Next on city's agenda: Reform taxes and spending

With the budget behind them, Mayor Nutter and City Council have a rare opportunity to craft sweeping tax and government spending reforms.

Though Council wisely postponed a new property tax system based on the actual value of properties until the numbers are in, members cannot waver from their commitment to the Actual Value Initiative (AVI), the most extensive tax reform in decades.

An ambitious restructuring of taxation as well as government spending is not as difficult as it may seem. Most of the homework was done in 2003. Then-Councilman Michael Nutter won a voter referendum to create the Tax Reform Commission, which conducted a far-reaching analysis of the city's tax system and its effects on the economy. He completed a curtailed version of that civic exercise shortly after being elected mayor, and the new commission confirmed the findings of the old one.

Nutter is close to implementing a major recommendation by creating a fair property tax system. Another significant recommendation was to trim the wage tax, which now stands at 3.9 percent for residents and 3.5 percent for nonresidents.

The mayor is committed to resuming wage tax cuts in 2014, according to his Five Year Financial and Strategic Plan.

Nutter and Council have proven they can work together on some tax issues. Earlier this year, they trimmed business taxes and fees, particularly for start-up companies.

But the system remains complex, with too many varieties of taxes, including ones for amusements and car rentals.

Tax cuts are tough to negotiate in a city coping with increasing crime and social-service costs, and a deeply troubled School District, but they are a key to fostering growth. Still, the city cannot be expected to make cuts it can't afford.

Tax reform cannot come without changes in government spending.

Investing money in better tax collections, to mine the $515 million the city is owed, is a good start. Finishing the long overdue contracts with blue- and white-collar workers would save money on benefit costs.

Although potentially unpopular, it is time for a serious rightsizing of the city's infrastructure. In the 1950s and 1960s, Philadelphia kept building to accommodate a peak population of 2.1 million, but now it has 1.5 million residents. Elected officials must swallow the bitter political pill of cutting firehouses and recreation centers as well as figuring out which services must go.

All this maneuvering has to happen quickly because four Council members are considering a run for mayor in 2015. Once the race engages, they will be less likely to take the political risks of changing the tax and spending structures.

With its first population increase in 60 years, Philadelphia is slowly moving in the right direction, as young people choose city life over the suburbs. Leaders must build on the momentum of attracting new middle-class residents by rationalizing the wage and business taxes and rethinking the government.