Scranton looks to lose distressed status — eventually

The city’s deadline to exit the distressed cities program is this year — or it can apply for an extension. 

When Scranton entered distressed status, Bill Clinton was running for president — for the first time. Kris Kross just started to wear their jeans backwards, and Barcelona was hosting the Summer Olympics. This reporter wouldn’t be born for another three months.

Now, 25 years later, it’s time for Scranton to get out.  

Expiration date: Dec. 2017

The decision to exit Act 47, the state’s program for distressed cities, isn’t entirely Scranton’s own. When Act 47 was signed into law in 1987, there was no limit to how long a city could remain in the program. As a result, some cities have been in for decades, including two, Farrell and Aliquippa, that have been distressed since the law went into effect. (12 municipalities have exited Act 47. 18 remain distressed.)

Act 47 allows cities to raise certain taxes beyond state-mandated levels and provides an Act 47 coordinator to oversee the recovery process. 

In 2014, the law was changed to give cities five years in Act 47 before they need to take a next step, whether that be exiting the program, requesting state receivership, merging with a nearby municipality or using a three-year extension to exit once and for all. 

For cities already in Act 47, that five year clock started when the city’s most recent recovery plan went into effect. For Scranton and Altoona, that was 2012. By the end of 2017, these two cities (followed by most of the others in 2018 and 2019) must decide what’s next.  

Or, maybe, Dec. 2020

The Pennsylvania Economy League, which oversees Scranton’s recovery, recommended in a recent report that the city take that last option, a three-year extension. 

Though, as PEL Executive Director Gerald Cross notes, it’s “three years at most. It may be appropriate for the city to exit Act 47 before the three years is up.” 

Scranton has had budget surpluses in three of the last five years but continues to be plagued by growing pension and retiree benefit costs. Those two categories, plus debt service payments, cost the city over $34 million in 2016, 40 percent of the city’s expenses. As the population continues to age out of the workforce, those numbers will only rise. 

“The legacy costs are just that, required payments for service already performed,” said Cross. “There’s very little you can do to impact legacy costs. Those costs will demand a portion of tax revenue and city revenue for the foreseabble future.” 

Selling assets to pay the bills

One way to chip away at that ever-growing debt pile is by selling or leasing assets. In 2016, Scranton leased the parking garage system for 45 years to the National Development Council, with all of the proceeds going to paying down the Scranton Parking Authority’s debt.

The city, along with neighboring Dunmore, also sold the sewer system to the Pennsylvania American Water Company for $195 million. Scranton netted nearly $70 million, with up to an additional $14 million still to come, from that sale. That was less than the $96 million the city was anticipating from original estimates. 

Still, Cross says, the city is considering plans for that $70 million, including paying down some of those debt costs or further funding the pension system. He speculates that this could be the windfall the city needs to get out of Act 47.

Getting out and staying out  

After 25 years of bearing the distressed label, Scranton is eager to move forward. But Cross says the additional three years will allow the dust to settle from the asset sales and make sure the city is ready to exit — without sliding back into the program again. 

“I think most municipalities that have been in Act 47 for a long time will end up taking advantage of the three-year plan,” said Cross. “It gives them a chance to put things in place that will ensure their exit is done appropriately, but still gives them an incentive to keep moving forward.” 

Altoona, which entered the program in 2012, is also approaching the 2017 exit date. The city’s recovery coordinators have until June to offer a recommendation, but they are hoping to exit without the additional, three year wind-down.