Sunday, July 28, 2013

Scranton, PA is Bankrupt, Wants 117% Property Tax Increase and the Scoop on the "Scoop".

Mish Shedlock has a great article on Scranton, PA, a city that is effectively bankrupt.

Scranton Needs 117% Property Tax Hike to Balance Budget; Simple Truth: Scranton is Bankrupt

Scranton taxpayers could face a 117 percent increase in taxes next year as the city's finances continue to spiral out of control.

A new analysis by the Pennsylvania Economy League projects an $18 million deficit for 2014, an amount so massive it outpaces the approximate $17 million the struggling city collects annually in just property taxes....

Mr. Joyce suggested that perhaps the city could refinance debt to implement a financial maneuver called a "scoop," in which higher debt service payments due next year are scooped out of the budget and swapped with lower payments due in future years. The city implemented such a scoop for the 2013 budget by refinancing debt to have lower debt-service this year than it otherwise would have had, Mr. Joyce noted.

"The city's definitely going to need help," Mr. Joyce said. "Maybe we can refinance debt to lessen the tax impact through a scoop. It may be viewed by some as kicking the can down the road, but it may prove to the state that we need a (countywide) sales tax."
I had never heard of the 'scoop' in municipal finance.  Apparently, if you have debt service payments that are coming due that you can't pay you just pretend that it doesn't exist!   Of course, all the municipal kicking the can down the road schemes always leads to higher taxes, the inevitable end game for the bureaucratic class that adamantly refuses to cut spending and government jobs.

But there's a limit to taxation, especially when folks are moving out of a geographic area because the economy stinks and lacks opportunity.  A few years ago, Forbes included Scranton in its list of America's fastest dying cities and Scranton was in the top ten, here

While Detroit may have raised the seriousness of the issue of municipal debt, it's only the tip of the iceberg. There are many cities that are in just as bad financial condition as Detroit.  Detroit stalled its bankruptcy for years but you can't stall it forever.  The US economy is stagnating and decades of public spending and debt will become a shocking new reality as municipal defaults accelerate simply because there is no money or even much of a tax base to plunder.

1 comment:

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