Shamokin back in court today over $800K loan request
SUNBURY - An unexpected turn in a hearing for a loan proposal has Shamokin officials returning to court today to provide a county judge more information on how the city racked up $800,000 in unpaid bills this year.
Judge Charles H. Saylor asked several times Wednesday how the city got off budget. No one attending the hearing on the city's behalf had the answer he sought in detail.
Saylor adjourned the hearing after more than 30 minutes of testimony, requesting a copy of the 2013 budget and any documents detailing tax revenue and expenses that could account for the debt.
"How did this get so far out of line? ... Was it budgeted that there would be a large shortfall at the end of the year? Was it balanced?" Saylor asked of the 2013 budget.
City council is seeking the $800,000 loan as part of its enrollment in the Department of Community and Economic Development's Early Intervention Program for financially distressed municipalities. It was represented at the hearing by solicitor H. Robert Mattis, who called as witnesses Councilman William Strausser and financial adviser Daryl Peck. No other city officials attended the hearing, nor was it attended by anyone from the public.
City officials were expected to work Wednesday with Treasurer Brenda Scandle and others to gather the requested information.
The hearing will resume at 9:15 a.m. today.
The 2013 budget adopted by city council last December was balanced at $2,558,538.93. Repayment of a federal housing grant, money owed after a health insurance contract was nullified and various unpaid bills, Peck said.
"Payables that took more priority were paid and these are what remain," Peck said of the unpaid invoices.
Other unpaid obligations include the city's annual employee pension payment, or Minimum Municipal Obligation, and legal bills.
A loan covering the "unfunded debt" must first be approved by a county judge. DCED must give final approval.
Each municipality has a debt limit. If the city is approved for the loan, it would approach its maximum.
Shamokin's debt limit is calculated at $6,337,000, which is 250 percent of the city's three-year average of revenues, Peck said. The city is currently at $5,379,000, he said, and the addition of $800,000 would keep it under the debt limit.
It's not feasible for the city to come up with the $800,000 owed through a single tax hike. A single mill of tax nets the city approximately $24,000, Peck said. The city's entire tax levy, 44.918 mills in 2013, would have to be raised by more than 75 percent, or 34 mills, to come up that amount of money in a single year. That's not possible under state law and it's equally impossible to ask of city taxpayers.
Cuts to next year's budget wouldn't work, either. The city's already facing a $614,000 deficit for 2014 and massive cuts are expected to get it balanced. An additional $800,000 in budget cuts would cripple city services.
Strausser agreed with Mattis that such a move would be "astronomical" to city taxpayers.
"I don't see how we'd be able to do it," Strausser said.
Instead, it's planned by the city to repay the $800,000 loan over a 10-year period. Council has already taken steps to shift taxes within its existing levy and add an additional 2.432 mills in order to cover debt service payments. The preliminary 2014 tax levy would rise to 47.35 mills, 13.5 of which would be for payments on all existing city debt along with the proposed loan.
The city's contract with its health insurance broker was ended prematurely on Oct. 31 after it failed to make two consecutive payments of $51,120. The broker, The Benecon Group, has charged Shamokin an additional $67,000 for related costs.
"It really was a bombshell when we lost our insurance because we weren't able to pay for it at the time," Strausser said.
Strausser, director of accounts and finance, also attributed the massive shortfall to declining tax revenue and year-end debt that has "snowballed" from year-to-year. He added under questioning that the city's pension investment under performed with respect to the stock market compared to years past.
Fewer people are paying taxes and the collection of delinquent taxes is near "impossible," he said.
"I just think it's a total accumulation of bills that weren't able to be handled and it just accumulated and we're at the point now where we have to pay them," Strausser said.
The year-end debt has never been reflected in the next year's city budget, Strausser said. This is the first time Shamokin is seeking a loan to make good on the unfunded debt, or as Saylor said, the first time "anyone grabbed the bull by the horns."
The judge asked for documentation to back up assertions about the impact of declining tax revenue.
"You have a budget, and how did it go from starting 2013 with a budget and operating within certain parameters and here we are in December and you're short $800,000? That's a very, very significant sum off of a budget that presumably was prepared to balance," Saylor said.