Saturday, June 24, 2017

The Next Mayor: At Issue -- Budget

City spending isn't a sexy issue, unless you're a taxpayer. Juggling services, like trash pickup, inspections and policing, with taxation is one of the mayor's biggest tasks.

Budget

It's 2015:
What do you care about?

The race for who becomes mayor is always about the issues.

The Next Mayor will be providing background and updates on news and information on the biggest issues facing the city.

We want to hear from you about what you think is critical for the next mayor to handle.

The Big Picture

City government managed to get through the Great Recession without laying off any workers, but it came at the cost of three tax increases.

In addition to higher taxes, the city had to scale back on services. Mayor Nutter once even tried to close libraries but yielded to the public outcry over that plan. Though taxes collected have rebounded to pre-recession levels, the city still struggles with balancing its budget, which totals nearly $4 billion.

In the meantime, a number of city departments have had to shed workers through attrition, which reduced their ability to deliver services. Overall city spending, factoring inflation, has increased at an average of just a little over 1 percent since Nutter took office—a very small growth rate.

There are several exceptions to this no-to-slow growth in city spending: Debt service, the money used to pay off city bonds, has increased 31 percent during the Nutter years; and the cost of paying fringe benefits for city employees continues to rise. To give an example, while money spent on neighborhood services—libraries, trash collection, recreation, etc.—has gone down one percent during Nutter's two terms, the cost of fringe benefits has gone up 10 percent. In 2000, the last year Ed Rendell was mayor, the city spent 12 percent of its overall budget on fringe benefits. This year, it will spend 31 percent of the budget on fringes.

The two main components of the fringe benefit package are pension and health-and-welfare costs. As of next year, the city will be spending an average of $52,000 per employee to pay for fringe benefits.

Big Battles

Fixing the Pension Fund

Though the city's contributions to its employees' pension fund keep increasing (they will total over $600 million next year), the fund itself is in bad shape. It has $4.7 billion in assets, but $10 billion in obligations—money it will eventually have to pay to current and future retirees.

Last year, the mayor proposed selling PGW, the city-owned gas utility, and use at least $500 million from the profit of the sale to feed the pension fund. Council refused even to hold hearings on the proposed sale and the deal died. At one point, Council President Darrell Clarke proposed devoting 1 percentage point from the city's 8 percent sales tax to feeding the fund, but that money was diverted instead to the school district to help ease its deficit.

Every option to help the fund—either through increased city payments or changes in benefits—is financially and politically fraught. Since there is no immediate crisis—the fund's debts are long term—the instinct of mayors and Council members is to do nothing and worry about it another day. In the jargon of politics, it's called kicking the can down the road. That said, a day of reckoning is approaching. If the city ends up having to greatly increase its level of contributions to the fund, it could blow a multimillion dollar hole in the city budget.

Pressure to raise salaries

The city's main unions—representing the police, the firefighters and blue- and white-collar city workers—had trouble dealing with the Nutter administration. The mayor sought concessions on both salaries, fringe benefits and work rules that the unions could not abide. The result was often stalemate or, in the case of uniformed employees, long, drawn-out arbitrations. The city would challenge in the courts any arbitration settlement it disliked.

White- and blue-collar workers went for five years without a pay increase rather than agree to the proposed contract that contained provisions the unions disliked. Last year, agreements were reached that included modest pay increases (and some union concessions on health care and pension payments), but they are due to expire in 2017.

With a new mayor, the pressure will be on to satisfy the pent-up demand for pay increases and an end to the administration seeking concessions the unions are loath to give.

What's at stake

When you think of the city budget, picture a mayor, standing on his toes in a swimming pool, with the water up to his neck. He must constantly balance the need for services with the reality of the income the city gets from taxes. Our tax growth is incremental, but the demand for services and the cost of fringe benefits is exponential. It's easy for a mayor—and the city—to slip below the water.

Michael Nutter has stood in that pool for the last seven years. Next year, he will be replaced by a new mayor, who will have to face the same challenges.

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It's 2015:
What do you care about?

The race for who becomes mayor is always about the issues.

The Next Mayor will be providing background and updates on news and information on the biggest issues facing the city.

We want to hear from you about what you think is critical for the next mayor to handle.

Here's a look at what concerns Philadelphians.
This snapshot shows what issues you've told us you think the candidates should address.
© 2015 The Pew Charitable Trusts
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