The sign for the closing Bon-Ton store at the Mall at Steamtown – a staple in the downtown Scranton since 200 and one of the mall’s two anchors – came down Thursday. The retailer said it probably will cease operations between Sunday and Wednesday. IN early January, mall officials announced they were close to signing a lease with a new tenant to fill the soon-to-be-empty space. Michael J. Mullen / Staff Photographer
The future of economic development in downtown Scranton looks like an Exodus — but of the biblical kind, not that of a blockbuster Hollywood movie.
As the city struggles with fiscal stability, a clear pattern is forming. Many employers large and small — Vaxserve; Joyce Perih, DDS; Tom Hesser Nissan; Delta Medix — all have closed up shop for greener economic pastures. Meanwhile, the Steamtown Mall saga continues with an unfolding legal battle for survival.
Robert Durkin, president of the Greater Scranton Chamber of Commerce, reports that the city recovery plan now on the table won’t help those who have invested in the downtown. Dollars are mobile, he says, and employers who can move out will, exacerbating the situation. “In all probability, the ongoing conversion of downtown commercial properties to residential housing is sure to continue,” says Durkin. “This is unfortunate. We need a vibrant business community.”
Durkin supports a formula for the downtown focused on bringing in investment through incentives like tax abatement. In particular, he cites the Local Economic Revitalization Tax Assistance (LERTA) program as an effective development tool.
“If owners are to improve their existing properties, it’s vital that we don’t inflict additional taxes,” says Durkin. “Development is all about balance.”
Durkin also supports a phase-out of Scranton’s mercantile and business privilege taxes. Both are gross receipts taxes on business that must be paid even if losses occur — a huge disincentive for investing in the downtown. “The city’s recovery plan calls for these taxes to be phased out,” says Durkin. “There also should be a tax abatement for individual improvements and expansions.”
Upside down mortgages
John Cognetti, owner/broker with Hinerfeld Commercial Real Estate, is quick to address Scranton’s financial mess, the resultant downtown deterioration and why the scenario is taking place. He explains that mortgage totals for many Scranton properties are now greater than the associated property value, compounding the financial distress of property owners. “There are no simple solutions and the issue is not really new,” says Cognetti.
He also blames NEPA’s overall economic decay and its various political silos, jealous of each other’s powers. Like tribal chieftains, Cognetti says regional leaders often maintain power by offering favors to their followers. “Nepotism is also a powerful force here, even though it crates inefficiency and waste,” says Cognetti. “This has been festering for 100-plus years and plays a big part in the city’s decline. Lackawanna’s property-tax rolls, in particular, need reassessment and are distorted by bartering and favors.”
He points to how Luzerne County and the city of Wilkes-Barre have been cleansed of many of these old silos — often in a traumatic and very public display, as in the Kids for Cash scandal. Now these governments operate in a newly transparent manner, with nine county leaders. The county also managed to complete a property tax reassessment despite considerable “whining.”
“Luzerne County is on the right road and ahead of Lackawanna with urban renewal, but there’s still work to be done,” says Cognetti.
Ample warning
According to Cognetti, as early as 1987, city leaders knew they faced potentially fatal fiscal problems, yet City Hall resisted needed tax increases. Then, as fact property values dropped, equity decreased and the city’s situation headed downhill.
The public also needs a reality check, says Cognetti, advocating for publishing the city’s union contracts for the public to see. This could counter the unions’ strong track record of getting out the vote that supports them.
As Scranton’s debt increases and bond ratings decline, Cognetti believes it’s inevitable that the city’s commercial and residential properties will drop in value. This will further slow real estate sales. Eventually, property values will drop to a point where speculators seize the advantage. In essence, Scranton will offer great commercial buys to out-of-town bargain-hunters who don’t know the Scranton market. “We’ve all seen how absentee property owners can bring on a precarious future,” says Cognetti.
Taxation revision
William Wassel, commercial realtor with Weichert Realtors, Hibble and Associates, advises Scranton’s leaders to immediately deal with revenue problems by revising its tax system, given the large number of city properties now tax exempt. He also advocates that the city’s school district rein in excessive spending. “You can’t run a business or government without income,” says Wassel. “It’s that simple. Scranton needs to lower its operating costs as well.”
He forecasts that, as the city’s economy shrinks, Scranton’s tax revenues will contract too, abetted by the ongoing conversion of the city’s business district to residential housing. “We’ll see more and more people living in the storefronts instead of businesses operating there,” says Wassel.
He promotes creative solutions to Scranton’s fiscal plight, like opening a major grocery store in the Steamtown Mall. Wassel believes this would generate new tax revenue, as well as improve the lives of the city’s new downtown residents.
According to Wassel, an alternative to preserving the mall as a retail center might be use by the University of Scranton for student housing or classrooms. On the downside, this would further depress tax revenue. “This all adds up to no one minding the store in Scranton,” says Wassel.
