A Lackawanna County, Pa., court has ruled that Scranton's home-rule charter does not supersede a state cap on tax collection.

Judge James Gibbons on Aug. 4 rejected Scranton's preliminary objection to a lawsuit by a Scranton taxpayer group that opposed the city’s tripling of a local services tax.

The case is still pending. Losing it could cost the distressed city millions of dollars.

“The arguments of the defendants are not persuasive,” Gibbons said in an eight-page ruling. “Additionally, we believe the complaint is specific enough to apprise the defendants of the nature of the claims against them and to prepare a defense.”

Gibbons heard arguments on the city's motion May 30.

Courtroom debate involved the primacy of Pennsylvania’s Act 511, a so-called local tax enabling act. The lawsuit by eight taxpayers, filed March 2, contends Scranton has been collecting taxes beyond the legal limit and called for the issuance of a mandamus against the city.

City attorneys, meanwhile, say Scranton has a home-rule charter and is not subject to a cap.

Scranton, a 76,000-population county seat, raised the levy from $52 to $156 for every person working within the city limits that earns at least $15,600. Officials defended the move under Pennsylvania's municipal planning code and called it essential for the city's recovery under the state-sponsored Act 47 for distressed communities, to which Scranton has belonged since 1992.

“This is a major win for the taxpayers of Scranton that have been beset by mounting taxes and fees from the cash-strapped Scranton government,” said Gary St. Fleur, the leader of the taxpayer group and a Libertarian challenger to Democratic Mayor Bill Courtright.

St. Fleur said the city should file for Chapter 9 bankruptcy. “This case forces the city to confront the reality that they have run out of time and that the Scranton taxpayer cannot bail out the city of Scranton,” he said.

The group, consisting of residents and all subject to the local tax, comprises St. Fleur, Nicholas Gettel, Casey Durkin, Damian Biancerelli, Rich Johnson, Ethan Green, Angela Gilgallon and Michele McGovern.

A message seeking comment was left with attorney Kevin Conaboy, who is representing the city.

Gibbons ruled that home-rule charters and their amendments are subservient to the state General Assembly under Pennsylvania’s constitution.

Scranton, whose bonds are junk, received a general obligation upgrade from S&P Global Ratings last week to BB-plus from BB. The new rating is one level below investment grade.

S&P, which assigned a stable outlook, cited the city’s improved budget flexibility and liquidity, stemming largely from a sewer-system sale that enabled it to retire more than $40 million of high-coupon debt.

The city also suspended its cost-of-living-adjustments and intends to apply a portion of sewer system sale proceeds to pension funding.

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Paul Burton

Paul Burton

Paul Burton is the Northeast Regional Editor for The Bond Buyer and the author of the book "Tales from the Newsrooms." He is a sought-after public speaker and has appeared on radio and TV shows, including former CBS News White House correspondent Sharyl Attkisson’s public-affairs program, “Full Measure.”