The largest municipality in Lackawanna County, Scranton acknowledged its dire condition by entering the state's Financial Distressed Municipalities Act program, known as Act 47, on Jan. 10, 1992.

Enacted in 1987, Act 47 aims to help municipalities that are teetering on bankruptcy to restructure debt and obtain government funding to help meet obligations and maintain its infrastructure.

Johnstown, the Cambria County city, entered Act 47 on Aug. 21, 1992, while Reading, a Berks County city recently featured on PBS as America's Poorest City, entered into the program on Oct. 14, 2009.

What each of these cities and 23 other municipalities have quickly discovered is once you get in, there is no way out.

Harrisburg, the state's capital city, entered Act 47 a year ago but quickly filed for bankruptcy protection after realizing that program amounts to a black hole.

However, U.S. Bankruptcy Court in Harrisburg ruled  that a group of city councilors failed to follow the state's procedures for distressed cities when they sought to protect the city of 49,000 residents from creditors through Chapter 9 of U.S. bankruptcy law.

Finances in Harrisburg were damaged by $300 million in debt from a failed trash-incinerator project that was supposed to turn the city's waste into energy.

The state has moved forward on its plan to take over the city's finances.

No city has emerged from Act 47, primarily because of harsh economic times and the fact that there remains a need for the benefits the program provides those cities declared financially distressed.

"We can't operate without (state) money that comes from the nonresident wage tax," Scranton Mayor Chris Doherty said.

The nonresident wage tax is provided to cities under Act 47. In Scranton, where a 3.4 percent tax is withheld from the paychecks of all who work within the city, an additional 1 percent is added onto the wages of nonresidents.

If Scranton or any city were to leave Act 47, they would forfeit that tax, according to state guidelines.

Great Recession

The Great Recession, which began in December 2007, also continues to hamper any prudent effort by municipalities to work themselves out of distressed status, to be sure.

However, the cost of government employees has been a primary obstacle, officials said.

"Eighty percent of our ($83.9 million) budget is employee cost," Doherty said. "We've raised taxes, laid off workers and still most of our budget is employee costs."

When Doherty took office, Scranton employed 680 workers. By the beginning of his second term in 2006, the city had 420 employees on the payroll and, today, that number is down to 380. With 29 firefighters facing lay offs next month along with 19 clerical workers and 10 employees in the city's tax office, the city projects having 332 employees for 2012.

Doherty is in his third term as mayor and has fought with municipal labor unions since his initial swearing in. Scranton has been embroiled bitter arbitration battles with its police, fire and clerical unions since the 1990s when Doherty served on City Council.

Before losing his re-election bid to Doherty in 2001, Mayor James Connors helped sink the city's stand against the unions when he signed off on pay raises and other concessions that violated provisions of the state-mandated recovery plan for municipalities in Act 47.   

Municipal unions

Sanctions, which were the result of Connors violating the recovery plan provisions, included state funding cuts that virtually handcuffed the Doherty administration.

Still, Doherty was able to later find resources to rebuild a dilapidated downtown — thanks in large part to a $30-million redevelopment grant from Gov. Ed Rendell — which now reaps the reward of almost a 100 percent tenant occupancy rate, new storefronts, lofts and art space.

The Commonwealth Medical College also was built and opened in 2009 near downtown after Doherty battled with former Sen. Bob Mellow, D-Peckville, who threatened to have the school built in nearby Peckville, Mellow's hometown.

Despite those positives, Scranton still is hampered by contracts with public union employees that will see the base pay for a city firefighter rise from its current $39,000 to $71,000 in 2014. 

"The average salary for a firefighter is going to be $84,000 in 2014. You can't have municipal employees be the highest paid in the city and making three times what the average resident makes," said Doherty, who earns $50,000 a year as mayor.

A city of 70,000, the average income for a resident is about $23,200, according to the most recent census data.

Reading's employee costs

In Reading, despite having 51 fewer employees for 2012, the city's budget is up $1.1 million more than it was a year ago at $72 million.

Officials there said costs for employees, particularly employee pensions, rise every year.

The problem, they said, is that as more employees reach retirement or become pension eligible, there are fewer employees to cover the costs. Employees pay about 5 percent of their salary into the pension fund with the city picking up the rest of the tab.

Reading has earmarked $8 million for pensions next year while the city's debt service has grown to $13 million. The debt service is money required over a given period for the repayment of interest and principal on a debt. Reading officials said they will have to borrow around $17 million from the state to pay off its total debts.

That debt is, in large part, due to loan payments made that were taken out to help pay salaries, according to the city's managing director Carl Geffken.

"Every single dollar means something in this city," Geffken said.

That salary costs have gone up despite the number of employees declining isn't lost on the mayor, who noted that the city had 720 employees in 2010, 636 in 2011, and will have 585 in 2012.

Pensions are eating away at budget costs and help is needed to curb those expenditures, said Mayor Tom McMahon.

Tight financial reign in Johnstown

Johnstown is facing a $100,000 budget shortfall in 2012 and will lay off eight firefighters. 

"We're going to continue to provide the services that we're able to do," said Kristen Denne, Johnstown city manager. 

Denne said response times for emergency calls would remain the same despite fewer workers, though she declined to elaborate.

"(Layoffs) will leave the center of Johnstown, a region densely packed with office buildings, high-rise buildings filled with tenants and hospitals, dangerously exposed," said Randy Novosel, president of Local 463, which represents Johnstown firefighters.

"This decision makes (emergency responders') jobs a lot harder while putting residents, businesses and firefighters in grave danger," he said.

City officials must be vigilant in spending money and they must keep a tight reign on all finances,  said Johnstown Director of Finance Carlos Gunby.

"We don't have any wiggle room," he said.

For Scranton, Reading, Johnstown and other municipalities in distress, there are recurring themes. Each has very high proportion of expenditures in wages and benefits  with limited options to control cost growth, and each has relied on one-time options, such as tax anticipation notes, to address deficits.

Tax exempt property

And, each has limited taxable property.

"When your number one source of revenue is property tax and 30 percent of the properties or higher are exempt from property taxes, it's only common sense that there is a problem," said Gerry Cross, executive director of the Pennsylvania Economy League, or PEL, Scranton's Act 47 plan coordinator.

While Doherty's 2012 proposed budget called for a 29 percent tax increase (City Council has vowed to reduce that number), Cross said PEL recommended a 41 percent increase to help cover a more than $12 million deficit.

Doherty said more than 35 percent of Scranton's properties are sheltered from taxes because they are federal, state and local government properties as well as churches, hospitals and schools, or held by other nonprofits.

"I think we have to look more towards shared services," said Rick Shuettler, deputy director of the Pennsylvania League of Cities and Municipalities, a nonprofit dedicated to preserving the autonomy of local governments by serving as an advocate for cities and urban municipalities.

"There is less and less cities earning an income. There are properties that are exempt from taxes and, to go along with that, housing values are down. Pension costs are skyrocketing and half of municipal budgets are salaries."

Shared services

The state Department of Community and Economic Development, or DCED, is advocating a shared services program for all municipalities because it could streamline the cost of fire and police protection, garbage collection and other necessary services, officials said.

"I think the upcoming Act 47 hearing (Dec. at the Capitol will address that," said DCED spokesman Steve Kratz.

"There are a lot of communities willing to take a look at it with all the fiscal problems everyone is facing," Kratz said.

Correction: The number of firefighters laid off by Johnstown was inaccurately reported. By January, a total of eight firefighters will be laid off by the city.