A banner promoting Dunder-Mifflin, the fiction...

A banner promoting Dunder-Mifflin, the fictional paper company on NBC’s “The Office” hangs outside city hall in Scranton, Pennsylvania. (Photo credit: Wikipedia)

Scranton, PA doesn’t have many claims to fame; if someone has heard of it it’s because they’re a comedy fan and know that this is the home of “The Office” and Vice President Joe Biden. Lately though, Scranton has been in the news thanks to the furor generated around the Scranton Parking Authority and how it’s mismanagement set off a chain reaction that has bankrupt the city and destroyed it’s credit rating. It seems unbelievable that a mismanaged parking authority could put an entire city in economic jeopardy, but as you’ll see not only is it possible, it’s a situation that almost ANY city could find itself in when no one is paying attention.

Although Scranton’s financial crisis is more recent, the foundation for it, like the recession that currently grips the whole country, was laid years ago quietly and surreptitiously. Like many city authorities, the Scranton Parking Authority has the ability to issue bonds on projects such as new parking structures, and these bonds are backed by the full faith and credit of the city (and it’s taxpayers). Even during the worst of the nationwide financial crisis, bond investment has remained strong, so bonds have continued to be a preferred option for paying for city projects. The idea is that the bond helps pay for the initial costs of a project like a parking garage, and then once the new structure is completed payments are made on a regular basis to the bond. So long as the project is something that will turn a profit, the bond gets paid off and the city is left with a shiny parking structure or sports arena or whatever.

Problems arise when the bond payments can’t be met though. Because the bonds are backed by the city, the city is then on the hook to make the bond payments with taxpayer money. And usually, such as in the case of the Scranton Parking Authority’s bonds, these bonds were issued without any kind of outside oversight or voter approval, even though it’s the voters being put on the hook. And the SPA issued a number of these over the years to build parking structures when the ones they had weren’t even filling up. Now according to rumors from some members of the Scranton City Council, these structures were built not because of a need by the city, but to facilitate political cronyism by giving contracts to a local construction company. Considering that a quick look at the past ten years of financial reports for the SPA shows that most of the new parking structures were built after revenue had already plateaued and that each of these structures made the SPA progressively more financially unstable, that charge probably isn’t too far off the mark.

Despite warnings of financial insolvency in the SPA’s annual financial audit, little seems to have been done to right the ship, and by last June the SPA found itself on the hook for a more than $3 million dollars in loans that the city council didn’t even know about and a bond payment that they couldn’t make. It was at this point that the SPA came to the council about making the bond payment. And rather than making the payment, and despite the warnings of Mayor Doherty, the council decided that now was the time they were going to put their feet down and take a stand for austerity by refusing to make the bond payment. By defaulting on the payment, they effectively destroyed the full faith and credit of the city of Scranton. Suddenly, the city found itself no longer having access to the credit market. This proved devastating.

The city was already suffering from having more indebtedness than revenue, and without access to credit markets, they couldn’t receive the credit needed to cover the city’s expenses. By July, the city had $5 in it’s bank account and had had to reduce all city workers’ wages to minimum wage; to put that in perspective, the city of Scranton found itself with same level of fiscal solvency as your average hungover college student in line at Taco Bell. SPA employees found themselves furloughed and not getting paid, and are now negotiating with the city to try and get their back pay and contemplating suing for their wages. The courts appointed a receiver to take over the SPA, and a parking management company, Central Parking, was hired to take over running the parking business.

Needless to say, things were grim. Since hitting rock bottom in July, the city has been struggling to recover. Employee wages have normalized again, and the city has gotten court permission to pursue a nearly $10 million loan to cover their costs. It’s still unclear whether SPA employees will be paid their back pay, or if they will have to sue the city for months of unpaid wages. Scranton is by no means out of the woods, as they are still racking up more costs than revenue for the operation of the city. Scranton’s way forward is unclear, but for the rest of us this city provides a cautionary tale that we can all learn from.

First, we learned that apparently after leaving Dunder-Mifflin, Michael Scott became the head of the Scranton Parking Authority (or was at least consulting on how to run it). But more importantly, we learned that an unchecked mandate and a lack of oversight wreaks havoc, whether it’s on Wall Street or a city like Scranton. Whether looking at Scranton or Port Everglades (as in my last post), it seems like when you take an otherwise sound business person and put them in charge of taxpayer dollars, all business and common sense goes out the window. Taxpayer’s are not an unlimited source of money, they are investors expecting a return, whether in social or financial gain. Especially in light of the recent election, this illustrates just how big an impact those smaller, local issues can have on a community, and why it’s important to pay attention and stay engaged. Because otherwise all it takes is a parking authority, a school board, a commission, or some other small piece of local government that through ignorance and recklessness tugs on the yarn of city government and unravels the whole thing.

  1. bullright says:

    You summed up Pa pretty well. Stroudsburg had meter money disappear in the early 90’s. Investigations ensued even by feds. (classic case) Chief was charged and suspended. Then whala all was for not. Corruption knows no boundaries.

  2. […] citing a few examples across the country in addition to the numerous instances I have covered in this blog. This week, we’re going to examine the motivations behind this industry squeeze and […]

  3. […] the entire lease is going to be funded by public bonds issued by the Port Authority. As I’ve discussed before, Port Authorities frequently issue bonds, sometimes massive bonds, with no input or control […]

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