SUNBURY - Northumberland County Judge Charles Saylor granted Shamokin officials' request for an $800,000 loan to pay bills due by the end of the year after listening to 90 minutes of testimony Thursday morning.

Now that the city has been authorized by the court to borrow the money, officials are hopeful the loan will be OK'd by Susquehanna Bank so council members can formally approve it at a special meeting at 10 a.m. today.

Once council approves the loan, documents will be hand-delivered to the state Department of Community and Economic Development (DCED) in Harrisburg.

City clerk Steve Bartos, who was the chief witness at Thursday's hearing, said there is a required 15-day waiting period for DCED's review and approval of the loan. That would leave just enough time for the city to make the payments by the end of the year.

In addition to the 10-year loan, city officials told Saylor $616,000 in cuts will be made to balance next year's budget.

The hearing had been continued from Wednesday after the judge said he needed more details about the budget and the shortfall.

Misused TRANs

Bartos, who did not attend Wednesday's court session because he has been on medical leave due to rotator cuff surgery, took the stand with a sling supporting his left arm. Bartos said he got his doctor's permission to attend Thursday.

He provided a financial spreadsheet that outlines unpaid bills, the 2013 adopted budget and the actual year-to-date expenses and revenues.

He blamed the outstanding financial shortfall on past practices by city officials on using a Tax Revenue Anticipation Note (TRAN) to pay bills carried over from the preceding year in addition to expenses in the current year's budget. He said the practice has been used since at least since 2008.

Bartos, who became city clerk in May 2011, said TRANS are normally taken out in January to cover expenses until March when tax revenues start coming in. He said the notes shouldn't be used to cover prior year expenses.

'Robbing Peter to pay Paul'

The city will use about $50,000 of the loan to finance the borrowing, Bartos said. The money will be used to pay approximately $220,000 in pension payments; $100,000 in miscellaneous expenses, including utility and maintenance costs for city-owned buildings; $70,000 in payroll and $50,000 for health care.

He told Saylor the adopted 2013 budget allocates $1,222,199 for police protection, when actual expenditures to date total $1,164,841, including $230,769 in unpaid holidays and Minimum Municipal Obligation (MMO) payments.

Bartos described the city's payment of bills as "robbing Peter to pay Paul."

He also blamed the decision by county commissioners earlier this year to end the county practice of paying constables to transport prisoners, which shifted the duty to municipalities and dramatically increased police overtime. He said those costs are not reimbursable from the state, whereas the county was partly reimbursed.

He said Shamokin and other county municipalities will incur costs for new radios for police and firefighters connected with federally mandated upgrades to the 911 communications system.

Bartos estimated overtime for prisoner transport and costs for the new radios at $150,000.

DCED recommends loan

Also called to the testify by city solicitor H. Robert Mattis was Marita J. Kelley, policy manager for the Governor's Center for Local Government Services with DCED, who told Saylor the agency recommended the loan and that she agrees with Bartos' reasons.

She said the state has been working with the city since 2008, when Shamokin entered the Early Intervention Program for communities suffering financial problems. The city, now in phase II of the program, however, does not fall under Act 47 as an economically distressed municipality, she said.

Kelley said the ramifications would be significant if the city didn't obtain the loan.

"This is the most responsible approach to take," she said.

Kelley said past bills were paid by the city no later than four months after they were due.

She said DCED has provided city officials guidance and direction on budgets and cost containment, and that some costs incurred by the city were unanticipated.

She said many municipalities in the northeast and her hometown area of Allegheny County near Pittsburgh have suffered the loss of many jobs during the past 20 years due to a poor economy.

'Necessary step'

In his closing argument to the judge, Mattis referred to the testimony provided by Bartos and Kelley as just cause for the loan.

Saylor called his decision a "necessary step" for the city and the welfare of its residents. He said the testimony convinced him that government officials are acting prudently in addressing the financial problems.

In his order, Saylor said the unfunded debt was lawfully incurred. He said taxes levied have not produced the necessary revenues and that paying off the debt by curtailing services would pose a danger to the health and safety of residents. He also said it wasn't feasible to levy additional taxes in the current fiscal year.

Also attending the hearing were city financial adviser Daryl Peck; Jonathan Hendrickson, a local government specialist with DCED, and Meg Bartos, the city clerk's wife.

Earlier report prophetic

After the hearing, Bartos showed a reporter that a five-year financial review and analysis for the city conducted by the Pennsylvania Economy League showed the city was heading down a rough financial road. The report revealed annual projected operating deficits for the city of $336,532 in 2008, $523,908 in 2009, $639,734 in 2010, $732,578 in 2011 and $819,501 in 2012 - a total of $3,052,253 over the five years.

Bartos claimed he, community development director Lynn Dixson and administrative assistant and human resource specialist Michelle Quinn helped increase revenues by $550,000, but expenditures still exceeded revenue.

"If this plan doesn't work and we are forced to go under Act. 47, it's going to cost millions of dollars instead of $800,000," he said. "This is the most fiscally responsible thing to do."

He said "the best experts in the state" are working with the city.