March 25-31, 2004

city beat

A Big, Fat Budget Mess

Street's grand plans hinge on state lawmakers and new bonds.

by Amy L. Webb

Last week, Mayor John Street announced that, according to his five-year budget forecast, the city was facing a $670 million deficit and a dim economic future. Then he told a jammed crowd of union leaders, fire and police officials, and affordable-housing advocates that he was not going to lay off staff. That the streets would be safe. That children would still have places to play.

He made these assertions after finding what he said were adequate ways to curb city government spending: cutting back on employee cell phones, eliminating the methadone program and saying goodbye to the drawbridge operator.

Still, Street's 250-page budget outline tells a slightly different story, one where massive expenditures and sweeping initiatives are coupled with the issuing of new bonds and promises that the state legislature will make good on finance deals.

Whether City Council will pass Street's version of a balanced budget by June 1 is one concern.

Whether Philadelphia will be able to absorb future debt, find displaced city employees new jobs and continue to implement Street-initiated programs are major issues unto themselves.

To his credit, Street accepted many of the measures advocated by the Tax Reform Commission.

It's no secret that high wage and business-privilege taxes have crippled the local economy. From now on, the business tax will be based on sales rather than a company's property, payroll and sales, Street says.

This is a good thing for Philly-based companies like the Comcast cable giant and the Aramark services firm, which stand to save significant money. And, it bodes well for large corporations that are considering moves into the city or a nearby suburb. A real estate tax will be instituted that will be based on the value of land rather than the value of buildings. And efforts to assess real estate at 100 percent of its value will be redoubled.

Workers will see the biggest tax change come Jan. 1, when wage taxes will be reduced from 4.4625 percent to 4.3655 percent for residents and 3.8801 percent to 3.8475 percent for nonresidents. A tenth of a percentage point may not seem like a lot -- a resident making $50,000 a year will save $48.50 -- but it's a sign of hope.

At the same time, the five-year plan blames staffing as a major impediment. "City government's single largest expense is employee wages and benefits -- representing 57.6 percent of the [budget] at a cost of $1.9 billion," the plan reads.

Street's answer was not to lay anyone off just yet, a sentiment he repeated during his budget address and in interviews. Instead, his administration plans to impose a hiring freeze and, through attrition, reduce numbers of police and fire staffs and eliminate at least 50 senior-level employee positions. With the proposed closure of recreation centers, those employees will be out of jobs, too.

During a press briefing before the last week's address, Street wouldn't elaborate on any of that. And when asked about cuts in the police and fire department, Street would not say how many jobs would be eliminated.

Though lists were circulating with the names of recreation centers to be closed, the mayor said nothing had been decided and that discussions would be ongoing. And when asked if there had ever been a comprehensive staffing analysis done to determine whether employees cut from one job could, with their existing skills, matriculate into a different position, Street just said that he didn't anticipate any problems.

"It's a process," he said. "We have huge numbers of positions suitable for people."

That may not be the case -- and it's still unclear whether the city conducted a staffing analysis first. Many of the open positions that the newly jobless would fill were vacated by the Deferred Retirement Option Plan (DROP). Employees who had reached a certain age and spent at least 10 years working for the city are eligible for a lucrative buyout. So, could a former rec center worker step into a personnel manager position? How about a librarian suddenly becoming an assistant district attorney?

The problem isn't that Street is neglecting Philadelphia, or that he's more interested in lining his own pockets than solving for budget deficits. Street is a bureaucrat with a big heart, and it'd be hard to prove that his ideas weren't intended to truly help this city.

The problem with this budget is simply echoed throughout its pages:

Page 45, "¨ the City is developing a Vacant Property Information Management System" to determine which properties should be acquired for the Neighborhood Transformation Initiative (NTI).

Page 59, create a $500 million Economic Development Fund to "create entirely new communities with mixed ¨ uses."

It seems as if Street's administration conceived huge projects to eradicate blight and lure new businesses without first having a firm plan of attack. In the case of NTI, $275 million in municipal bonds and an additional $68 million in federal block-grant money has been spent so far to clean neighborhoods, remove abandoned cars from the streets and prune dangerous trees. But decisions about which houses to take under eminent domain and which buildings to demolish were made before someone built and installed a computer database or mapped the city using a geographic information system.

Because there was no geographic analysis involved, NTI wasn't able to demolish entire strings of buildings as originally thought -- some still had people living in them, others were too nice to tear down.

As a result, the cost of the program went way up while the total number of all buildings it would demolish went down -- from 14,000 to 9,000 last November. In the budgetary five-year plan, the city now says that number is closer to 4,000.

Another initiative, the new economic development fund, was announced during the mayor's 2003 inauguration speech, though his administration had remained tightlipped on where the money would come from until last week. The fund is supposed to help develop residential communities along the Schuylkill and Delaware rivers. During a March 12 meeting with the City Paper editorial board, Street and his finance director, Janice Davis, explained that $125 million would come from restructuring the debt-service reserve at the Philadelphia Water Department. That left $375 million, which Davis said would be generated in part through legislation that they hoped would be introduced in Harrisburg and in part though the issuance of more municipal bonds.

But there's the rub. Street's finance team is hedging its bets on state legislators and elected officials who aren't exactly in a hurry to do Philly any favors. Then, there's the bond issue. When a city issues bonds, it's actually borrowing money from corporate and individual investors. It may not happen during Street's term, but at some point, the city is going to have to pay back the potential $650 million it issued in bonds.

And that brings the budget full circle.

The mayor says Philly will be $670 million in the hole five years from now if no cuts are made. Then again, the city could be $650 million in the hole anyway to fund initiatives that didn't start out as detailed plans with the personnel, equipment and technology in place.

Will it be a happy ending for Street and Philadelphia? Could be. But between now and June 1, the administration, council members and community activists likely will battle over what to save and where to cut. And that, of course, won't be much fun.