Scranton’s Blue City Disease

American Cities from coast to coast are dying on their feet.  Fiscal distress has taken hold and – egged on by reckless spending – has emerged as the heart disease of these once-vibrant communities.

Serving as the municipal equivalents of greasy cheeseburgers and Marlboro Reds are bond offerings for boondoggles and lucrative union contracts. Let’s consider the visible symptoms: Detroit is bankrupt. Harrisburg is in receivership and Scranton once cut public sector workers to minimum wage. Municipal distress has three common drivers: excessive debt (and related debt service), unfunded pension and healthcare liabilities, and overly generous compensation contracts with police, fire and clerical unions.

Does any of that sound familiar?

In Scranton, debt service and pension liabilities consume nearly one-quarter of city revenue. Compensation soaks up another 90 percent, and actual operating expenses –like the utility bills for City Hall – come in at about 15% of revenue. That means the city is left with a structural deficit, which it covers by borrowing approximately 30% of cash receipts. How bad is that? Well, Detroit (we all know about Detroit) ran a deficit in excess of 20% of budget.

So, what’s the solution to this problem?  Our current elected officials will tell you it’s to raise taxes. But this is a prescription that doesn’t cure the ill. At best, it’s like providing methadone treatment to heroin addicts. At worst, it’s just giving the addict his heroin. The city has recently raised property taxes on its residents by a prodigious 80% over three years as well as a 69% garbage tax fee hike. Sky high taxes push businesses out of cities, driving down tax revenue.

People then follow their employers, depressing home values, encouraging neighborhood blight and further straining already-tight budgets. I was recently told by two realtors in separate conversations that here are currently over 500 single family homes for sale in Scranton and that “no realtor wants to list them, they don’t sell.” Not only is that sad, but it’s proof that these exorbitant tax hikes are counter productive. Households are deleveraging and dealing with declining actual wages and stagnant unemployment.

Municipalities, on the other hand, are tapping credit markets to ensure public sector unions – their main voting bloc in many cities – remain insulated from the downturn. Voters understand direct costs and they are acutely aware of their precarious financial position. They write checks for property taxes and they see withholdings reduce their take-home pay.

The people of Scranton are being taken advantage of, they are being lied to, and they are starting to catch on. We deserve better than this; we’ve been carrying this city on our back for decades, despite the loose fiscal policies and ineptitude of our local government. Scranton has the Blue City Disease, but it can be cured and we believe we know how that can be done. The city will continue to raise your taxes; they have no other form of revenue after the sale of the Scranton Sewer Authority (one of the last city assets left). The reality is, it won’t matter how many more tax hikes are levied on us, it will never begin to cover the city’s actual debt. The only cure for Scranton now is to file for Chapter 9 bankruptcy protection.

What is Chapter 9?  Chapter 9 is designed to give financially distressed municipalities protection from creditors while formulating and negotiating a plan for adjusting debts through the extension of maturity dates, adjustment of interest rates, refinancing or by obtaining a new loan to pay off existing debt, in part or in whole, which is acceptable to the majority of creditors.

I believe that our government’s short-sightedness and utter lack of vision has put the city in a corner with few options left to save itself.  That makes me very unhappy and if you’re a resident of Scranton, you should be too. Let’s come together and fix our city. Save Scranton!

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Damian Biancarelli is a father, entrepreneur, and patriot.

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