A Failing City Calls In The Finance Doctor

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

But the city has fallen on tough times. Every year, the people who run Reading struggle to come up with millions of dollars to patch holes in the budget.

A few years back, the city sold a whole lake. The county paid $4 million for it. But the budget holes persisted. In 2009, Reading needed to come up with another $11 million.

That's when the mayor, Thomas McMahon, decided it was time for Reading to throw in the towel. On Sept. 10, 2009, McMahon sat in his mayor chair and wrote a letter to the state of Pennsylvania, asking that his city be declared, basically, a financial disaster area.

"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,'" McMahon says. "Somebody's going to help me with it."

That somebody was a financial doctor of sorts. A guy with orange-ish hair and an enormous laugh, who moonlights as an amateur sports broadcaster. His name's Gordon Mann. His job is to drive around Pennsylvania visiting ailing cities.

Mann is 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.

When Mann comes into a new town, he talks to people, and dives into the numbers. He often finds city officials aren't clear on the details of their own finances:

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.

In Reading, there was even a box of checks sitting uncashed in somebody's office. It was discovered by David Kersley, another expert called in from outside to help Reading.

Kersley found the checks through one technique he uses to understand how a city functions: Sometimes he'll imagine himself as piece of paperwork, and walk himself through the system.

So one day in Reading, he pretends he's a zoning permit. And he goes from office to office — the way a zoning permit would — and in one office, he sees a lady flipping through a box of checks written to the city.

She tells him all the checks have come in with zoning permits. When they come in, they go in this box.

"Hundreds and hundreds of checks in a shoebox," Kersley says. "Here we are, a financially distressed city. And you walk into an office and you find a shoebox full of checks."

Gordon Mann, the financial doctor, found a lot more than that. He uncovered $11 million that was grabbed from the sewer fund to cover a gap in 2009.

Weirdly, no one in City Hall seemed to know it had happened.

The city council says it didn't know. McMahon, the mayor, says he didn't know either:

I was amazed to find out we had done this ... the loose accounting system that we had just didn't reveal that until the end of the year...

There may have been one or two people who knew about it. There may have been a case where they said, "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."

Mann says cities dipping into restricted sewer funds like this isn't unusual. Cities are trying everything they can to stay afloat, to keep paying their firefighters and police officers.

Reading recently made a list of everything the city does, and ranked them in order of priority. Last on the list: Painting the lines on the city's streets and curbs.

So the city stopped doing that. Some citizens have taken to painting their own curbs; the city's public works department provides the paint.

But Reading, like a lot of places, has real long-term problems.

Even if the city never paints another curb and cashes every check that comes in, the problems would persist. Reading is shrinking, as residents move away faster than new people move in.

"This is the same story as it is in Allentown, York, Johnstown, Easton, Scranton," Mann says.

Mann's prescription for Reading runs to 300 pages. ( Read it here.)

He says the city needs to freeze wages for three years. He says police, fire and all other union employees have to pay more of their health benefits. And the city has to raise taxes.

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

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