I don’t know if you’ve been following it but a fascinating story in unfolding in Scranton, Pennsylvania and its one that has special resonance for me as a Chicagoan and an Illinoisan. The city of Scranton is broke. It has just $5,000 left in its operating bank account. The mayor has cut the wages of city employees including himself to minimum wage: $7.25 an hour. Here’s the rundown:
Mayor Chris Doherty, a Democrat, temporarily cut the wages of police, firefighters and others to $7.25 an hour Friday, hours after a judge issued an injunction requested by three unions that represent most of the workers. A lawsuit filed July 2 in Lackawanna County Court on behalf of the unions argued that cutting the salaries unilaterally would violate the workers’ contracts under state laws governing public employees as well as federal law.
Meanwhile, Scranton’s business administrator said the city had just $5,000 in the bank last week after transferring enough money to cover the city’s payroll at $7.25 an hour, the state’s—and the nation’s—minimum wage. Mayor Doherty has said that once the immediate crisis is over, workers will be paid their deferred pay.
The mayor wants to raise taxes. The city council wants to borrow. However, a quick look at the city’s budget casts a little more light on the subject and reveals that neither of those moves will solve Scranton’s problems. The basic problem is not that revenues are not rising (they are). The basic problem is that expenses are rising faster than revenues. The main culprit: healthcare insurance costs.
Compared to just last year healthcare insurance costs have risen about 10% for police officers, 30% for firefighters, more than 200% for non-union workers, and almost 300% for something called the single tax office.
Mike Shedlock suggests that bankruptcy is the city’s only way out:
Inept city management, with public union wages and benefits at the heart of it, killed Scranton.
The city is bankrupt. Period. Will the state once again deny the obvious?
IMO even that’s only a temporary fix unless one assumes that a bankruptcy resolution would eliminate all of the city’s payouts for healthcare insurance. It’s healthcare insurance that’s killing Scranton and no relief is on the horizon.