Does Philadelphia Have A Tax-And-Don’t-Spend Mayor?

(April 2010)

Mayor Nutter has proposed dramatic tax increases on soda and trash collection this year to fill what he says is a $150 million hole in the budget.  Without this extra revenue, the Mayor claims he would have to slash vital city services.  However, a quick look at the budget shows that the Mayor is actually not proposing to use the new tax dollars to preserve city services.  He is actually raising our taxes and taking money out of our pockets in these trying economic times so he can fatten the city’s bank account and grow a city surplus -- or, he is not being completely honest with us about how he plans to spend our money.

Take a look at the numbers.  For the coming budget year that will run from July 1, 2010 to June 30, 2011, Mayor Nutter plans to raise $102 million more than he will spend.  But, since the Mayor estimates the city will end the current budget year with a deficit, the budget for next year foresees the city ending the year with more than $64 million in the bank.

The math is simple.  The Mayor does not need $150 million to make the budget work.  He only needs $86 according to his own numbers.  If one pokes around the budget a little more like I did, (See, one can find a lot of places where the city is stashing money or where the city could find savings to whittle that number down much closer to zero. 

Given the political difficulty of passing any tax increase -- let alone massive, unpopular, and regressive increases -- when the budget numbers do not seem to present a clear and pressing need for those tax revenues, we have to wonder what the Mayor is thinking.

Why, in these times of scrimping and saving, would the Mayor take more from us and make it even harder on us to make ends meet just so he can end the year with our money sitting in a bank somewhere?  Is the Mayor ignorant when it comes to economics?  Is the Mayor hedging his bets for the next snowpocalypsherricanado?  Or is the Mayor not telling us something?

Is it time for an economics lesson? 

Economic thinkers generally believe that when the private sector is not spending, government is wise to increase investments to stimulate economic activity.  In recent years, the federal government has made massive investments in infrastructure and other economic incentives to try to jump-start the national economy from the doldrums of the Great Recessions.  Thus, it is not puzzling that Mayor Nutter wants more revenues from us, but it would be downright bizarre that, in this economic environment, he wants to stash our money in a bank instead of spend it to create jobs and growth.  It is not the time to save for a rainy day.  It’s pouring now. 

The Mayor is a Wharton grad and a former investment manager and he is surrounded by able advisors who know that taking millions and millions out of the city economy is no way to help Philadelphians weather this economic storm.  Somewhere along the way, he must have learned that taxing and not spending is no way to stimulate the economy.

If the Mayor understands economics, maybe he wants a financial cushion? 

If so, then his budget is on its way to creating a plush financial sofa.  Looking to the future, the Mayor not only would budget to build up a $64 million surplus in the coming budget, but he would then grow that surplus by another $100 million the next year and then keep adding to it for years to come.  Given the difficulties in recent years, it would certainly be wonderful to have such a substantial fund balance in place just in case there is more bad economic news in the future.  But, the Mayor actually has a line-item in his budget “Reserve for Unanticipated Expenditures” where he stashes money in plain sight.  Most Philadelphians would say that if City Hall isn’t going to spend our money, we would rather have that money back so we could use it to deal with our own economic crises. 

So is there something the Mayor is not telling us? 

The Mayor is not telling us is that the city doesn’t need to raise taxes to preserve vital city services today, the city needs to raise taxes because the cost of delivering city services is about to go up by hundreds of millions in the coming years.

If one looks closely at the budget, it is possible to see a story in the numbers.  While the budget (as written) clearly does not need the $150 million in new taxes for the Mayor to pay for the cost of government today, the budget numbers imply that it is quite possible -- indeed, very likely, given the Mayor’s track record -- that government will soon cost us a lot more.

The Mayor’s budget does not include any funding for new contracts with the city’s firefighters, blue-collar workers, or white-collar workers.  Despite the fact that the recent arbitration-awarded contract with the city’s police included substantial cost increases for the city in coming years, the Mayor actually budgets to save $25 million each year as the result of new contracts with the other unions.  Since the police contract would almost certainly serve as a model for what the other unions will expect, the assumption that new contracts will save the city money in this and coming years is preposterous.

Some may suggest that the Mayor’s proposed budget is simply posturing as part of the negotiation with the unions and that any attempt to actually budget for raises would simply establish a “floor” for the unions’ contractual demands.  I respond firmly that playing games with the budget is no way to negotiate and that asking us to pay more and get less is no way to run a successful city.

We absolutely must pay city employees competitive salaries and offer benefits that allow city workers to grow and sustain their families.  But, in a world where residents and employers can -- and do -- vote with their feet, raising costs and reducing services is a strategy that continues to chase firms and families out of Philadelphia.

While retailers and service deliverers in the private sector work with suppliers each year to provide consumers better products at lower costs, the city continues to reduce the services we receive, but demand we pay higher prices for the diminished product. 

Contrary to what is written in the budget, the Mayor is not increasing taxes to not spend the tax revenues.  No, the Mayor is raising taxes because he knows that he will eventually have to complete contract negotiations with the city’s unionized workforce and those negotiations will almost certainly result in a government that will be provided to us at a higher cost -- at a cost that all of us will be paying in hundreds of millions in new taxes.