Act 47, just the beginning of Wilkes-Barre’s fiscal recovery drama

By Jerry Lynott - [email protected]
A view of Wilkes-Barre through the arch of the Market Street Bridge. - Sean McKeag | Times Leader
West Market Street in Wilkes-Barre is seen on Friday afternoon. - Sean McKeag | Times Leader
Downtown Wilkes-Barre is seen from the top of Boscov’s parking garage. City officials hope gaining Act 47 distressed status will be the first step toward improving Wilkes-Barre’s finances. - Sean McKeag | Times Leader

WILKES-BARRE — By declaring the city financially distressed, the state could finally acknowledge what Mayor Tony George has been saying for years.

Wilkes-Barre was sinking under the weight of fiscal mismanagement before George took office in 2016 and, despite attempts to plug the holes, it was only a matter of time before he sought help under Act 47 or the Municipalities Financial Recovery Act.

“It was my only option,” George said when, facing a projected $3.5 million deficit next year, he petitioned the state Department of Community and Economic Development on June 28 for an official declaration.

The state has started the process of confirming the mayor’s position and scheduled a public hearing for 5 p.m. Aug. 1 at City Hall. The distressed declaration could lead to years of oversight by an outside coordinator responsible for crafting a recovery plan and making sure the city sticks to it.

The city has had limited success with the measures recommended by another adviser, The PFM Group, brought on for guidance with the state’s Early Intervention Program designed to divert municipalities from Act 47. A debt restructuring deal last year provided funding for the Solomon Creek Wall project and improved the city’s cash flow by reducing its estimated $2 million annual pension payments for years. Fees for parking meters and garbage bags were increased in an effort to boost revenues, too. But council balked at a proposal to sell the Park & Lock East parkade for $2 million, a one-time opportunity to cash in on a city asset.

George held out little hope council would reconsider. Even if it did, he expected the offer for the property would drop considerably.

“I can’t take my chances,” George said.

And he’s committed to dealing with the issues before they get worse. “I’m not going to keep kicking it down the road,” said the mayor.

City Administrator Ted Wampole has been promoting his boss’s efforts to put Wilkes-Barre on sound financial footing. Wampole said there’s no single factor that tipped the balance for applying for distressed status.

“It was multiple,” Wampole said.

The debt restructuring was a “huge” lift, but it wasn’t enough given the rising pension costs and recurring deficits.

“It was everything coming together, not only going forward, but what the history has been,” said Wampole.

The PFM advisers were in agreement, according to Wampole. “They put it as a perfect storm,” he said.

What’s next

Wilkes-Barre isn’t alone in seeking distressed status. Hazleton recently received the moniker from the state and has a proposed recovery plan. Nanticoke, Plymouth Township and West Hazleton have come and gone through Act 47. In Lackawanna County, Scranton has been in the program since 1992, nearly as long as the initiative has been around, and has an exit plan in place.

Hazleton Mayor Jeff Cusat has been comparing notes with George and Wampole and has had frequent discussions about their similar problems. He said he’ll have a better idea of what lies ahead once the city’s plan is approved.

“We just received our recovery plan last month. We are still in the process of taking it all in. Then there’s going to be a lot of changes,” Cusat said.

The state created the program in 1987 as a way for distressed municipalities to get back on their feet by taking steps that they normally wouldn’t. It amended the act in 2014 and set a five-year limit for municipalities to participate in it and use the various resources specific to the program.

Distressed status shouldn’t be confused with bankruptcy, however. Act 47 aims to make a municipality fiscally strong enough to leave the program. But for those participants that can’t or won’t due to noncompliance, bankruptcy is a last resort.

Road ‘always bumpy’

The Pennsylvania Economy League, a non-partisan, public policy think tank, has drafted recovery plans for Hazleton and other distressed municipalities. Gerald Cross, executive director of PEL’s central division office in Wilkes-Barre, spoke generally about Act 47.

“You do get some extraordinary taxing ability under the act,” Cross said.

For instance, the $52-a-year Local Services Tax imposed by municipalities can be tripled to $156. How the additional revenue is spent is spelled out in the plan and usually goes into the general fund budget. Wilkes-Barre budgeted $1,040,000 in revenues from the tax this year.

On the expenditure side, there is the ability to cap spending for departments and when negotiating collective bargaining agreements with municipal employees. But it has to be “reasonable,” Cross added.

There also is a low-interest loan component and the potential for grants, all in an effort to put a municipality on sustainable financial footing.

George and Wampole anticipated the city would take advantage of a $3 million, zero-interest loan that’s payable over 10 years. George described the annual $300,000 payment as “doable.”

What Wilkes-Barre’s plan would look like is hard to say at this point, considering it’s still awaiting a decision from the state.

But participation of as many parties as possible in the plan is critical to its success, Cross noted. “A good recovery plan involves the involvement of everyone that is affected,” he said.

It’s written as an ordinance for approval by city council and becomes the road map for recovery that the city is expected to follow. The drafters of the map could be in for a rough ride, however.

“It’s public policy. It’s always bumpy,” Cross said. Expect disagreements and contradicting opinions to be expressed from the participants, including the public.

“It’s not a secret backroom deal,” Cross stressed.

In fact, it’s going to be a transparent process done in public, Wampole said.

It’s also time to pull together and focus on the problems instead of playing the blame game, noted Wampole.

The problems have been developing for years; all one has to do is look at past financial statements, he said. “You could see it coming.”

It wasn’t an easy decision to seek distressed status, Wampole said, but it was the prudent one at this point.

“I think it’s unfair to point the finger at the mayor and this administration,” he said. “It’s just where we are.”

A view of Wilkes-Barre through the arch of the Market Street Bridge.
https://www.timesleader.com/wp-content/uploads/2018/07/web1_TTL071518Act472.jpgA view of Wilkes-Barre through the arch of the Market Street Bridge. Sean McKeag | Times Leader

West Market Street in Wilkes-Barre is seen on Friday afternoon.
https://www.timesleader.com/wp-content/uploads/2018/07/web1_TTL071518Act473.jpgWest Market Street in Wilkes-Barre is seen on Friday afternoon. Sean McKeag | Times Leader

Downtown Wilkes-Barre is seen from the top of Boscov’s parking garage. City officials hope gaining Act 47 distressed status will be the first step toward improving Wilkes-Barre’s finances.
https://www.timesleader.com/wp-content/uploads/2018/07/web1_TTL071518Act476.jpgDowntown Wilkes-Barre is seen from the top of Boscov’s parking garage. City officials hope gaining Act 47 distressed status will be the first step toward improving Wilkes-Barre’s finances. Sean McKeag | Times Leader

By Jerry Lynott

[email protected]

ACT 47 Q and A

What does Act 47 (a.k.a. the Municipalities Financial Recovery Act) do?

It declares a municipality distressed and provides a process for it to work with the state Department of Community and Economic Development to establish financial stability.

What type of assistance is offered?

The DCED appoints a coordinator to assess the financial situation of a municipality, issue a report and propose a recovery plan.

The plan could recommend changes in staffing, assets and services and debt restructuring among other things. A municipality also can seek special authorization from the Court of Common Pleas to increase taxes.

Is the plan open ended?

No. DCED has set a five-year limit for a recovery plan. The coordinator will assess the progress and recommend a three-year exit plan.

What happens if the financial situation does not improve?

DCED can declare a fiscal emergency and, in rare cases, determine a municipality should be disincorporated. A receiver can be appointed to ensure necessary services are provided and create a new plan to address the financial distress.

Although it is not among the DCED’s options, a municipality can seek federal municipal debt adjustment through bankruptcy.

Source: Pennsylvania Legislator’s Municipal Deskbook

Reach Jerry Lynott at 570-991-6120 or on Twitter @TLJerryLynott.

Reach Jerry Lynott at 570-991-6120 or on Twitter @TLJerryLynott.