Remedies for a Scranton in Distress

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A few weeks ago, I posted Recovery Plan proposals for the city of Scranton. Since then, our city has achieved national fame as a total failure, so I thought it time to revisit the issue.

Scranton’s crisis has been a long time coming, but Council sped it up by balancing the most recent budget with $12 million of borrowing in order to pay for a tax cut for residents.

Let’s talk current debt. What Scranton owes in total is not entirely clear. The national trend of cities backing authority debt is not lost on Scranton. Seemingly only the Mayor realized that Scranton backed the Scranton Parking Authority’s debt ($50 million – $100 million including interest). But I have been unable to find information on whether or not other Authorities have their debt backed by the city. Gary Lewis, a Scranton resident who also serves as a distressed asset consultant (a job I never heard of until Gary), believes that total debt, if we plug this crisis with borrowing, will be around $375 million. I interviewed Scranton City Councilman Pat Rogan on my radio show, Politic With Borthwick, on WFTE, who said that total debt for the city, including debt it backs, is closer to half a billion dollars. Ouch. How do we fix this?

Mr. Lewis believes that bankruptcy is the only option. Despite the magnitude of this crisis, I disagree.

In the short term, passing a recovery plan is worthwhile because the DCED offered the city a $2 million zero-interest loan and a $250,000 grant if one is passed by August 1st. The City Council claimed this the DCED attempting to buy a plan (it is) but that shouldn’t stop them. The $2 million would be used to hold over the city until banks offer financing, which banks have said they will not do without a recovery plan.

The Mayor believes an increase in the garbage fee (by $22 per year) and a 78% tax increase will balance the budget. Council has balked at such a high increase and the two sides have been in a stalemate over this for months. The DCED offer has them talking.

While I believe tax increases are necessary, they can be mitigated by a few factors that I would add to my previous proposals.

Roughly 25% of the city is tax-exempt. I advocate simply sending bills to many non-profits that go beyond their mission, especially given things like the Starbucks at the University of Scranton and numerous churches that operate catering businesses. Recent litigation statewide has come down in favor of municipalities taxing these entities. Regardless, this isn’t a guarantee of revenue for the city because it hasn’t been tried. A way to mitigate the burden on taxpayers while including non-profits is through fees.

That said, pass an Infrastructure Fee. The City of Carbondale (to Scranton’s north) passed an infrastructure fee that simply levees a fee based on the specific parameters of a structure (like the number of stories, for example). Scranton can tailor this in any way they choose.

Although this is long term, implement zoning plan from SAPA (Scranton-Abingtons Planning Association). The City Council rejected a plan that would re-zone much of the region and push business and industry into existing infrastructure in the City, rather than the suburbs. Passing this was a no-brainer, but, well, Council was against it.

Lastly, this area needs to look at regionalizing police and fire on a county level. It would spread the cost across the whole of Lackawanna County save municipalities beyond Scranton a lot of money. Administrative costs would be reduced and more resources would be available (as Scranton has a lot more specialization than any other municipality in Lackawanna County). Much of the fire service in the County is on a volunteer basis and should be a full-time paid, professional staff. Some municipalities share services already and if, for example, the volunteers in Taylor can’t cover a fire, then the next town over, then the next, etc. This leads to an increase in response time, especially in rural areas. Residents outside Scranton would likely see a reduction in homeowner insurance costs.

The crisis will have to be solved with short term borrowing, but there are plenty of tools available to ensure long term survival.

 

This entry was posted in Miscellany.

4 Responses to Remedies for a Scranton in Distress

  1. JoyfulA says:

    Well done—thanks! Could you please do a similar analysis for Harrisburg?

    • Jon says:

      My two cents: the lowest hanging fruit in Harrisburg is to raise most revenue from Harrisburg’s land value tax. The city’s real estate tax already has a split millage rate for land and buildings. They tax land more than buildings. This is like a tax increase on land speculators and a tax cut for most homeowners. It will push land speculators to build sooner. The best fiscal stimulus currently within local government’s power is probably to have the school district and the county to copy the city’s split-rate real estate tax. Harrisburg taxes land at a higher rate than buildings, but I believe the school district and Dauphin County do not.

      I think a good strategy for building trades and teachers unions would be to persuade county and school district politicians to tax land speculators to fund most public services. Land can’t go anywhere, so you there’s no capital flight problem. When Allentown did this, Pat Toomey says 75% of taxpayers got a tax cut and building permits jumped 32% in 5 years.

  2. Tom says:

    Since I’m from Scranton, I’m more familiar with the issues here. Harrisburg probably could benefit from some of the Recovery Plan proposals and what I’ve outlined here in order to climb out of its own black whole, I’d imagine. A better solution would be a friendlier Governor, methinks.