Affordable Housing and Tax Credit Developments NationallyProposed Chapter 9 Bankruptcy for Scranton, Pennsylvania

May 30, 2012by George Danneman

A local accountant for the City of Scranton, Pennsylvania has proposed that the city declare Chapter 9 bankruptcy. A Chapter 9 bankruptcy is a proceeding that provides financially distressed municipalities with protection from creditors by creating a plan between the municipality and its creditors to resolve the outstanding debt.  This proposal comes after the City Council and the Parking Authority struggle to allocate $1.4 million. “The city should immediately explore a Chapter 9 bankruptcy filing or negotiate reductions in compensation to union employees” said consultant Gary Lewis of Deloitte, also a resident of Scranton, Pennsylvania. According to Lewis, the city’s structural deficit could reach $20 million, when combining a $10 million debt from FY2011 with an increase of $8 million in departmental expenditures.  The structural deficit is likely occuring because the deficit continues without any new sources of revenue to cover the proposed expeditures by the City.  In the interview Lewis also stated “… that a Chapter 9 filing would allow the city to restructure its debts.” A debt restructure through bankruptcy is a method of altering the payment terms of the debt agreements to more manageable terms for the City. Mayor Chris Doherty did not make a comment on the proposed Chapter 9 filing, but reports say that Doherty opposes bankruptcy because it would put an “indelible stain” on the City of Scranton.

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