Watch your wallet: Nutter's new budget includes big new taxes

Mayor Nutter will give his annual budget address tomorrow morning. (File photo)

Proclaiming that the city cannot “just cut our way out of what is in essence a $150 million hole,” Mayor Nutter today proposed a budget that would instead close the gap with two major new tax programs: one levying a two-penny-per ounce charge on sugary drinks, and another that would charge property owners $300 per-year for trash collection.

If approved by City Council, the two new revenue sources would raise $146.6 million next year, and $185 million in future years, the Nutter administration said. And unlike the temporary penny-per-dollar sales tax hike approved last year, the new tax programs would be permanent, administration officials said.

The mayor’s $3.871 budget — which he will formally present to City Council tomorrow — proposes just $33 million in spending cuts, principally in the prison system. There will be no significant spending reductions in recreation, libraries or public safety, administration officials said.

“The budget is designed to avoid more service cuts,” said city finance director Rob Dubow, noting that the administration has already cut spending by over $200 million a year.

City departments were asked to prepare for cuts of up to 7.5 percent, but the administration determined that the service reductions such cuts would have required were too severe, Dubow said.

Raising existing taxes — like wage, real estate, or the business privilege tax — presents a host of political and legal obstacles. So the Nutter administration opted to “look for other revenue options that might also help us reach other long term goals,” Dubow said.

For instance, while the tax on sugared drinks would raise plenty of money for the cash-strapped city, administration health experts also hope it will help reduce childhood obesity in Philadelphia. That assumption is untested, however, as no other city has come close to taxing sugary drinks as heavily as Nutter proposes.

Billed by the administration the “Healthy Philadelphia Initiative,” up to $20 million a year of the proceeds generated from the sugary drinks tax will be dedicated to anti-obesity programs, said Health Commissioner Donald Schwarz.

Similarly, the garbage levy — which the Nutter administration is calling the “Keep Philly Clean” service fee — will provide enough revenue to fund $10 million worth of enhanced community cleanup programs, in addition to funding the entire sanitation budget.

Both proposed revenue measures are sure to encounter stiff opposition. Many property owners will no doubt voice disapproval of the garbage fee, which could complicate its passage in City Council. The beverage industry is already gearing up to fight the tax on sugary drinks. And low-income advocates are claiming that the two measures will hit the poor harder than the wealthy, though a lower $200 annual trash fee is available for low-income households.

But elected officials in Philadelphia have little appetite for a fresh round of budget cuts. As the economy collapsed in 2008, tax collections plummeted. That forced the city to pare $1.7 billion from its five-year spending plan through a combination fo spending cuts and delaying planned wage and business tax reductions.

City Council now may well prefer to accept new taxes over finding $150 million more to cut.

“Raising our core taxes is not an option that anyone wants to use. We don’t want to raise wage taxes or real estate taxes and our business taxes are already recognized as being too high. With that backdrop, where do we fill the deficit hole without reducing services?” asked Councilwoman Blondell Reynolds Brown.

Still, some observers were surprised that the administration chose to favor tax hikes so strongly over further cuts.

“I’m surprised at the ratio. I thought there would be more of a 50-50 allocation between new revenues and lower spending,” said City Controller Alan Butkovitz.

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