Mayor's office pokes holes in Council plan to close budget gap

The Nutter administration yesterday knocked down two budget ideas that City Council had discussed as alternatives to raising the property tax to deal with a $1.4 billion five-year budget hole.

Finance Director Rob Dubow yesterday provided Council with data that likely halts its attempts to consider a wage-tax increase. He also sent Council a letter that detailed reasons the administration would not support Council's pitch to extend a potential temporary sales-tax hike.

In recent weeks, Council has pushed back hard against Mayor Nutter's budget. Nutter in March proposed raising the city's property tax temporarily, by 19 percent in July and then 14.5 percent in July 2010. He also proposed a temporary three-year increase in the sales tax by 1 cent on the dollar. That tax is now 7 cents on the dollar, with 6 cents going to the state and 1 cent to the city.

The property-tax proposal, in particular, has angered Council and members have been looking for ways to avoid that increase.

Two weeks ago Council asked Dubow to confirm whether city tax revenues had dropped by more than 2 percent - a condition required under state gaming law for the city to hike the wage tax, because the city gets casino dollars for wage-tax reduction. Members said they wanted to know if raising the wage tax was an option.

But yesterday, Dubow sent Council a letter saying that tax revenues had dropped by 1.94 percent, just shy of the necessary amount.

Dubow also sent Council a letter about the alternative budget it gave Nutter this week. In it, Council suggested that the city extend the temporary penny sales-tax hike from three to five years and borrow against the anticipated proceeds in the later years to help the city balance its budget in the first two years, and proposed borrowing $200 million.

Dubow yesterday sent Council members a letter saying that borrowing to pay city operating expenses could raise red flags with financial rating agencies.

"It does provide some short-term relief, but rating agencies have made it clear that if you start to borrow for operating costs, there are problems with your fiscal management," Dubow said.

Dubow also said that the city estimates the interest costs of borrowing $200 million to cover expenses could be $75 million to $100 million.

In the letter, he states: "We have analyzed Council's borrowing proposal and can't support it because it would seriously damage the city's fiscal reputation on Wall Street and would be an extremely expensive option at a time when the city's budget is under historic levels of duress."

Councilman Bill Green said he was disappointed in the administration's response. He said Council had met with financial experts who said its plan was responsible.

"I just think it's highly irresponsible for the administration to respond to a very sound proposal in this way," said Green. "The only tax that has the support of the majority of Council is a sales-tax increase. I think Mr. Dubow needs to go back to the drawing board and find a way to make this work." *