July 28-August 3, 2005

city beat

A Surprise $70 Million

Did the mayor play fast and loose with the budget?

by Doron Taussig

Mayor Street made a lot of somber comments during this year's budget negotiations. "In a sluggish economy there is little latitude for change," went one tepid line. Street felt strongly enough about this that he proposed cuts in fire, parks and recreation funding, which were only restored after City Council backed away from cutting taxes.

Now, it appears that the city's fiscal health isn't quite as bad as Street had diagnosed. Recently released data suggest that tax revenue will exceed projections by about $70 million, mostly thanks to a bump in the real estate transfer tax. That number may change a bit after auditing, but Street was confident enough in the unprojected funds that he used them to plug a $50 million budget hole spotted by the Pennsylvania Intergovernmental Cooperation Authority (PICA), which oversees the city's finances.

The Street administration explains the initial underestimation as responsible, conservative budgeting. But others say the newfound money is evidence that the fiscal crisis was nothing more than an illusion, conjured by the mayor to scare off tax cutters and those who would spend on priorities other than his own.

The "contrived crisis" theory goes like this: Every year, the Mayor's Office makes a budget estimate, around which the city's budget is built. So, the mayor lowballs the estimate, tells everyone that the city can't afford anything, and then, when additional monies come in, spends that surplus on his pet projects. He can do this because expenditures made after the budget passes come under very little public scrutiny.

Critics say the mayor has exploited this distraction in the past by, among other things, spending surplus monies on police overtime for Safe Streets, leaving Council with the unsavory choice of approving the expense or denying police overtime pay for hours already worked. They say this year is turning out to be no different.

"This budget was a total farce," says Councilman James Kenney, who ended a recent interview by counting off how many days remain in the Street administration. "He starts the budget process, announces all types of cuts, and like a dog trainer with a biscuit, people do what he says."

Tax-cut advocates, such as Brett Mandel of Philadelphia Forward, have also sounded off, pointing out that the business privilege tax cuts he supported would only have cost $16 million over five years.

It's true that for the past decade (going back to before Street), the mayor's budget estimate has generally come in below actual revenue totals. And it's true that the city Controller's Office, which makes an independent, nonbinding budget estimate, tends to come closer to the mark. But the controller has the luxury of making an estimate that might be too high. There are those who say that they are content merely to have a mayor who won't take that risk.

"You can't go pie-in-the-sky," says Joseph Vignola, the outgoing PICA executive director. He points out that his organization was established precisely because, in the 1980s, Philadelphia got itself into trouble by being overly optimistic.

City Controller Jonathan Saidel concurs. "I've always believed you should be ultra-conservative," he says, though he adds that "it has been a strategy" for mayors to toy with estimates, and that hurts the credibility of the government.

"If I was the mayor," says the probable mayoral candidate, "I would be realistic on a consistent basis."

But no one is actually accusing the mayor of breaking any rules. Rather, they say, Street is deftly using the system to his advantage.

"It's the art of the deal," says Councilman Frank DiCicco, who negotiated with the mayor to prevent fire and library cuts. "[Street] is a master at getting his agenda through the process."

Some cities have what is called a "consensus budget," where the mayor and legislature make an estimate in tandem. This approach has the advantage of spreading responsibility for projections, but raises the possibility of a mayor/council deadlock.

The city might also consider changing the way it uses surplus funds. Kenney has been pushing a proposal for a "rainy-day fund" for several years. The proposal would take half of all surplus funds and reserve them for fiscal emergencies. Many municipalities have such funds, and Kenney says they "encourage accurate budgets." (The mayor has not yet taken a position on the bill.)

Others say the answer is simply to make surplus spending more public. Mandel likens Street's present approach to a husband who, after carefully planning a budget with his wife, finds a little extra and buys himself a new golf bag. It's not clear, however, whose fault that really is. Says Saidel, "People should become accustomed to watching the budget year-round."

The Street administration, meanwhile, says it doesn't see what all the fuss is about. Revenues came in higher than expected, and they believe it's a testament to rising property values created by the Neighborhood Transformation Initiative. (Kenney credits tax cuts.) Street spokesman Joe Grace says the mayor is just very good at budgeting.

His opponents couldn't agree more.