July 12 (Bloomberg) -- Pennsylvania is offering $2.25 million in aid to Scranton, the city that paid workers minimum wages amid a cash crunch, to spur elected officials there to agree on a long-term fiscal recovery plan.
C. Alan Walker, secretary of the Community and Economic Development Department, in a letter today offered a $2 million no-interest loan plus a $250,000 grant to help cover current expenses if the City Council and mayor agree on a revised rescue plan by Aug. 1 and adopt it by Aug. 15.
Mayor Christopher Doherty and the council have disagreed on how to resolve the city’s financial plight. He said that kept him from borrowing to cover immediate cash needs and led to the minimum-wage payments he imposed last week, in defiance of a court order. The move prompted lawsuits from worker groups who claimed in federal court that it violated U.S. law.
“We’re giving them one last chance to come to a consensus on a recovery plan,” Steven Kratz, a Walker spokesman, said by telephone.
Walker also offered the services of a mediator to help broker a deal in the city, which has been in a state program for distressed municipalities since 1992. Scranton faces a $16 million shortfall on a budget of $85.3 million for this year, Doherty said.
The mayor has proposed a 78 percent property-tax increase over three years to right its finances, a plan that Council President Janet Evans said would “cause blight and flight,” in a July 10 telephone interview. She didn’t immediately respond to a telephone call for comment on Walker’s letter.
“Hopefully it’s an incentive to get a plan passed and approved,” Doherty said by telephone about the offer. The mayor said he hasn’t decided whether to provide workers with their full earnings when paychecks go out next on July 20.
“We’ll see how the money comes in,” he said. Each pay cycle usually costs the city about $1 million, according to Gerald Cross, executive director of the Pennsylvania Economy League, the state-appointed consultant to Scranton.
The city of about 76,000, where 19 percent of residents live in poverty compared with 12 percent statewide, is about 125 miles (200 kilometers) north of Philadelphia.
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