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Scranton, Pennsylvania closes budget gap with steep tax hikes

Hilary Russ
Tuesday, 17 Dec 2013 | 12:59 PM ET

Dec 17 (Reuters) - Officials in cash-strapped Scranton, Pennsylvania, have agreed to steep tax and service fee hikes to help close a $20 million budget gap.

The budget accord for fiscal 2014, which begins on Jan. 1, staves off the latest financial crisis for Scranton and sets the stage for a bond sale next year. An old steel and coal town, Scranton is known as the Electric City and as the setting for the television series "The Office."

The city grabbed international headlines last year when it briefly cut police and firefighter pay to the minimum wage because cash ran so low it could not meet its full payroll.

Late Monday, city council members seeking changes to the spending plan failed to come up with the votes to override a veto of their budget by Mayor Christopher Doherty, who leaves office at the end of this year after 12 years. Opponents had tried to tweak some minor elements of his budget proposal.

Doherty's $130 million spending plan calls for a real estate tax increase of nearly 50 percent. Trash collection fees will also increase for households by nearly 70 percent. Some other fees will also rise, according to budget documents.

Scranton will also borrow money in the $3.7 trillion U.S. municipal bond market. Janney Capital Markets has been engaged to be the sole manager on a roughly $27 million bond offering some time in 2014, the bank said.

Of that amount, about $21 million will cover an arbitration ruling that the city lost in the state Supreme Court in 2011, plus interest, over back pay for firefighters and police officers. Up to another $6 million will help pay for Scranton's required contribution to its public pension fund.

The tax and fee hikes were important to the city's recovery plan, and it was "good to see that the council was not tinkering with those items," said John Kelly, a Janney managing director.

The city also plans to borrow up to $16 million against future tax receipts in 2014 through Atlanta-based IFS Securities.

Scranton's finances have been under state oversight since 1992, when it was declared distressed under Pennsylvania law. The city revised its recovery plan in August 2012.

"We believe the city is making efforts to restore both its creditworthiness and its ability to provide public services under its recovery plan," said Gerald Cross, executive director of the Pennsylvania Economy League, appointed by the state to help the city implement its plan.

Mayor Doherty, as well as Mayor-elect William Courtright, did not respond to requests for comment.