THE CITY BUDGET: 3.5 Billion Dollars -- 1.5 Million People -- 1,500 Pages -- One Simple Guide

by INDEPENDENT STAFF June 2004 EVERY YEAR, our overworked and underfunded municipal government grapples with the question “What is the least we can get away with giving people?” The city budget is its 1,500-page answer, authored by dozens of bureaucratic authors and read in its entirety by no one. Like the health care, Social Security or the nation's power grid, the city budget is a system so big and so boring that we often leave its management to the paid professionals and must periodically pay the price of suffering for their incompetence. In other words, the budget is seldom thought about by those who depend on it most—the 1.5 million people who rely on it for police protection, public education, tap water, and a host of other city services, except during those periodic breakdowns when the money runs out and the trash begins to fester in the street. This prompts a brief bout of civic interest, in the form of angry phone calls and pointed questions until these sudden failures are corrected and the city budget returns to its usual state of baffling invisibility, staggering onward until its next day of reckoning. If you're completing your dissertations in macroeconomics we hope you will find the guide below to be a handy refresher, or at least a quaint crib sheet. But if you're leaving midnight cookies on the doorstep for the volunteer elves picking up your trash, or think “surplus,” is the name of Cam'ron's new cognac-based punch, read on. We'd like to help. On May 31, City Council voted, 12-5, to adopt an operating budget very different from the one Mayor John Street submitted in mid-March. On June 21, they voted again to adopt this operating budget. Some Philadelphians fear that Street will veto Council's decisions on expenditures and tax reform. It's not clear that Council has enough votes to override this possible veto, which means that we could miss the July 1 deadline and be left with no budget. Lawyers have been trying to figure out what the city can and can't do in this situation - who they can and can't pay - but there's nothing in the charter to guide them in this worst-case scenario. WHY DOES PHILADELPHIA NEED MONEY? WHAT DOES THE CITY DO? The city of Philadelphia uses your wage taxes, along with property and corporate taxes, federal aid, state grants, parking fines, traffic violations, et cetera to pay police officers, contractors, teachers, janitors, lawyers, et cetera and supply them with concrete, glue, brooms, trucks, photocopiers, et cetera. Then there are the fund managers who take care of all those city employees' pension funds and the financiers who borrow money when City Hall runs short, and of course, Mayor John Street, the seventeen members of City Council and their staffs. Other than the purple PHLASH busses, the city is not responsible for is public transportation. SEPTA is a separate authority run by its own board with its own budget, to which the city sometimes contributes. WHAT IS THE BUDGET? It a document, 1,500 pages long. You can download a 115-page summary at www.phila.gov. The budget states how much money the City of Philadelphia will allow itself to spend in the next year, where that money will come from and what that money will be spent on. This includes every position proposed for every department, funds for all city contracts, and exact allocations for all materials and supplies—not the exact number of fire trucks, police badges, and first aid kits, but the amount of money that departments can spend on such items. WHAT IS CITY HALL'S ROLE IN THE BUDGET? The budget process begins with the Budget Bureau in the City's Department of Finance. The Budget Bureau asks departments and city-funded groups how much money they need in the next year, makes any cuts they deem necessary, and hands their recommendations to the mayor's office. The mayor's office gets its own round of cuts and revisions and then delivers the budget to City Council and the public sometime in late winter. Then, City Council members get to listen as the departments and city-funded groups plead for more money. Council can shift money between departments (from Licenses and Inspections to the police department, for example) and alter the way money is allocated within a department among five broad categories: personal services, purchase of services, supplies and equipment, insurance and taxes, and payments to other funds. But they have no further control over the details of the spending. Nine of the seventeen council members must vote in favor of a proposed budget in order for it to pass. If council doesn't pass a budget by the end of May, the city could lose state funding. From 1991 to 2003, the mayor delivered the budget by February. This year, however, Mayor Street delivered the budget in mid-March. If council votes the budget down the first time, they must continue to meet until they can agree on a balanced budget. Whatever they pass must be signed into law by the mayor; as we're learning from this year's stalemate, the negotiations must continue until both sides agree. After July 1, the only way to change the budget is for the mayor to propose a transfer ordinance, which shifts money from one department to another, and must be passed by council. DOES THE CITY HAVE TO PASS A BALANCED BUDGET? Yes. It's written into our Home Rule Charter, in an amendment passed in 1919. But the city can spend more than it takes in and still have a balanced budget, so long as it borrows the difference. WHAT'S TO PREVENT THE MAYOR AND CITY COUNCIL FROM FLOATING BONDS TO FUND A FLEET OF CITY-OWNED HUMMERS? Glad you asked. Every year, the city has to submit a five-year financial plan an oversight board called the Pennsylvania Intergovernmental Cooperation Authority (PICA). Why? Under former Mayor Wilson Goode, the city's credit rating had dropped to “junk” status, causing a $350 million bond offering to unravel. By 1991, Philadelphia was running huge deficits and paying as much as twenty-five percent interest rates on the loans it was taking out to cover the difference. The state legislature then bailed out the city by creating PICA, which allowed the city to borrow money using the state's cleaner credit rating, like a wealth parent who helps out their profligate child by co-sign a mortgage agreement. In exchange, the state demanded some level of fiscal accountability; hence the Five Year Plan. PICA must review and grant its approval each year a process that takes about a month. If City Council does not first approve the plan by May 31, then a suspension of PICA loans is possible. HOW DO THE NUMBERS OF THIS YEAR'S PROPOSED BUDGET BREAK DOWN? Mayor Street's proposed budget for Fiscal Year 2005 totals $3.34 billion dollars. This means that the City would have no more than $3.34 billion dollars to spend from July 1, 2004 to June 30, 2005. WHAT PROGRAMS/INSTITUTIONS ARE TAKING THE BIGGEST CUTS IN STREET'S PACKAGE? Just about every city-funded department is being cut in this budget. The Philadelphia Museum of Art and the Atwater Kent are both slated to lose all of their city funding ($2.5 million and $292,867, respectively); the city's allotment to the African-American Museum will be slashed by ten percent. The Philadelphia Cultural Fund will lose $1.4 million, and the budget also proposes to shut down the Office of Arts and Culture all together. But the biggest loser, if the budget passes, is the Department of Recreation, which will say good-bye to almost twenty percent of its funds, meaning some twenty pools, thirty-eight recreation facilities and five skating rinks will be closed, according to the estimates of Recreation Commissioner Victor Richard III. The total cuts in arts and recreation total $12 million. The Law Department could lose five percent of its budget; the Police Department, one percent. WHAT PROGRAMS/INSTITUTIONS HAVE THE BIGGEST INCREASES IN STREET'S PACKAGE? There are almost no increases in the budget. A new $75,000 is set aside to provide wireless internet access in LOVE Park. The Mayor's Office will receive $412,366 more than last year, plus an additional $4 million for scholarships. SEPTA, in the midst of a dire fiscal crisis, will see a $2 million increase in its contribution from the city, which still adds up to less than Philadelphia gave the transit authority in 2003. The budget provides a $3.9 million in new money to the Board of Revision of Taxes to reassess the values of the city's properties and gives $10 million in tax breaks to businesses—two moves recommended by the Philadelphia Tax Reform Commission. HOW DOES THE BUDGET PASSED BY THE CITY COUNCIL COMPARE TO STREET'S? The operating budget approved by the City Council provides for the following: $2.25 million for the Philadelphia Museum of Art; $2.3 million for a range of culture groups, including matching last year's funds for the Atwater Kent and the African American Museum; $5 million for the fire department; $1.5 million for the district attorney; $1.3 million for Saturday hours at the Free Library. The Council also passed a number of tax reform bills that decrease wage taxes and the cost of doing business in Philadelphia; advocates believe that such measures will attract new business and workers to the city, thereby generating economic activity and increasing our overall tax revenue. WHAT IS THE PHILADELPHIA TAX REFORM COMMISSION? The Philadelphia Tax Reform Commission is a panel of fifteen experts who study ways to make Philadelphia's tax system more palatable to new businesses and residentsThis fall , it submitted thirteen recommendations to the mayor and City Council, several of which appear in Street's Five Year Plan. Among the Council's tax votes, which are now under debate with the Mayor, were decisions to reduce the wage tax from 4.46 percent for residents and 3.88 for nonresidents to 3.25 percent for everybody; to further reduce the wage tax to 1.5 percent for low-income residents; to eliminate a portion of the business-privilege tax; to not increase the parking tax, from 15 to 20 percent, as Street wanted to do. WHAT IS A BUDGET DEFICIT? Whenever the government spends more than it makes, there's a deficit; the bigger the difference, the bigger the deficit. (Whenever the government makes more than it spends, there's a surplus.) The only way to operate with a deficit is to borrow money with bond issues or dip into savings from past surpluses. In this year's budget address, Mayor Street said he expects the city to have a $670 million budget deficit by fiscal year 2009. How does our deficit compare with those of other major cities? Not so bad for now, but the future's looking grim. During the last fiscal year, Los Angeles's deficit was projected to amount to 5.2 percent of its total budget; San Francisco's was 2.5 percent; Boston's was 5.6 percent, and New York's—still reeling from the aftereffects of September 11—was 14.6 percent. That same year, Philadelphia's $16.7 million deficit came to just 0.5 percent of the total budget. But this year's $227 million projected deficit is more than a twelve-fold increase—6.67 percent of our total budget. HOW IS PHILADELPHIA GOING TO HANDLE THE DEFICIT? Controlled borrowing. For example, $295 million of the mayor's Neighborhood Transformation Initiative (NTI) has been funded with bonds, and the new proposed budget calls for even more bonds. But the more we borrow, the more expensive it becomes to borrow more. Enough borrowing, and the city's credit rating will drop to junk status, as it did in 1990, causing the city to declare a state of fiscal emergency. WHERE CAN I LEARN MORE? You can download a summary of the budget at www.phila.gov, the city's official website. Former City Councilman Ed Schwartz's organization, the Institute for the Study of Civic Values, has a very helpful site for reading and understanding the budget at http://www.phillyneighborhoods.org/CityBudget/. Related Links: The City of Philadelphia Understanding the Budget