Gary Lewis 129 North Washington Avenue Apartment 509 Scranton, PA 18503 6 October 2012 Clerk of Judicial Records

Civil Division 436 Spruce Street Scranton, PA 18503 RE: City of Scranton unfunded debt petition October 24, 2012 hearing

To Whom It May Concern: I am writing to express my opposition to the City of Scrantons recent petition for approval of unfunded borrowing in the amount of $9,750,000. It is my understanding that Senior Judge Peter OBrien will hear this case on October 24, 2012. The City is currently in the throes of a major financial crisis. As a condition to additional borrowing, the administration was required to produce a revised recovery plan detailing how the city will address its massive deficit. The plan which required several iterations is severely flawed. I believe that recent actions undertaken by Mayor Chris Doherty, Scranton City Council President Janet Evans and City Council Solicitor Boyd Hughes are focused on personal enrichment and political gain rather than the long term stability of the citys finances. To wit: The original revised recovery plan prepared by Mayor Chris Doherty called for the sale of the citys storm water collection system an asset the city has not owned for more than four decades. City Councils revisions to the plan prepared largely by President Janet Evans incorrectly stated the net tax increase as 64%, which failed to account for the compounding effect of multiyear tax hikes. The actual tax hike under this plan is more than 81%. City Councils revisions to the plan also rely on more than $10,000,000 in new revenue (via a Local Sales Tax and a Commuter Tax). Both of these revenue measures require intervention of a Republican controlled state legislature which has a demonstrated aversion to tax hikes.

(570) 780 - 6813

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gary@consolidatediza.com

In the middle of a financial crisis which saw employee wages cut to minimum wage, City Council attempted to raise Attorney Hughes salary by 67%. When this failed, Attorney Hughes was able to ensure the appointment of Case Con Capital without a formal RFP or review of the organizations qualifications as the citys financial advisor. He then received a $15,000 fee for work related to the recent Tax Anticipation Note (Series B of 2012; $6,250,000).

In addition to these major issues with the citys financial plan, I believe there are also multiple violations of bond covenants, state regulations and state law, such as: Violation of the sunshine act: the revised recovery plan released by City Council for public review was vastly different from the plan shopped to banks while obtaining TAN Series B. Only after the Council voted to accept the publicly available plan complete with the flawed metrics mentioned above did they amend the plan to reflect their actual intentions. Violation of the Unit Debt Act: more than $7,000,000 of the addition unfunded borrowing being sought by the city will be used to make debt service payments due in 2012. According to the Unit Debt Act, a bond issue may only be advance refunded a single time. More than $1,800,000 of the total debt service due in 2012 is related to a 2003 Advance Refunding of a 2001 bond issue. Failure to meet continuing disclosure requirements: The city has failed to meet annual disclosure requirements required by the outstanding bonds. After the Scranton Parking Authority caused a technical default in the summer of 2012, the city attempted to catch up with the disclosure requirements by posting past due disclosure items. As of October 2012, the city has failed to produce and disclose an audit of fiscal year 2011 which was due 180 days after year end (June 30, 2012).

Additionally, based on comments made by City Councilman Frank Joyce (Chair of the Finance Committee), the city plans to engage in additional borrowing in 2013 totaling more than $22,000,000 via the sale-leaseback of the citys DPW garage. I believe that brings that total city borrowing through 2013 is comprised of: $9,850,000 in unfunded debt approved by the court in January 2012 $9,750,000 in unfunded debt currently pending court approval $22,000,000 in 2013 borrowing (via the aforementioned sale-leaseback)

These three items, combined with the currently outstanding city debt of $101,155,000, bring total debt to more than $142,000,000. When capitalized lease debt of more than $19,000,000 is added to this amount, total debt as of 12/31/2013 will exceed the debt ceiling imposed by the Unit Debt Act.

(570) 780 - 6813

www.ConsolidatedIZApac.com

gary@consolidatediza.com

Finally, I am very concerned about the total cost of any additional borrowing. The recent Tax Anticipation Note secured by the city came at a staggering cost. The total cost of this note, which has a four month term, was $282,500 (inclusive of various fees and costs). This amount implies a 13.56% yield. Assuming this rate holds for future borrowing, the 2012 debt issuances will add more than $2,500,000 in new costs to future years. I urge the court to carefully consider the citys recent actions and the implications new unfunded debt issuances. The road to recovery should not include higher expenses and intentional disregard for state law designed to protect the taxpayer. If you would like to discuss my analysis of the city, please feel free to contact me at (570) 780 6813, or by email at gary@consolidatediza.com. Respectfully Submitted,

Gary Lewis

CC:

Governor Tom Corbett Secretary C. Alan Walker Attorney General Linda Kelly Senior Judge Peter J. OBrien

(570) 780 - 6813

www.ConsolidatedIZApac.com

gary@consolidatediza.com