Scranton, Pennsylvania, Passes Tax Boost to Avert Default

The Scranton City Council yesterday passed a $130 million budget that closes a $20 million deficit as the Pennsylvania community tries to avoid default.

Under the $130 million spending plan from Mayor Christopher Doherty, Scranton would collect about 50 percent more in real-estate taxes and about 69 percent more in residential trash fees in 2014. The budget was approved 3-2, according to City Clerk Nancy Krake.

Scranton needed to pass a balanced budget to show its creditworthiness, said Joseph Boyle, the city’s state-appointed consultant. Scranton, about 120 miles (193 kilometers) northwest of New York, plans to issue tax- and revenue-anticipation notes next year.

“The lenders should take comfort in that the budget brings in a significant amount of ongoing revenue,” Boyle said by telephone from Wilkes-Barre before the vote. “It’s a realistic and attainable budget.”

Moody’s Investors Service said last month that Scranton risked default if it couldn’t close the deficit because financial institutions might withdraw from debt sales. 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.

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.

Scranton also plans to borrow 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 Dec. 10 at an average yield of about 6.8 percent, or 3.12 percentage points more than benchmark munis, data compiled by Bloomberg show. That’s up from 1.7 percentage points June 28.

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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