Budget relief bill a poison pill

If the State Senate has its way, collective bargaining will be crippled in Philadelphia.

The bill that gives us pension relief and a 1% sales tax increase, also mandates that "the city cut the retirement benefits of future employees 25 percent, while capping the benefits of existing workers at current levels."

This is wrong on two levels.

First, because pension benefits should be the subject of collective bargaining.

Second, because pension benefits are critical to providing good wages and attracting good employees in the city.

Yes, there is room for debate about how high those benefits should be. But any adjustments in benefits should take place carefully not as a result of a blunderbuss pointed at the city.

I'm as concerned about capping benefits of current workers as I am at the immediate 25% cut for new workers. Suppose we have another period of high inflation, as we did in the 1970s, that dramatically reduces the value of pensions while at the same time making it easier for the city to fund them. Will it be impossible to adjust those benefits?

Given the consequences for the city and its workers if we reject this law, it is imperative that, first, we try to change it on the floor of the Senate and in the House.

And, second, if that won't work, then we should figure out if we will be stuck with it for more than one year.

I'm not sure of the details with regard to this legislation. But Council certainly can replace the 1% sales tax increase with other taxes under its own control for the next four fiscal years and perhaps come out from under this onerous law. A new five year plan is submitted every year and can be modify decisions make under a previous five year plan.

Since property and business tax increaes would be fairer than a sales tax increase anyway, Council should take this action regardless.

And lets not forget that the Mayor and Council got us into this mess by putting all its eggs in one basket and relying on the General Assembly to fix a fiscal problem it could have fixed with other, better taxes.

The Save the Libraries Coalition will Rally Against This Deal

The rally will be tomorrow outside City Council Chambers at noon. Please come and share your outrage.

This is the biggest failure in living memory of the entire political establishment of our State. Everyone has played a shameful role in bringing this fiasco to our doorstep. It started with the Mayor and Council's failure to enact a progressive tax package to fund this year's budget, out of fear of the business elite. Council and the Mayor knew -- they had to know -- that placing the City's fate in the hands of the completely amoral leadership of the State Senate would cost us dearly. The State Senate, of course, hasn't disappointed in seeking to impose as much punishment as it could conjure up for the workers of the City. In doing so, it has also managed to once again take a rip out of the poor pathetic remnants of Philly Home Rule.

What's particularly disheartening is the complicity of Senate Democrats and the Governor in the atrocity coming out of the Senate Finance Committee. The Governor has actually praised this deal, and he's brought at least some Philly Senate Democrats with him. But that should really be no surprise since he did everything he could as Mayor to accomplish the goal of weakening Philly labor while in office.

The Mayor hasn't said whether he supports the Senate package or not. But he's clearly turning the screws in favor of it by offering no alternative except his infamous Plan C. Plan C is basically a way to strangle the City within one fiscal year. And worse than Plan C -- for our version of local democracy -- is that the Mayor and most of Council have agreed to implement it without so much as holding a single public hearing of any kind to hear what we have to say about it.

All of this is intolerable. Marc is right that we can replace the sales taxes going forward and fully fund our pension system without state help. And we should try to do at least some of it this year. Replacing the sales tax this year would not constitute interim taxation, because it wouldn't be in support of new unbudgeted spending, but merely a replacement for the City's choice of tax to fund the existing budget. And some parts of the Senate package may be so sloppily drafted that they can be legally attacked. In that case, perhaps we can have a basis for fully replacing the Mayor's entire package this year since there may be no fully legal alternative.

But the bottom line of this mess is that Council has clearly forfeited its vacation and staying out of session now is simply its way of hiding from its duty to look at this mess and come up with an answer. The Library Coalition asks all of us to come out to City Hall to express our outrage both at the substance of what our elected officials are doing to us, and the horrible, cowardly way in which they're doing it. Please be there to raise your voice at noon tomorrow!

It's an uncertain legal terrain out there

to be sure. But we're on the brink of one catastrophe (Plan C) or another (adoption of the Senate Republican death sentence for Philly labor). In that context, I think Council has to come back and think about putting some other options up there. That may give us more bargaining power if a) Pileggi concludes that the City doesn't need his kindness, and b) Pileggi's friends in the biz community go beserk on Pileggi because they face much higher local taxes unless he relents.

Not First Amendment. Think ERISA.

Stan/Luigi, Harrisburg still has the wherewithal to put the pension plan into administration anyway by severing it from City control then starving it.

I would call this "Pulling an IBM" since this is what the Armonk, NY computer conglomerate did to eviscerate its own pension plan and it was one of the first large F100 companies to do this [they started the process of killing it back in 1995 when Lou came in as CEO].

Harrisburg also has the option of immunizing the pension plan from changes by local government, which is in essence what this bill was trying to reach for by giving more power to the City to take the pension off the negotiating table. This would turn the City's pension benefit into a non-negotiable item. That's no different than in private employment, where employees have little say in their benefit structure. If you don't like the benefits, then walk. Nobody is forcing you to accept the benefits.

IMO the City's unions should have saw this coming and pushed for a pension restructuring on their own but they've got the budgeting skills of a 17-year-old prom queen in need of a dress.

This will all be moot if the House goes along

with the Senate amendments. But until it does that, it would be irresponsible for Council not to start moving on an alternative. And that would be to reopen the budget and adopt new revenue options to replace the sales tax, including enough to make the pension payment. Those options would include the ones we talked about in the Spring, but maybe with fewer legal question marks. Councilman Green recently called for abolishing the net income tax and sharply raising the rate of the gross receipts tax to make up the difference. He also called for exempting the first $100,000 of receipts from that tax, but maybe that would have to wait until next year's budget. I understand that some in Council now think that the 2% exception to the casino law that would allow a wage tax increase is presently in play. Council should consider raising that tax, along with reinstitution of the Cohen wage tax rebate. We can debate the merits of these approaches or others, but the key is, Council needs to get back and get another ball rolling.

I don't disagree that the Chamber is probably as appalled by Plan C as anyone, but their minds might be more concentrated still if they see a big tax hike coming their way while the State legislature diddles. The only way to bring them to that good mental state is to start working on that alternative. And even if Pileggi doesn't have big individual contributions from Philly business, his caucus in general listens when big biz talks.

I just don't like submitting to this blackmail without at least putting up a fight.

I'd rather just start over

Nothing is stopping the City Law Department from drawing up a Chapter 9 bankruptcy filing and walking it over a few blocks down Market Street and turning it in.

The City Pension fund goes into administration, and then AFSCME and District will have a Federal judge sitting at the other end of the negotiating table instead of Michael Nutter and they can work out whatever resolution they want, the City is then free to focus on whatever restructured payment obligation that comes out of BK9, plus any bond penalties that would have normally triggered due to missed payments would be quashed and also eligible for restructuring into re-fi'd debt, if it comes to that.

That raises the issue of PICA and whether the City is even legally permitted to go to Federal Bankruptcy court to file for a Municipal Bankruptcy. But that is the beauty of this option. The City can still submit the filing, and then Harrisburg (PICA legal and AG of PA) will have to make a case that Philadelphia doesn't really own its debt, Harrisburg does, thus Philadelphia can't seek protection from creditors.

It also will trigger a shockwave in the muni markets and because HBG can't pass a budget, every single public agency in Pennsylvania that has an outstanding bond will get it thrown to the wolves in an orgasm of credit downgrades which can trigger deposit requirements on the bonds if any are attached.

This is the nuclear option I think Philadelphia should seriously look at along with Plan C. Pileggi might be trying to manipulate the City, but a Philadelphia BK9 would create a HUGE amount of problems for the General Assembly that make the budget impasse look like peanuts.

Um, let's not forget

Council is more responsible for this whole mess than the mayor or anybody else.

Council is "as appalled by Plan C as anyone"? That's rather generous.

Try Council is "more responsible for Plan C than anyone else."

Council created the legislation for the sales tax hike, and thus advocated risking just this kind of fight with -- and victimization by -- the State legislature.

Sure, they should help now. But they should be less appalled than contrite.

The present rout at Harrisburg never happens if Council supports the mayor's real estate tax hike and doesn't counter with a (far more regressive) tax contingent on Harrisburg support.

Plan B or C is the direct result of the (regressive) means of raising revenue that Council created and advocated for.

It's fine to look for a quarterback to throw one last budget Hail Mary. Go team.

But let's remember that the snoozing Council's budget and regressive sales tax started this.

Oh, did I mention DROP?

Uh, I said the Chamber is as appalled by Plan C as anyone . . .

Not Council. I'm in no way excusing Council's legislative malpractice in getting us to this spot. Nevertheless, or perhaps, especially given their horrible track record to date, they have the responsibility for getting us out of this mess, or at least trying.

Look, corporate America is basically evil

and I don't shrink from saying so. But, without having the energy to answer each of your multiple paragraphs, I'll just get back to the heart of what I said. I'm not discouraging a cooperative effort to compromise differences between House and Senate versions of this bill. But we don't know if that's possible or if anyone is even interested in it. So we may have nothing for awhile, during which time, Plan C will continue toward implementation. In that context we have to try something else. I think considering a replacement tax for the sales tax is not clearly illegal and is worthy of being put up there for discussion, along with a wage tax increase. But Council should do something, rather than sit around and collect paychecks for having put us in this embarrassing and degrading position as the only First Class City in the State. Now we're the only first class laughingstock.

These are extraordinary times if you haven't noticed

and there usually are no simple, clean paths toward happiness in such times. Of course it would be best if the House would revise the Senate amendments, make the bill fair to labor and get the Senate to adopt them. And do all this very quickly. Nothing I'm suggesting would detract from House members pursuing that track. But, in the lingo of the day, we need a plan B to forestall the possibility of Plan C. Plan B is for Council to come back, find a competent budget writer, and get to work. If they pass new revenue measures, they are the law until someone successfully goes to court to enjoin them. I would say that in this political environment, and the Courts are nothing if not political, Council could win that battle. There is a legal opinion circulating in Council that it does have the power -- right now -- to raise the wage tax. Not having seen the memo, it's also my opinion that other taxes could be raised, at least to replace the budgeted sales tax revenue that hasn't been authorized by the state but that was assumed to be available to back expenditures in the existing budget.

Bottom line: Plan B is by no means a sure winner. But putting it together beats the hell out of sitting around and waiting for the Legislature to snatch our chestnuts out of the roaring flame.

Oh, and on big business, see this, slightly dated that it is: http://www.corporatecrimereporter.com/twenty061207.htm

So far, only Two options

There's Evil Plan C and Evil Plan R

Nobody wants to admit this, but Plan R is the softest landing we can get before mid September and it paves the way for a tax increase the City needs to keep up its obligations.

Plan B blows the deadline and generates tons of new business for every law firm in town, so that's a non starter.

Plan R retains jobs and keeps taxpayers from bearing the brunt of service cutbacks. Plan C makes those cutbacks very immediate, probably to the point where Philadelphians start unloading their trash on to Dilworth Plaza in protest.

Have to admit

I'm saving Stan's "Corporate America is basically evil" for our next argument over whether he's anti-job.

The 6th largest U.S. city doesn't need jobs from large corporations as well as small businesses?

Sheesh.

Just because they're evil doesn't mean we don't need them

But let's face it, global warming, the financial crisis, the health care crisis, air and water pollution, indirect support for gay bashing through support of right wing Republicans, nukes, the military-industrial complex, degraded food supplies, corrupt politicians, union bashing, and the pervasive commercialization of everything, are just a few of the things that come to mind when I think of the great contributions to mankind of major corporations. And sadly, yes, we still need them as employers, but we should do everything we can think of to move in the direction of a much more locally based economy. Any and all extra resources we have to devote to economic development should be used to support sustainable, responsible businesses. And to the extent tax policy can be used for purposes of economic development, it should be similarly oriented. But no, we are not, sadly, in a position to abolish the multinational robber-baron corporation at this time.

Tell me more about how to shift their incentive structure

and who's going to impose that on them? I'd really like to know. And btw, just because their actions sometimes are in their own worst interest -- i.e., everything leading up to the recent financial crash -- doesn't mean that their basic influence isn't malevolent. They try to maximize their profits no matter what, but they're not impotent or all knowing. They get into a feeding frenzy, driven by competition, and sometimes can't stop themselves while barreling toward that cliff. But as the bailout shows, they're also fully capable of developing opportunity -- for themselves -- out of every disaster.

But again, let me know about that alternative incentive structure, because the fate of the world, literally, may well depend on getting it going.

This debate is sooo twentieth century.

I’m finding this debate a lot too twentieth century for my taste. I see no point in arguing at this level of generality any more.

Let me explain what I mean by giving a health care example.

Unregulated health insurance companies driven by profits are clearly bad for everyone's health. Their business model is to deny coverage or charge far higher premiusm to anyone who might reallly \health care....which leads to the crisis we are in now where people who have pre-existing medical conditions, who are older, or who are women of child bearing years either are charged more or can't get insurance at all. You also get huge administrative costs which are used to design individual plans and rates for each group. The smallest of the Blues in PA, Capitol Blue Cross, has 43,000 separate insurance plans.

But regulate insurance companies so that they have to give everyone the same comprehensive insurance package at the same rates, and their business model changes drastically. Now they have an incentive to insure as many people as possible to spread the risks, which takes us back to the original idea of insurance. To keep people in their pool, insurance companies have to provide better service which means not getting in the way of doctor / patient relationships quite as starkly as they do now. And if they keep people in their pools, then insurance companies have an incentive to figure out ways to keep them healthier which leads to restructuring payments systems so that they encourage preventive care, coordinated care, and attention to chronic disease management.

So, if we design regulations right, we put private interest at the service of public interest. If not, not.

That does mean we have to generate the political power to regulate well. I'm a lot more concerned about the political power of private businesses than anything else do as economic enterprises.

Whether we are socialists or capitalists, we are not going to eliminate self-interest from our economy as long as we have a free labor market. And we can’t have freedom in general, or economic efficiency, without a free labor market.

So, while I share Stan’s general sense that unregulated private enterprise is far less useful a tool than is usually assumed in our political culture, I think it is long past time to stop assuming that either private enterprise or public enterprise or communal (workers or consumer coops) enterprise is ideal. In a political economy with regulations over many things—regulations that are absolutely necessary—there is no purely private enterprise. In a political economy with a free labor market and in which politics is somewhat bureaucratic—there is no public enterprise that escapes from the motive of self-interest.

We need to drill down and think about different regulatory regimes and forms of ownership as tools that we use to attain our goals. There is no reason to think that any one set of tools will work best in every circumstance.

If you look at health care across the world, there are an enormous variety of systems that provide universal coverage from Canada’s public single-payer system to the Dutch heavily regulated private system. There are trade-offs of many kinds. And none of them is best everywhere. What we should seek n a particular case depends on both our political situation, they system we have inherited, and our own politico-economic and cultural traditions.

And, just to put my cards fully the table, this is why I am so sick of talking to advocates of single payer advocates who “know” without ever giving any good reason for thinking it, that a wholly public system is the only or even best way to do health care reform in the US.

It's not and it isn't. And they are all so twentieth century, too.

Plan C is worse than a 25% Pension cut

What's better... slicing everybody's pension, or firing a ton of City workers who will then have an incentive to flee the jurisdiction?

Cutting into the pension keeps the union population alive. Plan C culls their ranks.

Will this be what it takes to get our unions to tell the GOP

Senate where to get off?

Over the last few weeks, I proposed to a few of my friends in labor that they come together with Democratic fund raisers to create a PAC that would raise a million dollars (to start) to take out the five GOP state senators running for reelection in SEPA.

That threat alone, I thought, was the best way to divide the GOP Senate caucus and create some movement on the budget. And if it lead to a real campaign that actually took back a few of those seats, so much the better.

The response was not suprising. Everyone I talked to said it was a great idea but.....

This union had a good relationship with that Senator and didn't want to jeopardize it. Another union had a good relationship with a different Senator and couldn't join a collective effort.

The Republican controlled Pennsylvania State Senate just shot an arrow into the heart of collective bargaining in Pennsylvania. Maybe its time for our public sector unions to stand up and say they have gone too far.

Either that, or labor and progressives in this state are going to get shat upon for the forseeable future by Senator Pileggi and his friends.

It's highly unusual

to see Harrisburg directly interject itself into Philly union drama, except (correct me if I'm wrong) the teachers union.

Considering that this measure also throws water on Allegheny County and western PA Democrats who have similar issues with muni unions; you may be right to think that this budget assistance offering is nothing more than a ploy to put Plan C into effect and cull the ranks of Philadelphia's muni unions and enact a dramatic teardown of services to Phila taxpayers in hopes city residents direct their anger at City Hall, and not Harrisburg.

The real travesty is that Plan C doesn't really address the pension funding issue, because the present outlays stay the same and the contribution pool gets reduced since the City's immediate payroll contribution requirements go down, but there's still the same number of retirees drawing out on the fund and nothing changes for new benefit participants. The City incorrectly assumes that tax income will remain the same under Plan C but it doesn't account for the exodus of people that will leave the City due to unemployment and dramatically reduced services, starving the City of Philadelphia of Wage Tax income.

The Senate proposal directly forces the City to redefine the benefits and restructure them so they can actually do something that at least half-way looks like it's fiscally sustainable.

I'm not a budget-Martha Stewart

that's for certain. You already know my desire to see the City forced into Municipal Bankruptcy as the only possible solution to complete a total teardown of the political structure of Philadelphia and reorganize it for the 21st Century; since I'm never a fan of one-party politics, the myriad of fiefdoms in our county, nor the fact that most of our elections are decided in primary races, obviating a need to turn up to vote at the General save for the ballot questions--which I think is rather embarrassing it's gone on this long.

Plan C might accomplish that same goal, especially when Philadelphians get socked with 2x a month trash pickup, which will really tick off the local populace, nevermind the 1,000 City workers who will be given the axe.

I think we saw a glimpse of that in 2007 when intense fear of urban violence contributed to a political rout which put Michael Nutter in office against foes like The Union Mayor (Brady), The Business Acumen Mayor (Knox), and The Welfare Mayor (Fattah).

The pill may be worse than we thought

http://www.philly.com/philly/blogs/our-money/State_Senate_hands_Nutter_a...

The reforms impact both current and future workers. Pension benefits for employees currently enrolled in the system would be frozen. Right now, pension payments are partially calculated based on the length of service. The legislation would not allow workers factor any additional years of service into pension paymentes. This part of the reform is particularly hard on younger workers, who haven't been in the system long enough to accrue a significant amount of money in their retirement accounts.

This is so outrageous I'm having trouble believing that it is true. How can we freeze a pension for somone who has worked five years at that level when he or she may work another twenty years for the city?

Or rather, how can we expect anyone young workers who has any options at all to stay in a city job.

If this is true, we cannot accept it as a condition of the sales tax increase. It would be better to try to pass new taxes and take our chances with the courts.

Sorry, Sean, I missed what you wrote but it may be wrong

I put this on Facebook and John Hawkins said that Ben misread the bill.

But if Ben is right, this is truly unbelievably awful.

And if the labor movement were what it once was, we would have a general strike.

i thought it was a freeze on existing benefits ,meaning

a freeze on defined benefits with all new contributions from a worker going into a 401k defined contribution plan.at retirement a worker who worked 5 years under the old system would get a pension based on 5 years and a lump sum based on how well the next x years of contributions performed in whatever the worker chose to invest in.whats wrong with that ?

Can someone post the bill?

I've heard four different versions including that one Ian. But no one I know who has read the bill has seen tha tin it.

I'm sure it's bad.

But we ought to know what we are hating.

Google Search House Bill 1828, printer's number 2609

A google search of House Bill 1828, printer's number 2609 will lead directly to the bill, so that any determined reader here can "know what we are hating."

I will let somebody more patient and more skilled than I produce a direct link.

Can you tell us what's in it, Mark?

I won't have time to read it till the weekend.

Have any Councilmembers commented on this legislation?

One would think they might have an opinion.

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