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Scranton Officials Asked to Clarify Borrowing

A Scranton resident and private-sector financial consultant has asked officials in that distressed northeast Pennsylvania city to clarify a bond-document statement that he said "clearly contradicts the true nature of the city's tax increases."

Gary Lewis, in a letter to city business administrator Ryan McGowan, said a supplement to an official statement for Scranton's $14.7 million private placement in early December "implies that the [$1.6 million] in additional revenue is available to satisfy a budgetary gap created by lack of a 'commuter tax' when this revenue stream is encumbered by a Lackawanna County court order."

Lewis has forwarded copies of his letter to the Securities and Exchange Commission's whistleblower office, state Attorney General Kathleen Kane and C. Alan Walker, secretary of the Department of Community and Economic Development, which oversees Pennsylvania’s distressed communities program, known commonly as Act 47.

The county's Court of Common Pleas on Dec. 20 denied the city's petition to impose a 1% commuter tax, saying the city failed to satisfy statutory criteria established under Act 47.

According to Lewis, the city has not disclosed to residents a promise to investors that they would offset the commuter tax with a tax hike. Lewis said the eventual compliance could mean a 47% increase in property taxes, up from the current 22%.

"That would mean an extra 25% to cover the $2.5 million they need to cover the lost income from the commuter tax," Lewis said in an interview.

Lewis said that given recent comments by Mayor Chris Doherty and City Council President Janet Evans, "it is apparent that no portion of the 22% tax hike in the 2013 budget is designed to cover the [$2.5 million] shortfall created by the lack of a 'commuter tax,' in apparent contradiction to the supplement filed by the city," Lewis wrote.

Messages seeking comment were left with Doherty, Evans and McGowan.

Janney Capital Markets, saying officials have taken positive steps to improve the finances of the 76,000-population city, backed the private placement, which consisted of $9.75 million in Series 2012C general obligation bonds and $4.91 of Series 2013A general obligation notes.

Earlier in the year, after the City Council let the Scranton Parking Authority default on a $1 million bond payment, the city struggled for access to the capital markets, and even paid its employees the federal minimum wage for two weeks in early July.

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