Officials: City of Jeannette in 'desperate' financial shape
The City of Jeannette is in “desperate” financial shape and may file for municipal bankruptcy to get out from under crushing debt and buy some time to reorganize its finances, say city officials.
City attorney Scott Avolio briefed council Monday in a closed-door meeting and presented options to council that include filing a petition to seek protection under Act 47, the Pennsylvania Distressed Municipalities Act.
“I'm going to discuss that,” Avolio said.
Councilman Bill Bedont said bankruptcy or Act 47 may be the only ways the city can get out from underneath its debt.
“Whatever happens, it has to happen fast,” he said. “We're at the point where big decisions have to be made.”
He described the city's financial situation as “desperate.”
Council meets again Wednesday to make changes in its budget, and Bedont said layoffs are a possibility.
The state Department of Community and Economic Development has recommended steps the city could take to initiate a financial turnaround, but council has disregarded the recommendations, putting the city deeper and deeper into debt.
Chapter 9 of the U.S. Bankruptcy Code is a Depression-era law designed specifically for financially distressed municipalities. It would give Jeannette time to “adjust” its debt. In order to file, the city would have to prove to a bankruptcy court judge that it is insolvent and has negotiated in good faith with its creditors to resolve their debt problems.
Jeannette is facing financial pressures that could force it to seek bankruptcy protection under Chapter 9, which would give council time to reorganize its finances.
First, it has to find a way to pay $350,000 to the police pension fund that was owed for last year. Second, it has to find $546,000 to make a pension payment this year. Third, council has to come up with the money to pay a court-ordered award of nearly $77,000 to businessman Frank Trigona and more than $158,000 to his lawyer in a long-running legal dispute over Trigona's rental properties.
Avolio said the other option is Act 47, a lengthy process that would put the city under the control of a state overseer.
“Both options involve quite a difference in timelines,” he said.
The city and its police department have been unable to reach an agreement on a new contract and the two sides are headed to arbitration in March. Bankruptcy would negate the arbitration process because once a bankruptcy petition is filed, it automatically halts attempts by creditors to collect any debt the city owes. Act 47 also would scuttle arbitration, but the process takes time and arbitration likely would be concluded by the time Act 47 is approved by the state Department of Community and Economic Development.
Representatives of the Fraternal Order of Police and city council met last night before the public meeting, but the two sides were unable to reach an agreement.
“The parties decided to continue to discuss a possible resolution,” Avolio said.
If the city can't reach an agreement with its police force, it may be forced to lay off full- and part-time officers because the police department is the most expensive aspect of city government, with a budget of more than $1.9 million for a city with a population of less than 10,000.
Because Jeannette doesn't have the money to pay Trigona or his lawyer, Avolio said council may have to consider enacting a separate millage rate and dedicating the revenue toward paying Trigona and his lawyer. A so-called “Trigona tax” would not go to Trigona but would be used to pay his lawyer's legal fees and to a bank that has a judgment against Trigona for unpaid loans, according to court documents.
“We would have to look at what ways to deal with the unfunded debt,” Avolio continued. “One of those options would be to consider is a separate tax on that judgment.”
Council ended 2012 with a $250,000 deficit. It is considering selling assets, such as a fire truck and street sweeper, to raise the cash to pay off the pension payment.
Richard Gazarik is a staff writer for Trib Total Media. He can be reached at 724-830-6292 or at firstname.lastname@example.org.