Nutter: In a re-election year, who will feel the pain?

AN ELECTION year is typically not a time when officials who rely on the public for votes want to make any unpopular budget moves - like cutting programs or hiking taxes.

But Mayor Nutter may not be able to avoid handing out some pain next year, even as he campaigns for re-election. That's because - although the city's finances have stabilized alongside the national economy - there are still major fiscal risks facing Philadelphia.

"I think for the mayor, and for members of City Council, it's going to be tricky," said Zack Stalberg, president of the watchdog group Committee of Seventy, referring to the timing. "Since it's a one-party town, the Democratic primary falls right in the middle of the budget process."

Challenges facing the city include expected cuts in state funding, unresolved union contracts with non-uniformed city workers and the still-fragile national economy. And there are scant surplus funds in the bank, should anything go wrong.

Nutter faced a budget crisis nine months into his first term, when revenues plummeted as the national economy crashed. Since then, the administration has cut more than $2 billion from the city's five-year financial plan, shrinking the workforce, cutting funds for libraries and police officers and raising two separate taxes.

Administration officials, who stress that they have mostly avoided layoffs and the gutting of services in the initial crisis, say that the city's economy is starting to stabilize.

"For the first time in over two years, we have reached a level of budget stability that makes me feel cautiously optimistic about the future," Nutter said.

Politically, the danger for Nutter next year will vary depending on whether he has an opponent during the Democratic primary election in May, or the general election in November. But if he's in a competitive race, making budget cuts or changes could draw attacks from a rival. Asked how campaigning might impact the budget, Nutter said that managing the city's finances is a part of his job description.

"Obviously, we're all aware that there's an election coming up," Nutter said. "On the other hand, we have a responsibility to the citizens of Philadelphia to do a budget. That's what the citizens expect."

The administration is now starting to work on the budget for the 2012 fiscal year, which starts July 1, 2011. Here are some of the major issues facing the mayor:

State Funding. Republican Gov.-elect Tom Corbett has made it clear that budget cuts are ahead, as the state is on track to finish the fiscal year in a deficit. The city receives substantial state funding for a number of departments, most notably the Department of Human Services. Any cuts could impact programs and services.

"I don't think Gov.-elect Corbett has said anything specific about Philadelphia," Nutter said. "I think he's given a broader message that we're in for tough times."

Rob Wonderling, president of the Greater Philadelphia Chamber of Commerce, said that he was reaching out to state lawmakers to remind them of this region's economic importance to the state.

Fund Balances. After two rough budget years, the administration is operating on very narrow margins. The current budget has a year-end positive fund balance of just $42.7 million, or about 1 percent of the $3.8 billion budget.

This means that the city has almost no cushion. The Government Finance Officers Association advises a fund balance of 5 to 10 percent to cover unexpected costs.

Administration finance officials hope to shore up the fund balance, but noted that they've had to work very hard just to stay afloat.

Union Contracts. One big unknown hanging over city finance officers is labor costs for many of the city's 22,000 unionized workers.

Contracts have been reached through binding arbitration for the police and fire unions, but the city is appealing the firefighters' award on the grounds that it can't afford it. Meanwhile, the blue- and white-collar workers in District Council 33 and District Council 47, of the American Federation of State County and Municipal Employees, have been working under expired contracts since July 2009.

Administration officials said that the lack of contracts means that they haven't had to pay for raises, which saves the city money. But without contracts the city has little certainty about its future expenses and can't change the benefit programs that Nutter says they can no longer afford.

"I'd like to have a contract that reflects the provisions that we've been seeking," Nutter said. "We need health-care reform, we need pension reform, we need management flexibility to implement furloughs."

City Council. Nutter doesn't work on the budget in a vacuum. Once he develops a plan, he must reach an agreement with the 17 members of City Council.

During the last two budgets, Council rejected Nutter's proposals to raise revenues. This year, they blocked his effort to charge a trash-collection fee and to tax sugar-sweetened beverages, instead opting for a property-tax hike.

Council members are also up for re-election next year, which means that they'll be cautious about what they want to support. Still, Nutter aides said that they were committed to working with Council.

"We face the challenges together, and we all work together," said Budget Director Rebecca Rhynhart.

Where to cut? After almost three years of cuts and tax hikes, the city long ago ran out of easy ways to balance the budget.

Since 2008, Nutter officials have cut spending on services like libraries, pools and police, shrunk the payroll by hundreds of positions, delayed payments into the pension fund and hiked the sales tax and property tax.

"It's hard to argue that we can keep going back to residents and citizens and say, 'Pay more,' " said Brett Mandel, a onetime city-controller candidate who previously headed a tax-reform group.

Which raises the question: If there is any kind of gap in next year's budget, how would they resolve it? Last year, Nutter tried to get creative with proposals like the soda tax, with little success.

"Every time you go back, it gets harder," said Finance Director Rob Dubow. "It wears you down, cutting and cutting and cutting."

National Economy. The biggest unknown is what will happen to the nation's finances. If there's another decline, Philly will feel only more pain.

"There are any number of challenges and some danger zones, the first and foremost being we never know what's going to happen with the national and local economy," Nutter said.

Still he added: "We're certainly in a much better situation from a stability standpoint than we were."