City's 2011 budget outlook is even grimmer

Three big winter storms have cost the city $11.5 million more than anticipated this year, Budget Director Stephen J. Agostini said yesterday, and the sputtering economy is threatening to engulf the city's next budget in red ink to the tune of $150 million.

The bill for the blizzards was included in the city's quarterly managers report, which came out late Tuesday, and does not account for another negative factor of the storms' wrath: the drop in sales-tax revenue that resulted when snow forced businesses to close.

With Mayor Nutter's budget address two weeks away, the deficit the city faces for the fiscal year beginning July 1 is from $125 million to $150 million, Agostini said.

The 2011 deficit includes a $49 million hole developing in this year's budget driven in part by falling wage- and sales-tax revenue. Agostini said the deficit in this year's budget would be made up in next year's.

For perspective, the city cut $257 million between its 2009 and 2010 budgets. One way it reached that goal was by eliminating jobs - 803 positions since late 2008 - meaning the city has fewer cost-cutting options now.

"The economy is still very, very weak," Agostini said. "There are fewer jobs, which looks like it may be a long-term issue, if not a permanent one."

Although City Hall can increase some taxes to raise revenue, at least three levies - property, sales, and wages - appear to be out of the question.

Property-tax increases are not viable because the city's assessments are wildly flawed, as the Board of Revision of Taxes has acknowledged. No increase is likely until the assessments are corrected and while the BRT and its functions are being reorganized.

The sales tax was raised last year, but weak returns this year leave it out as an option even if it were politically viable. The city expected $235 million in sales-tax revenue and now estimates $207 million.

Wage-tax revenue is expected to fall by $41 million, and any increase in that levy would likely require state approval. But such a strategy is unlikely, given the city's traumatic experience last year in getting the legislature's approval for a temporary sales-tax hike.

The precarious nature of the business sector and real estate market makes any increase in the business-privilege tax or real estate transfer tax untenable - not to mention that Nutter has frozen business-tax reductions that he had supported for his whole career.

There were some positive figures in the report, although not enough to avoid a large budget deficit. Those figures included a $25 million repayment from the Pennsylvania Intergovernmental Cooperation Authority; $30 million more than expected in real estate transfer taxes; and $26 million more than expected in business-privilege taxes.

What options remain for the Nutter administration?

Very few. It will have to come up with new ways to make money, or enact harsh cuts or massive furloughs to balance the budget. The administration has floated the idea of a tax on soda and sweet drinks, but that would address only a small fraction of the problem.

Agostini would not say what cuts and/or taxes may be in store, but he did provide details of the factors in this year's deficit:

The cost of legal settlements is $10 million over budget. City Solicitor Shelley Smith said the number of cases and several large settlements drove the figure up.

The First Judicial District projects that it will need up to $2 million more for court-appointed lawyers. The courts have no control over that expense, said Kevin Cross, deputy court administrator for financial services.

Sheriff John Green is projected to spent $2.2 million more than the $12.3 million budgeted for his office for salaries, mostly on overtime.

The city's unemployment-compensation claims have ballooned from about $2.5 million to about $7 million. City officials are trying to find out from the state whether that number is a mistake.

Agostini is still counting on $25 million in projected savings from labor contracts in 2011, which is far from guaranteed.

Three of the city's four major unions - firefighters, blue-collar workers, and white-collar workers - have been without a contract since July 1, and the city did not realize the savings it budgeted for in the police contract that an arbitration panel awarded last month.