While recent indicators — most notably an economic report issued by the City Controller — show that Philadelphia is recovering from the recession, Pew Charitable Trusts took a look at what put this city in the recession in the first place, and which decisions did or did not work in the immediate recovery.
Philadelphia is one of 30 major cities included and compared in the report.
Pew, is its comprehensive report, “America’s Big Cities in volatile Times: Meeting Fiscal Challenges and Preparing for the Future,” looked at the city’s financial maneuvers for the five years between 2007-2011, noting that by 2011, the city’s economy was still 2 percent below its pre-recession peak, precipitated by bottoming out revenues in 2010.
“Then, faced with budget projections of $2 billion in shortfalls over the next five years, city and state officials made a series of tough decisions. The city raised taxes, aggressively drew down reserve funds, and reduced many major areas of spending,” read a portion of the Philadelphia portion of the report. “In 2010 and 2011, property tax collections contributed to a revenue uptick, and spending cuts helped policymakers begin restoring the city’s reserves. Still, underfunded retirement obligations remain a concern for city finances going forward.”
The report appears to support the fiscal decisions of Mayor Michael Nutter, noting that the city lost $356 million in inflation-adjusted revenue between 2007 and 2010 alone, and pinned the bulk of those losses on the huge declines in intergovernmental aid. At the same time, wage revenue dropped $107 million, even though as the report noted the city delayed the 2009 scheduled rate increase.
The city experienced a sales tax growth in 2009 of $71 million, but only after city officials authorized a temporary sales tax hike.
In making its budget more palatable, Nutter, according to the report, dramatically cut spending during those ultra-lean years, lopping $149 million from social service and health expenditures, $50 million in cuts to public safety and required pay cuts for Administration staff and delayed suggested payments to the pension system. Still, the report noted, despite best efforts, the city still ran a $259 million deficit in its General Fund.
To put in perspective, the General Fund now has more than $200 million in it, and in a move that shows Nutter’s confidence in the fund and municipal economy, recently allowed payments on certain elements of arbitrator-awarded firefighter contract.
In its report, Pew noted that three broad factors — demand for services, investment decisions and revenue performance — will likely determine Philadelphia’s fiscal future, especially in light of Nutter recently releasing an amended five-year plan. And due to previous state assistance, the city is mandated to provide to the state annual plans that balances the budget in five years.
Still, there’s work to be done.
“Philadelphia has not set aside any assets to cover $1.8 billion in retiree health care liabilities as of 2010. Of even greater concern, however, was $7 billion in shortfalls the city faced in its pension funds, which were just 61 percent funded that year,” read the report. “Unresolved contracts with city workers’ unions could raise future personnel costs, and, consequently, the cost of pension obligations.
“These bills are cause for concern as growing annual pension payments claim an increasing portion of the city’s available revenue.”