Nutter's budget a bold challenge to unions, and a burden to taxpayers

After months of preparation and an unprecedented amount of public input, Mayor Nutter is now officially delivering his $3.84 billion budget and five-year plan to City Council.

The document is a direct challenge to city labor unions.

In addition to massive (though theoretically temporary) tax hikes, Nutter's budget is a clear declaration that he intends to use the fiscal crisis to win major concessions from the city's workforce.

His budget proposes no wage increases over five years, and cuts to the city's health care costs. He also wants changes in work rules, and fewer paid holidays for city workers.

Perhaps most controversially, Nutter will seek to sharply reduce pension benefits for new employees, by having the city's beleagured pension fund declared "severely distressed" by an obscure state agency called the Pennsylvania Employee Retirement Commission. Such a declaration would clear the way for a new benefit structure for future hires, one that is far less generous then the package received by current workers and retirees.

In a letter attached to his five-year spending plan, Nutter warned that he would pursue contract agreements this summer with city unions that are "reflective of the challenging economic environment in which we currently find ourselves."

"It is important for all represented and nonrepresented employees to share the burden that these economic times have forced all of us to shoulder. Therefore, my proposed budget and five year plan include assumptions of reduced City costs for health care benefits, pensions and work rules. Without achieving at least this level of savings in these areas, we will not be able to balance our plan," Nutter's letter read.

Nutter has also provided a grim "contingency" budget and five-year plan, which he says the city will be forced to turn to if it does not win union concessions or fails to get approval from the state legislature for some of his measures. That budget focuses much more on cuts, and would lead to further closures of fire companies, the shuttering of a health center, less frequent trash collection, shorter hours at libraries and recreation centers, and the laying off of 256 police recruits, among other steps.

The other highlights of Nutter's budget have already been extensively reported. They include:

  • A two year increase on property taxes that will raise $272 million.
  • A three year increase in the sales tax, from seven percent to eight percent, enough to raise $342 million.
  • Roughly $300 million over five years in departmental cuts, efficiencies and new fees, including charges at the city's formerly free health centers. Between these reductions and cuts made last fall, the city trimmed its annual budget from $3.95 billion to $3.84 billion, a three percent drop.
  • A 22 percent reduction in the city's administrative departments, including big cuts in the Mayor's Office itself.
  • Symbolic steps, such as proposed end to the participation of elected officials in the controversial DROP retirement program, and a campaign to get those same officials to give up their city-issued cars.
  • There is little doubt that if Mayor Nutter gets what he wants from City Council, the unions and the state legislature, the city's finances will be in far better shape. But that would not necessarily mean an end to all financial problems.

The economic growth estimates the city is using to project its income over the next five years may well prove too optimistic. Although city officials are using more conservative growth rate assumptions than many forecasters (including the Congressional Budget Office), their figures are considerably more aggressive than the Philadelphia forecast created by Moody's, which offers perhaps the nation's leading regional economic forecasting service.

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