Cities going broke: Can Scranton's minimum wage plan work?

A judge told Scranton's mayor he couldn't break the contracts. Pennsylvania told him he couldn't declare bankruptcy. But he didn't have the money to pay more than minimum wage. Unions sued.

Eric Thayer/Reuters
A view of a fire engine in the city fire headquarters building in Scranton, Pennsylvania, Wednesday. Firefighters, police officers and public works employees in Scranton, Pennsylvania sued the city on Tuesday after the mayor slashed pay for the city's workers to the state's minimum wage of $7.25 an hour.

The mayor of Scranton, Pa., faced with the city’s swiftly diminishing bank account, last Friday paid the federal minimum wage of $7.25 an hour to all municipal workers – firemen, police, even himself.

Whether Mayor Chris Doherty’s plan remains in place is doubtful, however. A judge has already ruled that he cannot unilaterally abrogate municipal contracts.

But, under state law, he also cannot declare bankruptcy. And, the city council has dug in its feet over Mayor Doherty’s plan to raise property taxes by almost 80 percent. So, despite lawsuits, the city paid its workers less money than they could earn working at the local McDonald’s.

With an increasing number of municipalities on the brink of bankruptcy – and some even throwing in the towel – is minimum wage for civil servants a solution to budget woes?

So far, blue-collar Scranton is alone in proposing such a draconian solution. But the financially strapped cities of Stockton, Calif., and Vallejo, Calif. – both bankrupt – have reduced wages and benefits. Jefferson County, Ala., also bankrupt, cut non-salaried employees’ hours by 20 percent.

Many public sector employees already have seen their wage growth slow or grind to a halt – even fall after adjusting for inflation.

In Arizona, for example, state workers have not had any pay raises in five years; Florida state employees have had their pay frozen for six. And, in California, where there were no pay raises for two years, Gov. Jerry Brown is seeking a temporary 5 percent pay cut this year from public sector workers. Next July some of the Golden State workers may be eligible for a 3 percent raise.

In November of 2009 President Obama, in an effort to show he was doing something about the budget deficit, froze the pay of federal employees for FY 2011 and 2012. However, federal employees could still earn “within-grade” or “step” pay raises that are linked to years of service.

But not everyone is sympathetic to the plight of public employees.

Bill Beach, the director of the Center for Data Analysis at the conservative Heritage Foundation, says that despite the recent austerity there is evidence, which he acknowledges is “heavily disputed,” that government workers make more than if they worked in the private sector, which also has had to tighten its belt because of the slow economy.

“We argue there is a wage premium that state and federal employees receive largely through their generous pensions and the guarantee of job security,” he says.

The media relations department at the American Federation of State, County and Municipal Employees did not comment.

Meanwhile, according to the Bureau of Labor Statistics, the government sector has lost 633,000 jobs since January of 2009. The bulk of those – some 511,000 – have been local government employees.

Some of the civil servants in Jefferson County, Ala., which has laid off hundreds of workers, can attest to what it has been like for those lucky enough to retain their jobs. For five months last year, the county, the state’s most populous, reduced hourly workers’ time by 20 percent.

“Some cannot manage it, some have lost their homes, been foreclosed, lost vehicles, and their credit is shot,” says Cheryl Hoskins, treasurer of the Jefferson County Employees Association. “And, they were still over the limit (in income) to get public assistance.”

Eventually, the county went back to full-time work. But, then it began a “reduction in force” program where more senior employees could take the jobs of less senior workers. One county employee lost $40,000 in salary after he got bumped and then had to take a job in a lower pay grade. He subsequently resigned.

However, no community has cut wages quite like Scranton, which has a $16.8 million budget gap and which had, according to Mayor Doherty, just $305,000 cash on hand when he announced the pay cuts. According to a lawsuit filed on behalf of the city’s employees, some 390 public workers saw their hourly wages sliced from between $19 and $36 an hour to $7.25 an hour.

“That is really a very, very drastic step,” says Lee Adler, an adjunct professor at Cornell University’s School of Industrial and Labor Relations in Ithaca, N.Y. “I would be surprised if they have the right to abrogate collective bargaining agreements to minimum wage.”

According to Lackawanna County Judge Michael Barrasse, the city did not have that right. Last week, he issued a temporary injunction preventing them from unilaterally changing salaries. The city went ahead with paying the workers minimum wage.

On Tuesday, lawyers for the municipal unions filed a petition asking that the mayor be held in contempt of court.

Doherty could not be reached for comment. But, he told the Times-Tribune of Scranton, "What am I going to pay them with? We don't have the money."

Some worry about the effect of the wage cuts on the community.

“They do valuable services and critical services for the community,” says research economist Sylvia Allegretto at the Institute for Research on Labor & Employment at the University of California, Berkeley. “There are a lot of highly trained, skilled, and educated people.”

In addition, if the low pay rates were to continue, she says, it would probably result in some dire financial problems for the workers. “They buy houses based on the amount they are making,” she says. “I don’t know how they can make ends meet.”

Her concerns are real, says John J. Judge, a firefighter and head of Local 60 of the International Association of Fire Fighters in Scranton.

“All the guys in my union are married with children, the head of household. You can’t raise a family on $7.25 an hour,” says Mr. Judge. “I know some of my guys are divorced and their alimony payments come right out of their paycheck based on what they had been making. So, I know one guy got a check for $90 – you can’t even fill up your gas tank for $90.”

As more taxes have flowed into city coffers, Scranton’s bank balances have risen, says Judge, and are now out to $1.2 million. That’s enough money, he says, to go back to their regular pay and give the workers’ back pay.

“That’s what we hope,” says Judge, who thinks the pay cuts were not a union-city fight but part of a political war between the mayor and city council. “This was a cash flow problem.”

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