Hoping for help from state, Council approves $3.8B budget

Philadelphia City Council passed a $3.8 billion budget Thursday that lays the groundwork for solving some of the city's most intractable fiscal problems - with a little luck and a lot of help from the state.

The cornerstone of the budget was a reformed property assessment system. It is a revolutionary change that critics thought politically impossible but that advocates championed as the one chance at stability and sanity in the property-tax system - the city's second-largest source of revenue.

The budget included $190 million in new spending, $85 million allotted to finally resolve contracts with three of the four main municipal unions. Those fights have persisted for four years, complicating long-term planning.

But the budget itself does not settle the greatest challenge now facing the city - the School District of Philadelphia's $304 million budget shortfall.

After two straight years of raising real estate, business, and other taxes for the schools, Council and the Nutter administration are turning to the state this time.

Council passed a $2-a-pack cigarette tax, but that tax requires state approval to enact. Council also hopes to shake about $28 million out of delinquent taxpayers for the schools.

Council did not vote Thursday on an increase in the business Use and Occupancy tax, the one remaining proposal with direct power to raise money for the schools.

That inaction angered dozens of sign-waving school advocates, many of whom were shut out of Council chambers, reportedly due to maintenance that closed the upper galleries.

But Council President Darrell L. Clarke said that, if the bill had passed, state approval for the cigarette tax would have died.

"I guarantee you that if we pass the U-and-O bill, we don't get smoking," Clarke said. "What I'm asking people is, let it play out, let us continue to have that dialogue."

The cigarette tax is projected to yield more than $90 million a year, decreasing in subsequent years as the levy drives people to stop smoking or to buy cigarettes outside the city.

The Greater Philadelphia Chamber of Commerce has been cheerleading the cigarette tax in Harrisburg and battling a second straight Use and Occupancy tax hike.

Councilwoman Maria Quiñones Sánchez, the sponsor of the Use and Occupancy bill, said state lawmakers, debating an additional $100 million funding package for the schools, are "very close to what would be a historic, one-time, serious allocation of resources."

Passing her bill, she said, would "give anyone an excuse who is not looking out for the best interests of Philadelphia" to not provide state help.

Her bill also would have forced her colleagues to choose between funding the schools and satisfying business constituents.

"There's no need to put them in a situation where they're voting for something [unpopular] when it's Harrisburg's turn," she said.

Another provision in her bill, giving businesses a $2,000 exemption on their Use and Occupancy taxes, was amended into another bill. That exemption, she said, means 9,000 businesses will pay nothing or very little in Use and Occupancy taxes.

Much work remains on all the thorny issues debated in the budget process.

Clarke, echoing the comments of many inside and outside government, said a more permanent solution must be found to school funding.

"We cannot continue, on an annual basis, to have this management of the School District by crisis," he said.

Nutter, meanwhile, opened his comments to the media Thursday by hailing the Actual Value Initiative (AVI), the property-tax overhaul that passed Council last week.

"We have fixed the badly broken, damaged, and often, unfortunately, corrupt property assessment system," he said. "This is a major achievement for our city."

Several Council members continued to complain Thursday that the assessments were rife with inaccurate and unfair values in need of correcting.

A well-functioning property-tax system based on real market values should capture revenue automatically as real estate values increase.

And although the budget shows money for union contracts, agreements still must be negotiated after years of accumulating animosity between the sides.

Sam Katz, who chairs the city's state-appointed financial oversight panel, the Pennsylvania Intergovernmental Cooperation Authority, has said he would probably vote against the city's five-year financial plan this summer if contracts were not in place.

at 215-854-2730 or tgraham@phillynews.com,