WBEN Extra: Cities ,Towns & County Face Fiscal Stress

But budget woes still mounted for San Bernardino city officials. And by the beginning of this week, vendors hadn't been paid and cash was running out to make payroll, threatening to shut down the city. And so they became one of three  US municipalities in recent weeks to file for bankruptcy, joining  Stockton and Mammoth Lake in California.

And in Scranton, Pennsylvania's sixth-largest city, officials said that they are unable to pay employees more than minimum wage despite a judge's order that they fulfill their contract obligations..

Buffalo's Early News and WBEN.com took a look Thursday with several perspectives.

COMPLETE COVERAGE:  The Scranton Scenario | Analysis and Comment on The WBEN Liveline
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"I think it's just a matter of time, before you see start to see some municipalities in New York State, where their backs are against the wall, they will have no choice but to look at bankruptcy scenarios,"

   - Former Erie County Executive Joel Giambra
 

A fiscal and political crisis in the nearly-broke city of Scranton Pennsylvania deepened  as public employee unions sought to have the mayor held in contempt of court after he defied a judge and slashed workers' pay to minimum wage. Unions representing firefighters, police and public-works employees also filed a pair of federal lawsuits against Mayor Chris Doherty and the city that alleged violations of labor law and due-process rights. Mayor Doherty (Pictured Left)  last week ignored a court order and cut the pay of about 400 city workers to the federal minimum wage of $7.25 per hour. The Democratic mayor said it was all the cash-strapped city of more than 76,000 could afford, promising to restore full pay once finances are stabilized. "It's incredible," the unions' attorney, Thomas Jennings, said Tuesday. "I've never had a public official just say, `I'm not going to obey a court order. I'm not even going to try. He can't tell me what to do.'" Doherty is locked in a dispute with Scranton's city council over a financial recovery plan as it faces a $16.8 million budget deficit. The mayor didn't return a phone message from The Associated Press on Tuesday, but he told the Times-Tribune of Scranton on Monday that his administration and the council remained at stalemate over the $85 million budget. "If I had the money, I'd pay them," Doherty said of city workers. One of the federal lawsuits - filed Tuesday by 10 injured police officers and firefighters - alleges Doherty and the city violated their due-process rights when he cut their disability pay. The second lawsuit, also filed Tuesday in federal court, alleges that Doherty and the city violated labor law by failing to pay overtime to police officers, firefighters and public-works employees. The unions separately asked a Lackawanna County judge to hold Doherty in contempt of his order that the city pay full wages to its work force. Sam Vitris, president of the public-works union, said the steep wage cut has come as a blow to employees struggling to pay mortgages, car loans, credit cards and other bills. He said some of his members have canceled their vacations. "It's a solvable if the two branches of government just sit down and compromise. So far, that hasn't happened, and the employees are caught in the middle right now of a political squabble," he told the AP. "What we're hoping for is they come to their senses and realize they are not only hurting the employees, they are also hurting the image of this city."

Fiscal Control Boards are still in place - albeit in an advisory role - in Buffalo and Erie County. Nassau County on Long Island is also operating under a a control board.  Syracuse is steps shy of one, wrestling with a $30 million budget deficit .

"Basically every county across the state is facing the same severe budgetary problems as have plagued Scranton and the California cities," says former county executive Giambra, who presided over Erie County's budget deficit showdown in 2005, leading to the appointment of a fiscal control board.

"As I predicted back in 2005, our county's budget problems were not unique, and they would be happening across the state," says Giambra, adding that  "control boards are not the solution. Control boards just become another bureaucracy."

Bankruptcy experts say the decision in San Bernardino -  the largest of three California cities to file for bankruptcy-- could sound an alarm to cities across the state and country that are grappling with weak property and sales tax revenues as their pension obligations continue to rise.

"People are waiting to see whether these are the exceptions to the rule or whether we have a new trend," said Jim Spiotto, a Chicago attorney who tracks municipal bankruptcies. "I do think it may be something of a wake-up call."

San Bernardino, the largest of the recent cities to file bankruptcy,  is facing a budget shortfall of $45 million and annual deficits over the next five years. That's even after the city slashed the workforce by 20 percent over the last four years and negotiated $10 million in annual concessions from employees in each of the last three years.

Those two cities used a new state mediation process to contemplate bankruptcy over a period of several months - a stark contrast to San Bernardino's quick-fire decision under a dire cash crunch.

Before Stockton, a California city had not filed for bankruptcy since Vallejo in 2008.

Jerry Newfarmer, president of government consulting firm Management Partners, said some of California's most financially stressed cities are in the inland parts of the state, where housing prices plummeted. But he said many municipalities made tough cuts ahead of time and he doesn't foresee a flood of new bankruptcies across the state.

In the counties that are home to Stockton and San Bernardino, the share of homes in some stage of the foreclosure process was more than three times the national average in 2011, according to foreclosure listing firm RealtyTrac.

Since Congress added Chapter 9 to the bankruptcy code in 1937 to allow municipalities to seek protection, about 640 government entities have filed. About half of states allow cities to seek bankruptcy protection, which is considered a measure of last resort because it can raise cities' borrowing costs, Spiotto said.

For many years, municipalities muddled through tough financial times with support from the states, and in places like Michigan, some are still doing so.

"I think this cries out for the need for increased oversight and the ability to provide forms of bridge financing to work through it," Spiotto said.

Related: 
From the Pew Charitable Trusts Center on the States, 2010:

" Many experts say that a healthy pension system should be at least 80 percent  funded. In 2000, more than half of the states were 100 percent funded, but by 2010 only Wisconsin was fully funded,  and 34 were below the 80 percent threshold—up from 31 in 2009 and just 22 in 2008.

Connecticut, Illinois, Kentucky, and Rhode Island ranked the worst; all were under 55 percent funded in 2010. At the other end of the spectrum, four states were funded at 95 percent or better: North Carolina, South Dakota, Washington, and Wisconsin."     READ MORE