The 0.75% commuter tax distressed Scranton, Pa., passed with revenue earmarked for the city's pension plans is a credit positive, according to Moody's Investors Service.

"The credit-positive authorization is the latest of several steps that the fiscally distressed city has taken to achieve structurally balanced operations," said Moody's, which does not rate Scranton.

The City Council passed the tax by a 4-1 vote on July 31.

Scranton in July 2012 paid its employees the federal minimum wage for two weeks after a City Council default on a $1 million parking bond payment triggered a shutoff from the capital markets. "Although the city quickly resumed payment on this debt, it continues to strain the city's general fund because of insufficient parking revenues," said Moody's.

Later that summer, union-owned Amalgamated Bank provided a $6.2 million loan to Scranton. Amalgamated approved another $14 million in financing in 2013 to help bridge budget gaps. The city fully repaid both loans, according to the bank.

Scranton's financial consultant, the Pennsylvania Economy League, said the commuter tax could generate roughly $5.1 million annually toward Scranton's unfunded pension liabilities. "Based on our adjustments, if Scranton were to amortize its net pension liability over 20 years, the annual cost would be $19 million," said Moody's.

Scranton, enrolled in Pennsylvania's Act 47 workout program for distressed municipalities since 1992 1992, still faces significant financial challenges, said Moody's. Scranton administers three single-employer pension plans with a reported aggregate unfunded liability of $150 million."

Based on the adjustments we make to reported pension liabilities, the aggregate net pension obligation is $258 million," said Moody's, which projected the city's annual pension contribution to exceed $16 million in 2016, which is 27% of the city's 2012 revenues.

The state authorizes distressed cities with poorly funded pension plans to assess a non-resident income tax until the pension funds no longer qualify as distressed. Hazleton, however, has had its commuter tax for decades and remains in Act 47, according to Moody's.

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