100% ESSENTIAL: Donate now and support our urgent public-service journalism about the coronavirus
Coronavirus

‘It’s going to hurt’: Struggling Pa. towns brace for financial gut punch from the coronavirus

by |

Struggling cities such as Scranton could be hit hard by the economic downturn caused by the coronavirus. The city has already furloughed some non-essential workers.
TOM GRALISH / Philadelphia Inquirer

This story was produced as part of a joint effort among Spotlight PA, LNP Media Group, PennLive, PA Post, and WITF to cover how Pennsylvania state government is responding to the coronavirus. Sign up for Spotlight PA’s newsletter.

HARRISBURG — Greenville, a small town in northwestern Pennsylvania, is one of more than a dozen municipalities struggling so badly they get extra help from the state government — and that was before the coronavirus.

Now, Town Manager Jasson Urey is bracing for a drop in local tax revenues, considering cutting back some services, and dreading the possibility of more empty storefronts in a community that the state has deemed “financially distressed” for almost two decades.

“It’s going to hurt no matter what we do,” Urey said.

Across Pennsylvania, municipalities hobbled by shrinking populations, decimated industries, and rising poverty are anxiously waiting for the ripple effects of what could be a prolonged economic slowdown.

On Thursday, Gov. Tom Wolf ordered all but “life-sustaining” businesses to close their physical locations in an effort to slow the spread of the coronavirus. He had previously urged “nonessential” businesses to close for at least two weeks.

Most municipalities rely on an earned-income tax — money that comes out of workers’ paychecks — as their second-largest source of revenue. Those deemed “financially distressed” by the state have special authority to levy higher rates. But, as businesses close or cut back and workers are laid off, those revenues could plummet.

“If we’re looking at mass layoffs, then it would be extremely bad by the third quarter,” said George Dougherty, a professor of public administration at the University of Pittsburgh, who works with several distressed municipalities in Allegheny County.

Local water, sewer, and waste collection departments could run up deficits as people struggle to pay their bills, Dougherty said. Unless the economy rebounds toward the end of the year, he said, next year’s property taxes — the main source of revenue for almost all municipalities, distressed or not — could take a “substantial hit.”

Some local governments are already tightening their belts.

Expecting a drop in the city’s revenues, Scranton furloughed several dozen city workers, Mayor Paige Gebhardt Cognetti announced Tuesday. The furloughed workers will be able to file for unemployment and will still receive health benefits, she said.

“We have to look forward and anticipate that the tax revenue is going to be vastly compromised,” she said at a news conference. “The city is not isolated from the rest of the economy.”

Earned-income and business taxes made up about a third of the city’s revenues last fiscal year, budget documents show. Distressed municipalities like Scranton could be particularly vulnerable to the anticipated economic downturn, experts said.

“Everyone will have some hardship, but the intensity will be greater if they’re already financially stressed,” said Mary Jane Kuffner Hirt, a retired professor of political science who serves as Greenville’s state-appointed economic recovery coordinator.

Even before the COVID-19 outbreak, distressed municipalities across the state had slashed services and staff significantly as part of state-mandated recovery plans.

Over the past 10 years, Greenville has cut some departments virtually in half, said Urey, the town manager. “We’ll have to address it as it comes, but we’re at minimum levels in our departments as it is,” he said.

The state Department of Community and Economic Development is in “daily communications” with municipalities across the state, said spokesperson Casey Smith.

“What is most important is that local communities know that [the department] will make every effort to assist them during this uncertain time,” Smith said.

Jobs lost now won’t affect local tax revenues until the summer because of the time lag in collections, said Gerald Cross, a senior research fellow at the Pennsylvania Economy League, which advises financially struggling municipalities.

That means the impact on local finances won’t become clear for several months, he said.

“It’s really going to be day by day as tax revenues come in, or don’t come in, and they still need to cover payroll, debt service and pension costs,” Cross said.

Municipalities could be faced with the decision to cut services, dip into any available reserves, or borrow to cover shortfalls in revenue.

Aliquippa, a small city in Beaver County, was working toward shedding its “distressed” label after decades of economic struggles — reducing debt, keeping costs down, and attracting some new businesses.

Recently, the local economy has been buoyed by the thousands of workers building the massive Shell ethane cracker plant nearby. Now, construction has been temporarily suspended.

On Tuesday, Mayor Dwan Walker was still hoping, against the odds, that the statewide shutdown would not last longer than two weeks.

“I don’t even know what would happen if our tax base dwindles even further,” he said.

100% ESSENTIAL: Spotlight PA provides its journalism at no cost to newsrooms across the state as a public good to keep our communities informed and thriving. If you value this service, please give a gift today at spotlightpa.org/donate.