City in financial distress
State declares Hazleton eligible for Act 47 plan
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.
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.
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 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.