An arbitration award that ends minimum staffing levels for firefighters could save Bethlehem, Pa., about $1 million annually, according to the city’s mayor.

John Callahan said the three-member arbitration panel’s Oct. 21 ruling will give his city needed financial flexibility while keeping residents safe. Bethlehem had its long-term and underlying general obligation bond rating lowered in February to BBB from A-minus by Standard & Poor’s.

Callahan said that the ruling could be a credit positive for his beleaguered Lehigh Valley community.

“I wouldn’t make a pitch to [Standard & Poor’s] right off the award based on that alone, but if we issue additional debt or seek to have our rating reaffirmed, that would be a positive development for us,” the mayor said in an interview Wednesday afternoon.

According to Janney Capital Markets, other changes include benefit restrictions for future job hires, freezing of salaries in 2011 and 2012, and increasing monthly the medical contributions up to $55 from $40.

The arbitration ruling negated Bethlehem’s previous staffing requirement of 22 firefighters per shift, to which Callahan had attributed as burdening the city with overtime costs. That minimum had taken effect in 2009, after which overtime had escalated to $821,000 in 2010 from an average of $291,000 between 2006 and 2008.

Union officials, meanwhile, say that scuttling the minimum staffing requirement compromises public safety.

Callahan disagreed.

“For years we operated a manning minimum of 18 firefighters per shift, not 20 or 22, and structural fires are in decline,” Callahan said. “We would not do anything that would jeopardize firefighter safety.”

Standard & Poor’s made its downgrade in February, when the city sold deficit-reduction bonds.

“The downgrades are based on a deterioration of Bethlehem’s financial position and the need to issue deficit financing to fund operations,” the rating agency said at the time.

Standard & Poor’s cited a high level of inter-fund borrowing that triggered the issuance of deficit financing, and ongoing structural budgetary imbalance in the general fund operations, resulting in negative fund balances in fiscal 2008 and 2009.

The rating agency also criticized Bethlehem for inefficient financial monitoring and for making inaccurate financial projections.

Standard & Poor’s said offsetting factors included the city’s economy and a moderate overall debt burden.

According to the Morning Call newspaper, a draft audit released in September showed the city ended 2010 with a $7.2 million shortfall, its third straight deficit year.

Bethlehem’s general fund revenue was $53.7 million, $2.3 million less than in 2009, the newspaper reported.

Expenses rose by 2.7% to $56.4 million.

Callahan said Bethlehem, unlike many of its struggling Pennsylvania peers, is not in the Act 47 program for distressed communities or other kind of early intervention program.

He stressed the need for local property tax reform and for the state to ease up on unfunded mandates.

“The deck is stacked against us. We’re looking for relief and for the tools necessary to enable us to move forward,” he said.

Bethlehem has several economic development projects completed or under way, which Standard & Poor’s said should boost the city’s tax base.

The arbitration ruling comes as nearby Allentown and its firefighters union, similarly deadlocked, prepare to go into arbitration sessions next week.

That city’s contract requires at least 30 firefighters per shift.

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