Mayor Kenney’s latest budget proposal proves the time-honored principle that, when confronted with a fiscal challenge, it’s easier for an elected official to propose a tax increase than to make long-lasting fiscal reforms.
But this approach, which gets the mayor out of a tough spot in the short term, does a disservice to Philadelphia families in the long run.
Philadelphia doesn’t have a revenue problem. It has a spending problem.
After years of decline, the city’s population is growing, thanks to an influx of immigrants and millennials.
We are entering another year of continued economic growth and have hosted events, like the NFL draft and the Democratic National Convention, which increased tax revenues as visitors flocked to the city. And after more than a decade of wrangling, Philadelphia’s second casino is edging closer to construction. That should annually bring a windfall of millions of dollars into city coffers.
Yet, to cover a school budget deficit estimated to reach about $900 million over the next five years, the mayor is proposing a property tax hike of more than 4 percent – along with a substantial increase to the realty transfer tax, and a slowdown of planned reductions in business and wage taxes.
This massive tax increase comes two years after Kenney championed a 1.5 cent-per-ounce tax on many beverages.
The mayor pledged that revenues from the tax would fund a citywide pre-K program, as well as a community schools initiative, and Rebuild, an initiative to reconstruct aging parks, libraries, and rec centers.
Yet, because revenues have not met expectations, the mayor has now cut the number of community schools and reduced the number of pre-K seats planned by1,000 — breaking a promise he made to the city’s children.
There’s enough fat in the city’s $4 billion-plus annual budget to eliminate the beverage tax, fund the mayor’s initiative, and minimize any tax increase needed to fund the schools.
I have consulted with dozens of municipalities seeking to address financial problems.Through long experience, I have seen cities and towns confronting fiscal challenges fall into the same traps over and over again.
Rather than sharpening their pencils and meticulously going line by line through the budget, local officials avoid making tough decisions by proposing tax increases.
Before City Council signs off on any further tax hikes on Philadelphia families, Council members should demand the administration pursue the following steps:
- Implement zero-based budgeting. On the campaign trail, candidate Kenney pledged to force all city departments to annually justify their spending, rightly claiming that such an exercise would free up tens of millions of dollars. Rather than implement this initiative, he pursued the beverage tax. But it’s not too late to fulfill this promise.
- Collect past-due taxes. Deadbeats owe hundreds of millions of dollars in back taxes to Philadelphia. Before the city reaches into the pockets of hard-working, taxpaying residents, it should pursue those deadbeats. It’s time to seriously tackle this problem rather than just talk about it.
- Take a hard line in union negotiations. The mayor negotiated a contract with the city’s blue-collar union that includes nearly 12 percent raises over a four-year period — well above the cost of inflation. And it won only nominal pension reforms and no health care savings in return. Rather than approving giveaways to powerful unions, the mayor should demand an end to the city’s controversial DROP retirement program. This giveaway has cost the city’s underfunded pension fund nearly $275 million, according to the city’s fiscal overseer. As a councilman, Kenney led the charge to end this expensive perk — but as mayor he has been silent.
And as part of this year’s budget process, Council should use the savings generated to eliminate the beverage tax and sever the link between this unpopular public policy and important programs like pre-K. The tax has cost nearly 1,200 jobs, according to a recent economic analysis. Most were blue-collar jobs located in the city’s poorest neighborhoods, where unemployment is high and residents face generational poverty.
If the city needs additional revenue to close the district budget deficit, it should consider slightly increasing the realty transfer tax — a relatively pain-free source of revenue — and using the additional money to end the economically damaging beverage tax.
The city’s tax policies should be aimed at stimulating the local economy and expanding opportunities for Philadelphia families. It’s time the mayor made the tough decisions necessary to get the city’s budget back on course.
David Fiorenza is an instructor of economics at Villanova University and serves as a finance consultant to municipalities.