The city's fiscal overseer, the Pennsylvania Intergovernmental Cooperation Authority, approved Mayor Nutter's final five-year spending plan Thursday, despite concerns raised by the city controller that Philadelphia's government could be facing significant deficits by 2017.

The five-member PICA board followed the guidance of the agency's executive staff, which issued a 110-page report explaining why the plan should be approved. Among its points:

Previous budgets have shown that the city's revenue projections are "realistic," and tax collection rates have been higher than expected.

Health-care costs have been stable, growing only 2 percent between 2010 and this year.

The city projects that by fiscal 2020, it will have enough of a fund balance to put $26 million into a rainy-day fund.

The PICA staff warned, however, that the city's labor contracts all expire midway through the five-year plan and that no money was set aside for cost increases that could come with the next round of contracts.

"One could argue that because the FY16-FY20 Plan does not include costs associated with wage increases for city employees, the expenditure assumptions in the plan may pose a risk," the report states.

A new mayor will take over City Hall in January and will quickly be greeted with the expiration of the city's biggest labor contract. The contract for AFSCME District Council 33, which represents about 9,000 municipal employees, ends June 30. The other three major municipal employee contracts will be up in 2017.

PICA also raised a flag on city employee pensions. The pension fund's preliminary investment results for fiscal year 2015 show a return average of 0.5 percent, far lower than the assumed 7.8 percent rate.

Philadelphia's pension fund is one of the worst-funded in the country, at 46 percent with a deficit of $5.7 billion. That will be another burden for the next mayor.

City Controller Alan Butkovitz criticized the plan last week, saying it assumes "overly optimistic revenues" from the city's various taxes.

"The big problem is the differential between projected revenues and expense," he told the PICA board Thursday. "There's an assumption in the five-year plan that expenses . . . will grow at a rate of half what revenue grows, and that's not the historical experience."

Butkovitz said his office's independent analysis projects a 12.1 percent revenue growth in the next five years - slightly lower than the mayor's projection of 12.3 percent. That slight difference could result in a $46 million deficit in 2017 and $88 million in 2018.

Finance Director Rob Dubow said the city had accounted for lower-than-projected revenues in areas that Butkovitz pointed out as problematic - real estate and sales taxes.

"We have to do quarterly reports. Every quarter we have to update where we are. . . . If we have problems, we adjust," Dubow said.

Some of the board members expressed concern over the pension fund and not enough being done to have a rainy-day fund. But they ultimately approved the plan by 4-1.

Joseph McColgan, an investment adviser who is new to the board, was the dissenting vote. He later said he was concerned about the city's revenues, which are predicted to rise from $3.8 billion in 2015 to $4.3 billion in 2020, while expenses are projected to go from $3.9 billion this year to $4.2 billion in 2020.

"There's got to be some long-term planning, and I don't think there's enough," he said. "We're not erring on the side of caution as much as we should."

Under the 1991 state law that created PICA, state funding to the city is dependent on PICA's approval of its plan. The board has never voted down a plan.

Thursday was also PICA's annual meeting, in which the board selects its officers. Suzanne Biemiller, former first deputy chief of staff to Nutter, was chosen as chairwoman.

Michael A. Karp, a real estate developer who has served on the board since 2000, was reappointed vice chair. The other members are McColgan; Gregory S. Rost, a University of Pennsylvania vice president who was Mayor Ed Rendell's chief of staff; and Alan Kessler, a Philadelphia lawyer and longtime Democratic fund-raiser.

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