To keep vital tax-cut vows, cut labor costs

Here is the problem: Philadelphia has the second-highest tax burden among America's big cities. Yet the city still lacks money to provide the services its citizens have every right to expect.

It's not as though the city isn't spending money. The sums City Hall spends for basic operations have gone up at double the rate of inflation over the last five years (23 percent vs. 12.2 percent).

What's up with all that? You can't just blame it on tax-and-spend habits at John Street's City Hall, as tempting as that may be to some. Mayor Street has in fact cut taxes steadily, if sometimes reluctantly.

Street also has reduced the operating budgets of many city departments. Spending for department operations has gone up a paltry 1 percent during his second term.

So where's all the money going? To run prisons. To pay debt service. And, most of all, to pay for employee benefits, mostly pensions and health care.

Benefit costs are up 64 percent during the last five years, five times the inflation rate.    These are baked-in-the-cake expenses, mandated by union contracts. If they remain unchanged, they will continue to rise - and rise and rise and rise.

On City Council, Michael Nutter pushed tax cuts. As mayor-elect, Nutter rightly wants to keep whacking wage and business taxes, and revamp property assessments.

In an ideal world, a mayor would be able to cut taxes, improve services and preserve union benefits. In the gritty real world, , Nutter won't be able to do all three. He'll have to choose. Here's some advice:

NO. 1 PRIORITY

Keep reducing the city's wage and business taxes

WHY IT MATTERS: The city will never develop the job base it needs to lift people from poverty and support a strong middle class if its tax burden stays this big. When taxes are as uncompetitive as Philadelphia's, cutting them really does spur growth that replaces much of the lost revenue. It's worked so far; this is no time to stop.

WHAT TO DO: Stick to the targeted reductions in wage taxes through 2015. Use any casino revenues to accelerate, not replace, that city effort. Take down that Keep Out! sign to entrepreneurs, a.k.a. the gross-receipts business tax, and reduce the net profits tax.

SHORT-TERM ACTIONS

Don't blink during the contract talks for all non-uniformed employees this year. The mayor, and the public, must be willing to take a strike to get pension and health-care costs under control. If that doesn't happen, forget about fulfilling many of the nice promises Nutter made to get elected.

Public budgeting

Invite meaningful, timely taxpayer input on budget priorities and trade-offs. Work with civic groups such as the Economy League to create plain-English budget documents that connect dollar figures to real-life outcomes.

Cut the 'political tax'

Find money for real priorities by eliminating the hidden waste from pay-to-play politics. Offer no sweetheart, no-bid contracts. Put legal/investment work out to national bid. Many cities save big doing that.

Keep the citywide property tax abatement for new construction and renovation. It has fueled a construction boom while actually raising tax revenues. Do reduce it from 100 percent to 90 percent, earmarking the 10 percent in revenues to feed the city's affordable housing fund.

Back to basics

Focus long-term borrowing on raising capital for overdue repairs and renovation to the city's basic infrastructure.

LONG-TERM ACTIONS

Ignore the howls and reassess the city for property taxes at full market valuation. The current system is slapdash, confusing and unfair. If the city procrastinates, the courts probably will order a revaluation. That would make it harder to build in proper buffers against huge tax increases.

Soften the bullet

Take other steps to ease the pain of a reval. City Council must discipline itself to set property tax millage after an annual reval, not before, avoiding backdoor tax hikes. Consider a "homestead exemption" for a fixed percentage of assessed value.

Farm work out

Revive the Rendell-era quest to find savings by contracting out some city services, but not ones that involve the city's legal authority (e.g. prisons or inspections).

Buy a watchdog

Set up a smart fiscal watchdog like New York City's Independent Budget Office.

IDEAS FROM CITIZEN FORUMS