Council's $3.6 billion budget plan spreads pain around

No one will get exactly what was wanted in the $3.6 billion budget City Council is set to pass next week.

Mayor Nutter had hoped to install his property tax reform, the Actual Value Initiative (AVI). Council plans to delay it a year.

The School District wanted - said it needed - $94 million in new revenue. The district is going to have to make do with $40 million instead.

Businesses were due to see their property-tax bills come down with AVI. Now, they're going to pay more, thanks to a 19 percent increase in the use and occupancy tax.

Many homeowners were looking forward to a tax break under AVI, or at least the expiration of two years' worth of supposedly temporary tax hikes. They, too, are getting a tax increase - 3.6 percent on top of the temporary hikes, which now appear enshrined in the budget as an 18 percent hike over the last three years.

About the only winners are the relatively small number of homeowners facing huge tax increases under AVI, and their victory will be short-lived if Council keeps its word and brings AVI online next year.

This year's budget season - one of the toughest and most complicated in years - appears to be wrapping up in a manner akin to a football game's ending in a tie.

Nutter acknowledged Thursday that the budget was a product of its time - at least when it comes to raising taxes for the nearly insolvent schools.

"I spent the better part of my entire political career . . . lowering taxes. But we're in an economic crisis," he said. "We don't have the luxury sometimes of only doing the things we want to do. I find myself often doing the things we have to do because of who gets impacted."

Of those unhappy with the compromise Council hashed out, business interests were the loudest critics.

"I think this was a very tough budget. I really don't want to criticize anyone, but I think it was an antibusiness budget," said David L. Cohen, the former chief of staff to Mayor Ed Rendell and now executive vice president at Comcast, who is one Nutter's biggest boosters in the business community.

"Philadelphia already has the highest or second-highest tax on businesses in the country," he said. "The city runs perilously close to saying they're just not interested in the job growth that businesses can provide."

Small businesses were equally shaken by the use and occupancy (U&O) hike.

"It's too much for us," said Julio Espinal, president of the Philadelphia Dominican Grocers Association. "How are we going to survive in the little corner store?"

What businesses pay in U&O varies, depending on the assessed value of their building and how much of it is used as commercial space.

Among businesses that are members of the Manayunk Development Corp., the average property-tax bill comes to about $5,000 and the average U&O bill is about $2,500, said Jane Lipton, executive director of the group.

The U&O increase means about $500 more for the typical business there. While that in itself is not a crushing amount, Lipton said that with the multiple city taxes and fees, coupled with state and federal taxes, "we're over the 50 percent mark."

She, too, said she understood Council's budget dilemma, but called U&O "the unkindest cut."

"I have tons of e-mails saying this is the last straw," she said. "The smaller the business, the larger the impact of these taxes."

The U&O spike could have been worse. Councilman Bill Green first suggested raising the tax by $94 million - nearly doubling what the tax generates.

But that was when AVI appeared headed for passage and as much as $100 million in property taxes was poised to shift from commercial and industrial properties to homeowners.

Unlike other Northeastern cities, Philadelphia is not permitted to tax its businesses at a rate different than residential property. The use and occupancy tax would be an indirect way to make businesses pay a bigger share.

Once Council spiked AVI, however, Green became one of six members to vote against the $20 million U&O hike. He said the increase was not done this year in anticipation of passing AVI next year.

"People were just looking for a way to do the responsible thing and provide as much money as possible for the schools," he said. "There was no policy here."

Council President Darrell L. Clarke, who started the year talking about selling advertising space on city property and other nontraditional ways to generate revenue, said Council shortly would roll out some new proposals to finance the School District.

"At the end of the day, you cannot tax individuals every time you have a fiscal problem," he said Thursday. "I continue to say there are a lot of other ways to fund the School District."