Infighting, mistakes made Scranton arbitration award costlier

Aug. 14--In the saga of Scranton's back-pay contract arbitration award with its police and firefighter unions, city taxpayers paid far more than they might have because of political infighting and costly mistakes.

It began with then-Mayor Chris Doherty, hellbent on avoiding the path of his predecessor and pushing hard against police and fire unions, determined to fix the long-financially distressed city's finances, and fearful state officials would come down on the city again if he negotiated bad union contracts.

Next, city council, led by Councilwoman Janet Evans, cut real estate taxes when the city couldn't afford it.

Then, the state Supreme Court ruled in favor of city unions, setting up the back-pay award.

Finally, council, long aligned against the mayor and angry about the performance of an agency, the Scranton Parking Authority, refused to make a bond payment for the authority.

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Scranton back-pay settlement individual payouts, interest staggering

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Scranton Fire and Police Back Pay Databases

The final cost to taxpayers to end this epic saga: $30.9 million, the amount current, retired and deceased police officers and firefighters received June 30 in back pay dating back to 2003 plus 6 percent a year interest and bonuses. That doesn't include the millions more in interest the city will pay over the next several decades to pay back the money borrowed to pay the settlement. The bonds carry an average interest rate of 5 percent.

The saga started with the city's 2002 recovery plan, proposed by Mr. Doherty, which froze wages for police and firefighters for three years, eliminated minimum manning clauses and "past practices" that established working conditions and gave city department heads "management rights," the ability to alter job duties, shifts and working conditions.

"This is going to be costly," said Councilman Brian Reap, who voted in 2002 against the plan. "My plan was I'm not going to destroy the unions and I'm going to find something both sides can live with. I don't think Chris wanted to hear that. ... It was always my way or get out of the way with him."

Repeated efforts to reach Mr. Doherty were unsuccessful.

Little choice

The former mayor regularly said he had little choice but to get tough on the unions. When he took over, the state had cut off the city's state money because then-Mayor Jim Connors negotiated seven-year contracts with the unions in the late 1990s in violation of a previous recovery plan.

Voters upheld Mr. Doherty's recovery plan by a 2-1 margin in November 2002. The flow of state money resumed, but when the existing contracts expired after 2002, Mr. Doherty and the unions couldn't agree on new ones.

The unions took the dispute to arbitration, and they won at first.

In 2006, arbitrators sided with them on the money, giving them bonuses of $1,000 or more for 2003 through 2005, and hefty raises for 2006 and 2007. The city succeeded in eliminating minimum overall manning for both unions, though the arbitrator still required minimum staffing per firetruck.

The two sides battled all the way up to the state Supreme Court.

At any point, either the unions or Mr. Doherty could have stepped back and worked out a settlement.

Both sides claimed they always were willing.

Former firefighters union President John Judge said the city could have settled the firefighters contract at a far-reduced rate.

"We had many negotiating sessions," Mr. Doherty said in 2011. "We got close."

He cited the unions' refusal to cave on "management rights" for the failure to get a deal.

He said he feared state officials would cut off state money again if he didn't keep up the fight for management rights.

In October 2011, the Supreme Court ruled for the unions, but that only produced the first layer in the mountain of back pay, an estimated $20 million.

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Scranton back-pay settlement individual payouts, interest staggering

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Scranton Fire and Police Back Pay Databases

The city had to find a way to pay for it, and had until June 30, 2013, to do it -- halfway through Mr. Doherty's final year in office.

The ruling was bad enough, but that actually followed other bad news just weeks earlier. A financial market overseer, Standard & Poor's, downgraded the city's bond rating, which meant the city would face higher interest rates when borrowing. Standard & Poor's blamed the council's decision to cut real estate taxes 10.55 percent in 2011, creating a huge deficit that weakened the city's finances.

Mayor Bill Courtright blasted Mr. Doherty for failing to do anything to pay off the back-pay award between the 2011 Supreme Court ruling and when he left office in January 2014.

"After all the dust settled, nothing happened," Mr. Courtright said in March.

Not exactly.

Default

Mr. Doherty had M&T Bank interested in issuing bonds to lend the city up to $26.5 million in early 2012. That was for balancing the budget rather than paying the back-pay award. Before the city could get to the back-pay award, its financial landscape changed again.

Banks, already hesitant about lending because of the lowered bond rating and the lack of an updated recovery plan, watched as the city council did the unprecedented.

Over the objection of the late Councilman Bob McGoff, councilmen Jack Loscombe, Pat Rogan and Frank Joyce voted against making a payment due June 1, 2012, on the Scranton Parking Authority's bonds when the authority lacked enough money, even though the city promised to do that much earlier. Mrs. Evans was absent for that vote.

"If they default, they default. Let the insurance company pay," council solicitor Boyd Hughes said. "It's like Chicken Little: 'The roof is falling, the roof is falling.' Let it fall."

M&T Bank walked away from the budget-fixing bonds it was offering, and immediate hopes for borrowing for the back-pay award vanished.

Even though the council eventually agreed to make the parking authority bond payment, and Mrs. Evans and Mr. Doherty negotiated a new recovery plan, the damage was done.

"The default just literally destroyed the city's financial credibility" and ended any chance of borrowing money at a reasonable interest rate, too, current city business administrator David Bulzoni said.

Some hope remained.

Stability

By the fall of 2013, Mr. Doherty claimed financing of the back-pay awards was "moving right along" and the city appeared to have a bond deal done with Janney Montgomery Scott earlier in the year. But Mr. Hughes said Janney pulled out when the city council refused to commit to doing whatever was demanded by Pennsylvania Economy League, the city's financial recovery coordinator.

At the time, PEL warned real estate taxes needed to rise 117 percent in 2014. The council didn't want to do that, Mr. Hughes said.

"It's in limbo," he said in September 2013, three months before Mr. Doherty and Mrs. Evans left office.

Ironically, taxes have risen 140 percent since 2012.

When Mr. Courtright took office in January 2014, lenders offered the city annual interest rates of 10 or 11 percent, Mr. Bulzoni said.

Considering the back-pay interest was 6 percent a year, it made sense to wait until the city could finance bonds cheaper than that, he said.

It took until now to shore up the city's finances and regain the confidence of banks, a process helped greatly by the city committing a specific portion of annual tax revenues in December to debt payments, Mr. Bulzoni said.

"The numbers are the numbers," Mr. Bulzoni said. "There's little discretion in interpreting what the numbers are."

Contact the writer: [email protected]

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