Fiscal Responsibility Should not be a Crisis Issue
The fault of the current budget crisis facing Philadelphia is not fully on the shoulders of the national economy, but on the shoulders of Mayors John Street and Michael Nutter.
This is good news because it means that Philadelphia can control its own destiny by implementing fiscally responsible budgets that are resilient to fluctuating national economies.
To start, we need to understand why this is a budgetary problem and not a national economic problem and then we can look at how to fix it for the future.
At the end of Fiscal year 2007 (FY07), the City had a $297 million dollar fund surplus (money the City never spent). For FY08, Mayor Street’s last budget passed with an estimated $115 million dollar deficit (meaning the City would spend more than it made). For FY09, Mayor Nutter’s original budget was running with a deficit of $119 million dollars. Combined, that is over 25% of the expected shortfall.
Another other area to look at is the City’s debt payments (non-pension). In Mayor Nutter’s readjusted 5 year plan, debt service will increase a total of $135 million dollars over the 5 years. That is another 16% of the shortfall.
Next, the readjustment plan mentions collecting $8 million more a year in taxes owed, which is another 4% of the shortfall.
This means, if the City had planned to balance the budget this year and last year, been reasonable on its borrowing and did a better job in collecting its taxes, two to three years of the five year shortfall would have been covered with no change to the budget or freeze of tax cuts.
Now, this leads us into how we fix the problem for the future: maintain a cash balance (Rainy Day Fund), collect taxes, limit the amount of money borrowed and balance the yearly budget
The simplest and most straightforward way to handle unexpected shortfalls is to have money saved. A Rainy Day Fund will help to prevent severe impacts during economic downturns and control spending sprees in economic upturns.
Second, collect taxes. It shouldn’t require a budgetary shortfall for City Hall to realize it should collect back taxes. How many pools and libraries could remain open at $8 million a year?
Third, limit borrowing. From 2008 to 2009 debt service alone is costing Philadelphia an extra $24 million than the year before. City Hall has to stop borrowing against the future to pay for today. As we now see, we can catch up to the future rather quickly and it makes everything all the more painful.
Fourth, balance the yearly budget, not the five year budget. Estimations of revenue and obligations are off significantly from year to year. Deciding to overspend now because City Hall expects to make more in the future sounds an awful lot like some bad mortgages we have been hearing about. Fiscal responsibility should be handled in the present, not the future.
The sooner we identify where the problems lie, the sooner we can push for and implement policies that will prevent them in the future. Some basic household budgeting will do Mayor Nutter’s, and all future mayors’, budgets some good.
Article appeared in The Loyal Opposition