city of scranton
After a near bankruptcy, now on the way out of Act 47 and state oversignt
The Problem: Near-Bankruptcy in 2012 and State Oversight since 1992. Scranton, once Pennsylvania’s third largest city, bore the brunt of deindustrialization over the latter half of the 20th Century, losing half its population and tens of thousands of steel and coal jobs. Budget distress followed, causing the Commonwealth of Pennsylvania to declare Scranton severely financially distressed in 1992—the first major city with such a designation. By 2012 Scranton was close to bankruptcy. A lengthy court battle with the City’s police and fire unions left the City with a $30 million judgement against it—nearly a third of the City’s total budget. A default on the Scranton Parking Authority’s debt eliminated the City’s credit rating, caused the appointment of a Receiver, and forced the City to bail out the underwater Parking Authority annually for $3 million. At a time of historically low interest rates, Scranton was paying 9 percent. Finally, after a decade of financial mismanagement, awarding “double pensions,” and a disability rate five times higher than its peers, Scranton’s pension system became the most distressed in Pennsylvania, with 3 years of liquidity left.
Solution: A Stakeholder-driven Plan. HJA Strategies worked with the City, the Act 47 Coordinator the Pennsylvania Economy League, the Commonwealth, state and federal elected officials, local businesses and non-profits, and labor unions to create a broad-based recovery strategy for the City with deep stakeholder buy in. After six months of analysis, we unveiled our recovery strategy and began implementing.
Solution: Resolving the $30 million judgement. After over two years of negotiation with the unions, and nearly ten years of waiting by their members, the judgement was successfully paid back through a bond that achieved an interest rate half of what banks proposed prior to the plan’s implementation. We negotiated a $4 million reduction of the judgement and a $1.5 million deposit by the unions into the pension.
Solution: Achieving Pension Reform. We made pension reform a condition of the judgement repayment, with the unions agreeing to tightened disability terms, a more evenly structured pension board, and a third party administrator to manage the pension.
Solution: A Reinvented Parking System. Through a public private partnership with the non-profit National Development Council and one of Scranton’s largest and most innovative developers, the City will at once modernize a now-unified downtown parking system, terminate a costly receivership, and immediately ensure a self-sustaining parking non-profit that no longer needs an annual $3 million bail out.
Solution: Superfunding the Pension. A negotiated sale of the Scranton Sewer Authority that manages an $140 million environmental mandate, locks in sewer rates for 10 years well below projections, and will net the City $90 million. With the pension reforms in place, Scranton will use the proceeds to cut the pensions’ unfunded liability in half, stabilizing the budget.