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7/31/2019 Letter to DCED
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Gary Lewis
[address redacted]
28 July 2012
Secretary C. Alan Walker
Department of Community & Economic Development
400 North Street
4th Floor
Harrisburg, PA 17120-0225
RE: City of Scranton
Revised Recovery Plan
Secretary Walker:
I am writing to express my concern about the second revision to Scrantons Recovery Plan (The Plan).
This Plan, as you are aware, is required if the city wishes to obtain more than $26,000,000 to cover the
2012 deficit of $18,400,000, inclusive of the States recent offer of $2,000,000 in no-interest loans.
It is my understanding that The Plan calls for tax increases of:
12% in 2013, 8% in 2014, 10% in 2015,
The Plan also calls for cuts to departmental budgets. However, current staffing levels will remain
unchanged and wages will increase under the recently approved Collective Bargaining Agreements (TheCB As).
The Plan fails to adequately address the drivers of the citys projected budget deficit of nearly
$25,000,000, comprised of:
$10,000,000 structural deficit exclusive of debt service and salary increases due to The CBAs; $8,168,536.25 of debt service, exclusive of costs related to additional borrowing; $1,400,000 in new costs associated with The CBAs required to settle the recent arbitration
award;
Any unpaid bills rolled forward from prior year, which exceed $6,000,000 in 2012.The tax increase for 2013 proposed by The Plan will produce a $1,700,000 increase in budgeted real
estate taxes (see Exhibit 1), but with approximately 1 in 9 homeowners unable to meet their current tax
liability, this will likely lead to a $1,400,000 increase in actual tax receipts.
The Plan also requires cuts to Non-Employee Departmental Expenditures (Targeted Expenditures). In
2012, total Targeted Expenditures were $12,755,180 (see Exhibit 2). Even a 20% cut to Targeted
Expenditures would result in no more than $2,500,000 in cost savings. Such a cut would likely prove
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unsustainable as Targeted Expenditures include the actual operating costs of the city - items such as
Professional Services, Fuel Bills, Utilities, Vehicle and Property Maintenance, etc.
These two items unsustainable budget cuts and unsupportable tax increases form the crux of The
Plan. Together, they reduce the 2013 budget deficit by no more than $3,900,000.
With a projected 2013 budget deficit under The Plan of at least $21,100,000, I expect the city to be shut
out of the capital market (see Exhibit 3, a copy of the letter I recently submitted to M&T Bank). The
administrations recent actions indicate they may be aware of the citys inability to borrow. Mayor
Christ Doherty has attempted to borrow more than one-third of the total pension funds at an incredibly
high interest rate of 8% (see Exhibit 4).
The citys only option short of recurring annual State subsidies, which will exceed $100,000,000 by
2018 is to file for Chapter 9 Bankruptcy. A properly managed bankruptcy filing will give the city the
opportunity to reduce costs by reorganizing debt and restructuring The CBAs. As evidenced by Stockton,
CA, a city can continue to operate while in bankruptcy.
I urge you to reject this doomed attempt to kick the can down the road and take a stand for
overburdened taxpayers. Refuse to accept this recovery plan and cooperate with a Chapter 9 filing for
the City of Scranton.
If you would like to discuss my analysis, please feel free to contact me by email (garettlewis@gmail.com)
or by phone at 570-80-6813.
Regards,
Gary Lewis
CC: Governor Tom Corbett
mailto:garettlewis@gmail.com7/31/2019 Letter to DCED
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2012 Budgeted Real Estate Tax Revenue: 13,970,012.98$
12% Increase: 1,676,401.56$
2013 Budgeted Real Estate Tax Revenue: 15,646,414.54$
Current Realization Rate (per PEL): 87%
Anticipated 2013 Realization Rate: 84%
Anticipated increase in Tax Collections, 2013: 1,408,177.31$
Total Operating Expenses - 2012: 85,331,121.49$
Non-Departmental Operating Expenses - 2012: 25,449,938.00$
Total Employee Compensation - 2012: 47,126,003.35$
Total Departmental Operating Expenses - 2012: 12,755,180.14$
Exhibit 1: Calculation of Projected Increase in Real Estate Taxes
Exhibit 2: Calculation of Non-Employee Departmental Expenditures
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Gary Lewis
[Address redacted]
July 16, 2012
Mr. Bob Wilmers, Chairman/CEO
c/o M&T Bank
One M&T Plaza
Buffalo, NY 14203-2399
RE: City of Scranton, PA
Proposed Purchase of City Debt
Material Event Notice
Dear Mr. Wilmers,
As you are certainly aware, the city of Scranton, PA is in the midst of a major financial crisis. With city
coffers running empty, the State of Pennsylvania has offered the city short term financing and the
Administration is currently working to secure more than $26,000,000 in funding to cover the 2012
I strongly urge you to refrain from lending, or participating in the procurement of, these funds. Not only
will the terms of any new financing be particularly onerous, but this funding merely addresses the 2012
deficit and does nothing to address the issues the city will face in 2013, including:
A structural deficit of nearly $10,000,000, exclusive of debt service,
Debt Service of $8,168,536.35, exclusive of new debt issuance,
An additional $1,400,000 will be due to the local public employee unions due to the recentsettlement of a court-ordered arbitration award, and,
Unpaid bills rolled forward from the prior year, which exceeded $6,000,000 in 2012.
Altogether, I believe the city will have a deficit approaching $25,000,000 in 2013.
Additionally, the recent Recovery Plan proposed by the Mayor, and rejected by City Council, called for
than $5,000,000. It was later discovered thatthe Sewer Authority already owns the asset, a fact the
Authority in 2007 for on-going maintenance costs paid by the City and won the case. Perhaps the next
iteration of the recovery plan will offer to sell the Brooklyn Bridge in an attempt to balance the budget.
on homeowners. The simple fact is that residents
of Scranton, who currently have a household income less than $36,000 per year according to
Bloomberg, cannot support additional tax hikes. Between a 3.4% local wage tax, a 3.07% State wage tax
and an average real estate tax bill approaching $2,000, the residents of this city are heavily burdened, a
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Lackawanna County nor the Commonwealth guaranty the City tax levy.
Sacramento and San Bernardino, both of which filed for Chapter 9 Bankruptcy protection in the last few
weeks. I believe the city is also a prime candidate for a bankruptcy filing.
Lending this money to Scranton is not only an endorsement of its very weak financial management; it
represents a less than investment grade risk to bondholders. Notwithstanding any credit rating agency
finances should be included in any offering document distributed to
investors in any future borrowing. Should the bank fail to comply with this request, I will file a material
event notice with the Municipal Securities Rulemaking Board on account of material misstatement and
omission under rules 10b-5 and 15c2-12 of the Securities Exchange Act of 1934.
nancial condition, please feel free to reach out. You
e.blogspot.com. It has also been documented by
the New York Times, CNNMoney and The Bond Buyer. I have made repeated attempts to discuss this
information with the Administration and City Council over the last two month, but have made no
progress.
As the lender of last resort, you are in the unique
a message to the Administration. Such action is not unprecedented. In 1975, Manufacturers Hanover
refused to renew approximately $2,000,000,000 of notes for New York City for fear of inability to repay
when due. New York City was shut out of the credit markets for years until it cleaned up its financial
management. Scranton needs to learn that same lesson.
Kind Regards,
Gary Lewis
CC: Mr. Michael Pinto, Vice Chairman
Mr. Mark Czarnecki, President
Ms. Marie King, Vice President
Governor Tom Corbett
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