Behind the budget meltdown

Mayor Michael Nutter has bad news: the city finances are in trouble. Problems in the national economy have come home to roost and now we face some tough choices. The city is projecting a $34 million deficit for 2008 and a $450 million shortfall over the next five years.

Here is a quick guide to the budget meltdown:

National economy.
Job growth has slowed and costs for food, fuel, and other essentials are rising. Everyone is feeling the pinch and local government is no exception.  Less business means less revenue from taxes. In addition, havoc in the stock market has hurt the city's investments. Like cities everywhere, Philadelphia is facing lean times.

Pension Nightmare.
The city pension fund is losing money. The fund has posted a 3.7% loss for this fiscal year. That means the city will have to contribute more money to the pension system. In addition, Nutter's plan to borrow $3.5 billion to fully fund the pension system will have to be delayed until 2011. Taxpayers won't see savings from the deal until then. Nutter officials estimate the total price tag for pension problems is $150 million.

Business Privilege Tax.
Dubbed "the most complicated tax I have ever seen" by Budget Director Steve Agonstini, missing revenue from the Business Privilege Tax is the largest hole in the municipal budget. Tax receipts produced $408.2 million, $34.6 million below the projected amount of $438.2 million. Nutter officials say the complexity of the tax-- which includes levies on both gross receipts and net profits-- makes it extremely hard to project revenues.

Nutter and his team have taken a number of steps to deal with the budget crunch. Heads of city departments will be given new target numbers for their budgets. Some could face cuts as big as 10%. City officials will spend the next four to six weeks figuring out a strategy and then present their plan to the public.