City ties bill-paying to state budget

Staring down a cash crisis, Mayor Nutter yesterday announced that the city will delay paying bills until the budget impasse in Harrisburg is resolved.

"The city of Philadelphia will meet its obligations as soon as the budget is passed," Nutter said.

Until then, the city's cash will be used only for employee compensation, debt service and emergencies. All new city capital projects - building and repair jobs - will also be under "stringent review," Nutter said.

The city has asked Harrisburg lawmakers to authorize several budget changes to close a $1.4 billion deficit in the city's five-year spending plan - a one-cent increase in the sales tax for five years and some changes to how the city pays into its pension fund. Those measures would give the city $250 million in new money and savings for the fiscal year that began July 1.

"If they are approved in the very near future, the city will be able to avoid this cash crisis," Nutter said.

But the 18-day budget standoff in Harrisburg over the state's own $3.2 billion deficit has slowed action on the city requests. With no clear resolution in sight for the state budget, the city is trying to conserve the $197 million it currently has in the bank.

Finance Director Rob Dubow said that with the payment delays, they city's funds will last beyond the end of September.

Nutter said he hopes vendors understand that the city is stuck waiting for the state budget impasse to be resolved. He asked those businesses to "work with us" and have faith that the city will eventually pay up.

"We have thousands of vendors," Nutter said. "Everyone is going to feel the impact of that - small, medium and large."

Vendors affected could range from utilities to law firms and summer camps. Payments will be frozen to Ballard Spahr, the law firm handling the city's union negotiations. An exception will be made for some social service providers like foster parents and some outlets that provide emergency services for kids, according to the mayor's press office.

The budget debate continued to rage in Harrisburg yesterday, as the state issued partial paychecks to thousands of workers.

Some workers picketed in front of Gov. Rendell's East Falls home to express their displeasure.

Lawmakers are battling over how to manage the state budget gap. Rendell has proposed a temporary 16 percent increase in the state's personal income tax, a plan that Republicans have staunchly opposed.

Rendell, speaking in Harrisburg yesterday, said he hopes the General Assembly will "at least" approve Philadelphia's request for a one-cent increase in the sales tax. But he warned that the issue isn't likely to be approved until the state's budget is wrapped up.

"I don't know that that can be the tail that wags the dog," Rendell said of the city's tough words about vendor payments. "I mean, I'm concerned about it just as I'm concerned about our ability to meet our vendor bills."

In addition to stalling the city's requests on the sales tax and pension fund, the state holdup is damaging the city's finances in several other ways.

The city has yet to receive roughly $100 million in state money that was expected in July and August. And the city was planning to do a short-term borrowing of $275 million at the end of the summer to cover bills until tax revenues come in next year. But it cannot do the transaction until the state budget is complete and it is clear that the city can pay the money back. *