Pa. City Closes on Loan to Cover Firefighter Back Pay

Scranton on Thursday closed on a $6.25 million loan from a union-owned bank that will allow the city to cover today's payroll and back wages withheld last month when salaries were slashed to minimum wages, as well as pay some bills, officials said.

The loan, a short-term tax anticipation note from Amalgamated Bank of New York and Washington, D.C., gives the city some breathing room to pay employees and vendors while officials continue to seek nearly $19 million in long-term borrowing, called unfunded debt, to fund the rest of the city's 2012 budget, said Mayor Chris Doherty and city solicitor Paul Kelly.

"We're happy to get this," Doherty said. "We're hopeful this will lead to unfunded debt."

The city previously had been unable to secure unfunded debt this year because it did not have an updated, realistic Act 47 recovery plan sought by lenders to show how the financially-distressed city would be able to repay debt.

A long stalemate between the mayor and council over updating a recovery plan led to a cash-crunch crisis marked by bitter disputes, court battles, a minimum-wage payday for employees and the city lurching from one payday to the next. Finally, on Aug. 23, a revised recovery plan agreed upon by the mayor, council and the city's Act 47 recovery coordinator, Pennsylvania Economy League, was adopted by council. The Amalgamated loan was tentatively secured Aug. 22 in advance of the Aug. 23 recovery plan adoption. Before the council meeting that day, Doherty and council President Janet Evans announced the city had secured the loan from Amalgamated, which bills itself as the largest union-owned bank in the country. The city's firefighter union helped arrange for the bank to provide the loan, officials have said.

The loan allows the city to pay today's payroll of $1.1 million, as well as $750,000 in back wages also due today under a court settlement, Kelly said.

Without this loan, the cash-strapped city would not have been able to cover a full payroll and the back wages, city Business Administrator Ryan McGowan said Thursday.

The back wages stemmed from the July 6 payday, when the mayor -- because of the city's financial crisis -- slashed wages of nearly 400 employees to the federal minimum wage of $7.25 an hour. The city's fire, police and Department of Public Works unions sued to reverse the minimum wages and a settlement reached last month between the city and unions called for the withheld wages to be paid by today, with 6 percent interest.

Part of the loan will be paid with a $2.25 million state aid package to the city from the state Department of Community and Economic Development. That aid package -- a $2 million interest-free loan from DCED to the city and a $225,000 grant to the city, was approved by DCED on Aug. 24 because the revised recovery plan had been adopted the previous day.

Once the DCED aid package is processed, it will go directly to Amalgamated Bank to pay down the $6.25 million loan, which has a 5 percent interest rate.

The rest of the loan would be paid back from the city's earned-income taxes to be collected in coming months.

The closing was held Thursday over several hours via phone and fax between representatives of the city in Scranton and of the bank in New York, Kelly said.

By the end of the business day Thursday, $3.5 million of the Amalgamated loan was wired to the city, thus allowing for a full payroll and the back wages to be paid on time today, Kelly said.

Copyright 2012 - The Citizens' Voice, Wilkes-Barre, Pa.

McClatchy-Tribune News Service