City’s Fiscal Watchdog Approves Flawed Spending Plan

It is “WE TOLD YOU SO” time here at BUDGETWATCH.  Just weeks ago, we viewed with skepticism the news that the Pennsylvania Intergovernmental Cooperation Authority (PICA) — city’s state-appointed fiscal watchdog — was threatening to reject the city’s plan to raise and spend public money for the coming years.  Unfortunately, we had seen this one before and knew how it would end.  Sabers would be rattled, hands would be wrung, but in the end, this would all be lots of sound and fury signifying nothing.  The city’s Five-Year Financial Plan would be approved (flaws and all) and little would be done to address the city’s long-term fiscal challenges.

In a May BUDGETWATCH Opinion, we wrote:

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.

Therefore, it should have been no shock to BUDGETWATCHERS that after some behind-closed-doors drama, PICA approved the Plan, saying:

PICA Staff finds itself facing a situation very similar to the one it faced a year ago. Like last year, based on the PICA statute, which requires that at a minimum the Plan demonstrate balanced budgets for the life of the Plan, the strength of the City’s revenues leaves PICA Staff little choice but to recommend that the Board approve the Plan. In last year’s report, PICA Staff said its recommendation should in no way be viewed as an endorsement of the Plan or its approach to fiscal management. That is still true, but with more urgency since a year has passed and the City has still shown very little progress in addressing the long-term issues it faces.

This yearly exercise in budgetary Kabuki theater has become unproductive.  The Plan that PICA approved still 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 and that the Eagles will pay the city $8 million in revenues that the team has owed since 2001.  These revenues are deemed “speculative items” by PICA, but they are still part of the Plan even though PICA demanded that the Plan have a final balance that was high enough to compensate for the fact that it is unlikely that these revenues will materialize.

Much more important, the approved Plan (like each previous Five-Year Plan) includes no money to pay for the raises the city’s unionized workforce will receive after contract negotiations conclude next year.  Thus, the Plan does not account for hundreds of millions of dollars in anticipated costs.  The Plan calculates no increased costs associated with the arrival of casino gaming in Philadelphia, despite the fact that we know that the direct and indirect costs will be significant. 

Using a more long-term focus, the approved Plan does nothing to move toward the creation of a Rainy Day Fund — a necessary and recommended budgetary tool to provide long-term fiscal stability.  The Plan does nothing to address the City’s unfunded pension liability or to fund needed repairs to the City’s infrastructure.  The approved Plan expands the amount of long-term debt that our children and grandchildren will be asked to shoulder. 

In our May BUDGETWATCH Opinion, we concluded:

…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.

Unfortunately, in the final months of the current administration it is likely that this prediction will also come true.  Happily, this will be the current administration’s final time to lead this dance.  It would be very nice, indeed, next year to have a more productive discussion about budgetary assumptions and priorities and ways we can meet the current needs of the citizenry in a way that assures long-term fiscal stability for the City.