City in fi­nan­cial dis­tress

State de­clares Ha­zle­ton el­i­gi­ble for Act 47 plan

The Hazleton Standard-Speaker - - FRONT PAGE - BY SAM GALSKI STAFF WRITER

The city of Ha­zle­ton is fi­nan­cially dis­tressed.

State Depart­ment of Com­mu­nity and Eco­nomic Devel­op­ment Sec­re­tary Den­nis Davin signed doc­u­ments on Thurs­day declar­ing Ha­zle­ton a “fi­nan­cially dis­tressed” mu­nic­i­pal­ity un­der state Act 47, ac­cord­ing to Marita Kel­ley, deputy di­rec­tor for Gov­er­nor’s Cen­ter for Lo­cal Gov- ern­ment Ser­vices.

The dec­la­ra­tion gives DCED the abil­ity to so­licit pro­pos­als on be­half of the city for pro­fes­sional man­age­ment ser­vices. Those ser­vices are pro­vided by con­sul­tants that spe­cial­ize in de­vel­op­ing fi­nan­cial re­cov­ery plans, Kel­ley said.

Mayor Jeff Cusat and coun­cil Pres­i­dent Jack Mundie were no­ti­fied of the devel­op­ment on Fri­day.

The devel­op­ment puts the city in a po­si­tion to ap­ply for a $850,000 no-in­ter­est emer­gency loan that the state would make avail­able through a re­volv­ing fund.

State of­fi­cials an­tic­i­pate re­ceiv­ing a loan re­quest from the city, since a con­sul­ta­tive report that DCED pre­pared in Au­gust projects that Ha­zle­ton will face a $895,267 cash-flow short­age by the end of the year, ac­cord­ing to Kel­ley.

A cash flow anal­y­sis projects $9,782,659 in ex­penses out­pac­ing $8,887,392 in rev­enue for the year, ac­cord­ing to the report.

“This clearly is not fis­cally sus­tain­able and it is pro­jected that an ex­tra­or­di­nary cash flow deficit will con­tinue to ex­ist,” the state report reads.

Loan ap­pli­ca­tions are not un­usual, as the last three com­mu­ni­ties that par­tic­i­pated in the Act 47 pro g ram each ap­plied for loans for ad­dress­ing cash-flow is­sues, she said. The City of Shamokin and Ma­hanoy City Bor­ough are among those mu­nic­i­pal­i­ties.

Davin would ul­ti­mately de­cide whether to g rant a loan to Ha­zle­ton and city coun­cil must adopt a res­o­lu­tion in sup­port of the fund­ing, she said.

The ad­min­is­tra­tion and city so­lic­i­tor are aware of the process, Kel­ley said.

Re­ac­tion

Coun­cil Pres­i­dent Jack Mundie said that although he be­lieves the city would’ve avoided Act 47 if the mayor fol­lowed coun­cil’s bud­get, he said the dec­la­ra­tion leaves the city with no choice but to par­tic­i­pate in the program.

The city would’ve re­al­ized about $500,000 had the mayor fol­lowed through with a plan to sell delin­quent taxes to a col­lec­tion agency and ac­cepted an­other $220,000 pay­ment from Ha­zle­ton City Author­ity in ad­vance of land it ex­pects to sell as the state looks to ex­tend Route 424 into Hum­boldt In­dus­trial Park.

“The state is go­ing to force us into do­ing things we don’t want to do.” Jack Mundie Ha­zle­ton City Coun­cil pres­i­dent

Cu sat, how­ever, has op­posed pay­ing fees re­lated to the tax sale and has said he has seen no ev­i­dence that the land sale would take place this year to jus­tify ac­cept­ing the up­front pay­ment.

Cusat has warned on sev­eral oc­ca­sions that cash-flow is­sues put the city at risk of miss­ing pay­roll.

He be­lieves it’s vi­tal for the city to se­cure an emer­gency loan so that it could con­tinue meet­ing pay­roll.

At this point, Cusat be­lieves the city can make pay­roll on Oct. 6 — if the city takes ad­van­tage of a 30-day grace pe­riod for pay­ing health in­sur­ance.

“The Sept .22 pay­roll shouldn’t be a prob­lem,” he ex­plained. “Oct. 1 is when our quar­terly health in­sur­ance pay­ment is due, which is ap­prox­i­mately $300,000. The only chance we have of mak­ing the Oct. 6 pay­roll is if I do not pay health in­sur­ance and I take ad­vance of the 30-day grace pe­riod.”

Mundie said he too does not want to see city work­ers go un­paid.

The $850,000 loan res­o­lu­tion will be placed on coun­cil’s Sept. 19 meet­ing agenda and Mun die be­lieves the terms are dif­fi­cult to refuse.

“It’s payable over 10 years, there’ s no in­ter­est and pay­ments are once a year ,” Mundie said. “How can you refuse that money?”

The city faces se­vere re per­cus­sions if coun­cil does not ap­prove the loan res­o­lu­tion, Cusat said.

“If they don’t pass it, the state has no­ti­fied me that it’s al­most guar­an­teed the city will be sent into im­me­di­ate re­ceiver­ship — which has only hap­pened once in the his­tory of Penn­syl­va­nia,” Cusat said. “I’m hop­ing that coun­cil fi­nally re­al­izes how se­ri­ous this prob­lem is and agrees to the res­o­lu­tion.”

Harrisburg is the only city to be sent into im­me­di­ate re­ceiver­ship.

The process for se­cur­ing emer­gency funds could take up to 30 days, leav­ing no room for de­lays, he con­tends.

Doubts

Mundie cited a re­cently re­leased Com­mu­ni­ties in Cri­sis report pre­pared by Penn­syl­va­nia Econ­omy League (PEL) that he views as “crit­i­cal” of Act 47.

The report found that tax bur­dens have grown for all types of mu­nic­i­pal­i­ties since 1990 while tax bases for cities have fallen since 1970.

The report states that only one of the 14 mu­nic­i­pal­i­ties that have par­tic­i­pated in Act 47 had a tax base in 2014 that was at least on par with the tax base for com­mu­ni­ties that never par­tic­i­pated; that the tax bur­den for most Act 47 mu­nic­i­pal­i­ties in­creased at a rate higher than non-Act 47 mu­nic­i­pal av­er­ages; and that six bor­oughs that ex­ited Act 47 be­tween 1990 and 2007 had tax bases that were sig­nif­i­cantly be­low the non-Act 47 bor­ough av­er­age for 2014.

“This in­di­cates that Act 47 was not suc­cess­ful in restor­ing tax base value to the bor­oughs that ex­ited the program,” PEL’s report reads.

PEL served as West Ha­zle­ton’s fi­nan­cial re­cov­ery co­or­di­na­tor when it par­tic­i­pated in the Act 47 program. West Ha­zle­ton ex­ited the program in 2014. As a con­di­tion for leav­ing the program, West Ha­zle­ton re­quested and se­cured a grant that al­lows PEL to con­tinue as­sist­ing bor­ough of­fi­cials as they pre­pare bud­gets and es­ti­mate tax rates for three years be­yond its exit.

Mun die fears that the program will re­sult in tax in­creases and the sale or lease of mu­nic­i­pal author­ity as­sets — which coun­cil does not sup­port.

“The state is go­ing to force us into do­ing things we don’t want to do,” Mundie said. “I think Jeff wants to sell the water and sewer (author­i­ties). If his (coun­cil) can­di­dates get elected, he will ab­so­lutely do that.”

Cusat said the dec­la­ra­tion of dis­tress should not come as a sur­prise.

When he tried to get the city to par­tic­i­pate in the Early In­ter­ven­tion Program, Cusat said that he learned the city had met two cri­te­ria to meet dis­tressed sta­tus.

“I’ve been warn­ing coun­cil of this for the past year and a half, that we were headed in this di­rec­tion,” Cusat added. “It shouldn’t come as a shock that the sec­re­tary signed the doc­u­ments.”

State con­cerns

State of­fi­cials who con­firmed Ha­zle­ton’s par­tic­i­pa­tion in Act 47 also shared their own con­cerns for how the House Repub­li­can’s fund trans­fers could im­pact the busi­ness com­mu­nity.

In a news re­lease is­sued Fri­day, Davin specif­i­cally pointed to the re­moval of money from the Act 47 Re­volv­ing Aid Fund, which could se­verely harm dis­tressed com­mu­ni­ties.

“Without this fund­ing, cities would have a much more dif­fi­cult time ex­it­ing Act 47,” the sec­re­tary said.

CUSAT

MUNDIE

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