Mayor Nutter went to Harrisburg seeking help to balance the city budget and came home with what looks like an even better deal for Philadelphia residents.
After some wrangling and delay, the state Senate approved Nutter’s request to raise the sales tax in the city by 14 percent for five years, and defer payments to its pension fund for two years.
If approved by the full legislature, the measures will enable the city to fill a projected budget gap of $700 million over five years. Nutter said both measures were needed to avoid major layoffs and deep service cuts.
Nutter and City Council must keep their promise to make the sales-tax hike temporary. Sales taxes are the most regressive levy, impacting poor people more than other taxpayers, and adding to an overall tax burden in the city that is already the highest in the country.
With wages flat or falling, and other costs growing for Philadelphians, Nutter should have looked harder for more cuts before turning to any tax hike. Even with this assist from the state, he needs to implement more efficiencies in city government.
Credit Senate Majority Leader Dominic Pileggi (R., Delaware) for using Philadelphia’s budget crisis to come up with a long-term solution to the city’s growing pension costs, instead of another a short-term patch.
In addition to the measures sought by Nutter, the Senate bill calls for the city to cap retirement benefits for existing city workers at current levels, and develop a separate pension plan for new hires that would cut benefit costs by 20 percent or more.
The House approved an earlier version, but must sign off on these provisions from the Senate. Gov. Rendell supports the Senate bill; the House should as well.
In the long run, this should help ease Philadelphia’s budget woes by addressing an intractable pension problem that previous mayors have sometimes tried but almost always failed to tackle. In taking office last year, Nutter pointed to the ballooning pensions costs as a growing crisis.
He has been negotiating with the four municipal unions for pension changes, but with little success. The unions obviously don’t want to grant any concessions. But the reality is the city workers have a gold-plated pension plan that is unsustainable.
Without cutting employee costs, the other alternatives are to eliminate city jobs, cut services or the more likely route: keep raising taxes. Such moves will only make the city a less attractive place to live, work and visit.
About 60 percent of the city’s $4 billion annual budget goes to cover salaries, health benefits and pension costs for employees. (Health benefits are another soaring cost that Nutter wants and needs to reduce.)
The city’s annual payment to the pension fund has jumped from $150 million in 2003 to $350 million last year. Meanwhile, employee pension contributions equaling 5 percent of their salary are below the rate of most other cities. At the same time, the city has more retirees collecting pensions (about 37,000) than city employees (about 28,000).
Under the state plan, city workers will keep their current pension benefits. The savings will come from future hires that will go into a 401(k) plans rather than the existing guaranteed plan.
That seems both fair and reasonable given the economic realities that confront Philadelphia.
So the end result of decades of failed democrat policies are finally being realized. Perhaps the zombie-like voters of this city will finally wake up, but I have my doubts.— camtheman- Rendell shirked his fiscal responsibilities on the city pension when he was mayor and then went on to approve a major pension increase for all state employees but without bothering to fund it. Street declined to address the pension problem because, to meet the full general fund obligation would have derailed some of his community efforts (WAM/cash to favorite community groups to establish re-elect John Street offices). None of the recent mayors have done anything to address the actual inefficiencies. None addressed the BRT stuff, in fact they relied on it for patronage, and never addressed delinquent taxes which would have reduced the impact of current financial crisis. Please repair the pension, do NOT allow the Mayor to select the company that will run the new 401K or manage the current deferred compensation program (not DROP) and do not let the city manage the H&W funds. On the latter, please re-read the PEW report as amended so you can see that the city pays more for less coverage then the unions do. The non-union employee has higher co-pays and makes higher contributions to their coverage. That is not good management. Yes bring parity ($1300 is too high for police and fire) and increase employee contributions but let the union (it looks like DC47 is best at this) run the health care fund with controller oversight..— nebulus
- The funny thing about all of this is that the sales tax hike money will entirely go to the pension as mandated by the state legislation. Philly will still have to face Plan C, especially as revenue shrinks from a base under assault from all sides. When the debt service of $90 million in 2013 kicks in, there will not be any money any more to fund a full service political machine anymore.— CleanupPhilly
- This is a very responsible treatment of the subject. The tax hike is correctly reported as a percent of increase of the total sales tax burden, a more accurate description than the impassioned "just a penny on the dollar increase" that the Ink and DN relied upon before the bill passed the GOP Senate. Better late than never. It is right to praise Pileggi for a responsible fix, and it's fair to look at what other cities are having employees pay into the pension as a percent of salary -- much higher than Philly's mere 5%. Other cities requires 7-8% of salary to contribute to their pensions, per the Pew Report. But the total cost of the future benefits, even with concessions to hike percent of contributions, even with mandated fixed city payments using the sales tax hike, will STILL be higher than the savings of putting new hires in a 401(k). There must be layoffs and furloughs. There must be elements of Plan C put in place for the nonuniformed city employees who perform functions outside the scope of local government. The second to the last sentence in the article can't accomplish the stated outline of the problem in this otherwise well-thought out piece. The city must still eliminate jobs and cut services that are not duplicated by the private nonprofit sector. It is a problem faced by the paper itself, and any owner, local or not, will face the same scenario of right-sizing.— CleanupPhilly
- This otherwise excellent article overlooks sources of revenue that are obvious to any other city -- there is $425 million in overdue property taxes owed the city for years, there is $1 billion in forfeit bail owed by court no-shows to the city. This is not a confusing problem for other locales -- they collect it. They use sheriff sales, foreclosure, and industry-standard collections. What would the paper do if it had this hidden revenue owed on the books? Ignore it while it decimates its staff? That is what this article suggests by omission. Collect overdue property taxes by selling this property at sheriff sale in the most valuable neighborhoods. Collect forfeit bail by hiring bail bond contractors to do the work, or selling the bail debt to collection agencies. This is all work that should have been done already. When is the paper going to start to follow up on Kerkstra's hard-hitting articles, and tie this in to the city budget crisis?— CleanupPhilly
- The thing that will have to happen next if this is indeed part of Nutter's master plan, is that the wage tax will have to be eliminated. Not cut -- made illegal. This is likely going to have to be a state initiative as well. Philly should be Chicago, NYC. You shouldn't be seeing the commerce all around the city and only partnerships or other business that is exempt from wage taxes being the only significant presence in the city. Start ups should be starting up here in town, new boites shooting up all over. Instead you see empty crumbling storefronts that once carried big ticket items that are cheaper to buy in the suburbs, as the paper recently covered. The high tax burden is still the part of this plan that the paper hasn't fully examined using that "ideology" known as Econ 101.— CleanupPhilly
- I still oppose the sales tax hike in Philly in a recession that raises it to more than the surrounding regions. The paper has not done enough to crunch the numbers, or to interview those who can, to explore impartially how elastic demand is or is not in Philly. Buyers can move easily, and do every day cross city lines. It should no problem to simply stop shopping in Philly. Not for poor, but for the rest of us, big ticket item stores will now be closing even more than they are now. There will be more city vacancy in the shopping district. You can't just blame the economy -- you have to blame poorly thought out, rushed tax policy that just raises taxes first always a solution. You can say NO. Just click on "It's not too late to tell them NO" at http://www.stoppataxhike.com/— CleanupPhilly
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