Is Mayor Nutter's First Budget An Honest Budget?

Mayor Nutter has proposed his first budget and while many focus on “winners” and “losers” in terms of spending, budgetwatchers debate whether the Mayor has fulfilled his campaign promise to deliver an “honest” budget.  On the campaign trail, Mayor Nutter offered a policy paper, “An Honest Budget Now: The Nutter Plan To Bring Fiscal Integrity To City Government.”  So does Philadelphia have an honest budget now?
 
The budget documents government’s good intentions, represents its priorities, and expresses its civic aspirations.  But, in years past, budgets were often built on questionable assumptions that precluded a proper civic conversation about revenues and expenditures.  On too many occasions, budgeters stashed money out of public view so that citizens were unable to have reasonable input into the choices its government made about spending their money.
 
The "Honest Budget Now" promised to base budgets on realistic estimates of future revenues and pledged to establish a consensus estimate for revenue projections that would involve other government actors and outside experts.  By law, the City Charter vests the Mayor with the sole power to determine the revenue estimate that serves as the foundation for the budget process.  In years past, estimates were too conservative, understating the amount of money available to address Philadelphia’s challenges.  More important, when revenues came in higher than anticipated, the Mayor was then able to spend the additional resources outside of the context of the budget debate. 
 
The Nutter administration did reach outside to help build the revenue foundation of its budget.  Tax-revenue projections appropriately reflect current economic conditions.  (Should dour predictions of recession yield to more rosy scenarios, revenues would exceed projections, but given the current outlook, estimations of tax revenues are based on reasonable and sound assumptions.)  Certain other revenue assumptions, however, may prove to be overly optimistic.  Plans to generate revenue from a complicated future pension-bond deal may never materialize.  Given the uncertain timetable for casino construction in the city, revenues for hosting two gaming facilities may be a long shot.  And, don’t think for a second that we have forgotten that the Eagles still owe the city at least $8 million from the deal that built the Penthouse Suites at Veterans Stadium -- the Nutter budget counts on that revenue coming in this year, but we have been waiting for that money just like we have been waiting for a Superbowl championship and have seen neither in far too long.
 
The "Honest Budget Now" promised to focus the budget process on outputs not inputs.  Too often, arguments about the budget focus on how much we are spending instead of how much of a difference that spending is creating.  The first Nutter budget is organized around broad goals with objective outcome measures so the public will be able to keep score.  This is a good first step.  In years (and budgets) ahead, the Nutter administration should build on this by breaking city spending down by program and articulating outcome measures for each program so that leaders and citizens can judge where city spending is effective and where it might be better reprogrammed.
 
Perhaps the most important movement toward an "Honest Budget Now" is spelled out in six words -- “Reserve for Wage/Health Benefits Increases.”  Especially in approaching contract negotiations with the municipal workforce, the conventional wisdom has been to build a budget as if not even a single dollar could be spared to increase salaries and benefits for city workers.  The thought was that admitting to any ability to fund raises would establish a “floor” for negotiations.  Of course, everyone understood that during the negotiations, the city would find a way to pay something for raises, but the subterfuge made the budget a fiction and created a game of finding the stashed money.  Most problematic, the charade generated lingering animosity between the unions and management -- unions consistently walked away from the bargaining table convinced that, despite whatever increases had been won, the city was still lying about its ability to pay more.  By putting forth an amount for future union pay and benefit increases, the Nutter administration essentially says, “here’s what the city can afford…if we are to pay more, we will have to change our budget priorities.”  BUDGETWATCH’s cursory examination of the budget finds the “usual” stashing places to be empty, and while a more thorough search might turn up some new hiding places, the budget with a “Reserve for Wage/Health Benefits Increases” looks a lot more honest than the shell games of past years.  Such an approach should help focus union negotiations on creating labor-management consensus on a way to deliver quality city services at reasonable costs. 
 
What remains to be done?  On the campaign trail and in "Honest Budget Now," Mayor Nutter spoke of the need to establish a Rainy Day Fund to deposit annual surpluses and establish a reserve for lean years.  Perhaps more important, this mechanism, recommended by government-finance professionals everywhere, helps ensure budgetary honesty by making it more difficult for the mayor to hide money, since unspent money would be claimed by the Rainy Day Fund and unavailable for a mayoral spending spree.  Given the argument that we are experiencing a rainy day TODAY, it could be understandable if a Rainy Day Fund remains an unfulfilled campaign promise, but when the umbrellas are folded up, we will count on Mayor Nutter to remember that a Rainy Day Fund is the very first promise he made in his "Honest Budget Now."
 
Finally, at the risk of burying the lead, the consideration of whether Mayor Nutter’s first budget is an honest one must conclude with a sobering note.  Despite curtailing spending growth and investing in programs and policies designed to expand revenues in the future, Mayor Nutter projects to spend more money than we raise for the coming year and for every year of the city’s Five-Year Financial Plan.  We are able to spend more than we raise each year because we are essentially depleting a relatively large accumulated surplus, but obviously such a pattern cannot be repeated indefinitely.  Mayor Nutter must begin to produce spending plans where obligations do not exceed revenues.  Then, not only would the city have an honest budget, it would have a sustainable budget that can be a tool to make Philadelphia a preferred place to live, work, and visit into the future.
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