A Failing City Calls In The Finance Doctor : Planet Money A mayor asks that his city be declared a financial disaster area. Here's what happens next.
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A Failing City Calls In The Finance Doctor

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A Failing City Calls In The Finance Doctor

A Failing City Calls In The Finance Doctor

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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.


And I'm Robert Siegel.

States and cities across the country are trying to find a way out of chronic budget problems and today we take you to one city with a surprising approach -throw in the towel and ask for help.

David Kestenbaum and Chana Joffe-Walt of our Planet Money team explain why in this case that made a lot of sense.

DAVID KESTENBAUM: Reading, Pennsylvania was once so well off that it had a Monopoly card named after it: Reading Railroad.

JOFFE-WALT: But it hasn't been like that for a while. The very first people we spoke to told us that.

Ms. DONNA REED (Representative, Reading City Council): I'm Donna Reed. I sit on Reading City Council.

Ms. LINDA KELLEHER (City Clerk, Reading, Pennsylvania): I'm Linda Kelleher. I'm the city clerk for the city of Reading.

JOFFE-WALT: Donna is soft-spoken for a politician.

KESTENBAUM: Linda has been the clerk for 15 years. She carries around a huge mug that says: Office Goddess.

JOFFE-WALT: And both women tell us every year people in Reading hang their heads over a sad budget with a gaping hole and ponder, how are we going to come up with a couple million dollars?

KESTENBAUM: In 2009, they shrunk the deficit by basically shrinking the city itself. Linda and Donna point to a huge framed black and white photo.

Ms. REED: This is Antietam (unintelligible). This is as it looked probably when it was purchased. When it was brand new.

Ms. KELLEHER: Yeah, in the late 1800s.

Ms. REED: And I believe it's a 560-acre watershed.

Ms. KELLEHER: 560 acres. Yup.

Ms. REED: It's a beautiful area.

JOFFE-WALT: Beautiful area that the city sold. It sold the lake to the county for $4 million. The sale got Reading to the next year.

KESTENBAUM: The following year, the budget hole was back: $11 million.

JOFFE-WALT: So this was the situation the mayor, Thomas McMahon, found himself in September 10th, 2009. It is then he decided to write a letter no mayor ever wants to write. He sat in his mayor chair to write the big guns, the state of Pennsylvania, asking that his city be declared basically a financial disaster area.

Mr. THOMAS MCMAHON (Mayor, Reading, Pennsylvania): It became clear to me - I've been losing sleep on this, I've talked myself to death on this. And now it's time for me to write that letter. And I remember signing that letter thinking, this is a way - it was a great relief on my part. A feeling of relief in saying we're finally going to be doing something. It's as if to say, I know I have a very serious health issue, now I'm finally going to go and get this pain looked after. Somebody's going to help me with it.

KESTENBAUM: That somebody was a financial doctor of sorts, a guy with orange-ish hair and an enormous laugh.

Mr. GORDON MANN (Financial Consultant): I didn't really know you could sell a lake.

(Soundbite of laughter)

Mr. MANN: Or who was in the market to buy lakes? Is there a lake market?

KESTENBAUM: This, ladies and gentlemen, is Gordon Mann. On weekends, an amateur sports broadcaster; during the week, financial disaster doctor. He drives across Pennsylvania from one ailing city to another.

JOFFE-WALT: Gordon's part of a special team from the state. Pennsylvania has a program called�Act 47�where a city or town, often instead of declaring bankruptcy, can ask the state to come in and, hopefully, fix things. There are 20 municipalities in the program right now - 20.

KESTENBAUM: When Gordon came to Reading, he talked to everyone, and then he dove into the numbers.

Mr. MANN: A lot of what we find when we come into these cities is early on they just don't know. What are their expenses? I don't know. How many employees do we have? I don't know. Can you pay your bills next month? I hope so.

KESTENBAUM: When you start to bring in outside people to look through a city's finances, you find some strange stuff.

Mr. DAVID KERSLEY (Business Analyst): Are you referring to the checks?

JOFFE-WALT: This is David Kersley, also called on to the Reading case from outside. Kersley is a business analyst and he told us his process. Sometimes he'll imagine himself as a bit of paperwork, any paperwork that comes with a check, and he walks himself through the system.

KESTENBAUM: One day he was pretending he was a zoning permit.

Mr. KERSLEY: So I'm a walking zoning permit and so I walk from the (unintelligible) office on the first floor up to the third floor, and I'm walking down the hall, I open the door because I want to see what happens to me in the office. And I observe a lady flipping through a card file full of checks. So I say, hey, what ya doin'?

JOFFE-WALT: The woman�tells him, oh, these are all the checks that have come in with the zoning permits. When they come in, they go in this box. It's the size of a shoebox.

Mr. KERSLEY: Hundreds and hundreds of checks in a shoebox. You thought, those checks, those should be cashed, right? That's money the city should be having to work with, right? There's just no question about it. Here we are, a financially distressed city. And you walk into an office and you find a shoebox full of checks.

KESTENBAUM: Gordon Mann, the financial doctor, told us, that's nothing. He uncovered $11 million that was grabbed from the sewer fund to cover a gap in 2009.

JOFFE-WALT: Weirdly, though, no one in city hall seemed to know it had happened.

Mr. MCMAHON: I was stunned.

KESTENBAUM: Linda Kelleher, the city clerk, with Donna Reed from city council.

(Soundbite of office)

JOFFE-WALT: Did you understand what that meant?

Ms. REED: We were in...

Ms. KELLEHER: Deep, deep doo doo.

Ms. REED: ...deep doo doo, A. B, it was upsetting because city council was not informed about that as it was occurring.

JOFFE-WALT: The mayor, Thomas McMahon, told he also didn't know.

Mr. MCMAHON: I was amazed to find it out that we had done this.

JOFFE-WALT: How did nobody know that that happened? You're the council and the mayor, so now we've talked to everybody who's basically in charge.

Mr. MCMAHON: Yeah. Yeah. All I can say is that the loose accounting system that we had just didn't reveal that until the end of the year.

KESTENBAUM: I mean, somebody made the decision to do it. Somebody pressed a key. Somebody probably within 100 feet of us, I would imagine, that's a small staff here, right?

Mr. MCMAHON: There may have been one or two people who knew about it. There may have been a case where they say, well, let's see if we can resolve this without getting the mayor all upset. And I think we've had some discussion afterwards to say, let's not do this again.

JOFFE-WALT: Gordon, the financial doctor, says dipping into restricted sewer funds, that is not unusual. Cities are trying everything they can to stay afloat, to keep paying firefighters and police.

KESTENBAUM: Reading has been looking for things it can cut. Donna Reed and the rest of the city council recently made a list of everything the city does, and they ranked them in order of priority.

JOFFE-WALT: The list had everything, even people who paint lines on the street.

Ms. REED: Line painting came out last. Although, the poor councilman that really wanted that - actually, in parts of the city, we've taken - citizens have taken to painting the lines themselves, painting their own curbs and things like that. That's starting to happen. Again, because we don't have the ability to do it anymore. So if your curb's yellow and it's faded, public works will give them paint. You can paint your curb yellow.

JOFFE-WALT: Gordon Mann, the financial doctor, says Reading, like a lot of places, has real long-term problems. Problems that even if you stopped painting the lines completely, even if you cashed every check correctly, stopped borrowing from the sewer fund, those problems would still be there.

Mr. MANN: Reading is just not as big as it used to be. People have left for the suburbs or they've left entirely. This is the same story as it is in Allentown, as it is in York, as it is in Johnstown, as it is in Easton, Scranton, you know, pretty much go through the list. Yeah, a very familiar story.

JOFFE-WALT: Gordon's doctor prescription runs 300 pages long. Reading needs to freeze wages for three years, and police, fire, all union employees have to pay more to their health benefits, which is another way of saying you have to take a pay cut. And the city has to raise a variety of taxes.

KESTENBAUM: It is strong medicine. It'll put the city on better footing. But it still may not be a cure.

I'm David Kestenbaum.

JOFFE-WALT: And I'm Chana Joffe-Walt, NPR News.

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