Mayor Nutter's Budget Update | Addressing the FY09-13 shortfall

The graph shows the significant losses to the City’s projected tax revenue from FY07 to FY09 as of November 2008. The scale of the budgetary challenge at that point required that all options for rebalancing the budget in mid-year be considered. The Administration could not afford to look for quick, one-time changes given the magnitude and speed of the downturn. Across the board reductions were rejected as well, as they are often inefficient, random and result in cutting resources where they are needed the most.

Despite these challenging financial circumstances, the Nutter Administration remains committed to providing high-quality programs and services to Philadelphians. A wide range of efficiency savings across government have already been identified. Mayor Nutter has asked a Private Sector Task Force made up of business and management executives from across the region to work with the City’s municipal unions and City employees to continue identifying further cost-savings measures and more efficient ways to run government. The Nutter Administration made every effort to minimize the impact of City budget cuts on Philadelphians by generating efficiencies wherever possible. Nonetheless, it would have been impossible to close the $108.1 million FY09 shortfall and $1.035 billion FY09-13 shortfall without rethinking and reducing certain City services and programs, as well as the City workforce.

Rebalancing Decisions for FY09

Summary

These principles were used in making the decisions below:

There were no police or fire layoffs, no reduction in emergency medical services and all fire stations remained open
All health centers, after school and summer programming for children, and all emergency, transitional and permanent supportive housing were preserved
All 172 recreation centers remained open
Weekly residential trash collection and single-stream recycling continued
Measures to improve government performance and save money continued, including PhillyStat and 311

However, in order for the Administration to fully address the situation, major adjustments were necessary. The Administration undertook a full and comprehensive review of all departments and City operations. The result was an adjusted budget in which the burden of sacrifice was shared, exemplified by the following actions:

Find efficiencies:

The Administration identified ways to produce quality services at a lower cost. A conservative estimate of efficiencies identified total $39 million annually. Below are few examples of programs and government services that could maintain or increase their activities with fewer resources:

Streets Department — electricity efficiencies and reductions $1M
Decommissioning of fire companies to reduce overtime by $10.5M
Division of Technology — IT Consolidation $850,000
Reduction in overtime citywide $18.5M

Increase revenues:

The Administration has looked to improve collection of the money owed as well as additional revenue generation. Some examples include:

Enhanced delinquent taxpayer collections $8.2M
Increased Fines and Fees $4.8M

Delay tax cuts:

All tax cuts for FY09 were maintained
Wage tax reductions funded by state gaming revenues will continue, reducing wage tax rates to 3.7974% for residents and 3.3546% for nonresidents by FY15.
City-funded tax cuts suspended until FY15, increasing projected revenues by $230M

New Investments and Initiatives:

Mayor Nutter’s first budget address and Five-Year Plan included a series of increased investments and new initiatives focused in six strategic areas: public safety; education; economic development; healthy and sustainable communities; customer service; and ethics. In light of the economic crisis and its impact on the City’s finances, the Administration’s signature initiatives were also vigorously reviewed and scrutinized, resulting in difficult – but unavoidable – reductions and delays.

Cultural Fund was only allocated an increase of $1M rather than $2M in FY09
A $15M increase to the Housing Trust Fund over the Five-Year Plan has been reduced by half
Planned $4M increase to the Community College of Philadelphia in FY09 was reduced to $2M
Funding increase for Fairmount Park was delayed, with plans to fully reinstate that increase beginning in FY11
Small reduction to the funding increase for YVRP

Reduce and eliminate programs:

Despite the savings and additional revenue described above, a significant budget shortfall still remained for FY09. As a result, the Administration was forced to make difficult decisions to reduce programs and services provided by city government.

Elimination of the Adolescent Violence Reduction Partnership (AVRP)
Elimination of limited residential street cleaning, snow removal on smaller streets, and dedicated leaf, bulk and tire collections
Reduced funding for libraries and pools

Tax Reductions Suspended

Since FY96, the City has committed to annual reductions in the wage tax rate to make Philadelphia more competitive for businesses and jobs. However, to compensate for the recent dramatic decline in revenues, the Administration chose to postpone the City-funded FY10 and future portion of the reduction in the wage tax until FY15, unless economic conditions improve. The overall wage tax will continue to decline due to funds received from State gaming revenue.

As part of the November 2008 rebalancing plan, the Administration proposed and City Council approved legislation suspending planned City funded rate reductions for Business Privilege and Wage taxes in order to generate needed revenues during this period of economic turmoil. This action was taken in November 2008 and equates to almost $230 million in projected increased revenues to the General Fund over FY09-FY13.

The BPT cuts scheduled for the FY10 to FY14 Plan will be kept at FY09 rates as the City adjusts to the current economic crisis. The planned schedule to phase out the Gross Receipts portion and reduce the Net Income portion of the Business Privilege Tax is slated to resume in FY15.

The chart shows the wage tax reductions for both residents and non-residents, as well as the changes to the scheduled tax rates.

Public Participation

One of Mayor Nutter’s key priorities is a commitment to public participation. In 2008 and 2009, the City participated in three sets of workshops and meetings, to engage residents in the Administration’s priorities and seek public feedback on decisions.

April-July 2008

From April to July 2008, the Nutter Administration participated in twelve workshops through the Great Expectations project, a joint venture between the Philadelphia Inquirer and the Penn Project for Civic Engagement. These community workshops, entitled “A City That Works,” provided a dialogue between the Administration and the citizens of Philadelphia on the priorities set by Mayor Nutter.

Following a brief presentation on the budget and new performance management and customer service initiatives, participants broke into small-group discussions. Each group focused on one of five results:

Education,
Public Safety,
Jobs & Economic Development,
Healthy and Sustainable Communities, and Ethics.
The final result, Customer Service, was integrated into every discussion.

The Administration used the information and priorities communicated during the forum for future development and refinement of its priorities, performance measures, and customer service standards. For more information, please see www.greatexpectationsnow.com.

November—December 2008

Following the announcement of the FY09 Rebalancing Plan, the Nutter Administration held eight town hall meetings in different neighborhoods throughout the City. These meetings allowed City leadership to explain the financial crisis, its impact on the City, and the changes that were made, as well as the choices that were faced and the process for making these decisions. Citizens were then given the opportunity to ask questions about the decisions and voice any concerns, and an opportunity to be heard by government leadership.