Bond Buyer’s Coverage Of Moody’s Report On Scranton

By Paul Burton

Published August 22 2017, 2:16pm EDT

A court ruling that restricted Scranton, Pa., from collecting certain taxes under astate law is a credit negative for the distressed city, said Moody’s Investors Service.

“It may reduce tax revenue, which is a vital funding source for the city’s operations,” Moody’s said in a commentary on Monday.

Judge James Gibbons of the Lackawanna County Court of Common Pleas issued a preliminary ruling Aug. 3 against the city after a group of eight taxpayers, led by mayoral candidate Gary St. Fleur, challenged Scranton’s ability to levy and collect certain taxes under Pennsylvania’s Act 511, a state local tax enabling act.

The ruling affects whether the Home Rule Charter law supersedes the statutory cap contained in Act 511.
The city has filed a motion for reconsideration and this week asked the court to enable it to appeal to the Commonwealth Court of Pennsylvania.

A message seeking comment was left with Kevin Conaboy, the attorney representing Scranton.

Scranton, the 77,000-population county seat, is working toward exiting state oversight under Pennsylvania’s Act 47 workout program for distressed communities, under which it has operated since 1992.

Moody’s does not rate Scranton. S&P three weeks ago upgraded the city’s general obligation rating to a still-junk BB-plus, citing revenue from a sewer-system sale.

S&P, which assigned a stable outlook, cited the city’s improved budget flexibility and liquidity, stemming largely from a sewer-system sale that enabled it to retire more than $40 million of high-coupon debt.

The city also suspended its cost-of-living-adjustments and intends to apply a portion of sewer system sale proceeds to pension funding.

“These positive steps have been important for paying off high interest debt and funding the city’s distressed pension plans,” Moody’s said. “While these one-off revenue infusions have been positive, Scranton faces an elevated fixed cost burden of over 40% of general fund revenues.

“Act 511 tax revenues are an important revenue source for achieving ongoing, balanced operations, particularly as double-digit property tax increases have been met with significant discontent from city residents. The potential loss of Act 511 tax revenues comes at a time when revenues for the city are projected to be stagnant through 2020.”

Scranton has struggled in the capital markets since 2012, when its City Council skipped a $1 million bond payment during a political dispute. The city has since repaid the debt.

“If the city cannot balance its budget without illegally taxing the Scranton people, it is absolute proof that the budget is not sustainable,” St. Fleur said. “Scranton has sold off all its public assets and raised taxes excessively with the result being a declining tax base and unfriendly business environment.

“The city needs to come to terms with present economic realities by cutting spending and lowering taxes. This is the only option for the city.”

St. Fleur has said the city should file Chapter 9 bankruptcy and has pushed for a related ballot measure.

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Recent Moody’s Updates Scranton Financial Health In Light of Act 511 Court Ruling

Today, Moody’s has released a report stating that the recent ruling against the city of Scranton regarding Act 511 could mean dire consequences for the city(lower taxes for residents!)(more info). The report explains that the city collects 1/3rd of its revenue from act 511 taxes, these are all local taxes outside of property taxes. If the court ruling prevails, Scranton will not be able to continue its operations without any new revenue sources. Then again, Scranton can always cut cost and decreasing spending. Everyone makes due with the budget they have. Scranton must do the same!!!

CUT SPENDING

The city of Scranton makes the argument that it cannot make any cuts but this is rather dishonest assessment. The city could decrease employee salaries, create new programs such as moving the fire department into a voluntary unit or make technological upgrade to decrease the amount of administrative staff. Departments can be streamlined and waste can be curtailed. The people of Scranton are not responsible for the lack of fiscal responsibility demonstrated by the city of Scranton. The people of Scranton are also not responsible for bailing out the city from its financial mess. The good people of Scranton need their income to improve their homes and theirs lives, which is fundamental to increasing economic activity the city sorely needs. The city has 50% of its retired policemen on disability and 58% of its retired firemen on disability; I am certain that there are adjustments that could be made to these ranks of disabled former employees if they are currently working elsewhere. In addition, if there are pension payments due to spiking (employees working overtime to increase their pension payments) this also can be changed. Scranton needs real leadership!- Someone who is not willing to sell the people of Scranton out to private interest. #SaveScranton #GaryForMayor

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Judge Gibbon’s 8 Page Order Against Scranton Government!!

ALL the City’s OBJECTIONS Overruled!!!!!!!!! There only defense was that their home charter protects them from state law Act 511, but Judge Gibbons Ruled:

“Because Act 511 is a uniform statue applicable throughout the commonwealth we conclude that
its statutory cap cannot be superseded by the Home Rule Charter Law.”

In other words, the Scranton government is subject to the cap and is going to have to pay up!!!!!!!! More info here

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Recent Bond Buyer Article On Scranton Lawsuit defeat

August 9, 2017

A Lackawanna County, Pa., court has ruled that Scranton’s home-rule charter does not supersede a state cap on tax collection.

Judge James Gibbons on Aug. 4 rejected Scranton’s preliminary objection to a lawsuit by a Scranton taxpayer group that opposed the city’s tripling of a local services tax.

The case is still pending. Losing it could cost the distressed city millions of dollars.

“The arguments of the defendants are not persuasive,” Gibbons said in an eight-page ruling. “Additionally, we believe the complaint is specific enough to apprise the defendants of the nature of the claims against them and to prepare a defense.”

Gibbons heard arguments on the city’s motion May 30.

Courtroom debate involved the primacy of Pennsylvania’s Act 511, a so-called local tax enabling act. The lawsuit by eight taxpayers, filed March 2, contends Scranton has been collecting taxes beyond the legal limit and called for the issuance of a mandamus against the city.

City attorneys, meanwhile, say Scranton has a home-rule charter and is not subject to a cap.

Scranton, a 76,000-population county seat, raised the levy from $52 to $156 for every person working within the city limits that earns at least $15,600. Officials defended the move under Pennsylvania’s municipal planning code and called it essential for the city’s recovery under the state-sponsored Act 47 for distressed communities, to which Scranton has belonged since 1992.

“This is a major win for the taxpayers of Scranton that have been beset by mounting taxes and fees from the cash-strapped Scranton government,” said Gary St. Fleur, the leader of the taxpayer group and a Libertarian challenger to Democratic Mayor Bill Courtright.

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