WILKES-BARRE – Wilkes-Barre is no longer on Standard and Poor's watch list, but the city remains on thin ice financially due to its thin cash balances, the ratings services firm warned.
The city's payment of a $3 million tax anticipation note late last year removed it from S&P's CreditWatch, but the firm's outlook turned negative.
The switch to Berkheimer Associates to collect the earned income tax lifted the city from the estimated $2 million revenue shortfall mess created by CENTAX, the former collector, and alleviated the concerns that put the city on the ratings services' watch last August and lowered its credit rating in November.
Still, S&P analysts in their Dec. 21 report had reservations about the city's dependence on cash flow borrowing such as the tax anticipation notes or loans to be paid back by future revenues.
The city borrowed another $3 million this year and exhausted it to cover operations until it began to receive property tax revenue. To date, $2.2 million has been collected, Mayor Tom Leighton said in an email Friday. Another $600,000, the balance of what was owed by CENTAX from the first and second quarters of last year, should be received in the next two weeks, his email stated.
The analysts wrote: We believe the thin cash balance still could create operational pressure. A negative rating action could follow a deterioration of general fund reserves or liquidity crisis.
Leighton said the city has been addressing cash balance issues since 2004 when he took office. Wilkes-Barre is not alone on that front, the mayor said.
Most municipalities do not have a plentiful cash reserve to draw upon, he said.
The city's efforts to address the issue included reducing the size of the city workforce through retirements, restructuring debt and completing capital projects that have brought more businesses and jobs. However, many factors beyond the city's control negatively impact our cash reserves, he said.
Among them are the economy, natural disasters and employee costs.
The mayor sought and failed to gain concessions from the city's mostly unionized workers. They refused to forgo annual 3 percent wage increases in order to reduce a 30-mill property tax increase, Leighton said. The city must honor the labor contracts and meet the increased minimum funding for pensions, he said.
In addition, the city has to deal with weather-related overtime costs, salt purchases and equipment maintenance and replacement to keep the streets clean during the winter. And it had to pay for $1 million in storm response and recovery costs for November 2006 that the Federal Emergency Management Agency denied, the mayor said.
Furthermore, he added, as the economy goes, so goes the city.
We can keep our expenditures within budget, but revenue projections are subject to economic conditions in the private sector, Leighton said.
City council adopted a balanced budget of $44.9 million for this year and included a 25-mill property tax increase and other fee increases to raise revenue.
A positive among the negatives is the city's A- credit rating, Leighton pointed out. The city has restored its rating since he took office in 2004.
The rating that had been A before the downgrade allows the city to borrow money and issue bonds at interest rates lower than municipalities without ratings.
More work needs to be done, he acknowledged, but the fact remains that our city continues to be an investment opportunity that few can ignore.