Wilkes-Barre scrambles after Pennsylvania rejects distressed status

Register now

Officials in Wilkes-Barre are regrouping after the coordinators of Pennsylvania’s program for struggling municipalities rejected the city’s request for distressed status.

Mayor Tony George and the city’s consultant, Public Financial Management, were scheduled to meet this week with representatives of the state Department of Community and Economic Development, which turned down the city’s bid to enroll in the program, known commonly as Act 47.

“Opportunities remain to keep the city out of financial distress status,” DCED Secretary Dennis Davin wrote George on Aug. 31. “Each and every viable option must be considered, including modest gains in the fund balance and earned income tax collections, the need to perform a property reassessment and recommendations for asset monetization.”

S&P Global Ratings said Wednesday that its rating on Wilkes-Barre’s general obligation bond remains unchanged at BBB-minus with a negative credit watch, “while we continue to assess its credit quality in light of the state's decision.”

S&P acknowledged “a least a one-in-two chance” that it would lower its rating within 90 days of receiving any information from the city regarding its follow-up plans. “Any action on our part regarding the rating--either keeping it the same or revising it downward -- hinges on our better understanding of those plans,” S&P added.

Neither Fitch Ratings nor Moody’s Investors Service rate the Luzerne County city.

"The state made the right decision," said David Fiorenza, a Villanova School of Business professor. "I hope this decision will send the message to Pennsylvania cities and municipalities to take care of their financial house as these deficits can be remedied."

The city filed its request on June 29 and the DCED held a public hearing at City Hall five weeks later. At the hearing, George projected a $3.5 million shortfall for fiscal 2019 while a DCED overview said the cumulative gap could spike to $16 million by 2021.

Act 47 would have enabled Wilkes-Barre to triple its emergency services tax to $156 a year and tap a $3 million loan that was interest-free for 10 years. Enacting a commuter tax would also have been possible.

DCED hearing officer and former York mayor Kim Bracey said in her final report, however, that Wilkes-Barre should continue to pursue measures through the state’s early intervention program, in which the city enrolled two years ago. State lawmakers formalized early intervention in 2014 as part of the DCED Act 47 process.

“I don’t understand what you [DCED] want us to do,” George said, according to the Times-Leader newspaper of Wilkes-Barre.

According to Fiorenza, the city can fix the deficit with two or three financial decisions that can lay the groundwork for long-term surpluses.

"Cities can't have it both ways, that is, when they have surpluses in their budgets they want less state intervention and when there are deficits they want the commonwealth to be there for the bailouts," said Fiorenza, a former chief financial officer of Radnor Township.

A mining and manufacturing boom boosted Wilkes-Barre’s population to 86,000 in 1930. The decline of those industries over the decades effectively trimmed it to its current 40,600.

According to the Wilkes-Barre-based Pennsylvania Economy League, 44 of Pennsylvania’s cities, or 77.2%, have decreased in population size since 2010.

The city issued $52 million of bonds two years ago to refinance debt and adjust balloon payments to level, and tapped minimum municipal obligation relief under state law to reduce its 2017 pension payment to $5.6 million from $6.5 million. That latter provision expires this year and the city's MMO payment will spike to $7.1 million in 2020.

The five-member city council has balked at tax and fee increases and rejected a $2 million sale of the Park & Lock East garage.

For reprint and licensing requests for this article, click here.
Budgets Infrastructure Bondholders Pennsylvania
MORE FROM BOND BUYER