Lackawanna County taxpayers will have to borrow a lot of money to pay its 2024 bills and that probably means a tax hike next year, officials said Thursday.
At a public meeting on the county’s financial condition, consultant Gordon Mann confirmed County Commissioner Bill Gaughan’s April prediction of a tax increase next year.
Exactly how large remains unknown. Gaughan, who called a tax hike “very likely,” declined to rule out employee layoffs to cut spending.
Projections show the county will end the year with an $11.3 million deficit because expenses have consistently outgrown revenues over the years, creating a structural deficit, said Mann, managing director at PFM Group Consulting.
"By the end of December, obviously, you can't run a cash deficit. You can't pay people with negative cash. So what that would mean is the county would have to carry about $11.5 million dollars of past due bills into next year, and the can would get kicked down the road one more time," Mann said.
A structural deficit happens year after year because expenses consistently exceed revenues.
Mann said he wants the county to start 2025 with as close to zero in unpaid bills as possible. He estimated borrowing $10 million paid back over 10 years will likely require paying $1.1 million a year to pay off the debt. That equates to about 1 mill in property taxes, he said.
The previous county Board of Commissioners raised property taxes by 5.9% for this year, to 67.67 mills.
A mill is a $1 tax on every $1,000 of real estate’s assessed value. Someone who owns a home valued at $10,000 pays $676.70 in county property taxes. Another mill would cost another $67.60. This does not include school district, city, borough or township taxes.
With $18.5 million in unpaid bills left over from 2023 and only $6 million in cash left to pay them entering 2024, the county hired PFM in April for $276,000 to study its financial condition and recommend a five-year plan with solutions.
Mann emphasized the $11.3 million represents just costs through the end of this year.
That could be reduced, Mann said by:
- Implementing a hiring freeze, though the county may still have to fix staffing shortages at the Office of Youth and Family Services, the prison and the district attorney’s office.
- Halting discretionary spending.
- Shifting part of the county’s remaining federal American Rescue Plan Act money to cover the deficit.
County Chief Financial Officer David Bulzoni said he’s unsure how much the county will shift toward covering the deficit.
Mann also recommends the county borrow enough money to enter 2025 with $6 million in cash.
He and Bulzoni acknowledged the financial picture entering 2025 could look even worse otherwise.
The 2024 budget assumes reimbursements from other sources of $8.3 million — $5.5 million from refinancing previous debt and $2.8 million from a fund that pays for capital expenses such as roads, bridges and equipment. The same reimbursements are not expected to repeat next year.
Mann said that could put the amount of new money the county needs to balance its 2025 budget at close to $20 million.
“I don't know yet, but if it was ($15 million) this year, that's a fair, rough estimate,” he said.
That also assumes the county commissioners find no savings or new revenues in upcoming months.
County Commissioner Chris Chermak, the minority Republican on the Board of Commissioners, previously said a tax hike appears inevitable, but again said he won’t vote for one without a serious look at spending.
Chermak, who opposed the 2024 tax hike, repeated that he’s called for greater scrutiny of spending for five years.
Asked for an obvious example of a potential spending cut, Chermak demurred.
“I’ve got to put a list together, and that’s what we’re working on,” he said.
Gaughan, half the board’s Democratic majority, predicted a tax hike when PFM was hired. He remembered his days as a city councilman as Scranton battled back from its lengthy financial distress.
“I've been through this ball game before, OK? “ he said. “And honestly, most of the expenses are salaries and benefits, and a lot of the expenses we’re contractually obligated to pay. So, can we be more efficient? Yeah, that's why we're doing the management audit, and we're actually taking a look at how we operate, and they'll (PFM will) be back with that analysis.”
The county has begun developing the 2025 budget.
“And we've met with all the department directors,” he said. “But for anyone to say that … ‘I'm not going to raise taxes, we need to cut, cut, cut.’ If you could do that, it would have already been done if it was that easy.”
Gaughan said he could not rule out employee layoffs. PFM is analyzing county staffing.
“I don't know yet (about layoffs) until that analysis is complete,” he said.
Commissioner Matt McGloin, the other half of the Democratic majority, said the commissioners have a “fiduciary responsibility” to correct past failures to fix the finances.
“That can that has been kicked down the road has now landed on our feet, and I can guarantee you that we will stop it,” McGloin said.
Borrowing could cost the county more in interest than previous loans and bonds, Mann said.
That’s because, in April, S&P Global Ratings downgraded the county’s bond rating for the second time in eight months — from BBB+ to BBB.
The lower the bond rating, the higher the interest rate because lenders and bond buyers assume more risk, Mann said.
S&P blamed the downgrade on shaky finances that grew mismanagement, including over reliance on one-time revenues sources; the structural deficit; a refusal to properly fund the county pension plan; and the lack of a long-term financial plan.
