It is truly pathetic watching politicians flop like fish out of water trying to prevent something that was clearly inevitable long ago.
Moody’s warned investors that Scranton could be facing the threat of default or bankruptcy thanks to a $20 million budget gap for the fiscal year that begins Jan. 1. Scranton has more than $195 million in outstanding debt, according to Moody’s.
A similar crisis hit the city in July 2012, which lead to Mayor Chris Doherty cutting all city workers’ pay to minimum wage for several weeks, a move that made national headlines.
“A second liquidity crisis could have more severe effects, including additional defaults,” Moody’s warned.
To generate revenue necessary to address its debt, Scranton has considered taxing commuters and alcoholic drinks, though neither has been approved by the city council. The Pennsylvania Economy League, which is overseeing Scranton’s Act 47 recovery plan, warned last month the city would have to raise taxes to avoid a default at the beginning of the 2014 fiscal year.
Scranton also faces more than $100 million in unfunded pension debt, on top of the $195 million in other debt owed.
Adding to Scranton’s financial woes is the need to borrow another $28 million to pay a court-mandated settlement with the city’s police and firefighter unions.
Tax Hike is Pure Idiocy
The numbers say everything that needs to be said. It is absolutely impossible for Scranton to did out of this hole, I do not care how much taxes are raised.
All tax hikes can do is harm more working class citizens for the benefit of undeserving public union workers.
Whatever judge awarded the police and fire workers $28 million is an idiot or a genius, depending on his or her intent.
If the intent of the ruling was to make it clear to everyone on the planet that the only solution for Scranton was bankruptcy, then the judge succeeded.
If as I suspect, the judge actually thought police and fire fighters would receive $28 million, then the judge is living in liberal fantasyland.
Fitch Downgrades Chicago Citing Pension Problems
Yahoo!Finance reports Fitch downgrades Chicago bond ratings
Fitch dropped the rating from AA- to A- on $8 billion in general obligation bonds, backed by property taxes.
It also dropped the rating on $497 million in sales tax bonds — paid for by both the city’s local sales tax and its share of the state sales tax. And the rating was downgraded on $200 million in commercial paper notes, financed by a general obligation pledge from any available city fund.
Friday’s downgrade stems from “the lack of meaningful solutions” to the city’s pension situation. City and fire pension programs have no more than 30 percent of the money needed to cover obligations.
Scranton is several steps deeper in the hole than Chicago, but the problems are quite similar. Neither city can possibly pay pension promises.
About the Author: Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.