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Council approves proposed real estate tax hike

A divided City Council approved a temporary 9.9 percent property-tax hike Thursday, but balked at Mayor Nutter's sugary-drinks tax and seemed ready instead to pass a budget that would deplete the already meager cash reserves Nutter had set aside for next year.

A divided City Council approved a temporary 9.9 percent property-tax hike Thursday, but balked at Mayor Nutter's sugary-drinks tax and seemed ready instead to pass a budget that would deplete the already meager cash reserves Nutter had set aside for next year.

Yet as far as Nutter is concerned, the $3.85 billion budget is far from done. The drinks tax could still return. It was only tabled, not rejected. And Nutter - who has lobbied hard for it - has not given up on the bill, which he considers essential to fully fund his 2010-11 budget and five-year plan.

"We still have a great amount of work left to do. My primary concern at the moment is we run the very, very serious risk of not being able to pay for core services, whether it's foster care or health-care services or the seasonal workers at recreation centers," he said.

But even without the drinks tax, Council has already managed to close the city's roughly $135 million budget deficit, though with little margin for error. If Council sticks to its current proposal, the budget fight could be over, whatever the mayor might hope.

The biggest item in Council's plan is the property-tax hike, which passed, 10-7. The first real estate tax increase in Philadelphia since 1989, it would raise $86 million for the city in 2011 and increase the average bill for property owners by $113 a year. The increase is scheduled to end in 2013, when rates theoretically would return to current levels.

The Council budget package also includes $17 million in spending cuts, plus new taxes on cigars and smokeless tobacco to raise $4 million and a $300 trash-collection fee for small businesses and multiunit dwellings that would raise $7 million.

Despite that, the city would be short on revenue and could face serious cash-flow problems without the tax on sugar-sweetened beverages, administration officials said.

"We've done a quick run-through, and it looks like we'd run out of cash in the general fund by the end of the fiscal year, so that's a big problem," city Finance Director Rob Dubow said.

At issue is the fund balance, the pool of cash the city keeps on hand to conduct business. Nutter's budget called for a balance of $64.6 million. His five-year spending plan projected that balance would grow to about $200 million over the next few years.

That $200 million is the minimum reserve considered prudent for a budget the size of Philadelphia's by the national Government Finance Officers Association, which considers a healthy fund balance "an essential hedge against long-term and short-term risks."

As drafted, Council's budget would reduce the fund balance to $42.5 million.

"Whether it's union contracts or an arbitration award or snow, you have to anticipate over the course of a fiscal year that there will be some emergency that the city will need to pay for," Nutter said.

"You can't just run the fund balance down to almost nothing and try to run a government that way. It's irresponsible."

But some on Council suggested Thursday that concerns about the fund balance were overblown.

"In the event that an administration doesn't have the revenue for their needs over the course of the year they simply must be fiscally prudent and not spend," Councilman Darrell L. Clarke said. "The administration isn't going to run out of money; it's not going to happen."

Council passed the budget bills after a tumultuous day of whispered private debates between members and impassioned critiques of the tax-hike-heavy budget from a steady stream of taxpayers who had come to testify.

Councilman Bill Green was among those to vote against virtually every budget bill that came up for consideration Thursday.

He said the budget was a "job killer" that was "built on shifting sands," because it was vulnerable to legal challenges in a host of areas, such as the property-tax bill that was introduced with a formal signed sponsor, in apparent violation of Council rules. That objection was dismissed by Council President Anna C. Verna after Council attorneys said no laws had been broken.

But Green's complaint was only one of many Thursday.

South Philadelphia resident Ken Metzner asked Council members how they could justify a nearly double-digit real estate tax increase after officials publicly acknowledged that the city property-assessment system is broken.

"I am mystified as to how one can reconcile public statements in January and February that our assessment methodology is so bad that we will need at least two years to fix it with a decision today that seeks to use the very same methodology to extract more money from Philadelphia's hardworking citizens," Metzner testified.

Rob Wonderling, president of the Greater Philadelphia Chamber of Commerce, said his members would be hit twice by Council's budget proposal. Once with property taxes and again with the $300 trash fee, which includes all properties except single-family houses, condominiums, and buildings already served by private trash collectors.

Tobacco merchants were not happy with Clarke's bill to raise $4 million by taxing tobacco products, with the exception of cigarettes, which are already subject to a state tax.

Robert Levin, owner of Holt's Cigar Co., testified that the tax would hurt his business in competing with Internet providers.

"Prosperity cannot be built upon new taxes that threaten long-term loyal businesses and cause them to consider packing up and leaving the city," said Levin, who employs about 95 workers citywide.

Clarke later amended his bill to exempt Internet and mail-order sales made outside the city.

But the biggest debate Thursday was over Nutter's proposed sugary-drinks tax, which has received international attention given the growing scientific evidence that obesity is linked to heavy consumption of such beverages.

"The mayor of Philadelphia is a hero for proposing this and the City Council still has an opportunity to show its leadership and pass this," said Kelly Brownell, director of Yale University's Rudd Center for Food Policy and Obesity and one of the nation's leading advocates of a tax on sugary drinks.

"It's a matter of time before a city or state passes such a tax, and it would be wonderful if Philadelphia was first."

Council, though, appeared more swayed by the sentiments of local employers like John Lyman of Auntie Anne's Pretzels, who claimed 80 percent of his workers were single mothers.

"I will either have to eliminate stores or get rid of some of these people," said Lyman, who predicted the tax would badly hurt his business given that soda accounts for about 25 percent of his sales.

Nutter dismissed the argument that the tax would cost jobs as a "false, hysterical scenario" that had been hyped up by lobbyists and public relations pros employed by the beverage companies.

"There was the same hysterical madness back in the '90s with the liquor-by-the-drink tax, but nothing negative happened. The same hysterical madness with the smoke-free legislation, but nothing negative happened," Nutter said. "Well, here we go again, with the same old story and same old scare tactics about a very serious public-health issue."

Nutter will take another crack at making his argument in the days to come. He originally sought a tax of 2-cents-per-ounce, which still failed after being reduced to three-fourths of a cent per ounce. Might a half-cent-per-ounce seal the deal?

"We still have one more week. The sugar bill is the mayor's bill," said Council Majority Leader Marian Tasco, who was among those willing to vote for the sugary-drinks tax. "He's got to figure out how he gets the additional votes he needs to pass it, and that's probably going to be difficult for him."

According to the City Charter, Council ought to pass its budget bills by the end of May. That deadline has been violated routinely, however, and it might be again this year.

The true budget deadline is probably June 30, the last day of the fiscal year.

Property-Tax Vote

Voting in favor

Blondell Reynolds Brown

Darrell L. Clarke

W. Wilson Goode Jr.

William K. Greenlee

Curtis Jones Jr.

James Kenney

Donna Reed Miller

Maria D. Quinones- Sánchez

Marian B. Tasco

Anna C. Verna

Voted against

Jannie Blackwell

Frank DiCicco

Bill Green

Jack Kelly

Joan L. Krajewski

Brian J. O'Neill

Frank Rizzo

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