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Bold ideas to fix the budget
Submitted by Ben Waxman on Wed, 11/12/2008 - 6:27pm.
As you probably know, Philadelphia is facing a deficit of $108 million
for FY09 and a potential shortfall of $1 billion over the next five
years. Mayor Nutter has announced drastic budget cuts, including
shutting down 20% of the city's libraries, closing almost all pools
during the summer, ending residential street cleaning, and more.
Does anyone have bold steps that Philadelphia could take to deal with
the fiscal crisis, as an alternative to the service cuts and other
measures being proposed by Nutter?
For example: city taxpayers pick up the tab for the First Judicial
District of Pennsylvania, even though the court system is supposed to
be funded by the state. Want if Mayor Nutter simply said no? It would
save the city about $116 million and send a powerful message to
Harrisburg.
Do you have suggestions for bold ideas to deal with the budget crisis?
If so, please post them below. Want to remain anonymous? Drop me an e-mail at benwaxman@gmail.com or call 215-854-5307.
Create a State Revenue Sharing Program
There are probably cities and towns and boroughs and school districts throughout the Commonwealth that are in very bad shape. Let's have a temporary surtax on the corporate and personal income taxes to rescue them. The program can either be targeted based on the financial condition of particular jurisdictions, or shaped like a revenue sharing program, where every jurisdiction of a certain size gets a piece of the pie based on population. There are many formulas that could be used, but the key thing is the legislature, and the Philly delegation in particular, should not be left out of the conversation. They sit on a lot of potential dollars, and we have heavy hitters in the legislature from Philly. Whatever formula is developed would obviously provide a major boost for us.
Also targeted, Community College
In case folks don't know, apparently CCP will have to work with $2 million less than they had budgeted.
http://whyy.org/blogs/itsourcity/2008/11/12/community-college-of-philade...
Cut in an increase is still a cut
The mayor's FY09 $4 million increase in CCP funding over FY08 has now been cut in half, to a $2 million increase. The original rise in the city's support of this super-important institution (ESPECIALLY in a tough job market) was supposed to keep CCP from increasing tuition for the first time in nearly 20 years.
CCP is bravely trying to keep tuition freezed, since at $3528 per year, CCP is the costliest community college in the state.
It's almost as if they made a priority list
of the most important places not to cut, turned the list upside down, and then started cutting. I'm sure that I have no idea of all the variables involved, but this whole process just really sucks.
Perhaps I'm a little slow...
...but how is offering to finance the state court with Philadelphian taxes a bold idea? Is this a quid pro quo sort of thing?
Admittedly, I sometimes require things to be explained to me in greater detail.
---
- All politics is local.
We didn't offer it, they took it
The state picks up the tab for its courts everywhere else, except Philly.
I forget how long this has been going on. Does anyone know?
I'm intrigued by Ben's proposed brinkmanship, though I certainly don't want to push a legal apocalypse.
What would happen if we just stopped paying for the state's court here?
AH.
Sorry, the wording in the initial post confused me; I read it as a proposal, not as something that was already the case.
---
- All politics is local.
Furthermore,
It'd be a good exercise of Dillon's Rule vs. the Cooley Doctrine.
With a hint of Marbury v. Madison...except, er, in reverse.
---
- All politics is local.
Hmm
Well, I am not sure that would work so well. Would we pay the prison guards, for example?
What would happen is that people would stop getting paychecks, bc I am pretty sure they come from the City, and our justice system would shut down. No trials, no bail hearings, no anything. It prob wouldnt work so hot.
That said, it is ridiculous that we pay for it.
PA Court Funding
The state does not pick up the tab for courts everywhere except Philadelphia. In fact, Allegheny County and the Pennsylvania State Association of County Commissioners have historically taken the lead in suing the state to pay for local courts. Some key dates in the history of local court and state funding follow.
1967 adoption of the Judiciary Article of the State Constitution creating the unified judicial system.
1987, the Supreme Court held that the Constitution requires centralized, State funding of the Court of Common Pleas in each county. Since that time, the General Assembly and Pennsylvania’s governors have ignored the Court and have maintained a system of partly State and partly county funding of the local courts.
1996, the Supreme Court issued a mandamus, ordering the General Assembly to comply with its 1987 ruling.
Jan. 1, 1998, the date by which Justice Montemuro as a Master ordered the General Assembly to enact a funding scheme. (We are still waiting for the General Assembly to get around to doing this.)
The First Judicial District (Philadelphia) budget in FY 03 was $114 million, which cost Philadelphia $57 million in terms of net cost. (Note that the difference in cost and net cost includes revenue to the Court and the PA contribution.) The PA contribution was a small part of the budget.
Creative Budgeting
No city or state can run a surplus. And yet...
New York State has an accumulated deficit of, if I remember correctly, 15 Billion. In California I think it is about twice as big. (These numbers are approximate as I don't have time to look it up now.)
How do they do it? By creative budgeting. You, for example, delay the last June payroll into the next fiscal year, in July. You define certain operating expenses as capital expenses. You overestimate budget revenues. And so on. Do this enough year after year, and the deficits add up.
I don't think we should let the deficits add up. But this year I think we should be creative.
Why now? Because we waited until the middle of the fiscal year to make budget cuts. As a result, we have to make twice the cut on an annual basis as we would have if the cuts were made at the beginning of the fiscal year in July.
So I would reduce the cut in half with some creative budgeting.
Of course, the response to this is, "we are going to have to cut more next year so we might as well do it now."
My answer is two-fold.
1. We really don't know what next year is going to look like. With a big enough fiscal stimulus on the part of the Feds, we might have a V shaped recession and by the second half of next year be in a recovery. We also don't now how much money we are going to get from the Feds. I would be shocked if aid to states and cities were not part of Obama's stimulus package.
2. We will buy ourself some time to raise some taxes temporarily to get us through next year, if only by delaying the wage tax cut that will come with casino revenues start
But should we really engage in this financial shenanigans? Shouldn't a reformer like me want transparency and openess and honesty in budgeting?
Sure. I know it would be a real shock if Philadelphia all of a sudden started to engage in creative budgetting and adopted a dishonest, closed, opaque budget. It would be shameful if Michael Nutter reversed the openess and honesty that has characterized his budget process and all the other since Dilworth was Mayor. It really would be awful if we started to do things like this in a city known around the world for its pristine political process.
But when 11 of 54 libraries are set not just to have their hours cut, or to be closed temporarily, but to be sold, we are living in desperate times. And desperate times call for desperate measures.
Temporary tax hikes usually don't stay temporary, Marc
You raise a tax. You spend the money. You like spending the money.
It feels good. We're a big city with a lot of needs. Nobody can argue that we don't have plenty of worthwhile things to spend tax dollars on.
And, hey, once it happens, the taxpayer has paid it once.
So next year, when you thought you might not have to collect that hiked tax again, well, it turns out that we're still this big city, and we still have a lot of needs, no one can deny...
And, hey, the taxpayer, if he's still here, paid it once. So why not ask just one more time...until the next year, when it turns out we still have a lot of worthwhile things to spend those tax dollars on, and if the number of taxpayers has shrunk, well how can we possibly afford not to continue the tax...?
I'd prefer that if we do talk about raising taxes -- and I believe we should be willing to talk about everything, and I also believe all who propose tax hikes here are well-intentioned -- that we are honest about the likely consequences.
One consequence reformers like me are going to be concerned about is re-creating the situation Philadelphia experienced when the national economy transitioned from recession to boom in the 1990s. A Pew study I need to find again said that, of large cities in the U.S., only Miami saw a greater percentage of its region's job growth go to its suburban towns rather than to the city itself than did Philly. Jobs lost to Malvern and Cherry Hill, I note, mean tax revenue not collected, and money not available for libraries, schools, and everything else.
If we raise taxes, and the municipalities we compete with do not, we risk losing jobs and revenue to the lower tax municipalities.
That's putting aside municipalities outside our region that we compete with but never could bring into a common surtax.
I greatly appreciate Stan's proposal because he's trying to bring together the whole region, so that competition -- which will always be a factor -- is less of problem. If we could get Malvern and Newtown to sign on to such a proposal, that would be great.
But I'd guess that, given the way things are, the municipalities we'd really need to sign on to a regional surtax would be those least likely to participate. Not that we shouldn't ask, but if we can't bring in the towns we lose jobs to, we could exacerbate our bleeding jobs and tax revenue, at a time when we really can't afford to.
When lenders start lending money to businesses again, I'd rather we were a target that businesses want to move to, rather than a pariah businesses want to move from.
My feeling, as always, is that municipalities in competition with each other unofficially set rates above which it becomes self-destructive to raise taxes.
Among the many things we should be talking about, I'm most excited about ideas like Ben's, creative alternative ways of saving money.
There must be other ways Philly can save money. Does anyone else have any good ideas?
Taxing smarter would be a good idea
First of all, it really is not the case that the well-governred municipalities can't adjust their tax rates to economic conditions. If you have followed the mayoralty of Mike Bloomberg you will have seen that he (1) raised taxes sharply after 9/11 when the city was in a fiscal crisis; (2) lowered them a few years later as the city's economy recovered; and (3) has just raised them again.
We are supposed to have elected a smart Mayor to break with the past and create a city government that can adopt the best practices of cities around the world. Temporarily raising taxes in a recession, so that you don't destroy vital city services and harm your vulnerable population is a best practice of the best run cities. After all, if your concern about taxation is about its effects on business investment, then (1) that's a lot less of an immediate concern during a recession when businesses are not investing in new plants, offices, etc. and (2) as folks like Ray, Dan and Stan are pretty tireless in pointing out, the investments we make in improving the city are at least as important as the tax rate in spurring investment.
Those investments are critical to dealing with our biggest economic problem with, contrary to what you say, is not intra-regional competition but inter-regional competition. As the 10,000 Friends and the Pennsylvania Economy League pointed out years ago, our big problem is that the whole region has been growing slower than other regions in the country. There are a whole variety of reasons for this. But one is that because we stoped investing in it, we don't take nearly the advantage we should of the transportation infrastructure that should give us a competitive advantage over other regions.
Another is that we don't invest enough in the arts or our commercial corridors. What ever happened the 100 million bond issue we passed to do just this last year? Are we pissing away the money in typical Philadelphia fasion or are we using it to leverage other money from state programs (elm street and main street) and non-profits?
And, to return to my subject line, why not tax smarter and in ways that help the whole region? Over the course of the last five years, I've proposed a whole list of reforms that would enable us to raise revenues in ways that are less likely than the BPT to harm business investment. I don't have time to find and link to all those blog posts (and some of it is temporarily missing because my blog crashed) but here is a quick list:
1. Shift from a wage tax to a personal income tax that piggybacks on the state tax.
2. Revalue properties to create a more just and progressive property tax that would bring in mor revenues while protecting lower income people in gentrifying areas from tax increases that will clobber them. (Creative people here have pointed out ways to make this work with our uniformity clause.) If we are ever going to reform the grossly unfair property tax structure in the city, now is the time to do it.
3. Create a tax swap with the suburbs: Eliminate the commuter tax entirely and replace it with regional taxes, either PIT or Sales, dedicated to transit, arts and culture, and greenspace. As I explained in detail this woud lead to more businesses locating in our central business areas which would make them more efficient.
4. Tax land more heavily and improvements to land much less so. Henry George was right about this.
5. Tax commerical property more heavily than residential property. This could make our tax structure more progressive while not having any negative impact on business investment. If you don't belive me, ask Brett Mandel. This probably requires a constitutional amendment but there might be creative ways to sneak it in. At any rate we could pass a law that institutes this system while we are working for a constitutional amendment. There have been efforts on the part of Republicans in the legislature to end the uniformity clause for property taxes. The city should work with them to make it happen.
6. Do BPT reductions in the sensible way. As Maria Quinone-Sanchez has been pointing out, we have made a mistake by reducing the gross receipts part of the BPT instead of the net profits part as the former taxes the activity of businesses who operate but are not located here and prevents big corporations from using creative book keeping to locate profits in out of town subsidiaries. We can protect local businesses from the pernicious aspect of the gross receipts tax--that it taxes new businesses that are not making much in the way of profits--by phasing in the tax for new businesses and by giving businesss a credit against the gross receipts tax for the net profits taxes they pay.
These are not new ideas. Academics in the area have been talking and writing about them for years. I ran for office in part because I hoped that, whether I won or lost, I'd bring these ideas into the public debate. And to some extent, during the campaign you saw people begin to talk about taxing smarter.
So what's happened? We are a year into a new administration, which should have been enough time for the detailed examination of these and other options. This is the time to be considering new ideas. As Rahm Emanuel said the other day, if you want to make real change in government you can't afford not to take advantage of a major crisis.
We are now in a major crisis. Now's the time for our new, smart Mayor to propose new, smart ideas that boldly challenge what we have done in the past. The prospect of him doing this is what made people so excited about voting for Michael Nutter last year.
I'm still hopeful that the fiscal crisis has knocked the administration off stride a bit and that in January we will see what we have been looking for. Right now, however, it looks like Mayor Nutter is going to use the crisis as an opportunitiy to shrink city services like the library and fire department this year and squeeze the unions next year.
It does look like he is also conducting a rigorous review of everything the city does in small in order to save money. That is new and smart. But does anyone seriously believe there are 200 million a year in efficiencies to be found in the city budget? I heard the other day from a friend in city government that her department is refusing $100,000 grants from non-profits in order to save the $10,000 the city has to come up with. I don't know what the grant is for so maybe this makes sense. But it sure doesn't look like this is cutting fat.
While its hard to argue that some shrinkage in some city services makes sense, this strategy is not new and in a lot of respects, like the focus on libraries in our working class and poor neighborhoods, it is not smart.