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.
Dave,
Please contact me back via email when you can–just have a quick question!
B
“Inept city management, with public union wages and benefits at the heart of it, killed Scranton.”
Ept city management, I gather, would be to cancel all the health insurance for city employees, right?
It appears that Scranton may eventually have to go the way of Stockton, CA.
It may be the pensions as much as anything:
“Assets of $77.1 million at the end of 2006 had collapsed to $47.5 million by Jan. 1, 2012, due to the 2008 stock market collapse and slow recovery”
. . .
“Raises in pension payouts and decreases in staff and pension contributions also have meant less funds going in and more going out. Between Dec. 31, 2006, and April 30, 2012, $22.9 million was contributed to the pension funds, but $55.3 million was disbursed.”
http://thetimes-tribune.com/news/scranton-s-pension-funds-severely-underfunded-1.1319754
And PPACA will fix this how?
(Rhetorical question, of course.)
Something I did not know, Illinois units of local governments are not authorized to file for bankruptcy since most units do not have statutory authority to do so. They have to go into some sort sort of state-managed receivership, run by a commission, which can, in its discretion reccomend Chapter 9. Background:
http://www.obkcg.com/article.asp?a=405
Other states similarly situated (26 + DC): Alaska, Delaware, District of Columbia, Georgia, Hawaii, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Mexico, North Dakota, Oregon, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia, Wisconsin, and Wyoming
Before we completely shit on the city management of towns such as Scranton, and now San Bernadino, maybe we should reflect on this:
Rate Scandal Stirs Scramble for Damages
@sam, the DOJ attorney explaining the penalty settlement with Barclays on LIBOR basically said there was no evidence of damages — the LIBOR rate is based upon too many banks, with the highest and lowest several rates excluded, and Barclay’s submissions (though improperly low) were higher than average.
Perhaps the cities can prove damages that the DOJ could not, but if they can’t then they are spending a lot of resources that could go to police and fire protection.
My point was, and not to gainsay what you said (though I think cases can be made), it’s more than possible that cities/states were fucked by the banks (as astounding as that may sound), and, thus, to heap opprobrium solely on the city/state governments is misplaced.
I guess the question I would have is what are cities doing playing the swap market in the first place? The cities appear to be cash-strapped before and heading into the economic downturn.
A big problem is the unions and their unsustainable everything and their incestuous relationship with the politicians.
States know they can’t go bankrupt so states like Cali are off to the races so wealthy states can pay for their excesses.
We’re on the cliff.