Advisors urge Shamokin to file for Act 47 status
SHAMOKIN - Financial advisers say Shamokin's fiscal condition is "serious and dire," and recommend city council file with the state to become a designated Act 47 municipality in order to prevent bankruptcy.
The advisers say one of 11 criteria must exist for a municipality to be considered for a distress determination. According to the plan, Shamokin has five: at least three consecutive budget deficits, spending exceeds revenue, a deficit equal to at least 5 percent of municipal revenue for consecutive years, failure to meet its annual pension payment and a maxed-out real estate tax levy.
If council agrees with seeking Act 47 designation and an application is approved by state Department of Community and Economic Development (DCED), it would add Shamokin to a list of 20 municipalities designated as financially distressed, including Harrisburg, Pittsburgh and Reading.
Already enrolled in the state's Early Intervention Program to prevent such a designation, Act 47 would bring greater oversight from DCED in financial decision-making. City council would maintain the final say in how to carry out a plan to cut spending and increase revenue, Mayor William D. Milbrand and Councilman David Kinder said Thursday.
The recommendation to pursue Act 47 designation came in a 2014 Early Intervention Plan prepared by bond counsel Stevens and Lee, Harrisburg, and Financial Solutions, Reading. It was submitted to city hall April 10.
A public workshop is scheduled for 6 p.m. Wednesday, and DCED officials will be on hand to explain the Early Intervention Plan's findings. Council members are scheduled to hold a special public meeting at 6 p.m. April 28 to vote on the matter. Both meetings will be held at city hall.
Immediate corrective actions are necessary, the financial advisers say.
Among a slew of recommendations, it's suggested that city council bargain with its police and street departments unions for wage freezes and less costly benefits packages, while also increasing all taxes to the maximum allowable amounts.
Regionalizing police and other services with Coal Township is also recommended, as is selling off all unnecessary vehicles in all departments and increasing parking fines and other fees.
"Shamokin's elected officials must recognize the need for immediate action," the plan states. "Perhaps most importantly, Shamokin's employees and elected and appointed officials (must) recognize the need for immediate action and are open to cooperation amongst themselves and with other governmental entities to implement initiatives that result in cost savings and improved efficiencies for the city and its residents."
The real estate millage is already maxed out at 30 mills. Wage freezes for non-union employees were approved by council earlier this year. A regional police study is under way involving both Shamokin and Coal Township as well as other neighboring municipalities. The police contract has expired and is in arbitration, and the street contract expires at year's end.
Shamokin's structural deficit has occurred, in part, due to an annual rollover of the previous year's debt.
Expenses exceeded revenues between 9 percent and 14 percent from 2009 to 2012. It's projected that the city will finish 2014 with a cash shortage of $350,000, or roughly 13 percent of 2014's projected revenue of $2,306,138. It threatens the city's ability to meet payroll, bills and debt payments, the report states.
Basic obligations are increasingly difficult to meet, with financial advisers pointing out that earlier this month on April 7, natural gas service to city hall was temporarily shut off due to nonpayment.
Should the city continue without any significant fiscal change, its projected 2016 deficit will top $808,000.
The projected cash shortage doesn't include the $811,492.07 in unpaid bills that accumulated in 2013. Three banks have refused to lend Shamokin money to pay off the debt. Should the city be accepted into Act 47, Milbrand and Kinder said DCED would finance an interest-free loan to do just that.
Attributed to the deficits are a continually shrinking economy and population and rising costs of employee compensation and benefits, which the plan says are "proven to be unaffordable and unsustainable."
Property assessments described as "significantly outdated" were also referenced.
The city has 25 full-time employees, 17 of whom belong to either union. There is also one part-time employee.
Wages and benefits were found to eat up between 80 percent and 90 percent of the city's revenues between 2009 and 2012. The benefits, the plan states, "are much more generous than most employers in both the public and private sectors."
"To put it simply, the city cannot afford to provide the level of services it currently provides and/or pay the salaries, wages and benefits it currently provides to its employees based on its current revenues," the plan states.
"The city cannot afford to pay for health insurance for retired employees."
City council is urged to negotiate with the police and street departments to change some personnel provisions in collective bargaining agreements. It's recommended that if the minimum manning requirement of two police officers for every shift cannot be lowered, that city council eliminate one shift altogether. A clause in the street department's contract preventing furloughs due to economic reasons should be eliminated, the plan states.
Reductions in overtime, compensation time, premium pay, sick leave, vacation days and personal days are all recommended.
All city employees receive between 14 and 16 paid sick days annually, with vacations of up to five weeks for some union employees and six weeks for those employed with the city 25 years.
Shamokin balances its books on a cash basis of accounting, similar to the practice of using a checkbook. Financial advisers say it doesn't recognize liabilities as they're incurred, allowing Shamokin to hold on to its bills at year's end and report a fund balance. This doesn't reflect a true fiscal picture, allowing for the rollover of annual debt. The recommendation is that the city's auditor use a modified or full accrual basis when preparing a year-end audit for a more accurate reflection.
One area the report lauded city officials was in the management of its long-term debt. Payments for such debt - estimated at $190,000 total in 2014 - are at a "manageable level," according to financial advisers.
Employment, income, housing and population trends all received negative remarks. Shamokin's population is in severe decline - more than 37 percent over a 30-year period. The median household income lags far behind county and state averages, and 20 percent of the city's population lives in poverty. More than one-quarter of its owner-occupied residences were lost over a 20-year period.
Revenue lagged behind expenditures each year between 2009 and 2012, including down 12 percent in 2012 ($302,527), the last year for which an audit was available. Here are some steps financial advisers recommend city council follow to increase revenue:
- Study and increase cost of permits and fees.
- Hire a delinquent collector.
- Charge for all work performed on private property.
- Designate real estate tax for street lighting.
- Consider home rule as a form of government.
- Increase use of PILOT - Payments In Lieu of Property Tax.