut tutoring programs and increased class sizes.
It may only be the beginning.
The projected five-year increase for the 37 school districts in Lackawanna, Luzerne, Monroe, Pike, Susquehanna, Wayne and Wyoming counties is more than three times the $51.5 million that the districts saw slashed in the 2011-12 state budget and not restored for 2012-13.
"It seems almost that if we ignore it, it will go away. Well it's not," Scranton Superintendent William King said. "It doesn't seem like it's a priority on the state level, and quite frankly it needs to be. ... If this is not addressed at the state level, school districts are going to go bankrupt."
Skyrocketing costs
The Public School Employees Retirement System is funded by three sources - employees, employers and investment earnings. Districts are currently reimbursed by the state for about half of their contributions. After the state reimburses districts, the five-year increase for the 37 area school districts will be more than $86 million. The state will need to find the money to make the reimbursements.
The total pension bill before reimbursement is projected to be $261 million in 2015-16, using salary data from 2010-11, the latest available. As salaries increase, so will the total pension costs.
Projected increases are mainly due to a stock market dive that caused pension fund investment losses and costs associated with 25 percent pension boosts enacted in 2001 now taking effect. And in good economic times, with strong investment returns, districts paid little into the system. For the first 10 years this century, school employees paid twice as much into the system as districts and the state combined.
In 2010, the Legislature approved some reform, spreading the pension cost spike to 2040 and changing benefits for new district employees. Along with increasing the retirement age to 65, it changes the 7.5 percent contribution rate for most employees to a shared risk program for many new employees. For example, when investment funds are performing poorly, the employee contribution rate could increase to 9.5 percent. Current investment losses are made up by school districts.
The changes had no effect on pension benefits for current and retired school employees. It lets them stay under the defined-benefit plan through which the retiree collects a portion or his or her salary based on a formula that includes years in the system and salary.
Typically, the pension formula for most PSERS members uses a multiplier of 2.5 percent applied to the average of the three highest years of salary and the years of service.
With 35 years of service, the pension is 87.5 percent of the average of the three highest years of salary.
A PSERS employer contribution rate is the percentage districts pay of their total salary cost for all employees. Before the pension reforms in 2010, the contribution rate was set to increase to 30 percent for this fiscal year.
This year, districts will pay 12.36 percent of total salary to PSERS. By 2015-16, the projected rate is expected to be more than 25 percent, and for the next two decades, contribution rates are projected to remain in the mid-20-percent range.
More reform needed
The reforms enacted in 2010 are not enough to keep the burden manageable, educators say.
Knowing that the pension spike was coming, many districts started to save for it. But with deep cuts to education funding - about $1 billion statewide - in 2011-12 and no restoration of those funds for 2012-13, many districts dipped into their fund reserves.
Some of those accounts are already empty.
Scranton contributed about $6.4 million to the pension fund before reimbursement in 2011-12, according to Times-Tribune calculations. Exact figures were unavailable last week. Under current salary amounts, that figure is expected to grow to $19 million - more than 16 percent of the district's current total budget - in five years. As employees receive contracted raises, the contribution total will grow. The district will get reimbursed by the state for about 50 percent, but in tight economic times, the state must also find the funds.
A key state lawmaker recently said that curbing public pension costs will be a top-priority issue next year.
Senate Majority Leader Dominic Pileggi, R-9, Chester, said his legislation to put new hires for state government and school districts under a defined contribution pension plan similar to 401(k) plans in the private sector is the right starting point to tackle the issue. This proposal would end the traditional defined benefit plan for those hired after a future date.
In previous reform discussions, officials have said they could not change the benefit plans for those currently in the system.
In 2009, the Pennsylvania School Boards Association pitched a "hybrid plan" that would combine elements of a defined contribution plan, or 401(k), in which employees manage their investments and hold the risk, with a defined benefit plan, in which the employer is liable for paying benefits. The association is still advocating its plan.
"We have been calling for meaningful pension reform for many years," said Steve Robinson, PSBA spokesman. "It's needed now more than ever to ease the burden of the schools, and ultimately the taxpayers."
The association has heard from many districts that fear bankruptcy, though it is unclear whether a district can file for bankruptcy, he said.
"Regardless of what the end result is, districts are going to be forced to cut programs, furlough staff, increase class sizes," Mr. Robinson said.
Local effect
The Riverside School District has already furloughed eight teachers to close a hole in the budget. Riverside lost $450,000 in the 2011-12 state budget, and without it being restored this year, is down $900,000.
After state reimbursement, Riverside paid more than $400,000 to PSERS in 2011-12.
"Riverside could manage the pension increase if Harrisburg lived up to their end of funding the public schools," Superintendent David Woods said.
Without action from Harrisburg, local taxpayers will bear the burden, he said.
"We should have planned for this before, I understand that," Mr. Woods said. "But when we are receiving less dollars to run a school district from the state, to try to squirrel away dollars, how do you do it? Our responsibility is to keep the doors open."
The projected pension increase in five years in Northeast Pennsylvania is more than four times the total budget of $40 million for the Abington Heights School District.
"That doesn't help a single educational program. It doesn't provide one meal at lunch. It doesn't provide a gallon of gas for a bus. It goes into an investment system in Harrisburg," Superintendent Michael Mahon, Ph.D., said of the increase. "It will rob us of teachers. It will rob us of opportunities."
After reimbursement, Abington Heights will have to pay an additional $450,000 for 2012-13 - enough to pay for the salaries and benefits of at least seven teachers, Dr. Mahon said. Even if property taxes were increased to the state-given limit, it would not be enough to cover the spike, he said. Under Act 1, the state limits the amount districts can raise property taxes without an exception or voter referendum.
And since the state is supposed to reimburse districts for half of their pension costs, Dr. Mahon wonders how anything that has been cut, from education to human services, will ever see funding restored.
"In the absence of substantial pension reform, our state education is going to deteriorate," Dr. Mahon said. "Community members do not mind buying books and supporting programs, they even don't mind paying teachers. What they do mind is their resources being sucked away by the system in Harrisburg."
http://thetimes-tribune.com/news/tight-deadline-for-new-scranton-recovery-plan-seen-as-achievable-1.1343458
Tight deadline for new Scranton recovery plan seen as achievable
Published: July 14, 2012
ARTICLE TOOLS
After six months of failing to agree on revising a financial recovery plan, Scranton's mayor and council now have a new state-offered deadline to get the job done: Aug. 1.
With both sides previously far apart on an accord, would it actually be possible to reach an agreement within 2½ weeks?
"It's doable," said Mayor Chris Doherty, noting that recent discussions with council President Janet Evans have been positive. "We're making progress. We're negotiating every day. It's been a good exchange."
Efforts to reach Mrs. Evans were unsuccessful Friday.
The deadline was suggested by state Department of Community and Economic Development Secretary C. Alan Walker in an offer made Thursday to provide a $2 million no-interest loan and $250,000 grant to the city, but only if the mayor and council can finally agree on a revised financial recovery plan by Aug. 1 and adopt legislation for it by Aug. 15.
"Obviously, it's a tight timeline," city Business Administrator Ryan McGowan said. "With the onus of an Aug. 1 deadline, I would think everyone's going to try to work together."
Mr. Doherty noted that if an agreement is reached, the mayor can certify immediate action on an emergent basis, and council could suspend rules to introduce, advance and adopt legislation all at the same meeting.
Mr. Walker also renewed his offer made last month to appoint a mediator to help council and the mayor come to an agreement. The council previously rejected that offer, but at Thursday's council meeting, members said they were more receptive to it this time.
"I'd like to have a public meeting with the mayor and DCED moderators to discuss a revised recovery plan," Councilman Frank Joyce said.
"We're hoping to get together with the mayor now."
Resident Les Spindler, an vocal critic of the mayor, said, "Lots of luck with that, trying to get the mayor in a public meeting. It's not going to happen."
The mayor on Friday remained noncommittal on attending a public meeting with council, but said he hopes to reach an agreement on a recovery plan as soon as possible.
"You can't wait until next Thursday (when council meets). You have to work at it every day," Mr. Doherty said. "We're working on it."
Whether the mayor's attendance at a public meeting with council turns out to be a deal breaker for either side remains to be seen.
The DCED offer was the latest event in the city's escalating financial crisis stemming from a long-standing stalemate between the mayor and council over revising a recovery plan under state Act 47, under which Scranton has been designated as financially distressed for 20 years.
Before providing additional financing, wary banks required a new recovery plan demonstrating how the city would be able to repay debts. With the mayor and council at odds over a recovery plan, a cash crunch ensued and the mayor slashed pay of 398 employees to the federal minimum wage of $7.25 an hour in July 6 paychecks. Mr. Joyce, the council finance chairman, said on Thursday the city had $1.2 million on hand.
City unions successfully challenged the pay cuts in Lackawanna County Court, but the mayor has said the city has no money to follow a judge's order to pay full salaries. The unions have asked the court to find the mayor in contempt, but the court has scheduled a hearing on the request for July 24. The mayor's unprecedented slashing of pay to minimum wages also grabbed the attention of the national news media, as the city's plight was featured this week in newscasts nationwide.
Now, the DCED offer of assistance made Thursday is tentatively being viewed as a possible breakthrough. A revised, realistic recovery plan is seen as the key to not only getting past the current cash-crunch crisis and through the rest of the year, but also to setting the city's financial template for the 2013, 2014 and 2015 budget years, said Mr. Doherty and Mr. McGowan. The task is to craft a realistic plan that the city can present to banks to obtain financing, they said. The DCED also has offered to assist the city in finding lenders, so long as the recovery plan passes muster of the Pennsylvania Economy League, the DCED-appointed Act 47 coordinator for the city.
"What makes a recovery plan realistic is if you have DCED and PEL saying it's OK," Mr. Doherty said.
And that's where the mayor and council have been at loggerheads. The mayor has proposed a recovery plan with 78 percent higher city real-estate taxes over the next three years and a $22, two-year phase-in of a new garbage collection fee. Council, which wants more alternatives to big tax increases, has signed on for a property tax hike only large enough to make the bond payments starting in 2013 - roughly 12 percent - and no more than 10 percent in additional hikes in 2014 and 2015, depending on what money is raised by alternative revenue sources.
Reaching a compromise has been a tall order. Without borrowing and refinancing for 2012 that the city had been counting on, the city faces a budget gap of $16.8 million this year, not including a "structural deficit" of some $5 million that has been carried over annually over the years, Mr. McGowan said.
The mayor had been planning to fill the carryover gap by selling the city's stormwater conveyance system to the Scranton Sewer Authority for $5.4 million, but that was found to be impossible because the authority already owns the stormwater system. The $5.4 million hole in the mayor's recovery plan has yet to be plugged.
A revised recovery plan would hopefully be 'global,' in that it encompasses all of the issues, officials on both sides have said.
"I would think that within the plan itself it still has to address the shortfall for 2012, to address that fully and to end this year on a positive note and not start 2013 in a hole with a $5 million structural deficit," Mr. McGowan said.
Contact the writer: jlockwood@timesshamrock.comContempt hearing set for July 24
A motion by Scranton's police, fire and public works unions to hold Mayor Chris Doherty in contempt of court over his decision to pay employees minimum wages has been rescheduled from Monday to July 24 at 10:15 a.m., according to court documents.
The International Association of Firefighters Local 60, the Fraternal Order of Police E.B. Jermyn Lodge 2 and the International Association of Machinists and Aerospace Workers Local Lodge 2305 filed the contempt petition in Lackawanna County Court on Tuesday.
Due to the city's financial crisis, Mr. Doherty on June 27 announced he would unilaterally slash pay to minimum wages indefinitely, starting with July 6 paychecks. On July 2, the unions sued to prevent the pay cuts, and on July 5 and July 6 Judge Michael Barrasse issued injunctions ordering full wages.
http://www.guardian.co.uk/world/2012/jul/14/scranton-pennsylvania-bankrupt-minimum-wage
Scranton, Pennsylvania: where even the mayor is on minimum wage
With shrinking tax revenues, industrial decline and a political stand-off, the town is a symbol of a nation's crisis – some of it self-inflicted
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The struggling city of Scranton, above, is expected to become the fourth US city to go bankrupt in recent weeks. Photograph: Vespasian / Alamy/Alamy
Scranton is the setting for the hit American version of the sitcom The Office. Not many people in this beleaguered city are laughing any more.
A former industrial town of 76,000 citizens, nestling amid the rolling wooded coal country hills of north-eastern Pennsylvania, Scranton is in crisis.
Its political system is deadlocked. The city coffers are virtually empty and its debts are huge. Last week the pay packets of all its municipal workers – including firemen, police and the mayor – were slashed to the minimum wage of $7.25 (£4.70) an hour. That effectively equates a life-saving Scranton fire chief with a burger-flipper elsewhere in the US. Not surprisingly, many expect Scranton to go bankrupt soon.
And Scranton is far from the only American community to face this dismal prospect. In the past month three Californian cities – San Bernardino,Stockton and Mammoth Lakes – have all gone bankrupt. Some experts have warned that a wave of municipal bankruptcies is set to sweep theUnited States as towns, cities and counties plunge into a fiscal black hole, collapsing under the weight of huge debts and reduced revenues. Last week Michael Coleman, a fiscal policy adviser to the League of California Cities, warned in the Los Angeles Times that some smaller cities in his state "may cease to exist".
That sort of scary talk does not convince everyone. But it certainly rings a bell with proud Scrantonian Gary Lewis, 26. The financial consultant, whose family are fifth-generation Scranton residents, saw his city as a harbinger of a crisis to come elsewhere in America.
"Give it a couple of months. This is the first domino. This is the leak that indicates the dam is breaking," he told the Observer. Lewis runs a respected financial blog on Scranton's fiscal crisis. He has calculated that on 5 July the city had just $5,000 cash in hand. "If this city was a private company, they would be liquidating," he said.
Scranton is a symbol for an age of economic crisis in America. There is not one simple factor that has caused Scranton's problems, but it has instead been hit by a perfect storm of issues that are facing many similar communities.
The most obvious is industrial decline. Along with many once proud factory towns, Scranton has been hit by jobs going abroad and a collapse in manufacturing. Dubbed "the Electric City" by hopeful city marketers – it had the first electric trams in America – Scranton has seen its population almost halve since 1940. Critics say the city government has not adjusted to its reduced size, keeping up wage, retirement and healthcare commitments that it no longer has the revenue to pay off. At the same time, debts have racked up and policy mistakes have been made that have wasted millions. Yet, like so many politicians across the US, many on the city council have refused to approve the raising of taxes that would stave off fiscal catastrophe.
In the era of the anti-government Tea Party, talking about tax rises in America remains politically dangerous, even in the face of bankruptcy.
So Scranton finds itself in a fiscal mess with a dysfunctional and squabbling political system that is struggling to find an answer: a miniature version of what many believe has happened to America as a whole. Mayor Chris Doherty no longer attends council meetings, so bad are relations with the city council. He slashed wages to the minimum despite a judge ruling that he could not do so. But his action prompted the municipal unions to sue in court. He is desperate to raise taxes. The city council refuses.
Whatever the rights and wrongs, it hardly presents a picture of unity in the face of adversity. "It seems like they can't just sit down together and work out a compromise," said JoAnn Fremiotti, a supply teacher, as she drank coffee in Scranton's grand main square. The newspaper she was reading bore the headline "We failed". The reference was to a local college child abuse scandal but it was not much of a stretch to read it as expressing a more general despair. Some of Scranton's problems have been farcical and self-inflicted. For example, a key part of a recent Doherty recovery plan for the city centred on the $5.4m sale of the city's stormwater pipes. Yet, as the sale was being readied, it was discovered that the city had not actually owned them since the 1960s.
Not all experts are pessimists, however. In the aftermath of the recession, many American cities have reacted by desperately trying to get their fiscal houses in order. Richard Ciccarone, managing director of McDonnell Investments, is a specialist in tracking the finances of distressed American cities. He maintains a powerful – and lucrative – database that details their debts. He expects more city bankruptcies in the coming months, but nothing that will threaten the economy. "I don't think we are going to see this become a systemic risk," he said.
Ciccarone believes that most American cities are on a sounder financial footing now than two years ago because they have been building cash reserves to stave off the sort of crisis moments that Scranton, San Bernardino, Stockton and Mammoth Lakes have been caught up in. "Many cities have built up their cash reserves and cut their budgets," he said.
But there is a devil in that detail that is already playing out in Scranton: cutting budgets. Slashing wages and services and government budgets might save you from bankruptcy but it comes at a social cost.
In Scranton, fire service and police bosses have complained that their members have had to cancel holidays and go on food stamps while their mortgages are at risk of going unpaid because of slashed wages. Fremiotti sees it too: in the struggling education system where she teaches and the judicial service where she volunteers. She has also noticed a more obvious impact in the shape of potholes that can seriously damage a car. "Last winter I lost four tyres," she said.
The same is true elsewhere in America. In Detroit, which is hit by a deep crisis but has staved off bankruptcy, the city government is shutting schools, razing abandoned areas and even turning off streets lights in whole neighbourhoods in a desperate bid to save cash. In Camden, New Jersey, which is one of the most blighted cities in America, almost half the police and a third of firefighters have been laid off. No one who has seen Camden's rows of burnt-out houses and walked its dangerous streets can imagine that it is a city that can socially afford such drastic measures.
Those sorts of figures add to a growing sense of American economic decline and worries over a political system unable to cope with growing inequality, vast debts and an inability to generate more revenue. Fremiotti sees the debate in Scranton as being one the whole country needs to have about what people are willing to pay for and that they must face up to the idea of either accepting higher taxes or a lower level of help and services. "It is much broader than just Scranton. It is the whole of America. It is a global issue," she said.
That may be true. But there is little sign of a political endgame in sight, for either Scranton or America. Instead, recovering from an era of huge borrowing by cities and citizens alike, and the bursting of one of the biggest bubbles in economic history, it seems easier to find people to blame rather than face up to some solutions.
Fremiotti simply feels everyone had their part to play. "Nobody coming in from a foreign country could have sabotaged our systems as well as we did ourselves," the teacher said.
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