PICA “Boo” — I.C.U. For City Budget?

Last week, the City’s state-established fiscal oversight agency told the Street Administration that the City’s plan to raise and spend public money for the coming years cannot be approved as is.  In a letter to Administration officials, the Pennsylvania Intergovernmental Cooperation Authority (PICA) declared that changes would have to be made or the city’s Five-Year Financial Plan might not be approved.  If PICA refuses to approve the Plan, the City would be cut off from various revenue sources and would plunge into a budgetary crisis.  To put it more cheeky — a PICA “boo” would absolutely mean the Intensive Care Unit for the City budget.

Ever since the city flirted with bankruptcy in the early 1990s, it has been required to prepare a Five-Year Financial Plan to show that the budget would not just balance for the next year, but for the next five years.  Each year, the city submits its budget and Five-Year Financial Plan to PICA for review and approval.  In what has become a fairly predictable exercise of budgetary theater, PICA finds flaws with the City’s plans, City officials dither about proposed changes, budget watchers swoon as the crisis mounts, but — in the end — the City officials make necessary alterations to satisfy PICA, the Plan is approved, and crisis is averted.  Of course, even after the yearly crisis is averted, the ongoing struggle to place the budget in long-term structural balance lingers.

This year, PICA is concerned that the plan to raise and spend more than $20 billion in the coming years doesn’t add up.  Specifically, PICA notes that the City counts on $80 million in funding for the Department of Human Services, but the money is not included in the Commonwealth of Pennsylvania budget.  The Plan assumes that the city’s perpetually troubled gas utility will repay a loan of $45 million that has already been put off a number of times.  The Plan also includes an unsubstantiated assumption that the next Mayor will find a way to save $30 million through initiatives to hold down health insurance costs.  It provides no additional funding to cover any increased costs that will almost certainly result from new collective bargaining agreements with the city’s unionized workforce when contracts are renegotiated next year.

The folks at PICA could have gone on.  There are some other costs that are not anticipated by the Five-Year Plan.  The Plan still counts on $8 million in revenues from the Eagles that the team has owed since 2001.  The Plan overestimates revenues from asset sales and strategic marketing initiatives by about $5 million.  The recently approved Youth Commission and Zoning Commission are not budgeted for in the Plan, nor are new offices to address gambling, waterfront development, or emergency management that have been the topic of Mayoral musings. 
If the city goes ahead with pending legislation that would shift Real Estate Tax revenues (giving more to the School District and less for the City), the move would create a “hole” in the Five-Year Plan of more than $100 million.  Additional legislation to create a Rainy Day Fund for Philadelphia could increase costs by $75 million in coming years.

On the other side of the ledger, the City Administration continues to underestimate locally generated tax revenues.  Given current collections, the city will likely end the current fiscal year with $50 million in unanticipated revenues, which will increase the revenue base for the coming five years and expand revenues by maybe $250 million over the life of the Plan.  Additionally, while the current budget includes $30 million that City Council has budgeted to pay for repairs to city buildings, the Mayor has vowed not to spend the money.

Make no mistake, the threat to not approve the Five-Year Plan is genuine and the problems that PICA points out are real.  But the steps in this annual dance have become quite familiar to those who have watched them before.  The City Administration will make its adjustments and eventually mollify PICA.  Unfortunately, just as predictably, the City Administration will probably create new spending initiatives shortly after the ink is dry on the finalized Plan, which will throw the Plan out of balance.

The next Mayor has a real opportunity to create a budget process that will avoid some of this annual silliness, generate an informed consensus on the assumptions used in crafting the budget and Five-Year Plan, and establish new ways to engage the public in the effort to determine how we raise and spend our public money.  By working with PICA, City Council, and the public, the next Mayor can avoid a PICA “boo,” avoid the ICU for the City budget, and — most important — use the budget process to focus government on creating positive results for the citizenry.