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The New City Budget: The Same Old Game

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By Tom Ferrick Jr.

The budget proposed by Mayor Nutter doesn't solve any of the city's problems it simply buys time.

The city wants to raise about $185 million a year by enacting a $300 per household trash fee and a two-cent-an-ounce tax on sugared drinks.  This will provide enough new money to keep city government running without cutting basic services until after the mayor's 2011 re-election campaign.

His budget proposal this year shows how well Nutter absorbed the political lessons of the past. The public outrage over his attempt to close libraries and swimming pools has turned him into a service-oriented mayor, at the expense of his original agenda of tax reduction.

If these new fees and taxes become law, taxes will have gone up nearly $400 million over the last two years, if you count the $86 million a year 'saved' by halting scheduled declines in wage and business taxes.

Nutter is going to get heat for these latest tax increases - especially among Philadelphians who earn less than $50,000 a year. But, it is heat he seems willing to take - rather than move trash collection from every week to twice a month or close libraries and rec centers or lay off hundreds of city workers.

No one in the administration has come out and said these latest proposals represent a temporary fix at best.  They don't have to.  Their own numbers show it.

The city's five-year plan shows that government spending is due to rise a cumulative total of 16 percent over the next five years, while revenue from its major taxes is expected to rise a net of 5 percent.

This would be manageable if the city could carefully control all spending over the next five years - making a series of modest cuts across all departments.

But that option is not open.  There are costs the city has no control over and they are likely to continue rising at rates much higher than inflation.

An example is pension costs.  Over the next five years, the city is going to have to increase its payments to the city's pension fund by a total of 64 percent.  The jump in pension fund payments over the next 12 months will total about $85 million - in effect, it will eat nearly all the income realized by the sugar tax.

It would be nice if the city could forego those payments or postpone them to another day. It cannot.  The pension fund needs these additional infusions of cash - they will total about $336 million over the next three years - to meet legal requirements that it maintain a sufficient balance to pay all pensions going forward.

It is a fixed cost. So is debt service - the money that goes to repay bondholders.  So is health care, the medical insurance for city employees.

These costs have gone up at higher than the rate of inflation for the last 10 years and are likely to continue to do so for the next 10. And since they represent such a large proportion of the total budget - about 30 percent and rising - they impact on every other decision about taxes and spending.

The stark reality of the situation is that Philadelphia has more employees than it can afford.  Note that verb. I said afford, not need.

When that happens in private industry, you have two options: you can either reduce your costs by shedding workers or reduce your cost per worker by lowering wages and fringe benefits.

This is what businesses have been doing through this recession.  It is the reason we have a 10.6 percent unemployment rate in Philadelphia today.

An argument can and should be made that government is not a business. It doesn't make widgets, it provides essential services: police, fire, trash collection, street repair.  It runs libraries and recreation centers.  It has parks and playgrounds to operate.

As a result, most mayors have turned to a combination of selected budget cuts and tax increases to keep government funded.  It is a balancing act.  Michael Nutter is only the latest man on the wire.

But, what happens when the degree of disparity becomes too glaring?

Philadelphia is a mostly a poor and working class town.  Median household income is $36,222 a year.  Think of a family of three, where the mother and father work at jobs that pay a total of $700 a week.  It they are lucky, they have health-care coverage.  It is unlikely they have any pension plan.

Today, the average city worker costs $104,300 a year, when you include wages and fringe benefits.  Fringe benefit costs alone total $43,000 a year.

A year into his first term, Michael Nutter was presented with a challenge and an opportunity.  The recession had caused tax collections to tank. The city faced a large deficit.  Contracts for city employees were due for renegotiation.  It gave Nutter the opportunity to go to the bargaining table and extract work, wage and benefits concessions from the unions. Instead, he let the moment pass. 

This decision - this lack of action - will define the rest of his time as mayor.

He missed his chance to change the fundamentals of government - and it is unlikely he will get another.

Now, he will have to play the game of mixing tax increases and service cuts well into the future. City employee unions already are lining up to support the mayor's proposed tax increases. They know the additional revenue will finance a continuation of the status quo.

It's the same old game, played in the same old way, now and forevermore.

 

 

Tom Ferrick Jr. is senior editor of Metropolis.

 

 

 

 

 

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