City Questions Council Sales-Tax Plan

The administration today questioned another City Council budget proposal to deal with the $1.4 billion budget gap. This week Council suggested that the city extend the temporary sales tax hike proposed by Mayor Nutter from three to five years and borrow against the against the anticipated proceeds in the later years to help the city balance it’s budget in the early years.

Council’s plan suggested borrowing $200 million to cover expenses in the upcoming fiscal year. Members said this idea had more support than Mayor Nutter's proposed two-year temporary hike to the property tax.

Finance Director Rob Dubow this afternoon sent Council members a letter saying that borrowing to pay city operating expenses could raise red flags with financial rating agencies.

“It does provide some short term relief, but rating agencies have made it clear that if you start to borrow for operating costs, there are problems with your fiscal management,” Dubow said.

Dubow also provided Council with some research on the estimated cost to the city of their plan. He said that the interest costs of borrowing $200 million to cover expenses could cost $75 to $100 million. 

Nutter last month proposed raising the city's property tax temporarily, by 19 percent in July and then 14.5 percent in July 2010. He also proposed a temporary three-year increase in the sales tax by 1 cent on the dollar. That tax is 7 cents on the dollar, with 6 cents going to the state and 1 cent to the city.

Council's plan keeps the increase at one cent on the dollar.

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