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California's Cities Aren't Alone – Unions Trample Finances in Scranton, Pennsylvania

The city of Scranton hiked property taxes 57% and garbage collection fees 69% to shore up a police and fire pension funds that will run out of money anyway, in 5 years and 2.5 years respectively.

Amusingly (to outsiders) but certainly not to Scranton taxpayers, Scranton Pensions Increased as Much as 80 Percent as a result of inane mayoral promises.

 The 2011 court ruling that awarded huge raises and millions of dollars in back pay to Scranton firefighters and police officers was a windfall for retirees too, with some seeing a more than 80 percent hike in their pensions between 2008 and 2012, a Times-Tribune investigation found.

The increase, most of which was paid in 2011, made the retirees among the highest paid in Pennsylvania, the newspaper’s review of the Public Employee Retirement Commission records revealed.

The increased pensions come at a time when Scranton, in distressed status since 1992, is struggling to survive. Faced with a $20 million deficit, council enacted a 2014 budget with massive tax increases — hikes of nearly 57 percent in property taxes and 69 percent in garbage fees. The recently passed 2015 budget hiked property taxes 19 percent.

The plans’ actuary, Randee Sekol, recently cited the raises as one of the key factors that have pushed the funds closer to insolvency. With a deficit of $78.8 million as of 2012, the fire fund is projected to run out of money within about 2½ years, while the police fund, with a deficit of $62 million, has less than five years left.

The city had no choice but to approve the pension hikes, issued under former Mayor Chris Doherty’s administration, because they are contractually obligated under the union contracts, said city solicitor Jason Shrive.

No Choice?!

Of course the city had a choice. Actually, the city had two reasonable actions and curiously, Shrive even mentioned one of them.

 Last week, the city asked the fire and police pension boards to forgo that increase. Both boards rejected the request.

Mr. Shrive made the request based on a section of the Class 2A city code that states no increases can be granted to retirees if an actuary determines the fire and police funds are not actuarially sound. Scranton is the only Class 2A city in the state.

Mr. Shrive acknowledged that the union contracts obligate the city to pay the retirees’ raises, but he said he believes state law, which mandates the city follow the Class 2A code, takes precedent.

Tell, Don’t Ask

Given Class 2A law, you don’t ask police and fire for cuts, you tell them. Then if they fight, you make the final step:

Declare Bankruptcy on the Spot 

The police and fire departments would have to plead their case in federal bankruptcy court, most likely getting haircuts of 50% or more.

Ultimately, bankruptcy is where all these cases are headed. Taxpayers certainly don’t deserve preposterous tax hikes while inept politicians look for ways out, because there are no ways out.

In the meantime, collective bargaining of public unions needs to go the way of the dinosaur. Public unions and the hack politicians who support unions have wrecked more city and state budgets than the next 10 things combined.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education.

Scranton Faces Bankruptcy, Unions Want to Raise Taxes

It is truly pathetic watching politicians flop like fish out of water trying to prevent something that was clearly inevitable long ago.

Please consider Moody’s warns of bankruptcy in Scranton as city faces $20 million budget gap.

 Moody’s warned investors that Scranton could be facing the threat of default or bankruptcy thanks to a $20 million budget gap for the fiscal year that begins Jan. 1. Scranton has more than $195 million in outstanding debt, according to Moody’s.

A similar crisis hit the city in July 2012, which lead to Mayor Chris Doherty cutting all city workers’ pay to minimum wage for several weeks, a move that made national headlines.

“A second liquidity crisis could have more severe effects, including additional defaults,” Moody’s warned.

To generate revenue necessary to address its debt, Scranton has considered taxing commuters and alcoholic drinks, though neither has been approved by the city council. The Pennsylvania Economy League, which is overseeing Scranton’s Act 47 recovery plan, warned last month the city would have to raise taxes to avoid a default at the beginning of the 2014 fiscal year.

Scranton also faces more than $100 million in unfunded pension debt, on top of the $195 million in other debt owed.

Adding to Scranton’s financial woes is the need to borrow another $28 million to pay a court-mandated settlement with the city’s police and firefighter unions.

Tax Hike is Pure Idiocy

The numbers say everything that needs to be said. It is absolutely impossible for Scranton to did out of this hole, I do not care how much taxes are raised.

All tax hikes can do is harm more working class citizens for the benefit of undeserving public union workers.

Liberal Fantasyland

Whatever judge awarded the police and fire workers $28 million is an idiot or a genius, depending on his or her intent.

If the intent of the ruling was to make it clear to everyone on the planet that the only solution for Scranton was bankruptcy, then the judge succeeded.

If as I suspect, the judge actually thought police and fire fighters would receive $28 million, then the judge is living in liberal fantasyland.

Fitch Downgrades Chicago Citing Pension Problems

Yahoo!Finance reports Fitch downgrades Chicago bond ratings

 Fitch dropped the rating from AA- to A- on $8 billion in general obligation bonds, backed by property taxes.

It also dropped the rating on $497 million in sales tax bonds — paid for by both the city’s local sales tax and its share of the state sales tax. And the rating was downgraded on $200 million in commercial paper notes, financed by a general obligation pledge from any available city fund.

Friday’s downgrade stems from “the lack of meaningful solutions” to the city’s pension situation. City and fire pension programs have no more than 30 percent of the money needed to cover obligations.

Scranton is several steps deeper in the hole than Chicago, but the problems are quite similar. Neither city can possibly pay pension promises.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering 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.