Council returns to budget crisis

CITY COUNCIL STARTED its three-month summer recess on June 18, fresh from a political victory over Mayor Nutter, defeating his push for a property-tax increase to help close a gaping budget deficit.

The resulting compromise with Nutter placed more of Philadelphia's finances in Harrisburg's hands with the result that as Council's weekly sessions resume today, 79 days after the July 1 start of the fiscal year, the city is on the verge of fiscal chaos.

City workers, firefighters and a group calling itself the "Coalition on Essential Services" plan a City Hall protest this morning, to decry the city's fallback budget.

It calls for issuing layoff notices tomorrow to 3,000 employees, effective Oct. 2, if the General Assembly does not pass budget-relief legislation. Also every library branch and recreation center will be closed.

"This is absolutely horrible," Council President Anna Verna said yesterday.

"I can't imagine legislators, knowing how important this is, that they would just look the other way."

Council decided against breaking early from its recess to hold a public hearing on the fallback budget and allowed it to be approved by taking no action.

The Coalition on Essential Services yesterday said Council should have the "courage to ask the tough questions and deliver acceptable alternatives, not the collapse of city responsibility."

Legislation to allow the city to increase by 1 cent on the dollar its 7-cent sales tax and to defer some payments to the pension plan is pending in the state Senate, which was occupied instead yesterday with the state budget impasse. The legislation is worth $700 million in the city's five-year financial plan.

Nutter will make his 16th pilgrimage to the Capitol today to urge a vote on the legislation.

Nutter, who introduced his budget in March to erase a $1.4 billion deficit after closing a $1 billion deficit in late 2008, always intended to seek Harrisburg's help.

His original budget called for a temporary property-tax increase of 19 percent on July 1, dropping to 14.5 percent next July and then back to the current rate the following year.

He also pushed a three-year 1-cent increase in the sales tax and the deferrals in payments to the pension plan.

Council, unwilling to move on the politically unpopular property-tax issue, forced Nutter instead to ask for a five-year increase in the sales tax. That dropped a part of the budget controlled by the city, property taxes, and put it at the mercy of Harrisburg, whose approval is required for sales-tax increases.

Verna pointed to problems at the Board of Revision of Taxes, brought to light by stories in the Inquirer, and said a property-tax increase would have led to long legal challenges.

"People would have been going to court in the blink of an eye," Verna said. "We still wouldn't have had the money."

Council Minority Leader Brian O'Neill notes that Nutter's plan would have instituted a permanent 6 percent increase in the property-tax rate if the General Assembly didn't approve the sales-tax increase. He thinks that was the first time Council ever turned down a mayor seeking a property tax rate increase.

The city is barred from raising the property-tax rate during the current fiscal year so that 6 percent increase is dead for now.

Asked if Council could face the wrath of anxious residents who spent the summer hearing from Nutter about layoffs of cops and firefighters and massive cuts in city services, O'Neill said he "would hope for the opposite."

"I think Philadelphians should be very thankful that they had an independent Council," he said.

The city last increased the property-tax rate in 1990.

Council Majority Whip Darrell Clarke predicted a last-minute save from Harrisburg.

"You give people a timeline, they tend to use that as their benchmark," he added. "The unfortunate thing is we're caught up in the state budget."

With the city's budget in Harrisburg's hands, one issue Council was loathe to confront was thrust front and center. The controversial Deferred Retirement Option Plan allows elected officials to retire for one day, collect a lump sum in pension payments that accumulate for up to four years at a set interest rate and then return to work if re-elected.

Nutter pushed for that reform in his March budget speech, only to incur the wrath of Council.

Senate Majority Leader Dominic Pileggi, R-Delaware, started talking about DROP reform in April, when it became clear that the General Assembly would have considerable clout over the city's budget.

Larry Farnese, a freshman senator from Philadelphia, inserted language in legislation needed for the city's budget, barring future elected officials from DROP.