Scranton, Pennsylvania, Plans Tax Boost to Avert Default

Photographer: Mike Mergen/Bloomberg

The community of about 76,000 residents, where 20 percent live in poverty compared with 13 percent statewide, has been in Pennsylvania’s program for distressed municipalities since 1992. Close

The community of about 76,000 residents, where 20 percent live in poverty compared with... Read More

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Photographer: Mike Mergen/Bloomberg

The community of about 76,000 residents, where 20 percent live in poverty compared with 13 percent statewide, has been in Pennsylvania’s program for distressed municipalities since 1992.

Scranton, Pennsylvania may ask residents to pay about 50 percent more in property taxes as it tries to close a $20 million budget gap and avoid default.

The city council may consider the proposed $130 million budget of Mayor Christopher Doherty as soon as Nov. 21, City Clerk Nancy Krake said. The spending plan must be approved by Dec. 15, said Gerald Cross, the city’s state-appointed consultant.

“It’s realistic and attainable revenue,” Cross said by telephone from Wilkes-Barre. “It will let the city meet its debt obligations, payroll and operating expenses.”

Moody’s Investors Service said in a Nov. 8 report that Scranton risked default if it couldn’t close its $20 million deficit. The community of about 76,000, where 20 percent live in poverty compared with 13 percent statewide, has been in Pennsylvania’s program for distressed municipalities since 1992. Nationwide, cities this year are projecting their first revenue increase since 2006, yet collections can’t keep up with outlays for pensions and health care.

Scranton plans to issue tax- and revenue-anticipation notes of as much as $16 million in 2014. Cross said an approved budget will boost the creditworthiness of the city about 120 miles (193 kilometers) northwest of New York.

According to the spending blueprint, Scranton wants to collect about 50 percent more in real-estate taxes and about 69 percent more in residential trash fees.

Uniform Costs

The city has $195 million of long-term debt, including about $77 million of fixed-rate general obligations and $49.5 million of guaranteed parking securities, according to Moody’s.

Besides the tax- and revenue-anticipation notes, Scranton plans to borrow $28 million next year to cover back pay for police officers and firefighters and pension costs.

Scranton unlimited-tax general-obligation bonds maturing in September 2031 traded Nov. 15 at an average yield of 6.86 percent, or 3.19 percentage points more than benchmark munis, the widest spread since at least June, data compiled by Bloomberg show.

Doherty and Council President Janet Evans didn’t immediately respond to telephone calls seeking comment on the proposal.

Moody’s analyst Michael D’Arcy said in the report that Pennsylvania’s distressed localities program “has so far been ineffective in relieving the city’s financial woes.”

Steven Kratz, a spokesman for the Community and Economic Development Department, said Scranton’s recovery plan under the program will help the city deal with its obligations.

“Although the situation is not ideal, continuing to implement the plan should result in a balanced budget that meets Scranton’s critical needs and ensures the health and safety of the public, while keeping the city out of the unknowns of bankruptcy,” Kratz said by e-mail.

Since 1987, only six communities have left the program and 21 remain, 14 of which have been in for at least a decade.

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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