Scranton cuts workers' pay to minimum wage

By Charles Riley and Pauline Kim @CNNMoney July 11, 2012: 2:58 PM ET
NEW YORK (CNNMoney) -- Scranton is broke.  Faced with a crippling cash flow problem and divided political leadership, one of Pennsylvania's largest cities distributed paychecks last week to city workers that cut wages to the legal minimum. Scranton's 398 city workers -- including firefighters, police officers and the mayor himself -- were paid a reduced rate of $7.25 an hour. The pay cut, which Mayor Chris Doherty has threatened since late June, was carried out even though a coalition of unions had been granted a court injunction that prohibited the mayor from slashing wage rates. Doherty said he had no choice. "We have enough money to pay minimum wage and, if more money comes in, we'll be happy to make those payments," the mayor told CNN affiliate WNEP-16. The pay cuts are the latest, and perhaps most visible, consequence of what critics contend is years of financial mismanagement by the city's political leadership. The current imbroglio has its roots in structural deficits and unpaid bills that have forced the city to rely on borrowing to stay afloat. But so far, banks haven't been willing to lend. Lenders were spooked after the city council refused to make payments on debt issued by the city's parking authority. A flurry of resignations followed, and the bond trustee has been replaced.  But the short-term consequences of the dispute are now in full effect -- and the city is unable to borrow the money it needs to meet additional obligations. One bank -- M&T (MTB) -- had been willing to offer financing, but negotiations collapsed after the city's political leaders were unable to agree on revisions to Scranton's so-called Recovery Plan. The mayor's plan includes a 78% property tax increase and a hike on garbage fees. A majority of the city council is opposed to the plan, and the two factions remain at loggerheads. (more)