What’s Behind Closed Door #215? Changes To the City Budget

Behind closed doors and just days after the people’s elected representatives approved the city budget for the coming year, the Mayor made substantial adjustments to the city’s plans to raise and spend money.  These alterations — including plans to reduce the number of police officers and a strategy to hoard millions of dollars that could be used to address many of the city’s ongoing challenges — were made to satisfy the city’s state-appointed fiscal watchdog agency.  The citizenry was left in the dark about changes in the way the city plans to raise and spend the public’s money.

Ever since Philadelphia teetered on the brink of bankruptcy in the early 1990s, city officials have been required to present a balanced five-year financial plan in an effort to avoid future fiscal meltdowns.  Prior to the change, the city’s budget was often balanced on paper, but quickly overflowed with red ink because speculative revenues never materialized while spending too often increased.  But now, the Five-Year Plan provides a bit more certainty that the city’s books are balanced for today and also the foreseeable future.  The Pennsylvania Intergovernmental Cooperation Authority (PICA) — a five-member board whose members are appointed by the Governor and Pennsylvania’s legislative leaders — is the body with formal authority to approve the city’s Five-Year Financial Plan.  Without such approval, the city loses a significant revenue stream so the city has to find a way to make PICA happy.

When the Mayor first proposed his budget in January, PICA was not happy.  The Mayor’s budget was balanced on paper, but PICA identified about $500 million dollars worth of holes in plan due to revenues that were not likely to appear or spending that was likely to be higher than estimated.  (For example, the Mayor’s original Plan indicated that the next mayoral administration would be able to save $24 million without specifying how.) 

PICA still had concerns after our elected representatives agreed on a balanced city budget.  So the Mayor altered some of the assumptions of the plan and increased the estimate of how much money the city would have to spend (without giving the public or its elected representation any say in if or how that extra money should be spent) and backed off of planned expenditures for the future.  The administration removed speculative revenues and made cuts to offset those reductions, and identified enhanced revenue sources, including a $187 million increase in projected tax revenues.  The final version of the Plan relies upon a larger initial fund balance of $201.6 million — $33 million higher than the city administration predicted a few weeks ago — to help balance the books.

Changing assumption has affected the spending side of the budget as well.  New information about the costs of funding pensions for city employees has resulted in higher payments in this area.  In the most recent rounds of revisions, the administration removed additional revenues, such as funding from the Commonwealth for the patrol of state highways, which had been deemed speculative by PICA.  To balance the reductions, the administration has made several policy choices such as reducing the number of police officers the city plans to keep once the state assumes responsibility for patrolling state highways in Philadelphia.  Additionally, the city will delay the issuance of debt to pay for construction projects.

Each of these policy changes was made without meaningful (or really any) public input.  The Mayor made no speeches about how we have new revenues available and how he would not use those funds to reduce our onerous tax burden or expand needed services.  City Council held no public hearings about whether a city gripped by violence should reduce the number of police officers on patrol.  Administration officials never had to defend decisions to postpone borrowing to fund construction projects.  Shamefully, the proposed revisions to the Five-Year Financial Plan were never even made available on the city’s website for public inspection or review.

Recently, New York City found itself in a similar situation with an unanticipated surplus and looming future difficulties.  Mayor Bloomberg used the unexpected funds to address long-term fiscal problems by paying down the city's debt and creating a trust fund to deal with the growing cost of retiree health care.  Those steps will help New York City maintain the stability and flexibility needed to provide services for residents well into the future.  Unfortunately, the Five-Year Financial Plan approved by PICA ignores the unique opportunity to address our long-term challenges to place the city on firmer financial ground or improve the city’s tax competitiveness.

When we make decisions about how we plan to raise and spend public money next year, the public would be much better served by a very public discussion about what the citizenry is willing to spend and what outcomes the citizenry demands from that spending.  The behind-closed-doors alterations to the budget may satisfy the PICA board and may result in an approved Five-Year Financial Plan.  But in a city where too many decide that the cost of living or operating a business are too high and that the quality of life in many city neighborhoods is too low, we must do a lot more to make sure that we are raising revenues appropriately and spending money effectively.  Much more public information and much less behind-closed-doors changes to plans to raise and spend public funds would be very helpful toward those efforts.