Pay More, Get Less? The City Can Budget Better

(March 2010)

While families across Philadelphia endure the economic recession by doing more with less or doing without, the City of Philadelphia continues to ask for more.  For the second year in a row, we are being told that the city cannot cut and must force our already-overburdened firms and families to pay more when they can least afford to do so.  Last year, it was an increase in the Sales Tax, this year it is a tax on soda and a new fee for trash collection.  This uncreative approach not only does nothing to address the city's pressing need to REDUCE its uncompetitive tax burden, it flies in the face of the Nutter Administration's own experience.  The truth is the city absolutely can do more with less and we can do without some city spending.  It is time the Mayor and City Council joined the rest of us in making our budgets make sense when dollars are lacking.

Looking at what is driving the city's budgetary stress, it is clear that some tax revenues have waned, but it is the increasing costs of employee benefits, which force residents to pay more and more each year for the same (or reduced) city services, that is the true budget buster.  Of course, this is not a new problem and the "crisis" of increases in employee-benefit costs that outpaced revenues (even when our revenues were growing) was the original budget crisis that confronted the Nutter Administration. 

Last year, the city essentially "reduced" benefits costs by skipping pension payments, but such gimmicks just increase our long-term costs as they reduce our faith that our government will ever do the right thing to address these issues.  Make no mistake, we must look after those who deliver city services.  But, unless we negotiate a change (or alter rules regarding pension funding), unchecked employee-benefits costs will continue to drive up the cost of city services and provoke additional service cuts and tax increases when city residents and employers cannot afford to pay more and get less.

Beyond employee-benefits costs, where can the city find ways to balance the budget without increasing taxes and fees -- and fill the hole that Mayor Nutter would currently plug with more than $180 million in soda taxes and trash-collection fees? 

The city can continue its progress expanding city services while reducing costs, the city can reduce the cost of the hackocracy that imposes a political tax that Philadelphians cannot afford, the city can do without certain expenditures, and the city can stop the dishonest practices that stash money throughout the budget.

If you want to look for some good budgetary news, look no farther than some of the Nutter Administration's advances improving outcomes while reducing costs.  Crime numbers are down, which is good news.  But the news is even better when one considers that the Nutter Administration has reduced the prison population and police overtime, driving costs down.  The Administration has improved services at the Department of Licenses and Inspections while reducing costs.  The Nutter Administration is rightly proud of these successes, which makes it so disappointing to hear city officials repeat the tired refrain that additional spending reductions will force the city to make cuts that will threaten our well-being.

One area that is ripe for service improvements and cost reductions is trash collection.  The city still uses labor-intensive three-person crews to collect trash by hand while other jurisdictions have invested in modern equipment that can automate collections to reduce crew size and costs associated with worker injury.  A good rule of thumb is that, including salaries and fringe benefits, the city spends about $1 million for every 20 employees.  The Streets Department currently employs about 1,700 workers.  A 10-percent reduction in manpower would save the city the city about $8.5 million each year.

Another way the city can do better to generate additional revenues is by improving the operations of the Philadelphia Gas Works.  Until the Street administration, PGW paid the city $18 million each year as the city's dividend for owning the gas utility (that amount was last increased in 1980 and probably should be much higher if it kept pace with inflation or any other measure of utility operations).  But in recent years, we have been returning that money while PGW continues to give away too much gas (customers enrolled in a budget plan are not limited in how much gas they can use each month) and a Gas Commission still exists and is staffed locally without any true duties as PGW is now overseen by the Pennsylvania Utilities Commission.  At a minimum, it is time that the city stop the annual $18 million PGW refund.

While the rest of us are tightening our belts, the Nutter administration has been less aggressive in pushing for the elimination of patronage jobs throughout government.  The city's state-appointed fiscal watchdog believes that the city could save up to $15 million each year by eliminating the vestigial "row offices" -- the City Commissioners, Clerk of Quarter Sessions, Register of Wills, and Sheriff -- and incorporating their functions in other city agencies.  

Beyond the row offices, the hackocracy extend to other areas that must be addressed.  The Board of Revision of Taxes has long served as a dumping ground for party workers -- and we are still paying the seven members of the Board itself about $.5 million annually even though they have essentially been relieved of their duties.  City Council is staff-heavy and the Mayor has certainly added his share of high-salaried appointees.  The City Controller continues to employ a number of hacks even though he is supposed to be searching for government inefficiency.  (I guess he is not looking too hard.)  The government has for far too long served as convenient place to stash party workers and waste millions each year, imposing a political tax the city cannot afford to pay.

There are certainly expenditure areas that we could do without -- without risking the wellbeing of the citizenry.  As part of the Mayor's "Healthy Philadelphia Initiative," the city would tax soda to raise money to fund city operations, but also create $20 million worth of programming to encourage healthy behaviors.  First, we could eliminate the Department of Euphemisms and call this what it is, a soda tax to plug budget holes.  Then, we could eliminate these new programs.  This is the time to preserve essentials and avoid unnecessarily burdening our residents and employers.

Similarly, the city continues to budget nearly $1.5 million each year for "economic stimulus," which is really a pet-project fund so the city can provide incentives for certain businesses to locate in Philadelphia or come to town.  Economic development to some, public welfare to others, but clearly this is an area where we are taxing a great many to help a small few and could be cut back.

Vehicle purchases (budgeted at $7.5 million for FY 2011 when the city spent less than $3 million this year) represents another area where we could reduce costs while times are tough just as we all put off new car purchases when times are tough.

Finally, in looking at the budget, there are still too many areas where the Nutter Administration is playing games with the public's money, stashing it here or there while denying there is any choice but to impose draconian cuts that will put public safety in jeopardy if we alter the budget.  

To start, the revenue assumptions for the budget and Five-Year Plan are probably conservative and while that is better than counting on money that will probably never come, intentionally underestimating revenues is just another way to hide money.  Specifically, the Nutter Administration estimates decreases in Real Estate Tax revenues in future years -- despite the fact that the Administration predicts increased activity in the real-estate marketplace.  Unless the city is never going to fix its property-tax mess and continue to impose a moratorium on assessment changes forever, there will be more money coming in from at least this tax, and probably others.

The city also over-budgets expenditures in many areas including "refunds" (probably high by each year), Federal Insurance Contributions Act (FICA) expenditures, budgeted to increase while wage-costs are budgeted to remain flat.  The city also includes a new line item in the budget, "Reserve for Unanticipated Expenditures," which is just another term for "slush fund," tucking away $4 million each in case the administration needs it.

Unless the city presents realistic and legitimate budget projections, we cannot trust any of our leaders' choices about how they are spending our money.  Even with all of our economic woes, the city plans to raise more money than it spends each year (including $103 million in this year's budget) and finish the next five years with more than $181 million in the bank.  But before we grab that money and use it for other purposes or decide against imposing new taxes or fees, consider that the city also claims it will save $25 million "workforce savings" each year (an assumption that is iffy at best given the city's losing record in winning employee concessions).  Budget assumptions that are flawed not only prevent us from helping our elected officials make tough choices in these difficult times, such shenanigans breed cynicism and resentment.

So while our budget woes are real, just as the rest of us have found ways to endure the downturn and make our household and business budgets work without the benefit of being able to raise taxes, the city can certainly do more with less, cut back in many areas, and be honest with its budget so that we can work together to make ends meet. 

Philadelphia's long-term challenge is finding a way to reduce the burdensome cost of living and doing business while improving the quality of life and quality of the marketplace so that we can stop our long-term population and job loss and once again become a city of opportunity and a city of hope.  We cannot do that if we are responding to our budget crisis by increasing costs and decreasing services.  But, if we use the opportunity of the crisis to cut the costs that should be cut and change the way we run our city, we can emerge from these difficult times, poised for future growth.