JOHNSTOWN — A financial windfall could solve Johnstown’s budget woes for this year, allowing city officials to meet their payroll obligations and avert layoffs.
City Council on Tuesday agreed to sell a portion of Johns-town’s delinquent real-estate taxes to a Luzerne County nonprofit in return for an upfront payment of up to $650,000.
That money is expected to arrive before Thanksgiving.
And some expect that it will be sufficient to fill a gaping hole in this year’s spending plan.
“Barring the unforeseen, this money should get us through 2009,” said Carlos Gunby, Johnstown’s finance director.
But Gunby also said he could make no guarantees.
And Councilman Jack Williams – one of two votes against the plan – contends that the cash is no cure-all.
“We’re still going to have a deficit,” Williams said.
The proposal from Public Asset Management Inc. of West Pittston came at an opportune time: City officials have known for months that their cash flow would not be sufficient to pay their bills by year’s end.
Previous cost-cutting proposals involving layoffs have been rejected by council. But the tax-lien sale provided an attractive option, especially with less than two months remaining in the year.
Under the deal approved Tuesday, Public Asset Management will pay the city a lump sum to purchase all past-due property taxes from 2008 and years prior.
Cambria County Tax Claim Bureau will continue to collect on those delinquent taxes. But the difference is that the bureau now will send a monthly check to Public Asset Management, rather than remitting the funds to the city.
Taxpayers “will not see any changes whatsoever as a result of this transaction,” the nonprofit’s administrators wrote in documents submitted to the city.
The deal will continue in the coming years. For instance, the city will get another big check early next year when Public Asset Management purchases delinquent real-estate taxes from 2009.
But it’s the initial payment, which was estimated Tuesday at $640,000 to $650,000, that will have the most immediate impact.
Williams’ latest estimate shows the city’s 2009 deficit at $524,354. And Gunby said there are no restrictions on usage of the money from Public Asset Management, meaning all of the proceeds can be used to fill that hole.
“We will have the check by the end of next week, or no later than Thanksgiving,” Gunby said.
But officials acknowledge that the deficit could grow significantly by year’s end due to unforeseen costs – possibly reaching a total that’s higher than the tax-lien payment.
If that happens, the city still will have to somehow come up with the necessary cash.
Also, both Williams and Councilwoman Ann Wilson said they voted against the plan because they have long-term concerns.
For example, there is no doubt that Public Asset Management’s second lump-sum payment will provide a big financial boost early next year.
But it will have to be used carefully, since there no longer will be delinquent-tax proceeds rolling in from the county’s tax claim bureau throughout the rest of 2010.
Wilson said city leaders do not have a strong track record of using windfalls wisely.
“By not following stringent guidelines in the past, that’s how we’ve gotten into this situation,” she said. “That’s how we’ve remained in deficit mode.”
Wilson added that the tax-lien sale – no matter the size of the city’s initial financial benefit – does nothing to address a fundamental problem: Johnstown annually spends more than it brings in.
“In a sense, it’s somewhat of a bailout,” she said.
The measure passed 5-2, with two councilmen absent.
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