Mike Shedlock with another example of how local municipalities across the land are headed towards bankruptcy. Remember when the MSM shills at Bloomberg and CNBC rejoiced in Meredith Whitney’s prediction of mass defaults in municipal bonds? Her timing may have been early, but her facts are right. Stockton went under last week. Pennsylvania’s capital – Harrisburg – went under last year. Scranton is on the verge. Hundreds of cities, towns and localities will go bankrupt in the next couple years. You want to know why?
MATH!!!!
You cannot promise government union workers unlimited health and pension benefits when you do not have the money to pay them. A moronic politician will come up with the only solution they know – increase your taxes. Sorry – there is no blood left in that stone. The shit has hit the proverbial fan. There is nothing left to do but admit that our entire system is a scam built on lies and delusion. Math is hard.
Scranton Mayor Slashes All Public Worker Wages to $7.25 per Hour, Including Police, Fire, His Own; City Effectively Bankrupt
The mayor wants an immediate tax hike of 29% and 78% over three years. In every sense of the word, Scranton is bankrupt.
NPR reports Scranton’s Public Workers Now Paid Minimum Wage.
The city of Scranton, Pa., sent out paychecks to its employees Friday, like it does every two weeks. But this time the checks were much smaller than usual. Mayor Chris Doherty has reduced everyone’s pay — including his own — to the state’s minimum wage: $7.25 an hour.
Doherty says his city has run out of money.
Doherty wants to raise taxes to fill a $16.8-million gap. The city council wants to take a different approach and borrow money. City council members did not respond to NPR’s requests to discuss the dispute.
After paying workers Friday, the city had only about $5,000 left in the bank. More money flowed into city accounts that day, but it was still not enough to pay the $1 million the city still owes to its nearly 400 employees.
The firefighters’ union, along with the police and public works unions, have taken the city to court. Lackawanna County Judge Michael Barrasse issued an injunction, essentially agreeing with the unions that the city was breaking the law, but Doherty says he doesn’t have another choice. Despite the injunction, he had the city send out paychecks based on minimum wage.
The unions plan to be back in court first thing Monday morning to ask the judge to hold Doherty in contempt.
There’s been no love lost between Doherty and the public employee unions because of this battle; they’ve already spent the past decade in a legal dispute over pay that went all the way to the state supreme court. Both sides come to this latest battle with plenty of baggage and hard feelings. But with nearly 400 city workers receiving a fraction of the pay they typically get, pressure is building to resolve the issue soon.
Scranton Mayor Slashes City Workers’ Pay
Filling in a few more details, IBT reports Scranton Mayor Slashes City Workers’ Pay To Minimum Wage
Doherty wants to raise taxes by 29 percent immediately and by as much as 78 percent over the next three years, while the council wants the city to borrow money. The Scranton Times-Tribune reported there’s no way for the city to take out a loan because it is unable to show it is capable of paying it back.
“I’m trying to do the best I can with the limited amount of funds that I have,” Doherty told NPR. “I want the employees to get paid. Our people work hard — our police and fire — I just don’t have enough money, and I can’t print it in the basement.”
Since the political firestorm erupted, Scranton Police Chief Dan Duffy has stepped down from his position, although he claimed his decision has nothing to do with the financial mess the city finds itself in, according to the Times Leader.
The unions see the mayor’s pay slash as a bullying technique designed to force the city council to adopt his tax increases.
City Effectively Bankrupt
It should be perfectly obvious to every soul on the planet that Scranton is bankrupt. Tax hikes are not the answer. The solution is filing bankruptcy with the hope of killing public union wages and benefits.
However, inane rules in Pennsylvania prohibit cities from filing bankruptcy without state approval.
On October 12, 2011 I reported Pennsylvania State Capital Files for Bankruptcy
Unfortunately, City of Harrisburg chapter 9 bankruptcy dismissed
The US Bankruptcy Court for the Middle District of Pennsylvania has dismissed the bankruptcy petition filed on behalf of the City of Harrisburg, Pennsylvania, finding that the city failed to meet eligibility requirements under the Bankruptcy Code to be a chapter 9 debtor.
The dismissal of Harrisburg’s petition, in November 2011, highlights the US constitutional considerations in municipal bankruptcy cases and the Bankruptcy Code’s strict requirement for a municipality to have express state authorization to become a chapter 9 debtor.
Inept city management, with public union wages and benefits at the heart of it, killed Scranton.
The city is bankrupt. Period. Will the state once again deny the obvious?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Cynical30 says:
So what alternative do public union workers propose in a situation like this? $5,000 in the bank doesn’t equate to paychecks. Is the city supposed to go out and borrow money from…. who the hell lends money to a bankrupt municipality?? A Chinese city? Goldman Sachs at 400 bps + LIBOR? How does this work? How can a judge force the mayor to shit legal tender and hand it to the unions?
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10th July 2012 at 1:44 pm
Hope@ZeroKelvin says:
Faaageddaabbouttit.
Just buy two of these for the wife of the mayor and the union, then shut the doors on the city and go home.
Go out in style, that’s my advice.
Seriously, there is NO solution here. These municipalities are hopelessly bankrupt, there is NO WAY they are going to be able to honor any of their contracts, union or no.
Wow, just in time for a long hot summer with record unemployment among the yoots and record numbers of people in the FSA. Brings a new meaning to the phrase “Hot Time in The City”.
Glad I am living/working far far away from this shit. Advise you guys to do the same, especially you Admin, being so close to the 30 Blocks.
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10th July 2012 at 2:06 pm
Colma Rising says:
C30:
Federal bailout. That’s what they will propose.
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10th July 2012 at 2:07 pm
Bob says:
The focus on slashing pay rates is notable, even if the context is a 10-year legal battle. While the cuts are called temporary, as Cynical30 says, where will the money come from down the road to restore pay levels?
Some of these union contracts specify rates — they will probably be upheld in court, and hasten Scranton’s bankruptcy in the process. However, when contracts expire, there is only one set of laws on the books regarding wage rates — minimum wage.
I didn’t expect the deflationary idea of cutting pay to gain such visibility so soon. It is an ominous development.
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10th July 2012 at 2:12 pm
sensetti says:
The shooting and fires soon to start , I just drove through Memphis in which gunfire and bullet wounds are common place
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10th July 2012 at 2:21 pm
Administrator says:
At least they still have Dunder Mifflin
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10th July 2012 at 2:29 pm
DaveL says:
I saw this story mentioned yesterday. But never read what taxes would be raised, or who they would be raised upon. Any info?
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10th July 2012 at 3:42 pm
Bob says:
Put Dunder or Mifflin in charge! Whichever one didn’t shoot himself!
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10th July 2012 at 3:42 pm
Colma Rising says:
Bud Selik?
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10th July 2012 at 3:44 pm
Administrator says:
Mayor, Scranton City Council dispute figures
By Jim Lockwood (Staff Writer), By Jim Lockwood (Staff Writer)Published: July 5, 2012
Scranton City Council’s ideas for raising alternative revenues and proposing much-lower tax increases than Mayor Chris Doherty has would still leave huge budget deficits, according to an analysis of council ideas by city Business Adminstrator Ryan McGowan.
But council President Janet Evans claimed Mr. McGowan used some inaccurate numbers, and the council is preparing a response.
Council and mayor have been sharply divided over revising an Act 47 recovery plan the mayor says wary banks are requiring before they would consider again providing financing needed to keep the city afloat this year.
In May, Mr. Doherty proposed a recovery plan that contains a 78 percent tax increase over the next three years. The council has balked at such large tax hikes and wants to offset them by maximizing alternative sources of revenues, such as contributions from nonprofits, and commuter, payroll and sales taxes. The mayor has countered that alternative revenues won’t raise enough money and won’t occur quickly.
In the stalemate’s latest exchange, Mr. McGowan on Friday sent council a spreadsheet of his analysis showing that, even with the council’s proposed alternative revenues, and a council-proposed tax hike of 10 percent a year for each of the next three years, there still would be budget deficits of $7 million in 2013, $12 million in 2014 and $12.5 million in 2015.
“We’ve still got a big hole, and we’ve got to work to fill it,” Mr. McGowan said. “Council needs to step up and take ownership of this problem.”
Mrs. Evans said, “Some of the numbers inserted by Mr. McGowan are inaccurate.”
For example, for payments in lieu of taxes, also called PILOTs, from nonprofit organizations, Mr. McGowan said he used a council figure of $300,000 a year. But Mrs. Evans said, “We’re reworking that and trying to develop a formula” to determine PILOT contributions.
In one area of agreement, the administration is calculating a $17 million figure to pay arbitration awards to police and fire unions stemming from a landmark ruling in October by the state Supreme Court that favored the unions. The total cost of that award is now being pegged at $32 million, and last week the unions announced they had a tentative deal with the mayor to forego $15 million of the award. The remaining $17 million would be paid over 20 years and would result in an annual debt service payment of $1.84 million, according to Mr. McGowan’s analysis.
“That is one number that I don’t think the council would alter,” Mrs. Evans said.
She declined to specifically address each alternative revenue as delineated by Mr. McGowan.
“We are working diligently on obtaining accurate figures,” Mrs. Evans said. “I have spoken to the mayor on this and we’re hoping to have a correct spreadsheet available next week.”
Efforts to reach the mayor were unsuccessful.
The other revenue sources as described by Mr. McGowan include:
n Amusement tax: $200,000 in each of the three years.
n Commuter tax, pending court approval: $1.5 million in 2013, and $4 million in the latter two years.
n Market-based revenue opportunities, such as advertising on city property: $353,000 in 2013; $530,000 in 2013 and $708,000 in 2015.
n Selling delinquent refuse fees and taxes: $2.4 million in 2013.
n Parking meter enhancements: $350,000 in 2013, and $700,000 in the latter two years.
n Departmental reductions: 10 percent cuts in 2015 saving $2.2 million.
n Health care savings from increasing employee contributions: $625,000 in 2015.
n Sales tax, pending approval by state Legislature: $2.7 million in 2013; $3.7 million in 2014; and $4.2 million in 2015.
n Payroll tax, pending approval by state Legislature: $26,000 in 2014 and $51,000 in 2015.
Mr. McGowan noted the city can’t mandate PILOT contributions, and court or legislative approvals for commuter, sales and payroll taxes make them uncertain. As a result, the only real alternative for realistic revenues is the mayor’s tax hikes.
“We can’t budget on maybes,” Mr. McGowan said.
Mrs. Evans said, “The bottom line is city council will be decreasing the 78 percent tax increase.”
Missing from the latest equation is a $5 million, one-shot influx from the sale of the city’s stormwater conveyance system to the Scranton Sewer Authority. The mayor had proposed that sale and council had been agreeable to it, but the administration was surprised to learn in recent days from the sewer authority that it has owned the stormwater lines since the authority’s inception in the late 1960s, Mr. McGowan said.
Contact the writer: jlockwood@timesshamrock.com
A $5 million sale of Scranton’s stormwater system to the Scranton Sewer Authority, which was being eyed by the mayor and council to help fill a budget gap, has been flushed down the drain, officials said.
That’s because the sewer authority already owns the city’s stormwater conveyance system – and has owned it since the authority’s inception in the late 1960s, authority attorney Jeffrey Belardi said.
At that time, the city’s existing stormwater and sewer lines, as well as Dunmore’s, were deeded to the then-new authority that serves both Scranton and Dunmore, Mr. Belardi said.
So, it was quite a surprise when sewer authority officials recently saw that one of Mayor Chris Doherty’s revenue proposals for a revised recovery plan was to sell the city’s stormwater conveyance system to the authority for $5 million, Mr. Belardi said. Even council members opposed to much of the mayor’s agenda had said they were on board with such a sale.
But it can’t occur, because “we can’t buy it from them. We already own it,” Mr. Belardi said. “It would be totally irresponsible, illegal and crazy.
“When we first saw it (proposed sale) in the newspaper, we thought ‘What the heck is going on here. That shouldn’t be in there’ (the recovery plan),” Mr. Belardi said.
As a result, the $5 million revenue figure has been erased from the administration’s proposed recovery plan, city Business Administrator Ryan McGowan said. Council President Janet Evans said council members received an email Tuesday from Mr. McGowan informing them that the stormwater conveyance sale was impossible.
Efforts to reach Mr. Doherty were unsuccessful. In May, when Mr. Doherty released his proposed recovery plan, which called for a 78 percent tax hike over the next three years, he said he was hoping for the stormwater conveyance sale to occur this year, so the $5 million in proceeds could be used to help balance the city’s 2012 budget.
Now that such a sale is dead, it’s unclear how the city can replace that expected revenue, Mr. McGowan said.
The treatment plant was completed in 1970, and 63 percent of the system in older areas combines sewage from households with stormwater. The authority is under federal mandate to reduce “combined sewer overflows” during heavy rain.
Even though the city and Dunmore both deeded their stormwater lines to the authority, both municipalities – and not the authority – had maintained the lines over the years, Mr. Belardi said.
Around 2006-2007, both municipalities sued the authority to recoup money for their years of maintenance, Mr. Belardi said. Scranton sued for $15 million, but the authority settled the case with a payment of $6.9 million, Mr. Belardi said.
“In that lawsuit, they were acknowledging that the Scranton Sewer Authority owned the lines,” Mr. Belardi said.
The stormwater system became a source of funds for the city in 2007, according to Mr. Belardi.
In March of 2007, a federal court decision upheld a $6.6 million judgment against Scranton and Dunmore that resulted from the termination of a private sewer management agreement with American Water Services Inc. in 2004.
That same month, the sewer authority approved borrowing up to $8 million to settle claims with Scranton and Dunmore for work the municipalities did on their respective storm sewer systems since 1968. At that time, the city and Dunmore had until mid-May 2007 to come up with a plan to pay the $6.6 million judgment to American Water. The city owed $5.5 million, plus interest, while Dunmore’s share was $1.1 million.
The $8 million borrowing that the authority approved to reimburse Scranton and Dunmore for work on the stormwater system apparently was enough to cover the judgments, and at that time, Mr. Doherty said the city would use its share to pay off that judgment.
Remarking that the general public often does not realize that matters involving sewer systems are often complicated and costly, particularly with modern environmental mandates, Mr. Belardi said, “You flush the toilet and it goes away. You don’t think about it.
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10th July 2012 at 3:50 pm
ncognito1959 says:
cities then counties then states then the whole US. Dominoes!
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10th July 2012 at 3:52 pm
Administrator says:
Dominoes fall
http://youtu.be/GPfI9oxZuEo
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10th July 2012 at 4:02 pm
FRED FLINTSTONE says:
5000 LOTTO TICKETS, BITCHEZ!!!!
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10th July 2012 at 4:09 pm
DaveL says:
“The other revenue sources as described by Mr. McGowan include:
an Amusement tax: $200,000 in each of the three years”.
Somehow I don’t think the residents of Scranton are going to be too fucking amused by all of this.
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10th July 2012 at 9:31 pm
Buddabull says:
This city has been fucked up for the last 25 years at least. I used to work there it will never change. In my opinion they are all blood suckers up there and care for their on needs. Two county commishners were recently convicted for taking bribes. Too much old blood running the place.
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10th July 2012 at 9:58 pm
Novista says:
http://www.youtube.com/watch?v=s1_8909dNJ0
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10th July 2012 at 10:31 pm
eugend66 says:
” FOA (10/15/01; 07:49:09MT – usagold.com msg#120)
Continuing from my last talk:
[...]
It’s no accident of nature that our world monetary structure embraced derivative expansion as it has over the last ten or twelve years. I think we can say that this modern creation of risk management began around 1988 or so. ( It’s funny, but I remember living in San Diego and reading a paper about a gold company called Barrick that just started only a few years earlier?)
The record of derivative evolution meshes seamlessly with the recent need for supportive dollar currency measures; a strategy of maintaining a failing system that was ending earlier than expected. Truly, a decade ago, noone was going to carry the dollar any further, waiting on the endless delays of Euro creation, without some way to hedge risk. We had hit the end of the dollar’s timeline to early; we had missed the mark.
The US could not physically save the dollar, then, with gold backing or the production and sale of real goods. In the course of all the previous dollar expansion, the gross liabilities of taking dollar asset conversion into anything real, and originated locally in the US, would have made us economic slaves to the world for decades. The only answer was to let the dollar kill itself while you create an illusion of risk dispersion in the form of derivative protection; a form of backing if you will. With this “illusion of risk dispersion” in hand, called a derivative hedge, the world currency system and its denominated assets, continued on. This “just in time risk management” was and is adopted into every present day currency that carried the dollar as reserve backing. This includes all the old Euro moneys and the Swiss and British etc.. Thus, in time, derivative use supplanted IMF protocols and SDR functions; sidestepping the whole basic structure of controls built upon the old dollar based system.
This derivative buildup has effectively removed US fed policy from being a controlling factor in dollar use and expansion. Gone were the days when the Fed could force everyone to disinflate with us. Today, if we slow our money printing, the outside liabilities would crush our banking and ,therefore, our economic way of life.
It’s no wonder that Alan Greenspan has commented so often on the need to control derivatives yet has no workable plan to counter their function. Truly this dynamic was created to counter his function and few can understand this! In effect, the dollar was placed on a one way street that required it to be inflated into infinity. All as a means of protecting dollar originators; the US banking system. ”
http://www.usagold.com/goldtrail/
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10th July 2012 at 4:45 am
Thunderbird says:
There is no way the rule of law is going to solve this problem. And since the rule of law will not let people of conscience solve the problem the machine our society has become will just run down and grind to a halt on an empty fuel tank. How sad that our society has put itself in a box from which we cannot escape. We can sure think out of the box but rule of law holds us in. Those worthless leadership books never thought of that when they recommended to think out of the box.
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10th July 2012 at 7:32 am
Administrator says:
Because Once You Drop By Bankruptcy Court, You Don’t Stop: San Bernardino On Chapter 9 Deck
Submitted by Tyler Durden on 07/10/2012 22:14 -0400
Meredith Whitney made her doomsday prediction. The nothing. Nothing. Then lots of glib muni expert pundits gloating because the Fed, the ECB, the BOJ, the BOE, the SNB, and of course, the central bank of Kenya, had managed to delay the inevitable by a year. Then some more nothing. Then suddenly Stockton, Mammoth Lakes, and now San Bernardino all file in the span of 2 weeks.
•SAN BERNARDINO, CALIFORNIA, WEIGHING CHAPTER 9 BANKRUPTCY – BBG
•SAN BERNARDINO COUNCIL TO DISCUSS ACTION, SPOKESWOMAN SAYS – BBG
•SAN BERNARDINO SPOKESWOMAN GWENDOLYN WATERS SPOKE IN INTERVIEW – BBG
There is a reason marginal events are oh so very important: because as Greece showed, and now one after another broke California municipalities are dropping like flies, one the precedent is there, the easiest thing to do is to just hit Print on that Chapter X petition. After all everyone else is doing it, and remember: he who files first, files best.
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10th July 2012 at 7:36 am
printmemoney says:
@colma
I agree with your federal bailout hypothesis…..although I think it will come in the form of the Fed buying muni and state debt
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10th July 2012 at 8:23 am
Bankrupt U.S. cities are an ill omen of America’s future | The Extinction Protocol: 2012 and beyond « Ye Olde Soapbox says:
[...] 6th Largest City in Pennsylvania Has $5,000 Left (theburningplatform.com) [...]
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10th July 2012 at 3:15 am