Scranton, Pennsylvania’s, the state’s sixth-most-populous city (population of 76,089 in 2010 census), is down to its last $5,000 and has no way to pay salaries.
The mayor wants an immediate tax hike of 29% and 78% over three years. In every sense of the word, Scranton is bankrupt.
NPR reports Scranton’s Public Workers Now Paid Minimum Wage.
The city of Scranton, Pa., sent out paychecks to its employees Friday, like it does every two weeks. But this time the checks were much smaller than usual. Mayor Chris Doherty has reduced everyone’s pay — including his own — to the state’s minimum wage: $7.25 an hour.
Doherty says his city has run out of money.
Doherty wants to raise taxes to fill a $16.8-million gap. The city council wants to take a different approach and borrow money. City council members did not respond to NPR’s requests to discuss the dispute.
After paying workers Friday, the city had only about $5,000 left in the bank. More money flowed into city accounts that day, but it was still not enough to pay the $1 million the city still owes to its nearly 400 employees.
The firefighters’ union, along with the police and public works unions, have taken the city to court. Lackawanna County Judge Michael Barrasse issued an injunction, essentially agreeing with the unions that the city was breaking the law, but Doherty says he doesn’t have another choice. Despite the injunction, he had the city send out paychecks based on minimum wage.
The unions plan to be back in court first thing Monday morning to ask the judge to hold Doherty in contempt.
There’s been no love lost between Doherty and the public employee unions because of this battle; they’ve already spent the past decade in a legal dispute over pay that went all the way to the state supreme court. Both sides come to this latest battle with plenty of baggage and hard feelings. But with nearly 400 city workers receiving a fraction of the pay they typically get, pressure is building to resolve the issue soon.
Scranton Mayor Slashes City Workers’ Pay
Filling in a few more details, IBT reports Scranton Mayor Slashes City Workers’ Pay To Minimum Wage
Doherty wants to raise taxes by 29 percent immediately and by as much as 78 percent over the next three years, while the council wants the city to borrow money. The Scranton Times-Tribune reported there’s no way for the city to take out a loan because it is unable to show it is capable of paying it back.
“I’m trying to do the best I can with the limited amount of funds that I have,” Doherty told NPR. “I want the employees to get paid. Our people work hard — our police and fire — I just don’t have enough money, and I can’t print it in the basement.”
Since the political firestorm erupted, Scranton Police Chief Dan Duffy has stepped down from his position, although he claimed his decision has nothing to do with the financial mess the city finds itself in, according to the Times Leader.
The unions see the mayor’s pay slash as a bullying technique designed to force the city council to adopt his tax increases.
City Effectively Bankrupt
It should be perfectly obvious to every soul on the planet that Scranton is bankrupt. Tax hikes are not the answer. The solution is filing bankruptcy with the hope of killing public union wages and benefits.
However, inane rules in Pennsylvania prohibit cities from filing bankruptcy without state approval.
On October 12, 2011 I reported Pennsylvania State Capital Files for Bankruptcy
Unfortunately, City of Harrisburg chapter 9 bankruptcy dismissed
The US Bankruptcy Court for the Middle District of Pennsylvania has dismissed the bankruptcy petition filed on behalf of the City of Harrisburg, Pennsylvania, finding that the city failed to meet eligibility requirements under the Bankruptcy Code to be a chapter 9 debtor.
The dismissal of Harrisburg’s petition, in November 2011, highlights the US constitutional considerations in municipal bankruptcy cases and the Bankruptcy Code’s strict requirement for a municipality to have express state authorization to become a chapter 9 debtor.
Inept city management, with public union wages and benefits at the heart of it, killed Scranton.
The city is bankrupt. Period. Will the state once again deny the obvious?
About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.