When Ed Rendell left the mayor's office in January 2000, he bequeathed a balanced budget and an almost $300 million surplus to incoming Mayor John Street.

As Street offers his final budget to City Council today, things are far less rosy. And come January, Street will be handing to his successor something closer to an empty cupboard.

The budget surplus that had grown to $254 million last June will shrink to an estimated $172 million by June 30, and by 2012, the administration projects, a series of red-ink budgets will reduce it to a paltry $47 million.

That scenario, however, doesn't account for contracts for the city's four unions in mid-2008 or a host of other potential problems such as declining federal funds or the shaky condition of the Philadelphia Gas Works.

The current budget will finish almost $83 million in the red thanks largely to the skyrocketing cost of employee pensions and health benefits, debt service and prisons.

Between last year and this year, these costs have jumped $154 million with city revenues likely growing just $97 million, according to data from the Pennsylvania Intergovernmental Cooperation Authority, the city's fiscal watchdog.

"Given the growth in the city's fixed costs and prison and health costs, I think the next mayor will have much less room to maneuver," said Rob Dubow, PICA executive director.

That'll be bad news for the mayoral wannabes. They aren't talking about reducing the size of government. Instead, they want to enlarge the Police Department by from 500 to 1,000 officers. Adding 500 officers over five years could cost the city $130 million.

Street says that can be done only by raising taxes to pay for the expansion, making substantial cuts elsewhere in government or through some combination of the two.

Last week, Street predicted that city government will be forced to reduce the number of employees in the next few years.

"I think it is inevitable that as we go through this next five-year plan, there will be fewer employees," he said.

To help balance his 2008 budget, Street will propose a 2.5 percent cut in personnel, amounting to about $10 million and 200 positions. The cuts will be done largely by not filling vacant positions. Safe from cuts will be the police, prisons, the courts and the Department of Human Services.

Asked about Street's legacy to his successor, Joyce Wilkerson, Street's chief of staff, pointed to the tax-cutting policy that started during the Rendell era in 1996 and continued through the Street years.

"When you look at the tax reductions under this mayor, they have been much more aggressive than during the Rendell years," she said, adding that at the same time real-estate assessments have been relatively flat as compared to market growth.

Also, City Council prevailed over Street by adopting a long-term schedule of tax cuts as opposed to annual decisions on the prudence of making a cut, she said.

"So you ask why we don't have that nice big ol' cushion to give, that's where it went," she said.

Still, the administration proposes to continue the incremental wage- and business-tax cuts in 2008 with the resident wage tax dipping to 4.219 percent from its high in 1995 at 4.96 percent. The gross-receipts portion of the business-privilege tax will drop to 0.1415 percent from a high of 0.325 in 1995.

Administration officials described Street's last budget as one that preserves the programs that have been a hallmark of his term in office, from neighborhood development to programs to benefit children and prevent violence.

One major issue will be state money for the array of children's and anti-violence programs Street has started. Wilkerson said that the preliminary review of the governor's budget proposal shows a loss of state money for the city.

"That is one of the things that we will be fighting with the governor about," she said. *