A panel of three Lackawanna County Court judges peppered Scranton officials Tuesday with questions about the city's budgeting and revised recovery plan on the first day of a hearing on the city's request for a 1 percent commuter tax.
During nearly six hours of testimony, the hearing delved into specifics of the city's proposed 2013 budget - and the recovery plan that it underpins - with the judges, including Lackawanna County Judges Terrence Nealon and Robert Mazzoni and visiting Pike County Judge Harold Thomson, asking detailed questions. At times, city witnesses did not have information at their fingertips, such as the number of commuters who would be affected, but later supplied it. The judges also grilled city witnesses on how they constructed the recovery plan and budget on projected revenues that in some cases are speculative at best.
As the city's exhibits were being marked, Judge Nealon quipped that the city's exhibits would be marked with letters because city officials are not good with numbers. The remark drew an outburst of laughter from many of the three dozen people in the courtroom.
The detailed questioning by the judges left commuter-tax opponents cautiously optimistic.
Mayfield Mayor Al Chelik, opposition leader who formed the anti-commuter-tax group Scranton Taxing Our People, said, "I don't think they proved one iota, except that they want to spare Scranton taxpayers and bring in revenue from commuters."
Opposition attorney Armand Olivetti added, "Based on what you heard today, the judges are skeptical of the accuracy of the some of the budget revenue items. We feel good about the case, but you never know."
Scranton residents Bill Jackowitz and Lee Morgan attended the hearing and agreed. "It (a commuter tax) is not going to happen because the budget's not realistic," Mr. Morgan said. Mr. Jackowitz added, "You milk cows, not taxpayers. I don't think the city has presented a case" for a commuter tax. But city resident Doug Miller, who also attended the hearing, disagreed, saying, "I'm pretty confident. I'm hopeful the judges will rule in the city's favor."
The daylong hearing began with city solicitor Paul Kelly calling four witnesses: city Business Administrator Ryan McGowan, Councilman Frank Joyce and Gerald Cross and Joseph Boyle, both of Pennsylvania Economy League, which is the city's Act 47 recovery coordinator.
Mr. Olivetti called two witnesses, including Throop resident Larissa Pawelski, who works in the city and would be subject to a commuter tax, and Mr. Chelik, who also represents the Lackawanna County Association of Boroughs and testified as an expert on municipal budgeting.
Some areas the judges zeroed in on included:
n Whether the city's various 2013 revenue projections - chiefly $1.3 million hoped for in payment in lieu of taxes donations from nonprofits - are overly optimistic.
The city was supposed to have commitments for these PILOTs by Dec. 1, but have received none. Judge Nealon asked how the city could budget such a large increase. Mr. McGowan replied, "That was a decision of the elected leadership (mayor and council)." Judge Thomson asked, "How do you aggressively collect from a volunteer," and Mr. Joyce replied the city is hopeful PILOTs will materialize. Judge Mazzoni asked if PEL was comfortable with the city's PILOT projections, and Mr. Cross said, "It's probably unrealistic."
n Whether a leaseback financing mechanism planned to raise $22 million next year is realistic.
These funds are needed to pay a $17 million arbitration award to police and fire unions and a $5 million increase in pension payments. Mr. Boyle testified that under a leaseback, the city would get a one-time cash infusion by leasing a building to the Scranton Redevelopment Authority, which would float the bonds while the city pays the leaseback debt. Mr. Boyle said the city has three outstanding leasebacks, including two involving the DPW ($9.6 million principal owed from a 2006 leaseback and $5.85 million owed on a 2008 leaseback), and one involving Scranton Sewer Authority, ($2.4 million owed from a 2004 leaseback). Saying the leaseback concept is "completely foreign to me," Judge Mazzoni asked what other building the city is eyeing for a $22 million leaseback. Mr. Boyle said he didn't know and Judge Mazzoni queried, "Wouldn't you want to know what assets are being proposed?" Mr. Boyle then said the police station was mentioned, but that's a decision to be made by the city and not PEL. The city has no commitments from a lender yet for a leaseback next year but has had discussions with two prospects, Mr. McGowan said.
n Why the city has not raised its $178 annual garbage fee in 10 years and will be keeping it the same next year.
Judge Mazzoni asked what is the aversion to raising the trash fee. Mr. Joyce said the council instead decided to raise taxes and felt the tax hike was a big enough hit. Mr. Cross testified the city has wanted the trash fee to reflect the actual cost of providing the service.
n Whether the city is willfully violating a different judge's order requiring unfunded debt approved Oct. 31 to be paid back with a dedicated tax millage that the city has chosen to avoid.
The city in January received court approval to borrow $9.85 million in unfunded debt, and then in October received another court approval for an additional $9.75 million in unfunded debt. The judge in the first case required a dedicated millage to pay this debt back and that became the 12 percent property tax hike in the 2013 budget, Mr. McGowan testified. A different judge in the second case also required a dedicated tax millage to pay back that debt, but the mayor and council will use general funds to repay this debt. While Mr. McGowan and Mr. Cross testified they believe the Oct. 31 order requires a dedicated millage, they noted that the 2013 budget does contain funds to pay the second debt. Mr. Joyce testified the second dedicated millage would be imposed in 2014, and this would satisfy the Oct. 31 order.
Other hearing highlights included:
n A commuter tax is estimated to generate $2.5 million in 2013, and then $4 million in 2014 and 2015. Mr. Cross testified that a 1 percent tax would raise $4 million a year, and the $2.5 million figure for next year is due to a lag in collections of getting the tax up and running.
n Of the 36,651 people who work in the city, 13,996 are city residents and 22,655 are nonresidents who would be subject to the commuter tax, Mr. Kelly said. At $4 million in revenue and 22,655 commuters, the average commuter tax would be $176 dollars.
n Ms. Pawelski testified she is a single mom who works as a clerk at Pennsylvania Board of Probation and Parole Office on Penn Avenue and lives paycheck to paycheck. A commuter tax "would have a huge impact on my life," she said, adding it would cost her $280 a year. Mr. Kelly asked her who pays for the police and fire protection she receives while working in the city, and Ms. Pawelski answered the city does.
n Mr. Chelik testified he believes the city has established a pattern of budgeting unreliability and its 2013 budget is based on "pie in the sky" revenue. Furthermore, he testified that he believes the city's decision to avoid dedicating a millage to pay for the second unfunded debt is a "violation of a court order." Mr. Kelly asked Mr. Chelik if Mayfield would have to increase police and fire services if 22,655 commuters descended on the borough every day, and Mr. Chelik replied yes.
n Mr. Joyce said the city has not looked at liquidating city property to raise cash or to pursue any municipal mergers of services.
n Mr. McGowan said the city's proposed amusement tax, which has been budgeted to bring in $200,000 next year, is expected to only raise around $75,000, after it is whittled from a 10 percent tax to 5 percent and various exemptions are given.
n A $1 million deferment next year in landfill fees allowed by Keystone Sanitary Landfill in Dunmore will be repaid in three installments, of one each in 2014, 2015 and 2016, and this loan would be interest-free, Mr. McGowan said.
n Judge Nealon several times noted the city's debt service would "quadruple" from $3.6 million to $16.4 million in less than two years, and asked Mr. Cross to "disabuse us of the notion that we're just throwing deck chairs off the Titanic." Mr. Cross said borrowing is the path the city has chosen and is guaranteeing tax increases on its citizens under the recovery plan.
n Mr. Olivetti asked why the city is not raising the earned-income tax on its own residents. Mr. Joyce said city residents are "overly taxed" already and commuters should pay for benefitting from city services.
n Mr. Olivetti asked if the city has a fallback if a leaseback fails, and Mr. Joyce said no, adding, "That's why we need all the revenue we could get at this point."
n Mr. Cross gave sobering testimony of the city's situation and said the city needs a commuter tax, among other alternative revenues.
"It is our concern that the city's cash-flow problems (of 2012) could be repeated" if revenues are not achieved, Mr. Cross said. Still, Mr. Cross added, "I don't believe Chapter 9 (bankruptcy) is a viable option," but it's also unclear when the city may no longer be designated as distressed.
n Noting that the city has missed some PEL deadlines for certain actions arising out of the recovery plan, Judge Nealon said it appears the city has failed to meet at least one required hurdle, which is achieving substantial recovery plan compliance.
The hearing is to resume today at 9:30 a.m. Mr. Olivetti is expected to call as witnesses Ron Koldjeski, Lackawanna County's deputy director for tax claims, who also is a Newton Twp. supervisor and member of STOP; and Gary Lewis of Scranton, who owns a consulting firm specializing in distressed business debt analysis and solvency evaluation, and who has advocated for the city filing Chapter 9 bankruptcy as the solution to its fiscal woes.
Mayor Chris Doherty and Council President Janet Evans did not attend the hearing.
Contact the writer: jlockwood@timesshamrock.com