The Other Way to Avoid Plan C

Plan C is coming. Plan C is coming. Plan C is coming. Even if certain aspects of the plan are a charade, the mayor has made clear that if Harrisburg doesn't help out, draconian cuts to city services are an inevitability.

But is there another way? The answer is a definite maybe. Normally, because of a ruling from the 1950s, Philadelphia can't raise taxes in the middle of the fiscal year. There may, however, be a loophole. Instead of laying off nearly 1,000 police officers and closing all libraries and recreation centers, Philadelphia might be able increase the dreaded wage tax.

The gaming act, passed by the legislature in 2006, has a provision that allows Philadelphia to increase the tax if certain emergency conditions are met. If any one of the following things happens, the increase would be allowed:

  • The city finance director certifies that Philadelphia faces a “fiscal threat that affects the citizens of the city.”
  • Tax revenue decreases by more than 2 percent in a fiscal year.
  • The Pennsylvania Intergovernmental Cooperation Authority (PICA) disapproves the city's five-year plan.
  • Federal or state law requires a new unfunded mandate that costs more than 1.5 percent of the city's general fund.
  • The cost of an existing mandate increases by more than 1.5 percent.

Given the terrible impact of Plan C, it would seem pretty clear that the first condition has been met. Also, it seems very likely that revenue will decrease by 2 percent or more. If PICA certifies that either of those conditions exist, then City Council would need to muster 10 votes to pass the increase.

Still, the issue of a lawsuit lingers. I asked Richard Feder, a deputy City Solicitor, if the city thinks the gaming law allowed a tax hike in the middle of the year.

“The gaming act is silent about when the increase can occur,” said Feder. “The easiest way to interpret the law is that the city can't raise taxes in the middle of the fiscal. However, the increase is also clearly meant to happen in the event of an emergency. Why give the city emergency powers if we're going to have to wait a year for help? So there are arguments on both sides.”

Nothing like a definite maybe. The option would, presumably, be tempting. The wage tax is one of the only taxes that could actually generate enough revenue to fill the budget gap. Right now, the city expects about $1.5 billion from the wage tax in the next fiscal year. Philadelphia could increase the rate enough to generate another $100 million and stop the worst of the budget cuts. The city would need an increase of between 6 ½ and 7 percent.

So why not go this route if Harrisburg fails to act? Well, politics could complicate things. If Philadelphia raises the wage tax, it could anger suburban lawmakers with constituents who work in the city. Harrisburg probably couldn't repeal the increase, but the city could face retaliation in other ways. For example, the state might cut an equivalent amount of funding in other areas, like human services. That would create yet another hole in the budget that would need to be filled.

But a bigger barrier might be in City Hall. Mayor Nutter spent his entire career in City Council fighting to cut the wage tax. He also rejected the option during budget negotiations in March. Still, the city is supposedly on the verge of shutting down the entire court system, among other unthinkable cuts. If anything can get the mayor to rethink his position, wouldn't it be this?