A follower of Truth in Accounting recently sent in an analysis he did of his hometown, Scranton (Pennsylvania), asking for some feedback.
I started to review his stuff, and checked Scranton’s recent financial reports.
Two things stuck out first – Scranton’s latest annual report, for fiscal year end December 2015, doesn’t have a date on it for when it came out.
One thing you can do, when that happens, is peek at the date on the pdf file in Adobe Acrobat. It looks like it didn’t come out until December 2016, which is pretty slow, even in government-land.
But it gets worse when you look at the auditor’s report. Scranton had an adverse opinion – i.e. they flunked their audit.
Why, you ask?
In the “Basis for Adverse Opinion” section of the auditor’s letter, while not written in the best English, it looks like the auditor was citing that the city chose to use a single discount rate for valuing the net pension liability, as opposed to a blended (lower) rate required for pension plans that expect assets to run out before meeting their liabilities.
Scranton’s bonds can’t be trading that well, can they?
On the MSRB’s “EMMA” website, you can see that bonds Scranton issued last year have had their yields rise considerably, and now run over 200 basis points above Treasuries. That means credit risk runs high, for Scranton.
But Scranton’s yields are still about 100 basis points below Chicago’s.