While Scranton, Pa., officials are scrambling for any kind of a loan, one local financial planner said the last thing the broke city needs is more borrowing.
According to Gary Lewis, a private-sector consultant who lives downtown, Scranton needs a wake up call akin to what New York City received in the mid-1970s, when the capital markets shut it off.
“Scranton needs to learn that same lesson,” Lewis said.
Lewis wants potential lender M&T Bank not to approve a loan of up to $26 million, which Mayor Chris Doherty said the city needs to cover its 2012 budget deficit of about $16.4 million and repay a short-term loan of $2 million it could get from the state.
In 1975, Wall Street balked at renewing about $2 billion of notes for then-teetering New York, prompting a state bailout, steep budget cuts, and state fiscal monitors, among other measures.
The city could not borrow directly in the capital markets until the early 1980s.
Doherty had been paying all city employees, including himself, the federal minimum wage of $7.25 per hour since July 6, in defiance of a court order, although the mayor this week said this week’s payroll would reflect full pay, thanks to some tax collections.
Employees, though, have yet to receive back pay.
M&T reportedly is willing to lend to the city, should it approve a financial recovery plan. Pennsylvania’s Department of Community and Economic Development, which oversees distressed communities, has offered a $2 million interest-free loan plus a $250,000 grant if Doherty and the City Council can ratify such a plan by Aug. 1.
The council was scheduled to meet Thursday night.
“I strongly urge you to refrain from lending, or participating in the procurement of, these funds. ... It represents a less than investment-grade risk to bondholders,” Lewis said in a letter to M&T chairman Robert Wilmers.
Such a loan, he said, would only cover the 2012 deficit and not solve the city’s problems for 2013, including a structural deficit of $10 million.
Messages seeking comment were left with Doherty and with M&T headquarters in Buffalo, N.Y.