(Reuters) - After slashing public employees' pay to minimum wage on July 6, the mayor of cash-poor Scranton, Pennsylvania, has struck a deal to pay them back what they are owed with interest.
Mayor Christopher Doherty agreed that the city would pay approximately $750,000 in compensation owed to firefighters, police officers and public works employees, plus at least $5,100 in interest, said Tom Jennings, a lawyer for the employees' unions.
In exchange, the unions said they would drop their bid to have the mayor held in contempt of court, according to the agreement, reached Saturday and presented to a judge on Monday.
Scranton, the setting for "The Office" television show, is one of several cities in Pennsylvania and across the United States that are struggling to make ends meet, because of lowered revenue collections and increased spending.
Doherty said on Monday the city was on track to implement a fiscal recovery plan. This would allow it to tap into $2.25 million of state aid and find lenders for its budget gap.
Doherty made headlines around the world after cutting employees' pay to the state's $7.25 minimum wage for the July 6 payroll period. Shortly after, Doherty said he had no other choice because the city didn't have enough money to make full payroll of about $1.1 million for its nearly 400 employees.
After paying them about $315,000 altogether at the minimum wage, the city had just $5,000 left in its coffers, he has said.
For the following payroll on July 20, the city was again able to pay the full amount due to employees under collective bargaining agreements.
The settlement calls for Scranton to repay the compensation by August 16, plus a 6 percent interest payment that amounts to at least $5,100 for the missed pay periods.
"Hopefully (the settlement) gives us some stability here and some assurances that this isn't going to happen again," said John Judge, president of Scranton's firefighters' union.
Scranton, nicknamed the "Electric City" for having one of the nation's first electric streetcar systems, will get $2.25 million in state aid if it can enact a fiscal recovery plan by August 15.
MAYOR SAYS CITY ON TRACK TO TAP STATE AID
If it doesn't meet that goal, Scranton can extend reimbursement of the back-pay until August 31 but must pay nearly $7,000 in interest instead, the agreement said.
So far, Scranton is on track to tap into the state aid after sending a proposed recovery plan to the state for consideration on Friday, Doherty told Reuters.
As a financially distressed city, Scranton is under state supervision and must get state and court approval for certain financial decisions.
The Scranton city council approved a budget for fiscal year 2012, which ends December 31, that borrowed about $16.5 million to fund operations.
But after the council voted to delay a $1 million debt payment on June 1 by two weeks, banks have been reluctant to lend without first seeing a recovery plan for the coming years, Doherty said.
"It gives us a plan for the next three years," he said. "We can go to the banking community."
The proposed plan includes a provision to raise an additional $1 million annually from the city's nonprofits, which would be asked to make payments in lieu of the property taxes from which they are exempt.
The idea was based on successful efforts by the mayor of Providence, Rhode Island, earlier this year to get that city's universities and charity hospitals to make bigger annual payments, Doherty said.
Scranton's proposed recovery plan also calls for a commuter tax, paid by people who work but do not live in the city, that would raise about $4 million a year, as well as a property tax increase of about 33 to 36 percent over the next three years, Doherty said.
Scranton and other cities are also lobbying state lawmakers to let them impose sales taxes, the way Philadelphia and Pittsburgh now do, Doherty said.
That could allow Scranton to raise another $5 million every year, he said, but there's no time frame for when or if such a change could happen.
(Reporting By Hilary Russ, Editing by Tiziana Barghini and David Gregorio)