After spending 30 years as a distressed municipality under Pennsylvania’s Act 47, the city of Scranton has been freed from its emergency designation.
Dennis Davin, secretary of the state Department of Community and Economic Development, announced the city’s status under the law was terminated on Jan. 25.
The Municipalities Financial Recovery Act, or Act 47 as it’s generally known, was passed in 1987 as a way to avoid Chapter 9 bankruptcy filing for municipalities. It provides fiscal management oversight and planning, technical assistance, and financial aid to municipalities undergoing what the state deemed to be severe fiscal distress.
The act allows for debt restructuring and in some cases allows for the consolidation or merger of contiguous municipalities.
Scranton, in Lackawanna County in the northeastern part of state, is the sixth-largest city in Pennsylvania, with a population of more than 77,000. It was designated as distressed on Jan. 10, 1992, after years of running budget deficits and ineffective financial management.
Davin, an appointee of Gov. Tom Wolf, signed a formal determination letter finding DCED termination of the city’s distressed status was appropriate under Section 255.1 of Act 47. The decision was made after a review of the city’s audits, financial data and the record from a public hearing held on Nov. 16.
Davin was joined at the signing ceremony at Lackawanna College by Mayor
“It’s been three decades since Scranton was originally designated a financially distressed municipality under Act 47 and the Wolf administration recognizes the years of hard work and collaboration between the city’s community, their businesses, and partners for helping to achieve this momentous goal,” Davin said in a statement.
“We are grateful to all those past and present, who had a hand in putting us on a path to fiscal stability and enabled Scranton to finally shed the ‘distressed’ label,” Cognetti said. “We know the path ahead will not always be easy, but we are working hard to secure the city’s financial health now and for future generations.”
Scranton’s
The city’s recovery efforts were helped by a change in the dynamics between the mayor and city council that allowed the city to prepare and follow realistic budgets and to find ways to improve services while cutting costs, DECD said.
Additionally, DECD noted the city had monetized the sewer authority when it
S&P Global Ratings assigns a BB-plus rating to Scranton’s general obligation bonds. It is the only agency to rate the city’s bonds.
In June, S&P revised its outlook on Scranton to stable from negative and affirmed the rating on the city’s GOs, which are secured by the city’s full faith and credit pledge.
“The outlook revision reflects our view that economic pressures stemming from the COVID-19 pandemic are waning and that Scranton's financial pressures have been mitigated by significant federal support,” S&P said at the time. “Additionally, the litigation challenging the city's Act 511 revenue has been resolved in the city's favor, providing additional stability.”
Cora Bruemmer, a director at S&P, told The Bond Buyer that at the time the agency did the review in June the city was expecting this month would be the time it would exit Act 47.
She said that while there was no new information as of yet, this action met its expectations and confirmed its favorable outlook change.
“Overall in terms of the credit, when we revised the outlook back to stable last summer there were three big things that really drove that rating action,” she said.
Firstly, she noted that the economic pressures from COVID-19 weren’t as bad as we had expected and weren’t dire.
“The city had really done a lot in preparation for revenues to decline, so the fact that revenues were not down as much really provided some stability,” she said.
Secondly, according to Bruemmer, S&P said the federal support from the American Rescue Plan Act of $68 million for the city provided some real stability from an operational and liquidity perspective.
And thirdly, there had been litigation challenging the
“We are going to be looking to see how the city is able demonstrate structural balance without relying on federal stimulus. We know that's a boost right now, but how will they be able to operate once that money runs out?" she said.
"And we also look at the city’s pensions, which have very high fixed costs with the combined pension OPEB (other post-employment benefits) especially; are they able to reduce those liabilities somewhat and improve the funded ratios? Those are the things we would look at to potentially raise the rating,” Bruemmer said.
“After 30 years, the city of Scranton is finally able to shed the label of being a financially distressed municipality,” Donahue said in a statement. “Moving forward, the city council is committed to working with the Cognetti administration to modernize city government while keeping both legacy and operating costs under control. We must continue to explore ways to improve city services without overburdening our taxpayers in order to continue moving Scranton into the 21st century.”
Scranton was the 16th municipality to recover from distressed status. One of the larger cities to be placed under Act 47 was Pittsburgh, which formally
Other municipalities to have their status rescinded area Farrell, Plymouth, Nanticoke, Clairton and Altoona along with Shenandoah, Ambridge, Wilkinsburg, East Pittsburgh, North Braddock, Homestead, Millbourne, Westfall and West Hazelton.
Still under Act 47 are Harrisburg, Greenville, New Castle, Aliquippa, Rankin, Braddock, Duquesne, Franklin, Johnstown, Hazleton, Mahanoy, Shamokin, Reading, Colwyn and Chester.
“After Act 47, Scranton has a bright future ahead of it,” Cross said in a statement. “The city’s leaders understand that there will always be difficult decisions to be made. I know that the strong character of the city’s leaders will enable them to make those decisions to benefit the city’s future.”
