Hazleton could face bankruptcy

HAZLETON – Given that a hearing officer last month found that the City of Hazleton should pay back $1.5 million in improperly spent pension money to the state, the city could face bankruptcy unless the House of Representatives passes a bill that has been languishing in committee for two years.

State Auditor General Jack Wagner determined in a 2006 audit of the city’s pension plans that Mayor Lou Barletta’s administration in 2002 and 2003 misused tax revenue earmarked for police and firefighter pensions.

Wagner said the city instead used the money to pay for retirees’ health-care benefits and to buy back unused vacation and sick leave from employees who accepted an early retirement incentive.

Wagner said the money should be repaid to the pension fund, and that if it was not, the city’s annual $2 million allocation in state pension aid could be withheld.

The city argued that Third Class City Code included retiree health benefits in pension funding, but agreed to stop using special tax revenue dedicated to pension funding for retiree health benefits if the Auditor General agreed to release the city from having to pay back funds used to pay for health benefits in the past.

Wagner refused to accept the city’s proposal as sufficient corrective action. He suggested that the city apply for acceptance into the state Department of Community and Economic Development’s Early Intervention Program for at-risk municipalities and work with DCED to find an appropriate way to pay back the money.

Last month, a hearing officer upheld Wagner’s findings. The city has until June 26 to file an appeal with Commonwealth Court.

Barletta said on Monday that the city will file an appeal. He hopes Wagner will allow the city to continue receiving state pension aid during the appeals process.

Wagner’s office did not return a call asking if the city could still receive state pension aid during the appeal.

“In the meantime, we hope the city will be able to find relief through a legislative bill,” Barletta said.

By a 49-0 vote in June 2007, the state Senate passed Senate Bill 961, which would allow the city to use a portion of municipal pension tax revenues to pay for health benefits of retired firefighters and police officers. But the bill has been buried in the House Financial Committee ever since.

Barletta said Pennsylvania Employee Retirement Commission staff helped write the bill, and it would only affect the city of Hazleton. He said not police nor fire nor the auditor general opposed the bill. In fact, Wagner agreed that the bill could be retroactive and, if passed, the city would not have to repay any pension funds.

“However, some members of the Finance Committee felt the bill should not be passed just for Hazleton, which I object to because, in the past, the House passed bills to help Philadelphia and to keep the city of Pittsburgh from going bankrupt,” Barletta said.

Barletta said that if the bill is not passed or if the city doesn’t win the appeal in Commonwealth Court, “the results could be devastating for the city.” He said Hazleton, like nearby Nanticoke, Scranton and West Hazleton, would probably have to apply for distressed city status under Act 47 and turn over some financial control of the city to a state-designated agency.

“I wouldn’t see any other option unless there’s a miracle,” Barletta said.

Minority Councilmen Bob Nilles and Tom Gabos also expect the city would have no choice but to apply for distressed city status if the legislation is not passed, and they’re not very optimistic that it will be.

They expect even more financial trouble this year because they doubt the city will be able to sell 160 acres of land it owns near the Hazleton Municipal Airport. Barletta included $300,000 in revenue from the land sale in this year’s budget.

Barletta said he has been working with state Rep. Todd Eachus, D-Butler Township, to reintroduce Senate Bill 961.

Barletta pointed out that the city has been “super funding” its police and fire pension funds – paying more than the state-required amount into the funds – by about $500,000 annually. He said his administration asked the Auditor General’s Office if the city could use that $500,000 to pay for retiree health benefits before the city began using the revenue for that purpose, but Wagner’s office “refused to provide a pre-audit determination” on the matter.

“We felt we had no choice because we weren’t in a position to lay off policemen” to make up what would have been the resulting shortfall to the city’s general fund, Barletta said.

Prior to using the pension tax revenue, Hazleton, like other cities in the commonwealth, had been paying for retiree health benefits from its general fund.

“I’m going to be optimistic that Rep. Eachus will do what he can, and hopefully the rest of the legislature will see the benefit of preventing the city from filing Act 47. I don’t believe it helps the state, if there’s a possibility of saving one city at a time, not to do so,” Barletta said.

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Bill in House could save city, which will appeal order to pay $1.5M in pension money back to Pennsylvania.

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