Computing Philadelphia's 'corruption tax'

OVER the last decade, we've heard a steady drumbeat of stories about corruption in local government.

We heard about Mayor Street's treasurer, Corey Kemp, who traded contracts for sports tickets and a new deck. Then there was Rick Mariano, the city councilman who sold his office to pay credit-card bills.

Besides these high-profile cases, there's the steady drip-drip-drip of employee theft and infractions. Just last year, for example, an employee in the Records Department was busted for selling more than 20,000 documents on the side, depriving the city of $600,000 in legitimate fees.

These unnecessary costs basically amount to a hidden tax on citizens - call it the corruption tax. To figure out how high this tax is, and how much of our tax burden pays for corruption, we consulted Dick Simpson, a former Chicago alderman and professor of political science at the University of Illinois, who's studied corruption extensively. He says corruption in Illinois costs taxpayers $500 million every year.

Simpson warned us that the calculation was difficult: He considered not just theft, but other factors such as the inefficiency created by patronage. He also pointed out that any estimate must include the corruption that goes undetected, which is impossible to know for certain. "It's not like throwing a dart," he said.

Still, we decided to give it a whirl. First, we have to define corruption. For simplicity's sake, let's assume we're talking about the direct theft of tax dollars - lawbreaking like taking bribes, engaging in fraud, or being paid for a no-show job. That's a narrower definition than Simpson's, but worthwhile for this exercise.

Now let's find our baseline - the known cases of money being stolen. Fortunately, city Inspector General Amy Kurland, who's charged with rooting out fraud and abuse in municipal government, recently released a report saying that her office saved and recovered $9.1 million stolen from taxpayers last year.

That figure includes direct restitution of stolen money, wages of terminated employees and savings from pension disqualifications.

The figure has some limitations. It doesn't include cases involving the Police Department, which Kurland refers to the police Internal Affairs Bureau or to the Justice Department. Nor does it include cases involving noncity agencies like the Housing Authority and school district.

But the figure still struck us as a decent starting point. Simpson agreed, with one qualification. "The $9 million strikes me as possibly low, but it's certainly

real. The question is, is that the total cost of corruption or just the tip of the iceberg?"

Kurland declined to speculate, but said, "If I thought there were areas where people were getting away with something, we would proactively be looking into that."

Fair enough. But we're not prosecutors, so let's speculate wildly. If the $9 million represented only 25 percent of corruption in 2010, the total cost to taxpayers would be $36 million.

To put that into context, the city budget was about $3.8 billion last year. That means that if the city is catching a quarter of existing corruption, corruption constitutes a little less than 1 percent of the total budget. Compare that with the Department of Human Services ($564 million), the police ($527 million) and prisons ($233.1 million). In this scenario, corruption is a bad cost - but not a big one.

But let's say that 25 percent is optimistic, and the $9.1 million recovered by Kurland is just the tip of a very big iceberg. Say, for example, that Kurland detected only 5 percent of corruption in city government in 2010. That would mean the real total cost of corruption was $180 million.

That's a significant amount. But it's worth noting that the $9.1 million Kurland saved or recovered was the work of about 125 employees. To get to $180 million would mean that either hundreds (maybe thousands) more city employees are stealing, or that a few massive individual heists are going undetected.

It's possible - but unlikely. The biggest source of information for Kurland about illegal activity among city workers is other city employees. A scam that big would attract attention.

The corruption tax is a bad tax. Unlike the taxes we pay for actual services, it's a complete waste of money. But it's probably not a very high tax.

Still, Simpson thinks the cost to taxpayers is bigger than the raw numbers.

"It's the perception," Simpson explained. "If people out there have the perception that the city of Philadelphia is corrupt, they aren't going to want to do business there."

So why the perception that Philadelphia is so corrupt?

Partly it's because so many recent scandals have been high-profile in nature. But it's also because many of us apply the label "corruption" to everything we see government doing poorly.

In reality, not all government waste is corrupt. Sometimes waste is just small, dumb expenditures, like a Council member driving a city car. Mostly it's big, wrongheaded policies, like inefficiencies built into services like trash collection (we don't need two guys on the back of every trash truck. But those guys aren't stealing.).

The Nutter administration has been raising the visibility of the fight against corruption and deserves credit for its efforts.

There's no downside to preventing the outright theft of tax dollars, as long as you're not spending more to catch the thieves than what the thieves are stealing. But real savings will come from rethinking big, wasteful policies. Corruption is an issue, but it's not the issue.

Ben Waxman reports for "It's Our Money," a joint project of the Daily News and WHYY, funded by the William Penn Foundation. See www.ourmoneyphilly.com.