It’s no secret that the City of Scanton is facing tough times. Operating under an Act 47 designation of distressed status since 1992, the City faces enormous financial pressures – most notably with respect to its pension obligations.  According to the most recent report prepared by the Pennsylvania Public Employee Retirement Commission (based on 2013 actuarial reports), the City reported total pension assets of $43,762,008, but a liability of $194,041,288 – for a funding ratio of just 23%.  Not suprisingly, the City’s pension fund has been operating under a determination of “severely distressed” for some time.

In an effort to shore up its pension fund, the City earlier this year passed a controversial commuter tax plan, pursuant to which every nonresident working in the City would pay an earned income tax of 0.75%.  City residents were not affected by the tax.  Not surprisingly, a group of commuters quickly sued, and among other things argued that the plan was invalid under state law because it singled out the nonresidents.

On Tuesday, the Lackawanna County Court of Common Pleas – senior Judge Braxton, of Philadelphia, presiding – agreed, and threw out the City’s new commuter tax – the day before it was to go into effect.  A copy of the Judge’s decision can be found here. An appeal seems likely.

Assuming the decision stands, where does the City of Scranton go from here?  Perhaps it will go back to the drawing board to come up with a new earned income tax plan that affects both City residents and nonresidents equally.  Perhaps it will look to the example of its neighbor Allentown, which recently completed a long-term lease of its water and sewer system, in an effort to shore up its finances, and consider such a disposition of assets.  With the news that long-awaited reforms to Act 47 might finally happen, it might also look to rely on the added tax flexibility in those reforms to address the problem.

Whatever it does, time may be running out for the Electric City to address the problem on its own.