Shamokin won't have to raise taxes, pay interest on $1.2 million Act 47 loan
SHAMOKIN - City council would not have to raise taxes to pay annual installments on a near $1.2 million loan that is pending approval from the state, according to a policy manager for the Department of Community and Economic Development (DCED).
Should Shamokin be accepted into the state's Act 47 program, it would receive $1,164,000 interest-free to be repaid over a 10-year period. The structure for repayment already exists, Marita Kelley confirmed, since council moved last year to adjust the tax levy in anticipation of a private-sector bank loan that never came.
That's not to say taxes wouldn't be raised as part of Shamokin's recovery plan if it is designated an Act 47 municipality, just that it wouldn't result because of the proposed loan. It's already been suggested by a financial advisor that all city taxes be raised to maximum limits in an effort to increase revenue and avoid future deficits.
For unpaid bills
The loan will be used to pay off more than $814,000 in unpaid bills - almost 1/3 of Shamokin's projected revenue - perhaps with additional interest or late fees in some cases. Remaining money would function as a cushion for general expenses since it's predicted Shamokin will face a cash shortage in August.
DCED Secretary C. Alan Walker will decide within 30 days the fate of Shamokin's application. Kelley and Jonathan Hendrickson, both of the Governor's Center for Local Government Services, recommended the city's acceptance during a public hearing Wednesday at City Hall.
"We're making our best effort to move it through," Kelley said, noting the end of the state's fiscal year on June 30.
June 1 had previously been targeted as an entry date.
Peter J. Zug, executive director of the Local Government Services division of DCED, presided over the 45-minute hearing. Afterward, he said since Shamokin is facing a cash shortage in two months, there's some urgency to have the city enrolled shortly.
"We don't want to disrupt payroll and things that will affect other people's lives," Zug said.
A comprehensive plan prepared by the Local Government Services division confirmed that Shamokin met four of the five previously identified criteria to be accepted into Act 47: at least three consecutive budget deficits, spending exceeds revenue for three years straight, a deficit equal to at least 5 percent of municipal revenue for consecutive years and failure to meet its annual pension payment.
The plan said Shamokin did not meet a fifth criteria previously identified in its Early Intervention Plan prepared by Financial Solutions, a division of Stevens and Lee consulting firm, in conjunction with DCED and city officials: a decrease in quantified level of municipal services. Hendrickson said a loss of two full-time positions over the previous five years was not enough to prove the decrease.
A municipality has to meet only one of 11 specific criteria to be considered.
Both Kelley and Hendrickson testified during Wednesday's hearing. Also testifying were Ryan Hottenstein, of Financial Solutions, Mayor William D. Milbrand, city clerk Robert M. Slaby, and former interim clerk Ed Zack.
Everyone spoke to Shamokin's need for assistance in its attempt at fiscal solvency, reiterating many points made in reports and statements made at previous meetings: unemployment is high, the tax base is eroding, a systemic deficit exists from year to year, revenue is hard to come by.
It's estimated the city would finish 2014 with a $350,000 deficit should no measures be taken, and that the deficit would build to a projected $2.8 million by the end of 2017. It's caused 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). Eventually the TRAN couldn't suffice and the debt ballooned to more than $814,000.
Zug said West Hazleton, Luzerne County, and Westfall Township, Pike County, will join Millbourne, Delaware County, as three municipalities that have successfully exited Act 47 in 2014. They're the first since 2007. There are 18 other municipalities currently enrolled, some for more than two decades.