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Scranton resident says high personnel costs amount to theft

By   /   November 28, 2012  /   No Comments

By Eric Boehm | PA Independent

HARRISBURG — In one of Pennsylvania’s most financially troubled cities, nearly every tax dollar taken from the pockets of city residents in 2013 will be headed directly to the wallets of past and present city employees.

Meanwhile, taxpayers supporting vital city services face a tax hike of 12 percent, the specter of higher taxes on the horizon and high levels of borrowing by the city as it tries to make ends meet, even as the budget crunch curtails city services.

POWER DOWN: The lights may be going out in Scranton – “The Electric City.”

The city’s 2013 budget proposal calls for “an aggressive approach to current revenues,” but one observer is calling it something else — theft.

It’s going straight into the pockets of city employees,” Gary Lewis, a Scranton resident and financial expert who writes a blog about the city’s finances, said during an interview with PA Independent on Tuesday. “To me, that’s the very definition of theft. You are forcibly taking money from me in order to turn around and hand it over to someone else.”

Take a look at the numbers. Scranton expects about $54.8 million in tax revenue during 2013, while employee compensation costs are budgeted to consume more than $51.5 million.

Throw in another $10 million in mandatory debt-service payments and the city is spending every single tax dollar on its employees or its credit cards.

Lewis said municipal governments should use taxes and fees to offset the costs of services rendered by the city — such as putting out fires, collecting trash and plowing streets in the winter.

Of course, providing those services means someone is paid to perform them, and it’s people — not services — who get nearly all the tax revenue in Scranton’s newly proposed 2013 budget, including the revenue from a 12 percent real estate tax increase.

That’s just the beginning. Scranton’s new state-approved recovery plan calls for a 39 percent tax increase over three years, beginning with the 12 percent hike in 2013.

Al Lucas, deputy fire chief for the city, said he was not looking forward to the 12 percent tax increase. But despite the higher taxes, his fire department is facing a 10 percent across-the-board cut in operating costs for 2013.

TAX HIKE: Scranton residents will be hit with a 12 percent tax increase in 2013 and a 39 percent tax hike over the next three years. The city is also looking to add a 1 percent commuter tax and will borrow $39 million next year.

He said that means fewer new equipment purchases, a reduction in preventative maintenance and less training for his men. But the cut does not apply to the salaries and benefits of Scranton’s firefighters and other public employees.

“The cut is strictly in the operating budget. The personnel budgets are driven by contracts and they are going to go where they go,” he said.

The result: Taxes in Scranton have become a conduit for taking dollars from residents of the city and depositing them into the bank accounts of employees — current and retired.  Meanwhile, the cash-strapped city is curtailing some operating costs and trying to find new ways to afford others.

You see these budgets growing while the actual amount of money they are setting aside for essential services is falling,” Lewis said. “It’s your pensions, your salary and your debt-service line items that are bloating to these unsustainable levels.

Overall, the proposed budget jumps from $85 million this year to $110 million next year. The increases are mostly the result of a $17 million payment due to firefighters and police officers as part of an arbitration award last year and an extra $5 million in mandatory pension contributions.

But for a city with $54 million in tax revenues, a final spending figure of $110 million seems a little hard to believe.

To make ends meet, Scranton intends to borrow $39 million next year, including $25 million to meet the arbitration and pension-cost increases.

“Since the city does not have the money on hand to pay this award, the money must be borrowed,” Councilman Frank Joyce said during a council meeting Nov. 15, when the proposed budget was unveiled.

WRONG DIRECTION: Neighborhoods in Scranton (colored) with neighboring municipalities (grayscale).

Councilwoman Janet Evans said Mayor Chris Doherty called for the high levels of borrowing. According to meeting minutes, she said the borrowing is necessary to keep the city “alive financially and functioning so that public services and public safety can continue to be provided to all of our citizens.

Neither Doherty nor members of the city council returned calls for comment.

Where to begin solving the problem? An immediate 20 percent cut in employee compensation and renegotiation of the city’s pension obligations should be the first steps, Lewis said.

According to the most recent data available from the state Public Employee Retirement Commission, Scranton’s pension system is funded at 34 percent and has more than $113 million in unfunded liabilities. The $9 million contribution budgeted for 2013 — though it is double what the city contributed last year — represents only the minimum required contribution, according to Joyce.

But while the costs are driving Scranton over a cliff, getting out from under those contracts is not possible under current law.

Pennsylvania’s program for fiscally distressed municipalities — known as Act 47 — does not allow municipalities to supersede or override collective-bargaining agreements or contracts.

“The recovery plan has to be developed under applicable law,” said Gerald Cross, executive director of the central division of the Pennsylvania Economy League, a nonprofit that contracts with the state to oversee the implementation of mandated Act 47 recovery plans for some municipalities, including Scranton.

“The municipal finance structure in the state is broken and needs to be reformed, but that doesn’t mean you can disregard (the laws) right now,” Cross said.

Cross said Scranton could renegotiate the existing contracts when they expire, but it would have to go through the typical collective bargaining process to do so. In the meantime, the city will have to find some way to continue funding basic services while making escalating payments for salaries and benefits to city employees.

It hopes to do that, in part, by asking the state Legislature to approve a new countywide sales tax of 1 percent — on top of the existing 6 percent state sales tax — that would generate an estimated $5 million in revenue.

There is little apparent appetite in Harrisburg for that proposal.

The recovery plan also calls for a new 1 percent income tax on commuters — people who work in the city but live outside its borders. The tax would generate about $2.5 million in 2013 and $4 million in subsequent years.

The city has to persuade a three-judge panel in Lackawanna County Court the new commuter tax is necessary. A court date is set for Dec. 10.

Contact Boehm at [email protected] and follow @PAIndependent on Twitter for more. 

— Edited by John Trump at [email protected]