Updated: Luzerne County judge grants county’s request to borrow $20 million to avoid shutdown

By Jennifer Learn-Andes - jandes@timesleader.com


    The stress of a threatened Luzerne County government shutdown was lifted Monday, spreading a sense of jubilation throughout the courthouse.

    “I’m relieved we don’t have to resort to the other plan — a shutdown — because that would not benefit anybody,” said county Administrative Services Division Head David Parsnik.

    County Judge Thomas Burke granted the county’s request to borrow $20 million to fund payroll, a $7.6 million debt repayment due Dec. 15 and other unpaid bills that have racked up as state officials failed to turn over $22 million in reimbursement owed to the county since July 1.

    The state funding stopped flowing July 1 for Children and Youth and other county human service departments because of the state budget impasse.

    County Manager Robert Lawton said state officials previously continued to cover human services while they hashed out other budget differences, but not this time.

    “We’re grateful the court has upheld the county council’s vote for a bridge loan,” Lawton said.

    Burke heard more than an hour of testimony from county officials on why the loan was needed before recessing to consider the matter. He reconvened the proceedings around 4 p.m. and issued his ruling.

    The county’s court filing said the loan was necessary to avoid “severely” curtailing county services, which would “adversely impact the public health, safety and general welfare.”

    County Assistant Solicitor Vito DeLuca represented the county and called three witnesses — Chief Solicitor C. David Pedri, county Budget/Finance Division Head Brian Swetz and Human Services Division Head Division Head David Schwille.

    Pedri submitted affidavits from managers detailing how the public could suffer if departments were forced to cease services, including many that are mandated by the state or constitution.

    These services included: The housing of inmates; legal representation for the indigent; prosecution of criminal cases; emergency response coordination; emergency 911 call-taking and dispatch; maintenance of county-owned roads and bridges; the processing of deeds, wills and criminal court records; and programs that aim to protect and help the elderly, veterans, children and those battling addiction and mental health disabilities.

    Swetz said officials had no way of predicting the state budget impasse would drag out so long. Cutting services months ago would not have been enough to compensate for the absence of $22 million, he told the judge.

    The county has about $3.8 million left in the general fund and two outstanding 2015 payrolls totaling around $2.5 million each, he said. The county usually receives $1.5 million to $2 million from last-minute property tax payments, but those receipts will come too late to cover payroll or the debt repayment, he said.

    Temporarily borrowing $20 million won’t create a problem with the county’s debt ceiling, Swetz said. The county’s maximum debt was set at $793 million by outside auditors, and the county owes around $346 million, he said.

    Burke was particularly interested in what would happen if the county defaults on the debt repayment.

    Defaulting on the payment could allow borrowers to demand immediate return of more than $100 million loaned to the county, Swetz said. It also could lead to further credit rating downgrades and jack up interest rates on future borrowing, he said.

    The county’s credit rating was downgraded last week, largely due to a council majority’s decision to reject the initial proposed temporary loan two weeks ago, documents say.

    To allow unfunded debt loans, a judge must determine that available revenue came up short and overspending and shortfalls could not be foreseen, according to the Local Government Unit Debt Act. The county also must prove that failing to pay the debt would be dangerous to “public health, safety or education.”

    Burke said these conditions were met. It was not “reasonable” for the county to foresee the state impasse would continue to Nov. 30, he said.

    The county provided many examples of the “risk of harm” and “severe and very dangerous” impact of service cuts that would occur without the loan, Burke said, citing an example of roads and bridges that must be plowed during winter weather that is “around the corner.”

    A debt repayment default would result in “financial calamity” for years, Burke said.

    Some employees would be willing to work a week or two without pay, but many could not afford to wait weeks for compensation in “today’s challenging economic times,” the judge said.

    County officials are feverishly working on obtaining a lender to wrap up the borrowing before the debt repayment.

    Public Financial Management, the county’s outside financial adviser, had lined up a proposal to borrow the money at an interest rate of 1.3 percent, but that offer was withdrawn due to the county’s credit rating downgrade, Swetz said.

    Former county controller Walter Griffith had said he would contest the borrowing if his questions were not answered before the hearing. He did not attend the hearing and could not be reached for comment Monday.

    By Jennifer Learn-Andes


    Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.

    Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.

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