Will Scranton recover?
Scranton, Pennsylvania blasted into the national consciousness last summer when its mayor, facing a cash shortage, slashed city worker wages to minimum wage.
In August the city was saved from immediate ruin by the union-owned Amalgamated Bank:
Amalgamated Bank recently provided $6.25 million of short-term financing to the City of Scranton, Pennsylvania. Nearly two months ago, the salaries of 400 municipal employees were reduced to the minimum wage level. Now with Amalgamated’s loan, the City can make its full weekly payrolls and pay its vendors while completing and putting in place a three-year fiscal recovery plan.
After Amalgamated was repaid, it gave Scranton a larger loan with longer terms:
Scranton was then able to subsequently line up long-term financing through a ten-year private placement, and the City is now continuing to implement its multi-year Recovery Plan. Scranton fully repaid our first TAN loan in December 2012; Amalgamated subsequently stepped-up our commitment to Scranton in January 2013 with a larger and longer second TAN loan.
Scranton then entered the bond market to do a private placement of $14 million of bonds due in 2023 with 7.50 percent interest. These are general obligation bonds backed by the full faith and credit of the city. The city needed to borrow more in large part due to a court decision that required it to pay city unions a $17 million settlement. That required additional debt around $25 million (page 7):
Scranton has an annual general fund budget of about $70 million, so this all seems reasonable – until you see its entire debt picture. The city has overlapping responsibilities with the school district and county for $322 million in debt. In addition, the city has $113 million of unfunded pension liabilities that must be made up somewhere.
How is the city going to get out of this? It has a recovery plan that includes a 12 percent increase in real estate taxes in 2012 and a 56 percent increase in 2014. It is also implementing other taxes and cost reductions and appealing to the state assembly to impose a local sales tax. Scranton is a city of 76,000 residents. It weathered a debacle that was broadcast nationally, but it still has enormous fiscal challenges. Will it be restored to fiscal health? Stay tuned.