SHAMOKIN -- If Shamokin doesn't face its financial problems head-on and come up with a sound financial plan to work its way out of debt, it will run out of cash next year, officials from a nonprofit municipal advisory group told the City Council on Monday night during a presentation before the regular monthly meeting.

The city is about $2.7 million in debt. That could grow to about $5 million by 2012, if drastic financial steps are not taken by the council.

Three officials from the Pennsylvania Economy League, which was hired by the council last summer to analyze the city's deteriorating finances, painted a stark picture of the options available in order to avoid two unwanted situations: bankruptcy, or Act 47, or "distressed municipality" status.

"I wish I had a magic solution for Shamokin," said Harry Miller, of PEL. "But the facts are this. In the end, you'll have some very tough decisions to make. You'll have to raise taxes, millage, as much as you legally can, you'll have to collect a greater percentage of delinquent taxes. But even if you do all that, cuts in services and maybe personnel will have to come or you can't make it."

Gerald Cross, PEL's executive director, warned the council members that they have to make a decision soon. "Your situation is not unusual in Pennsylvania. I've dealt with many municipalities in similar situations. I would not advise you to get into a situation where you are continuing to borrow money to pay off your debt. The situation can snowball until you have no choice but declare yourself distressed," he said.

When a municipality asks to be classified under Act 47, if approved, the state will appoint an Act 47 coordinator who would work with the council to come up with a five-year recovery plan. Elected officials would still be in control, but they would lose some of their autonomy.

Also at the meeting was Matthew P. Domines, a local government policy specialist with the Pennsylvania Department of Community and Economic Development.

Domines summed up the situation in rapid-fire sequence: "It's a good thing that you are facing up to your problem, but they are many. Decrease in population, your tax base, decrease in housing units, decrease in owner-occupied homes, decrease in renter-occupied homes, decrease in assessed value and a decrease in non-tax revenues, like fines. But working with PEL was a good decision. We hope you'll follow their recommendations."

Some of the recommendations made by PEL are:

n Budget individual departments so that the city managers have a truer picture of what each department costs. The city has to account for all employee fringe benefits, especially medical/health insurance at the department level.

n The city should examine the option to increase its general fund real estate millage from 23.25 mills to 30 mills. In order to do this, the city would have to petition and receive approval from Northumberland County Court to raise the millage above 25 mills. At 30 mills, the city could generate about $165,000 annually in real estate tax revenue.

n The city has to improve its collection rate of 82 percent, which is low compared to other municipalities. Most cities similar to Shamokin have collection rates of more than 90 percent.

n Police services represent the largest single expenditure for the city. The population decline and the city's financial position necessitate a review of staffing requirements.

n Personnel costs, in the form of salaries, wages and fringe benefits, are another large expenditure. Unless the city can achieve an unlikely substantial increase in revenue sources, there will be little choice but to reduce both manpower and public service levels.

n The city must avoid at all costs the use of debt to finance municipal operations. As the representatives prepared to leave, Cross said: "You are at a turning point. What path the city takes next is up to you."