Office of The Mayor

Mr. President, members of City Council, and distinguished guests. I am pleased to be here this morning to present my proposed Fiscal Year 1998 Operating and Capital Budgets, and also to submit for your consideration our Five-Year Financial Plan for Fiscal Year 1998 through Fiscal Year 2002.

This is my sixth budget address to City Council. And with each passing year, my respect for the members of this chamber grows -- for your leadership, for your courage, for your unprecedented cooperation, and for your resolve to ensure that Philadelphia remains fiscally sound. I am proud of the close working relationship that we have developed. And most of all, I am proud of what we have accomplished together here in Philadelphia over the past five years.

Sometimes it is easy to forget how far we have come. The memories of our painful fiscal crisis -- the tax increases, the service reductions, the layoffs, the labor strife -- fade all too easily. Yet, sometimes it is important to remember the not so distant past. And although our fiscal crisis is now largely behind us, we need only look at other struggling American cities to remind us how far we have traveled -- and also to show us where we could once again find ourselves, if we veer from the course we charted five years ago.

See if any of this sounds familiar. For next year, New York City is projecting a budget gap of $1.2 to $2 billion in its $34 billion budget, with this gap scheduled to mushroom to a staggering $5 billion over the next few years unless drastic corrective action is taken. Miami currently faces a $68 million deficit on an annual budget of only $200 million; its credit rating has sunk to junk bond status; and there is a fear that it will not be able to meet its payroll come March. The Washington, D.C. City Council has proposed the elimination of 1,000 full-time positions to deal with a projected $85 million deficit; the D.C. Control Board has told the District to make further cuts. The mayor of Baltimore announced this spring that his city would either have to raise the local income tax by 10 percent, or institute massive cuts in services, including the closure of 10 of Baltimore's 28 branch libraries -- all to close a $9.5 million budget gap. And in October 1996, a blue ribbon task force appointed by the mayor of Pittsburgh recommended the closure of at least six recreation centers and 16 municipal pools, and a new fee for residential trash collection, all in an effort to close a then-projected $39 million budget deficit.

To turn a well-used phrase on its head: "been there, didn't do that." In Philadelphia, we rejected new tax rate increases, we rejected cuts in services, and we rejected massive layoffs. Instead, by instituting hundreds of management and productivity reforms, by negotiating historic contracts with our municipal unions that preserved jobs while maintaining an excellent benefits package, and by fundamentally restructuring the way the City conducts its business, we erased a $200 million annual structural deficit within 33 short months.

And by the end of Fiscal Year 1996, we recorded a positive general fund balance of $118.5 million -- the best budget performance in modern City history, and the fifth consecutive year that we have recorded a positive year-end performance.

As I have said repeatedly, this extraordinary accomplishment would not have been possible without the exceptional cooperation of members of this Council and the inspired leadership of Council President Street, the shared sacrifice of our dedicated City workforce, some help from the State and federal governments, and the fortitude of our citizens who waited so patiently while our fiscal and structural reforms took hold.

While other cities are wrestling with deficits, Philadelphia is enjoying its fourth consecutive balanced budget. While other cities are slashing and eliminating services, the citizens of Philadelphia are benefitting from dramatically improved services. And while other cities are raising taxes, Philadelphia is implementing its historic, multi-year tax reduction program.

Just five years ago, Philadelphia stood on the precipice of fiscal disaster; now we stand at the pinnacle of fiscal responsibility.

Unlike the other cities that I mentioned, the strategy that we adopted five years ago has rewarded us greatly. That strategy -- to live within our means; improve the quality of the services we provide; invest in economic opportunity; and lower the costs of living and working in Philadelphia through responsible tax reductions -- is reflected in the proposed Fiscal Year 1998 Operating and Capital Budgets that I am presenting to you today.

Again this year, the City's Fiscal Year 1998 operating budget is in many respects a "hold harmless" budget. It will enable our departments to continue to maintain quality services at the higher levels that our citizens have come to expect. To make this possible, the Fiscal Year 1998 budget provides funding to our departments equal, at a minimum, to their target spending levels for Fiscal Year 1997, after adjusting for the effects of the wage increases negotiated this summer. As a result, City managers will again be able to reinvest their management and productivity savings in enhanced services, instead of being required to funnel those savings back into the City's General Fund.

At the same time, our proposed Fiscal Year 1998 budget provides for a continuation of our historic multi-year tax reduction program. Unless we continue to bring down the costs of living and working in Philadelphia, all our other efforts will have been in vain.

The Fiscal Year 1998 budget is more than a "hold harmless" budget, however. Fortunately, we have reached the point where -- unlike many other cities -- we can afford to make additional investments in service enhancements. And my proposed budget does make a number of strategic investments -- some to enhance important basic City services and some to help fill the holes in the safety net torn open by what I honestly believe are cruel and ill-advised actions in Harrisburg and Washington.

Last year, I spent the bulk of my budget speech talking about the impending State and federal budget cuts. I told you that a runaway freight train was coming our way. Well, the locomotive has arrived, and although the immediate impact in many areas was not as severe as it could have been, it was still terrible. And unfortunately, the caboose of that runaway train is not yet in sight.

This past May, the State enacted its third and most comprehensive round of legislation cutting welfare benefits in the last three years. And in August, lawmakers in Washington fulfilled their pledge to "end welfare as we know it" by enacting the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

I believe that the City shares a common interest with lawmakers in Harrisburg and Washington who would reform welfare. Welfare should be a way to help poor people make the transition to meaningful employment that provides them with a real stake in the future of their communities. Welfare should not be a lifestyle, and it should not be an opportunity for fraud or abuse, which hurts all citizens, especially those truly in need. We are long overdue for reforms that will break the cruel cycle of welfare dependency, and create instead opportunities for people to build a better future for themselves and their families.

Unfortunately, the State and federal bills cutting welfare do not contain the kinds of reforms that are needed, as the excellent hearings held by City Council over the past two months have convincingly demonstrated. To the contrary, by combining steep cuts in cash assistance, food stamps, and medical assistance for low-income and unemployed individuals, with inadequate funding for education, job training, and most importantly of all, job creation, these laws provide the perfect recipe for increased homelessness and poverty, and a declining quality of life not only for our neediest residents, but for our working poor as well.

Because most of you are already all too familiar with the specifics of the new State and federal laws, I will not outline the cuts in any detail. The basic horrifying statistics are enough to make my point.

The annual loss of General Assistance benefits to needy Philadelphians now totals $78 million, with 44,000 GA recipients having lost their benefits in the last three years. 62,000 Philadelphians have lost their Medical Assistance benefits since July 1 at a cost of $116 million in medical reimbursements. We now project the loss of $36 million in cash assistance to 23,000 Philadelphia AFDC recipients by Fiscal Year 1999. Sharp cuts in the level of food stamp benefits and tougher eligibility standards for legal immigrants and single adults receiving food stamps will lead to a $100 million reduction in food stamp benefits in Philadelphia within five years. And more.

All told, the so-called "reforms" in State and federal welfare laws could cost Philadelphia's neediest residents a total of as much as $2.3 billion between Fiscal Year 1998 and Fiscal Year 2002 in lost AFDC, SSI, General Assistance, food stamps, and Medical Assistance. Just think of the human misery. During that period, approximately 450,000 Philadelphians are expected to lose at least some portion of the government assistance they had been receiving. Many of these individuals -- including disabled children, legal immigrants, and single adults -- stand to lose all of their benefits. And to top things off, approximately 150,000 adults are supposed to find work in a stagnant Philadelphia job market. As Council demonstrated so graphically in its questioning of State welfare officials last December, it is simply absurd to expect this to happen in a city that has lost jobs every year since 1988.

It is the absence of meaningful job creation and job training dollars from the federal and state welfare legislation that threatens to make welfare reform a hoax. Even the nonpartisan Congressional Budget Office estimates that the federal welfare legislation is $12 billion short of what would be required to meet the law's welfare-to-work employment requirements. And this is the major reason why I urged President Clinton to veto the federal legislation cutting welfare.

While the President did sign that legislation, he has acknowledged the need for significant additional investments in job creation. That is why the President has proposed a $4 billion jobs program to help remedy the jobs gap in the federal welfare bill. Although even this ambitious proposal is not a cure-all, we all must support the President's program. As a result, I am calling today for all Pennsylvania Senators, Congressmen, and other elected officials to get behind the President's $4 billion jobs program.

Unfortunately, even the President's proposal will not remedy all of the harm that will come from the welfare cuts. This was the major point made at an extraordinary meeting last month between 10 big-city mayors and the President, the Vice President, and key members of the Cabinet. During that meeting, we urged the President to supplement his jobs bill with a variety of other initiatives -- including tax incentives, federal procurement set asides, and adequate child care funding -- to help distressed urban areas generate the jobs necessary to cope with welfare cuts.

For many of our City's neediest residents, the State and federal programs that are being slashed mean the difference between a difficult life and an intolerable one. And so, to help dampen the cruel effects of the cuts, the Fiscal Year 1998 budget I am proposing contains several increases in funding to help try to partially fill the void left by the State and federal cuts.

Working together with interested members of Council, the City has strived mightily to piece together a rational and humane plan for the homeless. This plan will cost the City over $70 million over the next five years, an increase of almost $10 million in General Fund support compared to that projected only two years ago in our Five-Year Plan. And it includes an additional $250,000 next year to enhance the City's successful homeless prevention efforts as well as funds to increase food cupboard activities.

To compound the problem, the loss of $3.4 million in State and federal grants for homeless assistance has hit hard. Representing over 15 percent of all funding for emergency shelter, the elimination of these funds has forced a reduction in the overall number of shelter beds to 2,050. Unless the State restores its $2 million grant, we will be short 726 beds needed to meet normal winter demand next year, much less the extra demand caused by the welfare cuts. The City will aggressively seek federal McKinney Homeless funds to help offset these cuts. But make no mistake, without these State grant funds, this budget does not include enough money for shelter in Philadelphia next winter.

Of all the City's departments, the Department of Human Services is the hardest hit by State and federal budget cuts. The Fiscal Year 1998 budget includes $4.3 million more in City funds than the current Fiscal Year 1997 estimate, and over the course of the Five-Year Plan, the City will increase its contributions to the funding of child welfare services by a total of $84 million as compared to the expenditures projected in our Five-Year Plan just two years ago.

Already, as a result of the State and federal cuts, patient visits in the City's health care centers are up 14 percent over the past two years. And the number of uninsured patient visits in Fiscal Year 1998 is projected to increase 21 percent from our original Fiscal Year 1997 estimates. As a result, the proposed Fiscal Year 1998 budget increases the Department of Public Health's budget by $200,000 for our health care centers to cover increased unreimbursed pharmacy costs.

If the City were held harmless by the State and federal governments, these expenditures would not be necessary. We could spend these funds on other service enhancements, on economic development, or to accelerate our tax reduction program. But the homeless still need shelter when the temperature drops, families without health insurance still need basic health care, and children from abusive or neglectful homes need safe and caring environments. Misguided policies in Harrisburg and Washington are no excuse for us to abandon the poor and disadvantaged. That is why the Fiscal Year 1998 budget I am proposing today extends as much of a helping hand as we can reasonably afford.

Yet, even as we take these steps to help ameliorate the State and federal cuts, we cannot go backwards. That is why the Fiscal Year 1998 operating budget maintains and builds on the substantial service improvements of the past several years. Let me briefly describe for you some of our plans for the coming year.

First and foremost, I would like to share with you our plans for public safety. This is an issue on which many members of City Council have demonstrated real leadership. No issue impacts the quality of life for Philadelphians more -- it remains one of our greatest challenges and one of our greatest concerns.

Philadelphia has long been ranked among the safest of our nation's major cities. And the downward trend in violent crimes seems to be continuing. Even though final statistics for 1996 are not yet available, we do know that the number of homicides dipped again last year to a level almost 17 percent lower than in 1990. With more than four officers for every 1,000 residents, Philadelphia has more uniformed officers per resident than every one of the nation's largest cities except New York and Chicago -- more than Los Angeles, Dallas, Houston, and Detroit, and more than twice as many as San Diego and San Antonio.

Unfortunately, these statistics provide little comfort to the people of Philadelphia. As the Council President has said, if a person does not feel safe, then he or she is not safe, no matter what the numbers are. The fear of crime can paralyze a person and cripple a neighborhood. That is why -- regardless of the statistics -- the City will continue to do all it can not only to attack crime, but also to instill a feeling of safety in its residents.

To help create a safer Philadelphia, the City has continued to add additional police officers with the help of President Clinton's Crime Bill. So far, we have received partial federal funding from the Crime Bill to place 353 new police officers on our streets. And in September, the City received authorization to hire an additional 200 officers in 1997. In Fiscal Year 1998, we expect to receive approval for 200 more Crime Bill officers, bringing the total number of new Crime Bill officers in Philadelphia to 753. This means that, by Fiscal Year 1999, Philadelphia will have almost 7,000 uniformed police officers.

This year's Five-Year Plan contains a total of over $144 million to cover the City's share of placing these 753 new officers on the street, including more than $14 million in the Fiscal Year 1998 budget alone. In total, the Fiscal Year 1998 budget proposes an extra $18 million in funding for the police, an increase of 5.2 percent -- one of the highest growth rates in the entire budget and almost three times the 1.8 percent growth rate of local tax revenues.

To further enhance public safety, Philadelphia applied for and has received $4.5 million in special federal funding under the new Local Law Enforcement Block Grants Program. The City's Police Department will receive the lion's share of the block grant -- $3.9 million. These funds will enable each of our 23 Police Districts to step up the work of our new Quality of Life Task Forces, including overtime for police to work with community organizations to attack quality of life issues such as truancy, curfew violations, graffiti, and other nuisance crimes. The work of these Quality of Life Task Forces has been significantly enhanced by the volunteer efforts of judges such as Seamus McCaffery and Rayford Means, who have conducted night court for nuisance crimes in our neighborhoods. I am hopeful that next year, more judges will follow their example because the immediate disposition of justice has had a dramatic effect in curbing these types of offenses. The balance of the block grant funds will be used by the School District of Philadelphia and the Mayor's Children and Families Cabinet to aid our continuing efforts to fight truancy and school violence.

For the Fire Department, there is also good news. The proposed Fiscal Year 1998 operating budget provides full-year funding for two more EMS units. These two new squads are in addition to the 10 EMS squads that have been added to the Fire Department in Fiscal Years 1995 and 1996. This means that we will have increased the number of EMS squads from 25 to 37 -- a 48 percent increase over the past three years. This increase has helped our hard working EMS squads handle the 35 percent increase in EMS calls in the City of Philadelphia over that time period. In addition, the Fiscal Year 1998 budget provides funding for the reactivation of Engine Company 47 located in South Philadelphia.

One of our greatest accomplishments over the past five years has been to trigger a renewed sense of pride in Philadelphia. But one complaint that I have heard over and over again is that, notwithstanding our efforts, it is hard to feel any pride when your neighborhood is full of blight, when unsightly and unsafe abandoned buildings clutter your block, and when graffiti seems to be everywhere.

That is why our Fiscal Year 1998 operating budget increases the demolition budget for the Department of Licenses and Inspections by $750,000 in Fiscal Year 1998, and in each successive year of the Five-Year Plan. The proposed Fiscal Year 1998 budget for L&I also includes additional funding for more code inspectors, to further increase the number of housing, fire, electrical, and commercial building inspections that are conducted each year.

To further the fight against blight in our neighborhoods, the Fiscal Year 1998 budget also includes over $3 million to help the City wage war on graffiti -- an increase of more than 74 percent from just three years ago. This budget will enable the City to purchase 15,000 gallons of paint and over 700 gallons of graffiti remover, an increase of 108 percent and 68 percent, respectively, over this year's budget. The good news here is that our all-out, comprehensive assault on graffiti, announced this past May in conjunction with City Council, continues to show results. In October, City crews finished cleaning every piece of graffiti along the 11.4 miles of Broad Street, from city limit to city limit. Residents and businesses are keeping watch to make sure that any new graffiti is removed within 24 hours. In addition to working in dozens of different City neighborhoods, the City crews have moved into our next "zero tolerance zone" -- the American Street business corridor.

The Fiscal Year 1998 budget also includes $600,000 in new funding for the Recreation Department to expand programs and improve service levels. Money has been added to allow for a 15 percent increase in the number of camp days offered during the summer, which will enable an additional 1,250 children of working parents to participate in structured activities when school is out. We also have funded an increase in the number of after-school program sites from 20 to 30 -- allowing nearly 1,000 more children to participate. Statistics show that there is a high incidence of youth violence between 3:00 and 6:00 p.m., and this program has proven effective in keeping youth engaged in positive activities. The budget also includes funding to enable our pools to continue to stay open longer throughout the summer. Finally, the Recreation Department's budget includes $75,000 in new money for maintenance of play equipment, fencing, and ball fields, as well as roof maintenance.

Last but not least, this year's Five-Year Plan also contains funding to cover the costs of the new labor contracts that were negotiated this summer. Unlike 1992, this year's collective bargaining was characterized by a greater spirit of cooperation, and a recognition of the important role of the City's workforce in erasing the City's 1992 fiscal crisis. Everyone knows that the 1992 contracts were necessary to keep the City afloat and to spur our recovery. But not everyone gives our City workers the credit they deserve for accepting a difficult contract and continuing to carry out their duties in a competent and professional manner. They deserve our thanks and appreciation.

The new contracts strike a responsible balance between the financial needs of the City and the interests of its workers. City workers received reasonable wage increases, targeted benefits improvements, and strong job security protections. And the City was able to preserve the major compensation and work rule reforms won in 1992. Further, four-year contract terms were again achieved for three of the City's four principal bargaining units, enabling the City to adequately plan for future budgets. The Plan reflects a total of $233 million to cover the costs of these new contracts.

In addition to these operating improvements, the Fiscal Year 1998 Capital Budget and Capital Program that I am submitting to you today continues our commitment to revitalizing the City's capital infrastructure.

In the early 1980s, the City's capital spending annually was an atrocious 45 percent of what was needed just to maintain the City's capital infrastructure. And by the time of our financial crisis, the City's capital program had virtually ground to a halt. Average annual capital obligations (including City, State, and federal funds) from Fiscal Year 1990 through Fiscal Year 1992 were $153 million. In contrast, from Fiscal Year 1994 through Fiscal Year 1997, the City's average annual capital obligations (again, from all sources of funds) is projected to be $273 million -- an increase of 78 percent.

In Fiscal Year 1998, we are proposing to spend more than $125 million in City funds -- representing the sixth year in a row that the City is proposing to spend more than $100 million of City funds on capital projects. The largest portion of the City's Capital Budget is allocated for neighborhood projects that will improve the quality of life for our citizens, including: $11.9 million for Police and Fire facilities; $3.8 million for improvements to various facilities in Fairmount Park; $4.3 million for improvements to Free Library facilities; $2.4 million for Health Care Centers, the Philadelphia Nursing Home, and other Health Department facilities; $12.9 million for recreation facilities throughout the City; $13.5 million for street resurfacing; and $1 million for street lighting.

All in all, the proposed Fiscal Year 1998 operating and capital budgets are balanced -- they preserve the service improvements we have achieved to date and enhance certain other services, all while helping to repair some of the gaping holes in the social safety net created by the sharpest of the State and federal cuts. I'm proud that we have been able to do all this. I'm proud that this budget continues to provide the funding necessary to keep all of our branch libraries open six days a week during the school year. I'm proud that we're providing adequate funding so that our neighborhood streets can be resurfaced once every 13 and a half years, as opposed to the once every 46 year cycle we were on as recently as 1991. And I'm proud that the budget gives sufficient resources to fund significant enhancements in City recreational programs in our rec centers, at our pools, and in Fairmount Park.

We have proven that Philadelphia can be well-managed. We have slain the budget dragon and its offspring of the past, the crippling deficits of the late 1980s and early 1990s. We are living within our means; our expenditures are in line with our revenues.

And the best news goes far beyond the City's budget. There's a new vibrancy and spirit in the City; for the first time in a decade, there is a feeling of real hope. From the tremendous success of the Convention Center, to the real progress on the Avenue of the Arts on both North and South Broad Streets, to the new CoreStates Center, to the new jobs that are coming into our Empowerment Zones and the Navy Yard, and to major regional corporations like SmithKline, PNC, and Blue Cross adding jobs in Philadelphia, we're a City on the move. We're even at the brink of some major new hotel construction, something that seemed impossible in Philadelphia only a few short years ago.

And all that is wonderful news. But we have much more work to do, because these extraordinary developments do not erase the fundamental causes of the City's descent to the edge of municipal bankruptcy in 1991.

For the better part of this decade, I have described the City as a cancer victim with a gunshot wound. I warned that we had to first heal the gunshot wound before we could address the cancer. And as I stand here before you today, having held this office for five years now, I can tell you with confidence that not only have we cured the gunshot wound, but even the scars of the wound have begun to disappear. It is a reflection of how far we have come that, in all candor, the City's budget is no longer the issue.

Do not misunderstand me. Balanced budgets in this day and age -- as our counterparts in New York, Miami, Washington, Baltimore, Pittsburgh and a host of other cities can tell you -- are tremendous achievements. They are necessary for cities to function. But they are not sufficient to turn a city around. And that is why I want to spend the balance of my time with you to describe how we are going to attack the cancer that afflicts Philadelphia and all other big cities in America.

If I had only three words to describe what we must do to cure this cancer that threatens us, it would be "grow our economy." The City faces no greater challenge, and no greater imperative. If we do not stabilize and grow our economy, we run the risk of losing everything we have worked so hard for -- and sacrificed so much for -- these past five years.

There are three major factors that people point to when they decide to leave our city. They are the same three complaints, regardless of whether it's a family or a business. And they are the same three problems that have devastated every other large city in America. We've all heard them -- time and time again. Crime. Taxes. And education. So when I say "grow our economy," I really mean we have to do three things:

First, we must provide safe, secure, and livable neighborhoods.

Second, we must bring down the costs of living and doing business in Philadelphia by creating a competitive tax structure, and by aggressively pursuing our Economic Stimulus Program.

And third, we have to provide our most valuable resource -- our young people -- with the education they will need to thrive in a competitive workplace, while also providing our businesses with the qualified and well-educated workers they will need in the global marketplace.

Although the City of Philadelphia may no longer have a budget deficit, we still have a crime deficit, we still have a jobs deficit, and we still have an education deficit. My goal over the next three years is to attack these three deficits with the same vengeance that we attacked the City's budget deficit.

First, we have to attack crime and the crippling fear of crime. I have already discussed the 753 new Crime Bill officers which will increase the size of our police force from 6,221 in Fiscal Year 1994 -- before the Crime Bill was passed -- to nearly 7,000 by 1998. And more importantly, the number of officers on the street has and will continue to increase just as dramatically. In January 1990, when I was just beginning my campaign for Mayor, there were only 4,878 police assigned to on-street duty. In January 1997, we now have more than 5,500 police on the street -- an increase of more than 600 police officers already. And these numbers will continue to increase over the next few years as the size of our police force continues to grow.

This substantial commitment to an increased police presence is not free. All told -- including City, federal, and State funding -- over $215 million will be spent between Fiscal Year 1995 and Fiscal Year 2002 to increase the size of our police force this dramatically. And after the partial federal funding ends in Fiscal Year 2002, the City will continue to spend at least $41 million each and every year thereafter to keep these officers on the street. The increase in the size of our police force, combined with smarter deployment and better equipment, should enable the City to achieve my first goal over the next three years -- to make Philadelphia a city that is not only safer, but that feels safer.

Second, to bring down the costs of living and working in Philadelphia, my proposed Fiscal Year 1998 budget contains our next round of cuts in the City's wage tax and business privilege tax.

With your approval, we have already cut the wage and business privilege tax in each of the two preceding years. The wage tax has been cut from 4.96 to 4.84 percent for residents, and an equal percentage amount for nonresidents. The gross receipts portion of the BPT has been cut from 3.25 mills in Fiscal Year 1995 to 2.95 mills in Fiscal Year 1997, and the formula for calculating the net income portion of the BPT has been revised to improve the ability of City-based businesses to compete.

Beginning in Fiscal Year 1998, we propose to further reduce the wage tax from 4.84 percent to 4.79 percent for residents, and an equal percentage cut for nonresidents. The gross receipts portion of the BPT will also be further reduced, from 2.95 mills to 2.875 mills.

All together, the first three rounds of tax cuts -- Fiscal Year 1996, Fiscal Year 1997, and Fiscal Year 1998 -- will provide a total of $55.6 million in tax relief in Fiscal Year 1998 alone. And by the end of Fiscal Year 1998, Philadelphia's taxpayers and businesses will have saved a cumulative total of more than $120 million in City wage and business taxes. That's right. By the end of next fiscal year, we will already have cut taxes by more than $120 million in Philadelphia.

In addition, in this year's Five-Year Plan, we propose to extend the City's tax reduction program by adding a seventh year of cuts in Fiscal Year 2002. All told, over the new extended seven year period, the City's wage tax will be reduced by a total of 8.5 percent, and the BPT by 12.88 percent. These reductions will total $431.5 million in wage tax relief and $158.1 million in BPT relief by July 1, 2002 -- well over half a billion dollars in tax relief. And it is my intention to propose further extensions of our tax reduction program as long as I am Mayor.

I know that some have criticized our tax reduction efforts as being little more than symbolic. My response to these people is simple: $590 million of tax cuts buys a lot of symbolism. An average 10 percent reduction in taxes is truly significant. And I am sure that had we tried to raise taxes by an equivalent amount, many of the same people who are not satisfied with the size of these tax cuts would be hanging from the balconies in this chamber calling for our political heads.

I also know that others have said that the tax cuts are too much, given the State and federal cuts. You all remember the day when hundreds of students came to City Hall demanding that we roll back our tax cuts and use the extra money for education. But to halt the City's tax reduction program would be a complete catastrophe.

Let me be absolutely clear about this. These tax reductions are one of the highest priorities for the balance of my term as Mayor. If we are to have any chance of permanently reversing the decades-long trend of losing residents and businesses, we have to continue to implement these tax cuts. Improved services are critical -- but they alone are not enough. And investing in our infrastructure is vital -- but it is not enough either. We must cut the tax burden that chokes our residents, our workers, and our businesses. If we fail at this, our hopes of growing the economy will disappear. And if we fail to grow our economy, it won't be long before we would have to cut the amount of money we give to the Police Department, the Library, rec centers, Fairmount Park, to street resurfacing, and yes, even to education.

Without tax relief, even the City's expanded, four-year, $3.7 billion Economic Stimulus Program will not be able to create the number of jobs we need. The Stimulus Program has been a literal lifeline for the City's economic development efforts. Through December 1996, the expenditure of $1.6 billion of public money through the Stimulus Program has leveraged the investment of $1.1 billion of private money and has retained or attracted more than 30,000 jobs to Philadelphia, with an annual wage tax benefit of almost $45 million.

Some of our greatest successes in the Stimulus Program have resulted from bold and innovative structuring of complicated financial transactions in full partnership with this City Council. For example, the creative, $70 million financing transaction for the new PNC Bank operations center included virtually every economic development tool available to the City, including Stimulus funds and Philadelphia's first use of the State's Tax Increment Financing legislation. The result was the retention of 800 existing Philadelphia jobs and the attraction of 400 new jobs by the end of the decade.

In addition to the extension of the Stimulus Program, I am proposing another economic development initiative as part of the Fiscal Year 1998 budget. Building on the legislation introduced in Council last year and following careful analysis of the current financial environment in the commercial and residential real estate markets, I am proposing that Council enact an extended 10-year real estate tax abatement for certain underused commercial buildings that are converted to residential use anywhere in the City. I believe that this new abatement can help stimulate the conversion of some of our vacant commercial buildings into residential properties, which would alleviate some of the pressure in the crowded rental real estate market and put these buildings back on the tax rolls, producing needed revenues for all Philadelphians.

Third, the remaining key to our City's future is education. Few concerns impact the City, its residents, and its businesses more than the quality of our public schools. From the support of local tax dollars, to the quality of the City's workforce, to the contributions its graduates make as productive members of the community, every Philadelphian has a stake in the School District of Philadelphia. And so the third goal of my Administration over the next three years is to do all we can to support our public schools.

My commitment to the School District and to Superintendent Hornbeck's educational reform plan is unequivocal. And I know that Council President Street, other elected officials, education advocacy groups, and the business community share my unwavering support for our public school system and for the direction of reform being pursued by the School Board and the Superintendent. The recently announced Education Summit, wisely championed by the Council President -- which will unite Philadelphians around a common vision of quality public education -- is just one measure of the depth of this commitment to reform of the School District.

I hesitate to mention the words "Children Achieving" because they evoke such mixed reactions -- praised in some quarters while damned in others. But I do want to tell you what the Superintendent's education reform plan means to me. It means that everything we do in the School District should be for the benefit of our children. It means that all of our children must be afforded the opportunity to learn. It means that all our children must be able to read, to write, and to grasp basic math and science skills. And it means that the State must fulfill its constitutional responsibility to adequately fund the education of our children. I do not know how anyone can fail to join with the School Board, David Hornbeck, the Council President, and with me to support this vision of public education in Philadelphia.

Over the past three years, the School District has implemented a number of key reforms to improve the educational prospects of children. For example, this past fall, the School District offered full-day kindergarten to every child for the first time in City history. This was especially gratifying to me because when Superintendent Hornbeck first assumed his job, I told him that this was my highest educational priority. And schools received an additional $4.5 million for new textbooks and other instructional materials this year. Over the last three years, the School District has added 45 additional police officers to help ensure school safety for both students and teachers. There are now over 800 more teachers and teaching assistants than there were eight years ago. And as a result of the new contract negotiated between the School District and the PFT this summer, the school day was extended 19 minutes for the City's school children, and performance goals for administrators, teachers, and individual schools have been put in place for the first time ever. All these educational reforms were achieved while the School District was significantly cutting its administrative staffing for an annual savings of $10 million.

And in our schools, there are dozens of individual success stories to tell. Central High School has been named the most outstanding public high school in Pennsylvania for the last two years by Redbook magazine. Carver High School for Engineering and Science has had 100 percent of its senior class accepted into college. The Business Academy at George Washington High School was recognized by Business Week magazine this spring for its success in preparing its graduates for college and the workplace. Masterman's chess team won the national championship in a battle of America's top chess teams. And despite our urban locale, 15 students from the Saul High School for Agricultural Sciences recently received statewide awards at the Pennsylvania State Farm Show.

Unfortunately, despite these tremendously positive developments, the School District still has quite a ways to go. According to data released by the School District last week, only 46 percent of the students in the School District's elementary and middle schools have basic reading skills, only 30 percent have basic math skills, and only 32 percent have basic science skills. High school student performance is even more atrocious -- only 26 percent have basic reading skills, only 12 percent have basic math skills, and merely five percent have basic science skills.

This dismal performance is attributable to a range of factors. Although people cannot be excused for the individual choices they make, a multitude of societal ills -- ranging from violence, substance abuse, teenage pregnancy, and the breakdown of community institutions -- has inhibited the ability of educators to teach, and students to learn. And the declining economic fortunes of many of our nation's cities has left many urban families without economic opportunity, and many young people without motivation to pursue education as a means to a better tomorrow.

I should add that it would be a grave mistake to blame our many dedicated teachers for this litany of ills. They are not the fault of our teachers. But by the same token, all of us -- every teacher, every administrator, every elected official, every parent -- must shoulder some responsibility for the failure of our children to learn.

The largest portion of that responsibility must be laid at the feet of the Commonwealth, which for at least the last five years has systematically failed to meet its moral and constitutional responsibility to adequately fund the School District. It is immoral and fundamentally unfair for the quality of a child's education -- and therefore his or her chances at success -- to depend upon the capacity of the local tax base to pay for education, especially in jurisdictions like ours, where the children are poorer and arguably have greater educational needs.

State Secretary of Education Eugene Hickok says that the State already has done enough. He says that although Philadelphia has only 12 percent of the State's public school students, the School District receives 18 percent of the total State subsidy. But that does not begin to discharge the Commonwealth's responsibility. The facts are that, on average, Philadelphia's children come to school more impoverished, more in need of health care and other basic services, and less prepared to learn, than children in the rest of the State.

Over the past four years, the number of school children in the School District from families receiving AFDC increased by 13.6 percent, while in the other school districts in the State, that number dropped 5.9 percent. There are almost four times as many children living in poverty in Philadelphia as in all four of our neighboring suburban counties combined. Today, a staggering 73 percent of the School District's 211,000 students are eligible for a free lunch. And Philadelphia's public schools have 23 percent more kids classified as severely handicapped than the typical school district in Pennsylvania.

So if you look at the numbers and if you take the State constitution seriously, you would have expected the School District to be treated better than the average Pennsylvania school district in recent years. Unfortunately, this has not been the case. Consider the following State funding realities:

If the Commonwealth had simply adhered to the basic education funding formula in effect from 1983 to 1992 -- the State government's own allegedly objective assessment of what was fair and equitable -- the School District of Philadelphia would have received more than $100 million in additional State funds this school year.

If that's too big a number to swallow, consider that if the Commonwealth had simply increased its per pupil subsidy for Philadelphia by the rate of inflation since Fiscal Year 1992-93, the School District would have received an additional $61 million in State subsidy this year.

Alternatively, even if the Commonwealth's subsidy to the School District of Philadelphia had increased at the same rate as all other school districts in the State, Philadelphia's total subsidy would have been $50 million more this school year. That is, even if Philadelphia had just been treated like the average school district in Pennsylvania -- putting aside its greater problems and needs -- the School District would have received $50 million more in State funds this year.

Years of being short-changed by the Commonwealth have taken a severe toll on the adequacy of spending on public education in Philadelphia. In the 1991-92 school year, the School District of Philadelphia spent $912 -- or just over 12 percent -- less per student than the average suburban school district in Southeastern Pennsylvania. Three years later, in the 1994-95 school year, this spending gap had reached $1,926 per student, or 23.5 percent.

For those who say the problem is that we are not giving enough locally, that is simply not true. Despite our over-burdened tax base, the City's taxpayers contributed more than a half a billion dollars to the School District this school year. And that does not include the numerous other ways that the City supports the School District, ranging from school crossing guards, to the charitable discounts provided by our Water Department and PGW, to a multiplicity of other City services whose value is estimated to exceed $70 million a year. Nor does this significant level of local support include this school year's one-time grant by the City of $15 million to help reduce school-based cuts or the anticipated $30 million plus in new money that the School District will realize as a result of our anticipated tax lien sale.

This past summer, in the only objective outside legal review that has ever been conducted on the question, Commonwealth Court Judge Doris A. Smith ruled that the Commonwealth has indeed underfunded the School District. In her order, Judge Smith directed the State to provide $45.1 million to the School District this year alone. And while that opinion will eventually lead to additional State dollars for Philadelphia's beleaguered public schools, the simple fact is that our children cannot wait for this issue to be resolved in the courts. We cannot afford to lose even part of another generation of our children to the Commonwealth's continued abdication of its moral and constitutional responsibilities.

Fortunately, there may be a way for the City to provide a temporary bridge to the future. As many of you know, the Supreme Court has ordered the State to assume responsibility for funding the Commonwealth's courts no later than January 1, 1998. Funding just the First Judicial District of Pennsylvania in Philadelphia has cost the City's taxpayers an average of more than $121 million in each of the last three fiscal years. And although we are not yet sure of the precise amounts that the City will receive, or when the transition will be completed, I do know what I am prepared to do with at least some portion of those funds.

Previous Five-Year Plans have reflected our collective desire to dedicate any savings that may result from the State's assumption of the burden of funding county court costs to funding or accelerating the City's tax reduction program. And that must remain our long-term priority.

Today, however, I am prepared to propose to this Council that a portion of any savings we realize, when the General Assembly finally funds the courts in Philadelphia, be provided to the School District, at least in the short run. I emphasize that this money should serve as a temporary bridge until the Commonwealth honors its moral and constitutional obligation to fund a "thorough and efficient" education in Philadelphia, or until the courts require the State government to do so.

Our children deserve no less. We cannot afford to lose even part of another generation. We already have far too large a pool of residents who lack jobs, opportunity, and hope. That is why we have cut taxes and implemented an Economic Stimulus Program. That is why the School District is implementing its historic education reform agenda. But at the same time, we also have to reduce the number of people entering this pool -- and the only way we can accomplish that is by providing a quality public education to every child in Philadelphia. We can do no less.

When I delivered my first budget address in 1992, I told you that none of us had been elected to minister to a dying patient. That all of us wanted to do more than bring temporary relief from pain or to sit on a fruitless death watch. In the years ahead, we can do more than merely survive -- we can define what it means to be a great American city. A great American city is one in which people are not held hostage by the fear of crime; where healthy children have access to the best education; where home ownership is affordable; where communities come together, recognize their common interests, and respect their differences; where there is access to adequate living wage jobs for all those seeking employment; where there is a vibrant mix of arts, culture, history, recreation, and other measures that contribute to a superior quality of life; and where there is compassion for the less fortunate.

While few cities can now lay claim to this definition of greatness, I believe that Philadelphia is on the right path. With this vision to guide our actions over the next three years, and with your continued support, I am confident that we can restore Philadelphia to its rightful place as one of our nation's great cities.

Thank you.

Edward G. Rendell