WILKES-BARRE — Luzerne County Councilman Harry Haas said Monday he won’t vote for a new proposed loan if the county pays a penny in fees or interest, even if it means the county must default on a debt repayment and impose mass layoffs and service cuts as a result.
Haas said he has received feedback from several council colleagues and citizens that the proposed borrowing on Tuesday’s council agenda doesn’t guarantee the state will pick up the tab for fees and interest as portrayed. If so, he said, he doesn’t believe he can support it.
He said he would not have a sense of fault if the proposed $20 million loan doesn’t pass and county finances and operations collapse as a result because Pennsylvania officials caused the problem by not passing a budget by June 30.
“It’s on them,” he said of state officials. “This is their responsibility.”
Councilman Rick Morelli said he believes the council members are hurting taxpayers more if they don’t approve the loan, even if the state ends up funding only the loan principal.
The cost of defaulting on an $8.5 million debt repayment will be far greater than interest and fees on a $20 million loan, he said. Defaulting on the upcoming debt repayment may allow lenders to demand immediate repayment of more than $100 million that had been loaned to the county and shatter the possibility of refinancing other outstanding debt at lower interest rates, officials said.
Either state or local tax dollars will fund the interest and fees in the end, Morelli said.
“Taxpayers will pay more money in the long run if we default on that payment, so what are you proving? Are you OK with defaulting? That’s what each council member really must decide,” Morelli said. “If Harry votes against this borrowing, it goes against everything he has been fighting for to rebuild the county financially. I don’t think he understands the ramifications of how this will hurt the county down the road.”
Morelli said he is not appealing to the five other council members who rejected the initial proposed borrowing last week — Edward Brominski, Kathy Dobash, Eileen Sorokas, Stephen J. Urban and Stephen A. Urban — because he believes they are willing to point blame but not take ownership of the unappealing option to solve the time-sensitive problem at hand.
The county administration asked the county council Friday to consider another borrowing option to stop the county from running out of money for payroll and the debt repayment. The state is behind on $22 million in reimbursements to the county.
The state is willing to sign an agreement pledging to directly pay a lender any state reimbursements owed to the county. Some county officials say the state is willing to cover the county’s “full obligation” in borrowing $20 million, including interest.
Stephen J. Urban sent his council colleagues an email Monday pointing to a clause in the new proposed agreement that says the county “may qualify to receive full or partial reimbursement of its interest costs incurred on the loan if the Commonwealth enacts a statutory provision to provide for full or partial reimbursement of local government interest costs arising from the budget impasse.”
Urban said the state has no obligation to pay all the county’s fees and interest and “highly” doubts state legislators will agree to pay the interest and fees for all entities that borrowed funds due to the impasse.
“I would think other counties and school districts would be lining up at the door in Harrisburg if they caught wind that Luzerne County is looking to receive a ‘special deal’ on getting their interest and fee costs paid for by the Commonwealth, but the Commonwealth hasn’t passed it yet,” he wrote.
Dobash said the agreement is missing “certainty” on the state’s coverage of fees and interest.
“I am not supporting more borrowing without a firm promise from the state,” she wrote in an email to council.
Haas said he will expect reassurances at Tuesday’s meeting.
“People are looking for some hope here, and this was the last hope,” Haas said.
Haas said he attended a County Commissioners Association of Pennsylvania meeting in Hershey this weekend — on his own dime — and was informed the state is sitting on $7.4 billion that it won’t release to counties and others until the budget is passed.
County officials authorized the association Monday to have its legal counsel research potential litigation against the state requiring the release of state funds for essential services, a release said.
The association also was asked to investigate the legal ramifications if counties stop turning over funds they collect on the state’s behalf so that money can be used for essential local services during the budget impasse.
Association Board Chair Jeff Haste, of Dauphin County, said the budget stalemate has lasted “long enough.”
“Counties have, to the best of their abilities, kept critical services available for children, seniors and many of the most vulnerable in our communities. The governor and legislature do not fully understand the scope and nature of the harm their inaction causes, and do not seem to share our view of the crisis in services, which affects the everyday lives of our residents,” he said.
Association President Craig Lehman, Lancaster County, said counties have been forced to tap reserves, borrow, delay hirings, limit some services and reduce or stop payments to outside vendors to continue funding Children and Youth and other human services that rely heavily on state funding.
“It is unconscionable that the commonwealth’s continued impasse is negatively affecting those in critical need,” he said in a release.
Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.