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April 23, 2014

$1.2M in hole, Shamokin eyes help

SHAMOKIN — Unable to secure a bank loan to cover $800,000 of an anticipated $1.2 million deficit by year’s end, the city is being advised to seek Act 47 protection with the state Department of Community and Economic Development to avoid bankruptcy.

Shamokin would become the 21st municipality in Pennsylvania to fall under Act 47, a financially distressed designation that would trigger state interest-free loan assistance and budgetary oversight, and authorize the collection of higher taxes.

Mayor William Milbrand and City Council are considering the recommendation to seek Act 47 protection by Shamokin’s financial consultants.

The recommendation to the city was made April 10 in a 102-page report submitted by Stevens and Lee Lawyers and Consultants, Harrisburg, and Financial Solutions, Reading.

Shamokin reportedly meets five of the 11 criteria set forth by DCED to be considered financially distressed. Municipalities must meet only one.

According to the criteria, the city has maintained a financial shortage over a three-year period that includes a deficit of 1 percent or more in each of the previous fiscal years; expenditures have exceeded revenue for three years or more; the city has accumulated and has operated for each of two successive years a deficit equal to 5 percent or more of its revenue; it has failed to make the budgeted payment of its minimum municipal obligation in reference to pension as required by the state; and it has a maxed-out real estate tax levy.

The distressed cities program brings state oversight and requires local leaders to create plans for recovery. It also allows officials to collect more taxes — including local income taxes — than they otherwise would.

“With the proper guidance of DCED, we will be able to get on firm ground,” new city clerk Robert M. Slaby said Tuesday. “The main purpose is to make the city better and create a new foundation to help redeem ourselves. There’s no other way out.”

Twenty cities and smaller municipalities have been designated as Act 47 for more than a decade. The city of Farrell, which was the first in Pennsylvania to be declared financially distressed, has still not left the program 26 years later.

In fact, while some smaller municipalities have managed to escape the financially distressed tag, no city that’s entered the recovery program has been able to leave.

Despite that, Milbrand is confident the story of Shamokin will be different.

“If we choose to file for Act 47, I’ve already told the folks at DCED that my goal is to be the fastest one out of the program,” Milbrand said. “We just need to get our feet on solid ground. We haven’t completely fallen.”

The designation will keep Shamokin from filing for bankruptcy and will provide interest-free funding to assist the city in paying off 2013 debt, Slaby said.

Furthermore, DCED will have a recovery team on site weekly to review the city’s financial decisions, but council would still have final say, he said.

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