Shamokin could have Act 47 status by June
SHAMOKIN - Shamokin could be enrolled in the state's Act 47 plan as early as June 1, according to an official of Department of Community and Economic Development (DCED).
Marita Kelley, policy manager, said the city's comparatively small size should help meet that target date.
A few steps must be taken first: city council's approval to apply to the program, the creation of a consultative report and ultimately acceptance by DCED Secretary C. Alan Walker.
The first part appears on track. Neither the mayor nor any city council members expressed opposition to the idea during a public workshop Wednesday with DCED and a financial adviser. Of course, that could change when council convenes a special meeting at 6 p.m. Monday in city hall to vote on applying for Act 47.
DCED would work with city officials to draft and publicly present the consultative report within 30 days of an affirmative vote by council.
Kelley said Walker would likely review the report and issue a decision within two weeks after it's received.
One of 11 criteria must exist for a municipality to be considered for a distress determination under Act 47. According to a financial adviser, 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.
Among the advantages of enrolling in Act 47 is that DCED would offer Shamokin an interest-free loan to pay off the $811,000-plus in unpaid bills that piled up by the end of 2013.
Kelley said the city would also be given preference for state grant programs and would be the recipient of consultations from financial, legal and operations experts.
Shamokin is already up to its collective eyes in debt. In addition to the outstanding invoices, it's estimated the city would finish 2014 with a $350,000 deficit. A cash shortage is projected by August should no measures be taken.
Shamokin deficit would build to a projected $2.8 million by the end of 2017 if no changes are made.
It's a result of a systemic deficit created by a year-end practice to hold on to bills and pay them with the next year's bank note, or Tax Revenue Anticipation Note (TRAN). That made the annual audit look palatable, showing a year-end fund balance when there were unpaid invoices lurking in the shadows.
Year after year bills had been held, building up to the $811,000-plus now owed, according to Ryan Hottenstein of FS&L Solutions, the city's financial advisor.
Pair that with revenue that can't keep up with expenses - income fell short of spending between 9 percent and 14 percent each year from 2009 to 2012 - and an explanation of how Shamokin came to this point is a bit more clear.
"Every year the city is not bringing in enough money to cover its costs," Hottenstein said.
Councilman David Kinder said when he was city clerk, a tenure that lasted from September 2008 to May 2011, he warned council members about the potential ramifications of holding on to invoices.
"I addressed this with the previous administration and I did end up resigning over no action being taken," Kinder said.
He called the city's current practice of "cash-based accounting" as being "extremely inaccurate."
A modified accounting method of including outstanding debt at year's end would prove more accurate, Hottenstein said, and it's among his suggestions for council to consider.
'Best of luck'
The city has been enrolled in the state's Early Intervention Program since 2008. That program is designed to keep municipalities out of Act 47. It reached the third phase of Early Intervention, and a plan prepared by the city's financial advisor strongly suggested it seek enrollment in the Act 47 program for distressed municipalities.
Hottenstein explained some of the more pertinent observations and recommendations included in an Early Intervention Plan presented to the city April 10, including the above referenced debt projections. Simply put, revenue must be increased and expenses lowered, but
that's easier said than done for council. The adviser's suggestions include raising taxes, selling off unused vehicles and equipment and renegotiating with the police and public works unions to freeze wages and lower health benefits costs. There are more than 50 suggestions in all.
Councilwoman Barbara Moyer said Shamokin's demographics speak for themselves. They're outlined in the report, too. The population is aging and shrinking, fewer residents are employed and household income lags behind averages for Northumberland County, the state and the nation.
"I don't really understand how we can accomplish that recommendation," Moyer said of maximizing all city taxes.
The Early Intervention Plan could be a template for what will be created should Shamokin enroll in Act 47. City council will have plenty of input in that plan's creation, Kelley said, including on what steps to take to increase revenue and reduce spending. Once it's finalized, though, city council must stick to the plan no matter how difficult the choices are, she said.
"I don't know how they'll do it, but I wish them all the luck in the world," said William Shuey, of Market Street. He and his wife, Judith, were among the six residents who showed up for Wednesday's workshop, less than the combined number of city and state officials on hand.