Mayor Nutter's Budget Update | The FY10-14 Contingency Budget

The City of Philadelphia is seeking significant legislative assistance from the Commonwealth of Pennsylvania to implement the Mayor’s FY10-14 Proposed Plan. The Mayor’s proposal anticipates that the Commonwealth will approve legislation to give the City the ability to change the funding assumptions used for determining the City’s contributions to its pension plan, which would save $331.6 million over the Five-Year Plan (FYP). The Mayor’s proposal also anticipates that the Commonwealth will approve the City’s ability to implement a temporary increase in the City’s sales tax rate from 7% to 8% for the next three years, providing $341.7 million in revenue.

In the event the Commonwealth does not approve these critical initiatives, the City will be forced to implement dramatic and deep reductions in services and an additional and permanent 6% increase in the City’s property tax rate, to generate sufficient expenditure savings and revenues to rebalance the FYP. The Administration does not want to have to take these steps. The proposed Five-Year Plan was developed to best position the City for economic recovery. That is why, for example, the Plan proposes temporary tax increases. Failure to get State approval for the sale tax increase and pension changes would force the City to implement changes that would have far worse impacts in the long run.

The Mayor’s proposal contains a Contingency Plan in order to demonstrate to the Pennsylvania Intergovernmental Cooperation Authority (PICA) that the City has a credible and swiftly implementable alternative to the Mayor’s preferred approach in the event the City does not gain Commonwealth approval of the pension and sales tax initiative.

The contingency plan would require that the City’s Real Estate Tax increase by 21 mills in 2010 to 103.64 mills, by 17 mills in 2011 to 99.64 mills, and by 5 mills in 2012 through 2014 to 87.64 mills if the Commonwealth does not approve the pension plan and sales tax legislation. These rate changes will generate an additional $252.9 million over the FYP.

The contingency plan also anticipates implementing an additional $405 million (a Tier 2) in departmental expenditure reductions over the FYP in order to ensure that the FYP is balanced. These reductions would have to be implemented at the beginning of FY10 by the Administration in the event the pension and sales tax legislation is not approved by the Commonwealth. Those reductions total $81 million annually — $405 million over the FYP— and would be in addition to the $58.8 million in expenditure reductions and fee increases already included in the FY10 budget.

Laying off 256 Police Recruits, saving $12.3 million
Freezing Sworn Police Hiring, saving $6.5 million
Deactivating 3 engine companies, 3 ladder companies and 3 EMS units, saving $16.8 million
Reducing waste collection to 3 times per month, saving $4.8 million
Reducing City-wide cleaning, saving $1.7 million
Close one Health Center, saving $2.3 million
Reducing Supportive Housing services, saving $3.8 million
Reducing hours at Recreation Centers, saving $7.2 million
Reducing hours at Libraries, saving $3.2 million

The Administration has also developed a set of FYP balancing scenarios in the event the Commonwealth approves either the pension or sales tax legislation, but not both. Those scenarios utilize the Tier 2 departmental reductions and a smaller property tax increase, where necessary, to ensure a balanced FYP and sufficient resources for the City’s cash management purposes. Each of these options would require painful steps that the Administration believes should be avoided, but that would have to be implemented to ensure a balanced FYP that meets the requirements necessary for subsequent approval by PICA.