SCRANTON, PA – In an escalating crisis threatening the financial survival of Scranton, Mayor Chris Doherty dropped a bombshell Wednesday by unilaterally slashing the pay of nearly 400 city employees to the federal minimum wage of $7.25 an hour.
Faced with a growing cash crunch and headed to court today to try to force city council to deal with it, Mr. Doherty told leaders of the city’s police, fire, clerical and DPW workers’ unions that employees’ next paychecks on July 6 would be minimum wages.
Read the mayor’s letters to city council and union presidents HERE
The reason for the unprecedented move is that the city is running out of cash. A political stalemate between the mayor and council has caused paralysis, jeopardizing the city’s financial future and the “health, safety and welfare” of residents, Mr. Doherty said.
“As a result, we’ve come to a cash crunch, and we have the obligation to keep the city running,” Mr. Doherty said. “So, for the foreseeable future, until we get through this cash-flow crisis, we are going to pay all city employees – from the mayor on down – minimum wage. When we get through this, everybody will be made whole, so they will be paid all the money that they’re owed.”
Of 438 employees, 398 who are paid with city funds are affected. The other 40 are paid with federal funds. They include the following: 12 employees of the Office of Economic and Community Development, and 27 firefighters and one police officer whose pay comes from federal grants, the mayor said.
The mayor and council have been at odds over updating an Act 47 recovery plan that Mr. Doherty said is required by banks before they would again provide financing to the city. Mr. Doherty’s plan proposes a 78 percent property tax hike over the next three years, but the council has refused to pass it until the mayor takes seriously council proposals for alternative sources of revenue. The mayor says council proposals won’t raise enough money and will not raise money quickly.
Mr. Doherty included himself in the pay cut as he prepared to go to Lackawanna County court today on his lawsuit filed last week asking a judge to implement his recovery plan or force council to vote on it.
Firefighters union president John Judge accused the mayor of taking the drastic step to create pressure on the eve of the court date. Mr. Judge vowed the union, whose salaries are guaranteed by contract, will fight the move.
Department of Public Works union president Sam Vitris agreed the mayor’s action is illegal and violates his union’s contract, which sets wages that cannot be changed without the union’s approval. For now, Mr. Vitris said, the union will hold off on any legal action to enforce its contract.
Asked if the pay cuts are legal, Mr. Doherty said, “We’re following the letter of the law. We have to pay minimum wage to these people.”
Asked if he thought the pay cuts would be met with union lawsuits, Mr. Doherty replied, “You can sue, but I don’t have any money. I don’t have any money to do all the things we’re supposed to in the budget” that was adopted by council.
Attorney Matthew A. Kaufman, a labor lawyer in California, said the mayor’s decision is designed to gain leverage but will not hold up if challenged in court.
“His plan might be if you don’t take it, we’re going bankrupt,” Mr. Kaufman said. “Obviously, he’s trying to get a lot of attention. He knows it’s going to fail.”
The mayor says he needs a recovery plan right away because without one the city cannot convince banks to sell bonds to raise $16.8 million to balance the city budget. The money would raise $9.85 milion to pay city bills and refinance existing bonds at a lower interest rate to save money.
As he has said repeatedly this year, Mr. Doherty notes that he had proposed a 2012 budget that was balanced with a 29 percent tax hike, but council’s “supermajority” cut the tax increase to 5 percent and instead relied on borrowing to make up the rest of the funds. However, wary banks won’t touch the city until it adopts a recovery plan that shows how it will be able to pay back debt. Hence, the stalemate.
“Hopefully, the events of the last week (lawsuit and pay cuts) will force a plan to be crafted (by council) that’s accepted by the banking community,” Mr. Doherty said.
“I apologize to all employees in the city that have to bear this. This is totally unnecessary,” Mr. Doherty continued. “This is unfortunate, but it dramatizes the seriousness of the situation. As the mayor, I can only deal with the money I have, and until the council funds its budget, this is the way it’s going to be.”
A usual payroll is around $1 million every other Friday. By paying only minimum wages, the payroll would drop to $300,000 – which would free up the remaining $700,000 to pay mounting bills, the mayor said.
With 14 paydays left in the year, the deferments would amount to $9.8 million. That would still leave a budget hole of some $7 million by the end of the year, Mr. Doherty said.
His lawsuit claims the council majority’s refusal to act on his recovery plan or produce a viable alternative has placed the public’s “health, safety and welfare” at risk, if the city cannot pay police, firefighters and garbage collectors, as well as landfill fees, fuel suppliers, employee health care insurance and water bills.
As of yesterday, the city had about $3.8 million in unpaid bills, including some $2 million in unpaid health insurance premiums, said city Business Administrator Ryan McGowan.
Keeping health benefits current is a major concern, Mr. Doherty said, because if health coverage is dropped it would likely be very difficult and expensive to reacquire it. The city provides health care coverage for 2,200 people, which includes 400 employees, 600 retirees and 1,200 of their family members, he said.
Councilman Pat Rogan said he does not know if the mayor slashed salaries as a political tactic or negotiating ploy, but, “I think it shows even more that the council and the mayor need to sit down and negotiate.”
The mayor’s lawsuit will be in motions court today. While motions court typically involves the setting of dates for a defendant’s formal reply and/or future hearings in a case, Mr. Doherty said he is hoping for a quick ruling.
“We want to force this issue,” Mr. Doherty said. “We have to solve this issue to provide services to the people of this city.”
Eileen Hurchick, president of International Association of Machinists and Aerospace Workers Local 2462 that represents clerical workers, declined to comment. Efforts to reach police union president Bob Martin were not successful.