Scranton, Pa.'s settlement with its police and fire unions over back pay is a major step toward financial recovery, according to Mayor Bill Courtright.
"Scranton is finally putting one of its worst financial legacies behind it," Courtright said Friday night, announcing an accord over back pay to retirees owed under a 2011 state Supreme Court ruling.
That ruling, which prohibited the city from using its distressed-municipality status to slash benefits, followed 10 years of litigation and worsened the city's pension liability situation.
Without elaborating, Courtright said the city would finance the judgement by using multiple debt-service reserve funds. Upon taking office in January 2014, he rejected borrowing at 12%. "Because the judgment is so large, we couldn't just put it in the budget," he said. "[But] we knew that [12%] was simply not acceptable."
The city, said Courtright, worked on the financing with its financial consultant, HJA Strategies of Hackensack, N.J., and members of Gov. Tom Wolf's administration.
Courtright, who succeeded Chris Doherty as mayor in 2014, said he would release further details this week.
The mayor said the deal, which still needs approval from union memberships, balances the needs of labor and taxpayers. The parties agreed to the settlement after two days of negotiations with Lackawanna County Court of Common Pleas Judge Robert Mazzoni.
"A liability amounting to more than a quarter of our city's budget is finally off our back," said Courtright, who assigned no dollar value to the agreement.
After the Supreme Court ruling, Doherty and the unions tentatively agreed that the city owed the unions $16 million, accounting for five years of lost wages. In addition, retirees were owed $7.6 million and interest was piling up at roughly $100,000 per month.
Courtright, however, inherited the unfinished business.
Unrated Scranton, the 76,000-population seat of Lackawanna County, has been working to restore its credit reputation since the City Council defaulted on a $1 million, city-guaranteed parking authority bond payment in June 2012.
The city has since repaid that debt.
State Auditor General Eugene DePasquale had warned the city could go bankrupt within two years. "But I was not going to let that happen," Courtright said Friday.
DePasquale in June called Scranton's pension plans severely distressed, citing chronic underfunding and a double-dipping fiasco. Its non-uniformed pension plan was 23% funded as of January 2013. Firefighter and police plans were 16.7% and 28.8% funded, respectively.
Pew Charitable Trusts considers 80% an acceptable threshold.
Scranton, said Courtright, will pay only what police and firefighters are owed – "not a cent more." Through Dec. 31, 2013, interest will be calculated at the court-ordered 6% minimum. Thereafter, the interest rate will be calculated at a reduced 3%. The city will deposit the interest savings into each union's respective pension fund, with Courtright estimated will save Scranton $1 million.
Retirees will receive no interest, which Courtright said would save the city more than $3 million.
In addition, a nationally recognized third-party administrator will manage the city's pension funds. A single medical specialist with no ties to the unions or the administration will determine disability pensions, with the physician's determination final.
The city, known as the setting for the U.S. version of the television show "The Office," has also been exploring a sale of its sewer system and a leasing of its parking assets.