MAYOR EDWARD G. RENDELL

TEXT OF ADDRESS TO PHILADELPHIA CITY COUNCIL

ON THE FISCAL YEAR 1999 BUDGET AND

FISCAL YEAR 1999 - FISCAL YEAR 2003 FIVE-YEAR FINANCIAL PLAN

January 27, 1998

Mr. President, members of City Council, and distinguished guests. It is my pleasure to be here this morning to present our proposed Fiscal Year 1999 Operating and Capital Budgets, and also to submit for City Council's consideration our Five-Year Financial Plan for Fiscal Year 1999 through Fiscal Year 2003.

Over the course of the past six years, we have been through a lot together. It may seem like ancient history now, but when I delivered my first budget address to City Council in 1992, a lot of people did not give us a chance. Our City budget was over $200 million in deficit, and basic City services were taking a beating. In the midst of summer heat waves, City swimming pools did not open. The long-awaited Criminal Justice Center was still just a hole in the ground. Over the prior year, our City lost an average of over 2,700 jobs per month. Over the prior decade, the City's taxes had increased 19 times. There was serious discussion about shutting down fire houses, ending all shelter for the homeless, and laying off thousands of City workers if Philadelphia was to have any hope of staving off bankruptcy.

Together, we avoided those choices. And while the choices that we did make were not always easy, we developed a strategy that has turned this City around. We promised to balance our budget—to ensure our government's stability and credibility. We promised to cut the costs of living and doing business in the City—to close the competitive gap between Philadelphia and our suburbs. We promised to improve the quality of basic City services—to safeguard and enhance a quality of life that will make the City a place where people and businesses want to be. And we promised to invest in our future, through a strong capital program and strategic economic development initiatives that would grow the economy and create jobs for our residents.

In holding to this strategy, we have been rocked more than once by jolts from corporate headquarters outside of Philadelphia and from the halls of government in Harrisburg and Washington. We have seen the loss of Philadelphia institutions—Wanamaker's, Breyers, Fleer, After Six, Whitman's Chocolates, Mrs. Paul's, and the Philadelphia Naval Shipyard. We have seen brutal reductions in welfare and medical assistance for our most disadvantaged citizens. We have seen year after year of inadequate State funding for our public schools that fails to keep pace even with inflation, let alone with the growth in enrollment and educational needs of our school children.

Despite all these challenges, we have stuck to our strategy. And we have delivered on our promises.

As a result, in 1997, Philadelphia experienced its best year in decades. Let me briefly recap for you some of the highlights of this past year:

With the support of this Council, Kvaerner, one of the world's largest shipbuilders, announced that it will soon begin transforming the former Philadelphia Naval Shipyard into a state-of-the-art facility that will bring back an American industry—creating up to 1,200 direct jobs and an estimated 5,000 more across the region.

In lower North Philadelphia, HUD selected us as one of six cities nationwide for funding to construct nearly 300 new homes in the Cecil B. Moore area; the $107 million Apollo of Temple opened its doors; and the growing success of neighborhood revitalization efforts has created a phenomenon not seen in generations—property values are rising and people are coming back to North Philadelphia.

In the City's emerging hospitality sector, the Pennsylvania Convention Center hosted more major conferences than New York City, Boston, or Washington DC—helping to generate the announcement of nine new major hotel projects, seven of which are already under construction. These projects will create an estimated 3,300 construction jobs and 1,700 permanent jobs.

Also during the year, the pride of the Million Woman March and the spirit of the Presidents' Summit for America's Future focused the eyes of the world on Philadelphia.

At Independence Mall, the greatest square mile of history in the nation, funding was secured toward a new Liberty Bell pavilion and Gateway Visitors Center—while a new master plan was announced, highlighted by an exciting new National Constitution Center.

At Schuylkill Falls, HUD awarded a $26 million grant to the Philadelphia Housing Authority in support of an innovative, $68 million plan to build 300 low-rise homes and retail shops on the site of the demolished high-rise towers.

At Penn's Landing, the City and the nationally recognized Simon DeBartolo Group announced plans to create a $200 million family-oriented Urban Entertainment Complex that will serve as the anchor of a newly revitalized Delaware River waterfront.

In West Philadelphia, the University of Pennsylvania broke ground for the construction of a $120 million retail and residential project called Sansom Commons—which will create 400 permanent jobs.

Along the Avenue of the Arts, a stunningly successful restoration project opened the vibrant High School for the Creative and Performing Arts, while the Regional Performing Arts Center project took two major steps forward with the announcement of a world-class design team and a $5 million gift from philanthropists Raymond G. and Ruth Perelman.

In Eastwick, PNC Bank opened its new operations center—keeping 1,000 jobs in the City—with plans for further expansion that may add up to 500 new jobs.

Also in 1997, Philadelphia welcomed several world-class chains and major new retail stores and restaurants—from Lord & Taylor to the Hard Rock Cafe—and more are queuing up to get in on the Philadelphia revival.

At Philadelphia International Airport, US Airways and the City announced a new $400 million development project that will more than double the airline's overseas service from Philadelphia, and create more than 3,000 construction jobs as well as 3,600 permanent jobs. Already, the Airport's improved facilities, shops, and restaurants have helped make Philadelphia International the fastest growing of the nation's 25 busiest airports, and our project to build the new commuter runway is ahead of schedule and will open in 1999.

SmithKline Beecham announced Center City's first major new office construction project in this decade—a $28.5 million, 180,000 square foot building that will serve as its U.S. headquarters. And work finally began to bring down the fire-damaged Meridian Tower.

In Gray's Ferry, plans for the construction of 1,000 new homes on the grounds of the historic U.S. Naval Home were announced. When complete, the project will represent the City's largest new housing development in more than four decades.

In the City's three Empowerment Zone neighborhoods, 1997 demonstrated that we can restore hope to even our most distressed communities. In the North Central Zone, we broke ground for the exciting new Billie Holiday Entertainment Plaza on Cecil B. Moore Avenue. In the Parkside Empowerment Zone, we are moving toward completion of a new, state-of-the-art industrial park as well as a new, first-class shopping center. And in the American Street Zone, ground was broken for the 3.5-acre Gateway Plaza shopping center, the first new retail construction in this neighborhood in nearly 30 years. All told, 56 new businesses have now moved into the Empowerment Zone, and 18 more have received the financing they need for expansion.

And in neighborhoods throughout the City, projects large and small are happening—from the remaking of the Italian Market; to the development by Philadelphia Interfaith Action of 135 new homes for low to moderate income, first-time, homebuyers on 46th Street north of Market; to the New Kensington open space management program, which is conveying over 80 vacant and abandoned lots to adjacent homes and businesses for sideyards and homeowner parking; to the completion of a new 51-home development in Chinatown.

Although many of 1997's projects are only just beginning to get underway, according to the federal Bureau of Labor Statistics, Philadelphia gained 3000 jobs between November 1996 and November 1997. After a string of 31 consecutive quarters of job loss dating back to 1988, Philadelphia has now experienced six consecutive quarters of job growth.

All of this progress demonstrates that people and businesses believe in Philadelphia again. They are investing in our future, building on what may well be City government's most important and lasting contribution to Philadelphia in this decade: the restoration of hope.

But make no mistake: while we can all take pride in the achievements of the past year, Philadelphia like all cities, is still in a fight for its life.

In part, our challenge is budgetary. While we finished Fiscal Year 1997 with our fifth consecutive year-end surplus—culminating in a record $128.8 fund balance—the continuation of our budget successes is far from certain. Not only do major fiscal threats still lie ahead, but much of our current budget surplus has already been pledged.

For example, the City has benefitted enormously from the Crime Bill. All told, once the final 100 Crime Bill officers enter the Academy this April, we will have added a total of 753 Crime Bill officers to our force. However, Fiscal Year 1999 represents the first year since the inception of the Crime Bill that the City's share of the costs of these officers exceeds the federal subsidy. As a result, the $22.1 million included in the proposed Fiscal Year 1999 budget for the Crime Bill officers is $7.8 million more than our current budget. By Fiscal Year 2002, when federal funding runs out altogether, the total City cost for keeping these police on the street will rise to $41.2 million per year.

Further, we must absorb the increasing costs of our 1996 collective bargaining agreements—which include three and four percent increases over the next two years, after a year when regional inflation was just 1.3 percent. While these solid raises are absolutely justified in light of the hard work by our municipal workforce in turning this City around, these rising compensation costs—including increasing pension and health and welfare costs—also add to a massive financial burden.

In addition, the City's budget must now absorb the loss of personal property tax revenues in light of constitutional challenges to that tax and the threat that bank trust departments would leave the City. Unlike some of our suburban counties, which raised property tax rates as much as 29 percent to compensate for the loss of personal property tax revenues, we tightened our belts and did not raise Philadelphia's rates. As a result, the elimination of the personal property tax means that the City will have to compensate for a $16.5 million loss in Fiscal Year 1999, with a cumulative loss of $107.4 million over the five years of our new Plan.

Far more sobering than these near-term budgetary challenges, however, is the fact that the City's long-term economic recovery remains so vulnerable. We cannot for one minute afford to think that all of our problems are solved. For while our growth is exciting and real, it comes during one of the most robust periods of national prosperity in this century. With even the slightest downturn in the national economy, the signs of Philadelphia's recovery could quickly fade away.

Further, now bearing down on us is the catastrophic impact of federal and State welfare cuts. Under these grim policies, at least 38,000 former welfare recipients are being forced to find work in a City where our unemployment level is already twice that of neighboring Montgomery County. What is more, another 43,000 single adults aged 19 to 59 have already lost their State-funded medical assistance. These policies are creating signs of a coming tragedy all around us.

At our eight district health centers, for example, there continues to be a dramatic increase in the number of visits by uninsured patients. In Fiscal Year 1999, the Health Department projects 335,000 health center visits—over 40,000 more than experienced in Fiscal Year 1995. Further, we project that 61 percent of next year's visits will be by uninsured patients, in contrast to only 44 percent in Fiscal Year 1995. Recent City surveys show that requests for food assistance increased by 20 percent in November alone, and in some neighborhoods, the increase in requests for food is topping 30 percent. And this in the middle of the strongest national economy in years, and as the cuts are only beginning to hit us.

Given these threats and challenges, this is no time to let up. It is true that government cannot solve every problem we face—and that is doubly true for a local City government forced to shoulder the staggering burden of social and economic problems that the rest of the nation often chooses to ignore. But what we do makes a tremendous difference in people's lives. And what we do over the next two years can help establish a tremendous foundation for Philadelphia's new century.

That is why the budget that I am submitting for Fiscal Year 1999 is so important. More than at any other time since I have been Mayor, Philadelphia is beginning to shake off its doubters and the remnants of its fiscal crisis. This past year has been one of tremendous achievement, and the future looks even brighter. However, all of us understand that our fiscal stability is the foundation on which we must build our future.

The proposed Fiscal Year 1999 budget and new Five-Year Plan hold true to the course that started us along this recovery. We will continue to live within our means. We will continue to improve the quality of the services we provide to our citizens. We will continue to lower the costs of living and working in Philadelphia through responsible reductions in municipal taxes. And we will continue to invest in economic opportunity.

First, in our basic City services, we are proposing continued enhancement of targeted neighborhood services to improve our quality of life. For most of our citizens, the progress that we make as a City government is not measured by the size of our budget surplus or the bond ratings assigned by Wall Street. For most Philadelphians, City government is ultimately about the services it delivers: more police on our streets, graffiti removal, on-time trash collection, the quality of the water we drink, and even the creation of an indoor soccer league for kids.

In our proposed Fiscal Year 1999 Operating Budget, we are budgeting for nearly 7,000 police officers—the City's largest sworn force in more than a decade—including 753 new officers hired since 1995 with funding from the federal Crime Bill. As I noted earlier,

the final 100 Crime Bill officers will enter the Police Academy this Spring, and will hit the streets by the end of this year.

As a result of our growing police force, during the past year we tripled the size of the Narcotics Strike Force—from 50 to 150 officers—to crack down on illegal drug activity. We also created the Rapid Response Crime Team, an elite corps of 100 Highway Patrol officers who work in support of the Strike Force by targeting the violent street crime in those same neighborhoods.

These initiatives are part of a series of deployment measures that the City will continue in the months ahead—steps that are radically transforming the way we deploy our police officers to strike ever harder at illegal drugs, violent crime, and the crimes against our quality of life that drain a city's lifeblood.

And, already, these first deployment initiatives are working. Just a few weeks ago, the Strike Force and the Rapid Response Crime Team embarked on their first joint mission: attacking street corner drug sales and crime in the West Philadelphia neighborhood around 58th and Arch Streets. In the first two weeks of that operation, our officers made 81 narcotics arrests, and reports of violent crime in the neighborhood are down by a third.

On the street, more than 270 Philadelphia police patrol cars have been outfitted with mobile data terminals. These computers reduce the number of calls being dispatched over police radio, and give the officer on the street instant access to important information about the incident or the individual in question. Our officers tell us that mobile data terminals are terrific new tools to help fight crime, and our proposed budget includes $300,000 for increased data broadcast costs as we equip over 500 more police cars—including every sector patrol car in the City—by the end of the next fiscal year.

In addition, the proposed Fiscal Year 1999 budget includes over $528,000 for operational costs associated with the creation of the Police Department's new helicopter Aviation Unit. This new unit, projected to be in service this summer, will help fight crime by taking reconnaissance photos of drug houses, tracking stolen vehicles, and spot-lighting suspects at night. Funding is also proposed in Fiscal Year 1999 to outfit ten additional bike patrol officers, which would bring our total complement to 85 two-officer bike patrol units Citywide.

This investment in more police officers and better crime-fighting tools is critical to improving public safety. But that is not all that we are doing. In November, the Justice Department awarded the City a $4.9 million grant as part of the federal Local Law Enforcement Block Grant program. This grant marks the second straight year in which the City has won increased federal support for our efforts to crack down on the "quality of life" crimes that threaten the security of our neighborhoods—crimes like curfew violations, underage drinking, truancy, and graffiti vandalism.

With the help of the federal grant, we are expanding neighborhood police patrols through additional overtime, and for the first time, we are providing funding to support the permanent creation of Night Courts, the highly effective court program that adjudicates on the same night of arrest. The grant also will fund a variety of other important anti-crime activities, including expanded crime-mapping, additional police computer technology and software, nuisance abatement initiatives, and a number of effective anti-violence programs run by the School District.

In our Fiscal Year 1999 budget, we are also proposing an additional $70,500 for victim witness support, and $500,000 more for the District Attorney to add prosecutors and investigators for narcotics trials and appeals.

Every year since Philadelphia first emerged from its fiscal crisis, the Administration and City Council have significantly increased General Fund spending for the Police Department—from $299.9 million in Fiscal Year 1994 to a proposed $358.3 million in Fiscal Year 1999, representing a total increase of almost 20 percent and nearly $60 million. At the local level, we are not just talking about fighting crime; we are doing something about it.

But we could use more help from Harrisburg. That is why I call on the State Legislature to support the crime fighting initiatives I proposed back in September, which were introduced by Senator Fumo in the State Senate last fall. These include support for a 10-cent surcharge on all locally sold lottery tickets to fund the hiring of up to an additional 750 new police officers in Philadelphia, and for the State police to assume the patrol of State highways in Philadelphia, like I-95 and the Schuylkill Expressway. State troopers patrol these and other State roads all over Pennsylvania—why not Philadelphia, too? This one measure alone would free up 50 Philadelphia police officers. If we get these officers back, I will add them immediately to the Rapid Response Crime Team to help fight crime in our neighborhoods.

But these are by no means the only measures that we are taking to improve the quality of life for our citizens.

The City's comprehensive anti-graffiti campaign continues to make tremendous progress in the drive to wipe out graffiti vandalism throughout the City. In Fiscal Year 1997, the City's new graffiti abatement teams cleaned or painted over graffiti on 7,520 properties and street fixtures Citywide—more than the number of properties cleaned in the two prior fiscal years combined. In Fiscal Year 1998, we project to clean 19,000 properties. And in Fiscal Year 1999, we are proposing to increase the funding for this initiative by another $163,000 to staff and supply two more crews. In addition, we are proposing an $82,000 increase for the Mural Arts Program to help increase the number of new murals from a projected 37 in this fiscal year to 60 next fiscal year.

In the Recreation Department, we propose to add even more resources to the highly effective Violence Prevention After School Program, a key component of the Children and Families Cabinet's Youth Violence Prevention initiative. This after-school program—funded on a pilot basis in Fiscal Year 1997—provides three hours of safe and fun activities after every school day, including creative arts, athletics, and homework support. In Fiscal Year 1999, we are proposing an additional $750,000 for this initiative, building on an increase of over $620,000 received by the Recreation Department in its Fiscal Year 1998 budget. This will bring total City funding for after school programs to nearly $1.4 million annually, and enable the Recreation Department to serve 3,200 children at 160 sites—including every Recreation Center with the facilities to accommodate after-school programs. In addition to these efforts, the School District is working to put up to 40 after-school programs in place by the end of this year, and the nonprofit Philadelphia Citizens for Children and Youth and a host of other civic organizations have pledged to develop new after-school activities for thousands of Philadelphia children over the next three years.

The Recreation Department is also the scene of an innovative new partnership between City managers and the unionized workforce. The partnership they created is part of the Reinventing Government Initiative that grew out of the 1996 collective bargaining agreements with District Council 33 and 47. Last summer, both managers and DC47 members worked together to expand and promote the Department's summer meals program. As a result, 30 more neighborhood facilities participated in the program, over 106,000 more free lunches were served to children than in 1996, and breakfasts were added to the program for the first time. Further, because existing Rec Center staff were able to integrate this program into their overall duties, and because food and administrative costs are covered by the Commonwealth, this expanded meals program is not burdening the City's own budget.

To support the continuing improvement of our neighborhood Recreation Centers, in our proposed Fiscal Year 1999 budget, we are adding a total of more than $100,000 in additional funding to provide full-time maintenance at the Hawthorne and Fox Chase Recreation Centers that were recently upgraded to Class A facilities, and for chlorine purchases for the increased activity at City pools. For the first time in 15 years, each Class A center will now be fully staffed.

In the Free Library system, the "Changing Lives" capital campaign is helping to transform the City's 52 branch and regional libraries. As temporary closures due to renovations begin to come to an end, we expect that seven more libraries will be open in Fiscal Year 1999 as compared to this fiscal year. To staff these revitalized libraries, we propose to increase the Free Library budget by more than $672,000 to fund 24 additional employees. Also, we are proposing to add $63,000 to the Library's budget to fund regular maintenance of new roofs placed on branch libraries in recent years.

In Fairmount Park, thanks to the extraordinary five-year, $26.6 million William Penn Foundation grant in support of natural lands restoration and education, we have begun the process of revitalizing our parks. Also, across the City's neighborhoods, the proposed Fiscal Year 1999 budget and new Five-Year Plan contain $1 million per year for the pruning and care of street trees.

Our Children and Families Cabinet begins work this month to move forward with an eight-year, $8 million urban health initiative funded by the Robert Wood Johnson Foundation, a community-focused partnership to reduce teen pregnancy, teen substance abuse, and youth violence. Also, in the Health Department, tremendous progress is being made in the effort to see that all Philadelphia children are immunized. According to a recently released report by the National Center for Disease Control, 79 percent of Philadelphia's pre-school children are now appropriately immunized—up from only 50 percent just three years ago—the largest single-year increase in immunization among the 50 states and 26 urban areas covered by the report.

While this progress is encouraging, we must also do more to manage the devastating impact of federal and State cuts in welfare and medical assistance. To help maintain basic health care, we are proposing a $1 million increase in the Fiscal Year 1999 budget for the eight district health centers—on top of a $200,000 increase in Fiscal Year 1998—to provide additional staff and supplies.

In addressing the challenge of homelessness, the impact of State and federal welfare cuts is also severe—compounded by the fact that the City has experienced a net decrease of $1.2 million in State funds for shelter beds since Fiscal Year 1996. Nonetheless, last year, we were able to add another 1,200 new transitional and permanent housing units for homeless and at-risk families and individuals—bringing our total to over 8,000—and we were able to increase job training placements by 50 percent. In our proposed Fiscal Year 1999 budget, we maintain this commitment to preventing homelessness, adding a proposed increase of $150,000 for case management services in the Office of Emergency Shelter Services.

In the Department of Human Services, family preservation programs have been strengthened, while the number of adoptions placing abused or neglected children in new homes increased from 275 in Fiscal Year 1996 to 422 in Fiscal Year 1997. Overall, in Fiscal Year 1998, Children and Youth Division staffing is up by an average of 54 social workers over last fiscal year. To continue to support critical child welfare services, the proposed Fiscal Year 1999 budget for DHS includes an increase of $2.8 million for costs not reimbursed by State and federal grants.

In September of last year, with the approval of this Council, the Department of Licenses and Inspections hired 11 new inspectors, and plans to hire four more by the end of Fiscal Year 1998. This increase is intended to build on the 27 percent increase in code inspections achieved from Fiscal Year 1994 to Fiscal Year 1997—and to further reduce the risk of fires and other hazards. In conjunction with the Fire Department's outstanding initiatives to promote fire safety and prevention, fire deaths in Philadelphia declined to 53 in Fiscal Year 1997—the lowest total since this statistic began to be tracked more than two decades ago.

Finally, in the remainder of Fiscal Year 1998 and into Fiscal Year 1999, we are proposing to build on L&I's programs with a $1 million two-year pilot program—$500,000 each year—for the demolition of imminently dangerous buildings in the City's targeted Partners for Progress zones. This pilot will allow Partners for Progress to clear an additional 200 vacant and abandoned structures as part of its efforts to stabilize and improve disadvantaged neighborhoods. This is in addition to the more than $10 million budgeted for L&I's on-going demolition program in Fiscal Year 1998 and proposed again for Fiscal Year 1999. Counting the major investments already made in recent years, this would bring our total demolition spending since Fiscal Year 1995 to more than $55 million.

In addition to these operating improvements, the Fiscal Year 1999 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 1990s, annual City capital spending was an abysmal 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. Between Fiscal Year 1989 and Fiscal Year 1992, the average monthly expenditure for capital projects was only $13.5 million. In contrast, from Fiscal Year 1996 through the first five months of this fiscal year, the average monthly expenditure was $25.9 million—an increase of 92 percent.

In Fiscal Year 1999, we are proposing to spend $127.5 million in City capital funds—representing the seventh straight year in which the City is proposing to invest more than $100 million of City funds on capital projects. A significant portion of the Capital Budget is dedicated to neighborhood projects that will further improve the quality of life for our citizens. These projects include: $4.5 million for renovations to Free Library facilities, to help the Library meet its goal of renovating all 52 branch and regional libraries; $14.6 million for improvements at Recreation Department facilities across the City; over $3.4 million for renovations at our district health centers and Riverview; $13 million for street resurfacing; $1.7 million for street lighting; $80,000 for the Bicycle Network Plan, which leverages $320,000 in matching federal funds; $2.4 million for the Zoo, including a second $1.25 million matching contribution for the new Primate Center, bringing the total City commitment to $7.9 million for this facility; and $4.6 million for improvements to facilities in Fairmount Park, including Memorial Hall, the Japanese House, the West River Drive Recreation Path, the Belmont Grove Picnic Area, the Cobbs Creek Recreation Center, Eakins Plaza, Edgely Fields, Parkside-Evans Playground, and Schuylkill River Park.

In addition to capital investments in our neighborhoods, the Fiscal Year 1999 Capital Budget also contains funding for a host of infrastructure and economic development projects designed to build on the City's incredible momentum and create jobs—jobs that provide hope and a meaningful stake in the future for our citizens. The Capital Budget includes such initiatives as: $1.57 million for improvements at neighborhood commercial corridors throughout the City—twice the amount budgeted last year; $4 million for renovations and safety improvements at the Art Museum; $9 million toward the exciting new master plan for Independence Mall, including a new Liberty Bell Pavilion; $12.5 million to support the construction of the Regional Performing Arts Center; $2.5 million toward the $6.3 North Broad Street streetscape project; $1 million for site improvements at the Food Distribution Center; and $2.5 million for the Byberry Reuse Plan. The Fiscal Year 1999 Capital Budget will also support projects in business districts throughout the City, through such measures as new curbs and sidewalks, improved lighting, and public parking.

This year, our proposed Capital Budget incorporates $41.75 million in funding from the proceeds of the City's sale of its port holdings to the State in 1990. We had waited for the appropriate time to invest the port proceeds; now, with a booming national economy and the seeds of our own economic development efforts beginning to bear fruit, we must seize this moment. These funds will help replenish the City's Economic Stimulus Program, which has been so successful in retaining or attracting approximately 42,000 jobs. These funds will also provide vitally-needed resources for a variety of neighborhood initiatives, including $1 million for West Parkside redevelopment, $4 million for the Schuylkill Falls redevelopment project, and $3 million for a new, moderate-income, housing development in South Philadelphia.

Together, these significant capital investments will enable the City to continue to improve the quality of life in our neighborhoods, expand our commitment to job creation, and upgrade the City's facilities for both citizens and City workers alike.

Having the ability to support these investments is a direct result of the fiscally conservative management policies that we put in place six years ago. These efforts are crucial to our goal of making Philadelphia more competitive as a place to live and work. But by themselves, they are not enough to turn the tide. We must continue to grow the City's economy, and provide new job opportunities for the thousands of Philadelphians who, despite our best efforts, still have no hope and no meaningful stake in the City's future.

In the effort to attract new business and jobs to Philadelphia, there may be no single more important initiative than the incremental tax reduction program launched by the Administration and City Council three years ago. The three rounds of cuts in the City's debilitating wage and business privilege taxes have sent a powerful message, and that message is simple: the cost of living and doing business in Philadelphia is coming down.

Moreover, the gap between City and suburbs is closing. And this year, we propose to close the gap even further. As you know, last year's Five-Year Plan proposed extending the incremental tax reduction program into a seventh year, well beyond my term as Mayor. This year, we propose to extend the tax cut program into an eighth year, to ensure that Philadelphia will continue to grow ever more competitive in the years ahead.

In addition, the pace of our economic recovery—together with last year's record budget surplus—provides us with a unique opportunity to accelerate the pace of tax reduction on behalf of our citizens and businesses. The original tax reduction plan called for reductions in Fiscal Year 1999 from the current 4.79 percent to 4.715 percent for City residents and from 4.16 percent to 4.0995 percent for non-residents. But because the pace of our recovery is picking up speed and our budget performance has been so strong, today I am proposing that, this year, we reduce the wage tax by more than we anticipated. I propose to cut the residential wage tax rate to 4.6869 percent in Fiscal Year 1999 for residents, and to 4.075 percent for non-residents. These cuts represent the largest single one-year reduction in the entire tax cut program—nearly 2.2 percent. Although this larger cut was originally planned for Fiscal Year 2000, we can afford it now, and our citizens and businesses deserve it.

However, while I am proposing this accelerated tax cut in Fiscal Year 1999, I am also proposing a more modest adjustment than originally slated for Fiscal Year 2000—so that the rates by Fiscal Year 2001 will be exactly as set forth in prior versions of the incremental tax reduction plan. This adjusted schedule not only takes advantage of our current fiscal strength, but it will also help us to handle the next rounds of wage tax cuts in the years just ahead when the City must also fund new labor contracts and manage the impact of welfare reform.

Over the first four rounds of the tax reduction program—from Fiscal Year 1996 through Fiscal Year 1999—a Philadelphia family earning $30,000 per year would save a total of $184, with an annual reduction of $82 thereafter even if no other cuts were made. After the full eight years of reductions are in place, that same family's cumulative savings will rise to $671, with $138 in annual savings going forward.

In addition, I am recommending that we maintain our original schedule of reductions in the gross receipts portion of the BPT, which will be cut from 2.875 mills to 2.775 mills in Fiscal Year 1999. For a representative Philadelphia business with $15 million in gross revenues and before tax profits of $1.5 million, the first four rounds of BPT cuts will have saved over $21,000. After eight years, the cumulative savings will total nearly $68,000—with annual savings of $14,250 every year thereafter.

For City-based businesses, the new formula for calculating the net income portion of the BPT, enacted in Fiscal Year 1996, is further improving their ability to compete. And, in this proposed Fiscal Year 1999 budget, I am asking City Council to approve an additional change in the BPT to include any firm with ongoing activity in Philadelphia. This means that businesses that solicit and make sales in the City—but locate their facilities outside of our borders—would have to pay the BPT, just like City firms do.

Added together, the four years of tax cuts so far—Fiscal Years 1996, 1997, 1998, and those proposed for Fiscal Year 1999—will save Philadelphia taxpayers a cumulative total of nearly $204 million. And by the end of the eighth year of the program—in Fiscal Year 2003—the wage and business tax reductions we have enacted, together with those called for in the current Five-Year Plan, will have saved Philadelphia taxpayers a whopping $731 million—nearly three-quarters of a billion dollars—in wage and business privilege taxes. We are closing the gap in Philadelphia, because government is committed to a long-term program of rational tax relief.

As the many initiatives that I have outlined today make clear, we are making real strides in those areas where we control our own destiny—in reducing waste, improving productivity, repairing our infrastructure, cutting taxes, and pooling public and private resources to leverage more economic development. But as I have said in the past, perhaps the greatest frustration of being Mayor is that no matter how good a job we do—and in partnership with this City Council under the extraordinary leadership of Council President John F. Street, we have done a lot—to a great extent the City's future rests on forces beyond our control.

In these areas, we need help from other governments to solve some of our most pressing problems. Without that help, we will never be able to achieve all that is possible for this City. Let me briefly discuss two of those areas, and what we propose to do about them.

First is the continuing struggle to obtain full funding from Harrisburg for the operation of the courts in Philadelphia. There is no question that the State is required to fund the operation of the State criminal and civil courts, as the State Supreme Court ruled more than a decade ago. More recently, in July 1996, the Supreme Court required the legislature to enact a court funding scheme by January 1, 1998. That deadline has come and gone, and the legislature continues to defy the Court mandate.

As a result, the City has been forced to fund the Common Pleas and Municipal courts, at an annual net cost of approximately $130 million. What is more, the City pays almost $35 million more to fund court-related agencies like the Clerk of Quarter Sessions, the Register of Wills, and the Sheriff's Department. That is over $160 million a year that the Pennsylvania Supreme Court says is the Commonwealth's responsibility—$160 million that the legislature has chosen to ignore, forcing Philadelphia taxpayers to shoulder the burden alone.

Think about that for a minute: just imagine what kinds of programs and services we could fund with an extra $160 million. In a City where federal and State welfare reform policies will force over 38,000 people to find jobs that simply do not exist, $160 million would be eight times the $20 million in federal funding expected for our Private Industry Council's welfare-to-work initiatives in each of the next two years. And in a City where State legislators have called for more police, $160 million would fund over 2,000 more officers a year.

Earlier this month, the Supreme Court established a Judicial Council to prepare for the transition from county court funding to Commonwealth court funding. The City is committed to working with the Judicial Council in order to bring about a plan for full court funding by the Commonwealth by July 1, 1998.

But make no mistake: The Supreme Court's pronouncements are crystal clear. This funding obligation lies solely in Harrisburg; the City will no longer shoulder this burden indefinitely. As a result, we have included absolutely no funding for the Philadelphia courts in the proposed Fiscal Year 1999 operating budget. And it is our expectation that we will see real progress before June 30th—including, at an absolute minimum, the first significant financial relief for the City from this unconstitutional burden, and a reasonable timeframe for the City's divestment. The City is committed to working with the Judicial Council and the legislature to develop a rational, orderly transition to full court funding. But if the legislature does not match this commitment and we do not see real and tangible progress over the next few months, at the start of the new fiscal year, the City's funding will run out.

Logic demands that the State assume its responsibility for running the State courts in Philadelphia. But when it comes to the future of Philadelphia's public school children, increased State support is not only logical—it is a moral and constitutional imperative.

Few concerns impact the City, its residents, and its businesses more than the quality of public education. Our local tax dollars support the School District of Philadelphia. Our businesses rely on the School District to train and educate its workforce. And our City depends on the School District to prepare our children to be productive members of our communities. If Philadelphia is to fulfill its promise as a great American city, then it absolutely must provide a quality education for the nearly 215,000 children who attend its public schools.

Unfortunately, the task of educating America's young has become far more challenging. And it is especially difficult in an urban setting such as Philadelphia. Superintendent Hornbeck is right—every child can achieve at high levels. However, there are extraordinary hurdles that far too many of our City's school children face each and every day. Poverty, unemployment, violence, substance abuse, teenage pregnancy, lack of insured health care, and the breakdown of societal institutions have absolutely decimated much of the world outside our classrooms. Under these circumstances, it is often difficult for even the most motivated students to learn, and for the most extraordinary educators to teach.

Yet despite these obstacles, many of our students and teachers do persevere. Although, as the Pew Charitable Trusts' recent report on urban schools points out, there are no urban public school systems in the nation today that can honestly make the claim that they have completely turned the corner, the School District of Philadelphia is certainly headed in the right direction.

Over the past three years, the School District has implemented full-day kindergarten for every student for the first time in the City's history; enhanced school safety through the Safe Corridors program and the addition of 75 more School District-funded police officers, surveillance cameras, metal detectors, accommodation rooms and other disciplinary programs; imposed tough new education and testing standards for students, and an equally stringent system of accountability for administrators and teachers; increased staff training hours; and, made more computers available than ever before—today there is one computer for every 10 students, as compared to one for every 30 students just three years ago. In addition, the School District has dramatically increased private fundraising and public grant awards, raising almost $150 million over the past three years; enlisted the support of over 10,000 volunteers; and, with the help of this Council, made extra funds available to ensure that every child has textbooks in English, math, science, and social studies.

There can be little doubt that these improvements are starting to pay dividends. The results of citywide testing in 1997 showed increases in student achievement at many levels, particularly among the City's fourth graders. Over 200 of the District's 259 schools showed improvement over the previous year. Reading and science test scores are up.

Some may characterize these improvements as modest. And the truth is that far too many of our public schools are still achieving at unacceptably low levels. However, improvement of any kind is more than can be said in most urban school districts around the nation. Even USA Today has noticed, reporting that Philadelphia's "schools have achieved in three years what few, if any, urban school[s]...can claim—higher test scores." The Boston Globe described Philadelphia's public schools as "a typical story of shattered illusions in the inner city, except for one thing: Philadelphia's test scores . . . are starting to rise."

The simple truth is: progress has been made. But more progress needs to be made. Without adequate resources, however, it will be incredibly difficult for the School District to continue to achieve the results we expect.

Although it is true that money alone can not solve all of the problems facing our educational system, more money would and will make a significant difference. Just ask our neighboring suburban school districts: during school year 1995-96, they spent an average of $2,046 more per student than Philadelphia. Just think what an extra $60,000 would do for every classroom of 30 students in Philadelphia.

In addition, consider the following: despite the fact that Philadelphia's children come to school poorer and more in need of health care and other basic services than their suburban counterparts, Commonwealth funding of Philadelphia public schools—both in absolute terms and in comparison to all other districts in the State—has actually declined, even while enrollment in our schools has increased by more than 10 percent over the past five years. These more than 20,000 new students alone would comprise the third largest school district in the Commonwealth.

If the State's funding of our public schools had simply kept pace with the growth of State funding to all other school districts since Fiscal Year 1992-93, our schools would have received an additional $40.2 million in Fiscal Year 1997-98, as well as an additional $150.7 million over the past five fiscal years. Further, had the Commonwealth continued to use the same funding formula for basic education that it used from 1983 to 1992, our School District would have received an additional $100.4 million in Fiscal Year 1997-98, and an additional $386 million over the past five fiscal years. Even if the Commonwealth's funding simply kept pace with inflation, Philadelphia would have received an additional $73.6 million in Fiscal Year 1997-98, and $261.3 million more over the past five fiscal years.

Without adequate resources, the School District simply can not continue to provide full-day kindergarten, comprehensive day care, the Latin program, museum education, secondary school extracurricular activities, or the host of other programs so critical to our children's education.

And do not think for a minute that there are any easy solutions, such as just cutting waste in the District's administration. Thanks to the work of the District's Private Sector Task Force on Management and Productivity—a task force similar to the one I created back in 1992 to help us root out waste in City government—the District has saved more than $29 million over the past two years. And by the end of the next school year, the School District will have already cut more than 300 administrative positions since school year 1990-91. As a result, the District now spends less of its budget on administration, and more on classroom instruction, than the average for all 500 other school districts in the Commonwealth of Pennsylvania.

Further, the taxpayers of Philadelphia can not solve this problem alone. We already shoulder a disproportionate share of the costs of public education. Despite our over-burdened tax base, the City's taxpayers contributed more than $560 million to the School District this school year, including the second consecutive $15 million supplemental appropriation approved by this Council and $33.9 million as a result of the tax lien sale. And that does not include the more than $70 million in City services that we provide the District, ranging from school crossing guards to the discount rates provided by our Water Department and PGW.

Although this City and its taxpayers are already doing all this for our public schools, today I am proposing that we do even more. In Fiscal Year 1999—for the third year in a row—I propose that the City provide another special supplemental appropriation of $15 million to the School District. That means that—in addition to the more than half-billion dollars of local support already provided annually by City taxpayers—we will have provided the District with an extra $45 million in supplemental appropriations during the past three years alone. This is not as much as the District needs, and it is probably more than the City can continue to afford, but we simply must do all we can for our City's school children.

Unfortunately, if the Commonwealth does not do its part, even this may not be enough. According to a recent report by the City Controller, the District faces a budget deficit in Fiscal Year 1998-99 that could reach as high as $137 million. To put this gap in perspective, eliminating full-day kindergarten, comprehensive day care, and desegregation funding would save the District less than $50 million. Eliminating every administrative expense would not come close to saving $137 million.

Last year, the School District—with my unequivocal support and that of this Council—drew a line in the sand. Together, we said that we would no longer tolerate cuts in school-based programs. We realized that further cuts would decimate critical school programs and activities, and quite literally destroy all the progress and momentum of the past several years. Instead, we adopted a zero-growth budgetary strategy, and committed to a School District budget that represents the absolute minimum required to meet the District's fundamental educational obligations.

We also took extraordinary steps to compel the Commonwealth to live up to its constitutional and moral responsibilities to our City's kids. In the Spring of 1997, the School District—along with the City and other plaintiffs including the Philadelphia chapter of the NAACP—initiated a new lawsuit against the Commonwealth for violating its constitutional obligation to provide a "thorough and efficient" education for all the City's school children.

This lawsuit is in addition to the long-running desegregation case that was concluded before Commonwealth Court Judge Doris A. Smith last summer. In that case—which is now before the State Supreme Court, with oral argument set for next month—Judge Smith ruled that the Commonwealth had indeed underfunded the School District.

This year, we expect to bring yet another lawsuit against the Commonwealth. This Title VI complaint will be filed in federal court, and will charge the Commonwealth with violating federal civil rights law by shifting funding away from Philadelphia, which has the largest concentration of minority students in the State.

While none of us relishes the prospect of having to sue the State to compel it to honor its responsibilities, the fact is that they have left us with no choice. The only real answer to the School District's funding problems is for the State to step up and assume its constitutional and moral responsibilities by adequately funding public education in Philadelphia. Resolving the school funding crisis and restoring public confidence in Philadelphia's public schools is absolutely essential to our City's future.

* * *

Six years ago, I stood at this podium and declared that we all had to share short-term pain and sacrifice to reclaim the City's future. I said that if we did that, we would succeed beyond anyone's expectations. Either way, I was convinced that we had no choice—we had to succeed, because the consequences of failure were too devastating to consider.

During the early days of my Administration, I learned to appreciate one of this City's greatest assets, something that convinced me that we could turn Philadelphia around: the confidence of our people, and their willingness to help us out of our financial crisis, even though they had nothing to do with creating it. By and large, our citizens have willingly endured the sacrifices we asked of them, because they understood that it was necessary for the City to survive.

We relied on the faith of our citizens to give us the time and the opportunity to turn the City around. And in 1997, like no other year since I have been Mayor, we were able to reward that faith. It was a year in which the City began to reap the rewards of six years of working together to solve our problems and learning to put Philadelphia first. The results have been well worth the effort: we have balanced our budget and produced record surpluses; we stand ready to cut taxes for the fourth year in a row; we have reversed the exodus of jobs out of the City; we have increased the size of our Police Department to a level not seen in over a decade, and we have at last begun to see measurable progress in the battle to reform public education. All in all, working together we have produced a recovery that the New York Times recently called "one of the most remarkable turnarounds in recent American urban history."

It is undoubtedly true that there are tough challenges ahead for Philadelphia: maintaining the discipline necessary to keep our financial recovery on course; finding jobs for the thousands of Philadelphians who need them if they are to have any shot at a meaningful future; continuing the comprehensive effort to reduce the crime that threatens the safety of our neighborhoods; and confronting the funding crisis that threatens to shut down our public schools and destroy the progress made thus far.

These challenges are cause for serious concern. But if we have learned anything in the past six years, it is that Philadelphians do not mind a challenge. When put to the test, Philadelphians will work together and sacrifice for the City we all cherish. It is that spirit that has helped get us this far. And without a doubt, it is the reason that Philadelphia's brightest days remain ahead.

Thank you.