WILKES-BARRE — Saying he had “no other alternative,” Mayor Tony George on Friday asked the state to declare the city financially distressed under Act 47.
George said the city faces an estimated $3.5 million deficit next year, and his administration’s attempts to get out of that hole have been unsuccessful. For that reason, he sent a request to the state Department of Community and Economic Development for an Act 47 declaration that provides strict oversight of the city’s finances.
“I have no other alternative,” George said.
Hazleton is the only municipality in the county operating under the constraints of the the Municipalities Financial Recovery Act or Act 47. Plymouth Township. West Hazleton and Nanticoke previously participated in it.
What is Act 47?
Created in 1987, the act provides the resources to financially distressed municipalities to restructure debt and limits their ability to obtain government funding. They can pursue bankruptcy and avail themselves to Federal debt adjustment actions. It also permits consolidation or merger of contiguous municipalities to relieve financial distress, according to the DCED website.
Based on the projections two years ago of the Philadelphia-based PFM Group, the city’s financial consultant, applying for distressed status was a possibility. It grew stronger as the deficit’s numbers became clearer in PFM’s financial progress update in March.
“PFM actually did the Act 47 analysis,”city Administrator Ted Wampole said.
The consultant, hired at a cost of $275,000 in combined state grants and city funds, has provided regular updates since it came on board in 2016 under the state’s Early Intervention Program to stabilize the city’s finances.
“The determination was made that we really couldn’t put this off,” Wampole said.
Wampole said the mayor wrestled with the decision over the past several weeks and lost some sleep thinking about it.
George listed a number of factors that influenced his decision: negotiations with two of the four unions are at a standstill, and the firefighters’ union will file arbitration soon for a new contract; $3 million in employee pension obligations; and lack of support from city council to sell the Park & Lock garage for $2 million.
“My big goal is to bring the city forward and we’re stifled,” George said.
PFM noted that the city has taken steps to control spending and improve its cash flow, “though there’s still a lot of work to do,” it said in the March update.
The consultant outlined a series of measures for the city to take to close the projected deficits next year and beyond. They included wage freezes, changes in health insurance plans, increases in employee health insurance premium contributions and the possible sale of the sewer lines.
PFM also suggested raising property taxes 10 percent, but left it up to the city to determine the extent of the hike.
“Even if the city successfully completes collective bargaining and executes the sewer monetization, there’s still likely to be a gap. What types of revenue increases — primarily a real estate tax increase — do you consider practical?” PFM asked.
The mayor did not include a tax hike in his $49.4 million budget this year and used increases in parking meter and garbage fees to balance it. He said he doesn’t expect support from city council to raise them above the current rate of 141.33 mills. A mil is a $1 tax on every $1,000 of assessed property value. The city is the only municipality in Luzerne County that uses its own assessments.
Upon receipt of the petition, DCED Secretary Dennis Davin will task the Center for Local Government Services with preparing a consultative report to verify that the information presented in the petition for Act 47 is true and accurate, Sarah DeSantis, a department spokeswoman said in an email.
Between two weeks to 30 days later a hearing is set up and the department can present testimony on the results of the report that includes financial and socio-economic data, the email said.
Wampole said the city must meet criteria set by the state in order to be considered distressed. He said the two criteria submitted by the city dealt with recurring deficits. None of the other criteria, including missed payrolls or debt payments, applied Wampole said.
Upon approval, DCED appoints a manager that could be someone from PFM, the Pennsylvania Economy League or another independent organization to put together a financial recovery program that must receive approval by city council. The city would have a maximum of five years to complete the program.
DCED has yet to begin its review of the petition, but city council chairman Tony Brooks approved of the first step taken by the mayor.
“I support the petition,” Brooks said.
Reach Jerry Lynott at 570-991-6120 or on Twitter @TLJerryLynott.