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Nutter says loan to ease financial pinch is near
In a rare bit of good financial news for Philadelphia, Mayor Nutter announced yesterday that the city expected to secure a $275 million loan that would enable it to repay millions of dollars owed to thousands of contractors as soon as next week.
The city began withholding the money in mid-July in order to conserve cash, causing many contractors, including social-service providers, to run into their own cash troubles, cut salaries, and lay off staff.
The loan is necessary in part because the General Assembly has not approved two measures Nutter wants to help rescue Philadelphia's budget.
As of last week, those measures were being opposed by the city's municipal unions because of provisions added in the Senate that the unions believe limit collective bargaining of pension benefits.
Resistance grew yesterday, with opposition now also coming from the 35-member executive committee of the Philadelphia AFL-CIO, which represents more than 100 local unions. "When they added this business about the pension, they tried to legislate collective bargaining, and it's wrong," said Philadelphia AFL-CIO president Patrick J. Eiding.
His organization plans to send a letter to every House member in the next few days, urging a "no" vote on the legislation. "[Lawmakers] want our money to help them and they want our feet to walk the streets to help them get elected," Eiding said. "It's not a threat to anybody, but we want them to respect what little labor laws we have in this country."
The deal for the short-term loan, which the administration expects to complete tomorrow, is with JPMorgan Chase & Co. It would allow about $200 million in payments to be made, out of a total of $225 million owed. The city will use the rest of the money to maintain a cash balance, the mayor said.
"The sooner they get the payments flowing, the better," said Margaret Zukoski, associate director of the Pennsylvania Council of Children, Youth, and Family Services, adding that several social-service providers that she works with were in "dire straits."
JPMorgan, one of the most solvent large U.S. banks, has been offering itself as a friend to a number of states and cities in need, having repaid $25 billion in federal Troubled Asset Recovery Program funds.
"We're giving state capitols what they need most - capital," JPMorgan said in an ad that ran earlier this week in national and regional newspapers.
The bank approached Philadelphia, which had contacted at least two other banks that declined.
Under the loan plan, the city would repay the money at interest rates of 3 percent until Nov. 30 and 8 percent afterward. But Nutter said he expected to refinance the loan before the rate increased.
The bills pending before the General Assembly would give the city $700 million in revenue.
The unusual borrowing was prompted by the lack of a state budget, which prevents the city from getting more than $100 million in anticipated revenue. Pending legislation would temporarily raise the city sales tax and allow Philadelphia to defer pension payments for two years.
City officials opted for the bank loan because they figured Philadelphia couldn't attract investors to fund a "tax-revenue-anticipation note," which last year carried a 2 percent interest rate.
Gov. Rendell and legislative leaders continue to work on reaching a budget deal; last week, the Senate approved the sales-tax legislation.
However, the city's municipal unions are actively lobbying House lawmakers this week to defeat the sales-tax legislation because of last-minute pension-related provisions added in the Senate. The unions fear the provisions trample on collective-bargaining rights since they call for a freeze on pension benefits for current members and would impose a new, less expensive pension plan for future city hires.
Nutter yesterday urged the unions to think beyond the implications for workers' pension benefits. If the legislation fails and there is no sales-tax hike, he said, the city will have to implement a revised budget - "Plan C" - that calls for 3,000 employee layoffs, reduced trash collection, and the shuttering of every library and recreation center.
"The devastation to Philadelphia at the moment pretty much overwhelms any other issues or concerns," the mayor said.
Fraternal Order of Police Lodge 5 president John McNesby, for one, wasn't convinced. "Putting a Band-Aid on a gunshot wound is quite the task," said McNesby, who attended the mayor's news conference. He said that he favored the sales-tax hike but that the long-term effect of the changes in pension benefits was more important.
While Nutter said nearly 900 officers stood to lose their jobs under the revised budget, McNesby said: "I don't believe there will be any police laid off. It just isn't happening."
Democratic House leaders have promised to vote on the legislation Tuesday. But given the uncertainty over the bill's passage, the mayor is moving ahead with preparations to implement Plan C.
On Sept. 10, he said, the city will inform residents, vendors, and others of the reductions in city services, and on Sept. 18, the city will begin mailing layoff notices. Plan C calls for all those cuts to take effect Oct. 2.
Also on Sept. 10, the city plans to submit a proposed pension plan for new city workers to the Pennsylvania Public Employee Retirement Commission, a step required by the pension provisions added to the sales-tax legislation. That plan likely would call for a defined-contribution program similar to plans held by many private-sector workers.
Then, on Sept. 11, the city's financial watchdog, the Pennsylvania Intergovernmental Cooperation Authority, is scheduled to vote on whether to accept or reject Plan C, which includes a projected city budget for each year through 2014.
"Next week is possibly the most critical week financially and operationally the city has experienced in half a century," Nutter said.
Contact staff writer Marcia Gelbart at 215-854-2338 or mgelbart@phillynews.com.
Inquirer staff writer Joseph N. DiStefano contributed to this article.
