For Scranton residents, bankruptcy is an inviting option

SCRANTON, Pa. — When Detroit filed for bankruptcy, hundreds of residents took to the streets to protest what they saw as a drastic approach to fixing the city’s budget problems.

But in this hilly town of 76,000 in northeastern Pennsylvania, residents have a different view of Chapter 9: They want the city to declare bankruptcy. And soon.

“The silent majority would like to see bankruptcy,” said Bob “Ozzie” Quinn, president of the Scranton and Lackawanna County Taxpayers Assn. “Basically, it’s down to a point where people cannot afford to pay the taxes and are moving out of town.”

Faced with a $20-million deficit, Scranton had to do some tricky maneuvering to balance its budget and avoid defaulting on loans. Most of this maneuvering has involved increasing taxes and fees paid by the people who still live in the town, which has seen its population drop by half since the 1930s.

In its 2014 budget, the city raised property taxes and trash fees nearly 60% and tripled rental registration fees. The city’s school district, which faced a $4-million deficit, raised taxes 2.4%.

The City Council, which in 2012 passed a 5% amusement tax on live entertainment, is now discussing a 10% drink tax. The city’s parking authority is in receivership, and it recently privatized its parking meters: The company in charge upped rates and extended meter hours to 6 p.m., which bar owner Mert Gavin says has motivated workers to skip happy hour and head home to the suburbs straight after work.

“I am one of the last two bars that’s still downtown. Tink’s is gone. Whistle’s is gone, Banshee’s is gone, Molly Brannigan’s is gone,” said Gavin, who runs Mert’s. “Do they expect I’m going to bail the city of Scranton out myself?”

The taxes are especially egregious to some because so many of the city’s residents are elderly and living on fixed incomes. The median household income in Scranton is $37,000, and nearly one-fifth of residents live below the poverty line.

Evann Xanthis, 59, earns $7,000 a year in disability benefits, her only income; she had a spinal injury that has limited her ability to work. She owes the city $12,880 in back taxes on the house she’s owned since 1988. She’s thinking of taking out a home equity loan just so she can pay her taxes.

“I go to sleep every night worried about the taxes,” said Xanthis, a mother of two. “I just don’t know what I’m going to do.”

By comparison, California cities that filed for bankruptcy, including Stockton and San Bernardino, did not have the option of raising such revenue through taxes without a ballot measure. Tax hikes, depending on the type of levy, can require a majority or two-thirds vote of the people.

Marc A. Levinson, the lead bankruptcy lawyer for Stockton and Vallejo in their Chapter 9 cases, noted that even though their city councils had the authority to raise fees, the revenue generated wouldn’t have been enough to solve their financial problems.

In Scranton, fiscal woes are not new. It has been a “distressed city” under Pennsylvania law for more than 20 years, and was famously and repeatedly put down in NBC’s comedy “The Office.”

Though Scranton has not faced decline on the scale of Detroit, signs of economic distress aren’t hard to find. Some homes sit empty after residents lost them to foreclosure. Others are sagging, their paint peeling, their stairs chipped.

Shuttered stores dot the Mall at Steamtown, once a vaunted redevelopment project, and the mall lost its biggest store, the Bon-Ton, this month. In 2012, the city temporarily paid its employees minimum wage when its coffers ran low.

The city’s financial problems were accelerated by a 2011 Pennsylvania Supreme Court decision that found that the city owed its police and firefighters unions back pay — about $21 million. The settlement money became due in 2013, but the city bickered over how to come up with the funds for so long that Moody’s warned in November that Scranton faced the threat of default.

“It’s been nonstop. They raised the water fees, the electric, the gas,” said Richard Laytos, a Scranton native who moved back to the city to retire in 1997 after 44 years in New Jersey.

He figured he couldn’t retire in New Jersey on a fixed income, and was paying $8,000 a year in property taxes. He now pays about $4,700 a year in county, city and education taxes, double what he paid when he first returned to Scranton.

He can pay the taxes, for now, but says that many other residents with less generous pensions are struggling. That’s one of the reasons he wrote to the local newspaper in November: “The coffers are empty. Savings are gone. Our city is dying. File bankruptcy.”

Gary Lewis, who once ran a blog, scrantonisbroke, that urged city leaders to consider bankruptcy, took a drastic step when they failed to do so: He moved out of the city where he’d spent his whole life.

“I did the math — realized how much it was costing me to live in the city,” said Lewis, who now lives in Indiana, where he says he makes $2,500 more a year because of lower taxes. “That’s the story of my generation. There’s a lot of kids like me, who grew up, went to college at Scranton, but they turn 22 and move out of the city, and they don’t move back because it’s not a financially attractive proposition.”

To be sure, municipal bankruptcies bring their own problems. They often set off years of legal battles, racking up huge bills for a city. Creditors, such as pension funds, may take a hit, which in turn can lead to lower pension payments to retirees.

Also, Scranton must receive approval from the state of Pennsylvania to file for bankruptcy, and the legal hurdles can be high. When Harrisburg’s City Council voted for bankruptcy in 2011, a judge dismissed the filing.

Besides, bankruptcy won’t solve the city’s financial woes, said John Judge, president of the local firefighters union. “It’s a horrible idea — you take local control out of the hands of policymakers, and put it in some judge’s hand,” he said.

Neither the city’s new mayor nor his predecessor, Chris Doherty, returned calls for comment, but former City Council President Janet Evans said she and Doherty had been determined to avoid bankruptcy.

“We are in a different situation than Detroit,” she said. “We were willing and able to do everything within the scope of our authority to continue the recovery of the city of Scranton until it sits once again on sound financial ground.”

But comparisons to Detroit make other Scranton residents a little jealous. At a senior center on the city’s west side, where dozens of retirees eat lunch at round tables under fluorescent light, bankruptcy came up.

“We’re watching what Detroit is doing, and just figure, with all the money we owe the police and all them, we’re going to be broke for the next 20 years, so why not file for bankruptcy?” said Walter David, a lifelong Scranton resident.

David has been a union member all his life, but says he doesn’t have much sympathy for the unions in this case. As his tax bill goes up — he paid $2,500 last year — he’s trying to scrimp in any way he can: driving less, and bundling up more inside his home and turning the heat down.

David said he was dismayed to see the city in such dire financial straits. It just confirms the old adage, he said: Nothing is certain in life but death and taxes. A wiry, quick man whose grandmother lived to age 102, David says it’s the taxes that seem more threatening than death, for now. And he’s 95.

alana.semuels@latimes.com