Pennsylvania’s Department of Community and Economic Development has scheduled a hearing Aug. 1 to consider Wilkes-Barre’s request for distressed status.

Mayor Tony George on June 29 applied for such consideration under the commonwealth’s workout program for municipalities, known commonly as Act 47.

The hearing is set for the City Council chambers in City Hall. Wilkes-Barre is the 41,000-population seat of Luzerne County in northeast Pennsylvania.

According to George, Wilkes-Barre faces an estimated $3.5 million deficit next year that he projects to worsen in the out years. Its revenue-raising abilities are limited.

In addition, union negotiations have stalled and council members are reluctant to raise taxes. In addition, the council has resisted selling parking assets.

The city is already enrolled in DCED’s early intervention program.

"Wilkes-Barre is in this situation because the city did not react in the same manner that cities like Allentown and Bethlehem did with an aggressive approach to attracting businesses," said David Fiorenza, a Villanova School of Business professor.

"Pennsylvania municipalities have not addressed the real problem — pension obligations and health benefits," said Fiorenza, a former chief financial officer of Radnor Township, Pa. "Unions will continue to be an issue at all municipal levels in Pennsylvania."

In mid-2017, S&P Global Ratings downgraded the city’s underlying rating to BBB-minus and assigned a negative outlook. S&P cited structural imbalance and significant fixed costs. It said the city’s pension funded ratio was a “weak” 41%.

The city’s population is down to roughly 40,000 from its high of 86,000 in 1930, during a boom period for mining and manufacturing.

“Over the next several decades, the decline of those industries and the Knox Mine disaster helped reduce the population in half,” wrote Tom Kozlik, a managing director at PNC Capital Markets.

In 1959, the roof of the Knox Coal Co. collapsed, trapping 74 people; 12 were never found.

Potential assistance available under Act 47 includes the appointment by DCED of a recovery coordinator; multiyear recovery plan; emergency grants and no-interest loans; priority position for commonwealth economic and community development programs; help in negotiating labor contracts; and the ability to levy special taxes.

Wilkes-Barre, if accepted, would be the 18th community now in the program. Fourteen have exited since the program’s inception in 1982, most recently Pittsburgh in February.

According to Kozlik, the Act 47 amendment Pennsylvania lawmakers passed in 2014 provides slightly more oversight, access to different temporary revenue enhancements and less time to regroup.

It also requires cities to exit within five years of their most recently enacted recovery plan, although they may receive a three-year extension if they adopt an exit plan.

Wilkes-Barre’s neighbor, Scranton — in the program since 1992 — has used this extension and state capital Harrisburg is in the process of one.

"Act 47, in Pennsylvania, is as effective as the team of financial consultants that are hired to implement the changes to a city that is in distress," said Fiorenza. "If the city officials are committed to fiscal responsibility and restructuring, even at the expense of their political career, then the Act 47 system works."

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