- Pennsylvania Among 'Terrible 10' Most Regressive Tax States
- February 4 Non-Partisan Training: HOW TO RUN FOR ELECTION BOARD IN 2013: HOW TO RUN FOR COMMITTEEPERSON IN 2014
- Republican Governors Opt-In to Medicaid Expansion
- The Reports of Unions' Death Are Greatly Exaggerated
- Ask Allyson Schwartz to run for Governor
- Mind the gap: Opting Out of Medicaid Expansion Leaves Low-income Families Behind
- Jan. 14 Workshop:HOW TO RUN FOR ELECTION BOARD IN 2013; HOW TO RUN FOR COMMITTEEPERSON IN 2014
- Seth Williams on Guns, Jasmine Rivera on School Closures @PFC Meetup Wednesday
- PA Revenue Strong Midway Through Year; Tax Cut Could Have Big Impact
- What to Make of the Fiscal Cliff Deal?
How To Save The City Part I: Evaluating Our Economic Prospects
Like most of you, I’m still trying to get my head around the city’s financial crisis and the budget reductions and policy changes announced by Mayor Nutter.
There is a lot I don’t quite understand and a lot I don’t know. I have far more questions than answers. And, as a result, I’m not convinced that the crisis is as grave and immediate as the Nutter administration claims or that it is taking the best path to dealing with that crisis.
So in this, and some subsequent posts which I’ll add as comments to this one, I’m going to talk about some of my concerns and doubts, not because I suspicious of either the competence or the good will of the administration but because that’s what democracy demands—a give and take between government and citizens that, one hopes, leads first to a better understanding our circumstances and options and second to better public policy.
Philadelphia—like, we should remember, every other city and state in this country—is in a financial crisis. It may be a little worse here because of our previous failures to make our city government more efficient and save for a rainy day (a point Gaetano has made more than once). But if we want to think seriously about where we are, we have to acknowledge to begin with that we are in the same boat as many other cities.
We also need to understand that we are in uncharted waters. Mayor Nutter presented budget plans against the background of a major financial crisis that has lead to an unrushing recession with its attendant collapse in the city’s tax revenues.
Looking forward at the recession, the administration is projecting a $100 million deficit in the current fiscal year ending in June and a $1 billion in the current five year plan.
This sounds awful, and it is. But in a $4 billion a year budget, a $100 million deficit comes to only 2.5%. And $1 billion over a five year plan is less than 5%. When about half of the budget is fairly fixed, that is a large deficit. But it is not the end of the world.
It is not clear what assumptions about the economy, either here or in Philadelphia, are being used to generate these figures.
And, I have to wonder whether, given the circumstances anyone can really make a serious projection of how long this economic crisis will continue, what kind of relief might be coming from the federal government under President Obama, and thus what Philadelphia’s finances will look like six months, let alone five years from now.
Some recessions are v-shaped. Business activity and tax revenue collapse quickly and then just as quickly recover. Some are a long time brewing and take a long time to clean up. Given that enormity and speed of the financial catastrophe that hit us in the last few months—and the dramatic policy response to it—this recession might be of the first type, not the second.
It is not 1982, when the Fed believed we needed a prolonged recession to wring out inflation. Core inflation was never that high and the inflation caused by the run-up in oil prices in oil prices has already subsided. And it is not the 1990s in Japan, when a flailing government took years to recognize that monetary policy was useless and only a massive fiscal stimulus could boost the country out of the liquidity trap that kept the Japanese economy stagnating.
Important measures have already been put into place to deal with the financial crisis. We have already committed 750 million dollars to free up financial markets. We are already running a deficit and there is a broad consensus that we need it to grow much larger to create a demand induced recovery. Plans are afoot to pass a second fiscal stimulus package this year and perhaps another one in the first month of the Obama Presidency. Democrats are eager to use this moment to expand spending on many unmet public needs, to extend unemployment benefits, and most importantly for our city, to stop the rapid contraction of state and local spending which would, in turn, further depress the economy.
So not only is there little reason to think that the fiscal stimulus will be too low, there is good reason to think that part of the new fiscal stimulus we need help sustain state and local government.
With all this in mind, how can we reasonably estimate the dimensions of this financial crisis? How can we know what tax revenues are going to look like in three or six months? How can we know what new federal funding we will have in three or six months?
The answer, I believe is that we can’t really know. We have to make some estimates here in Philadelphia and see what other cities and states are projecting. And while it often makes sense to prepare for the worst, it does not make sense to decimate (or in the case of the library reduce by 20%) important city services when in a few months time, either because of an economic recovery or new federal aid, the fiscal picture of the city may be looking very different.
And, more importantly, while we clearly need to reduce some spending to meet the crisis, it makes absolutely no sense to take irreversible steps now, when our circumstances may change soon.
So, for example, while I’m loathe to see any city-wide reduction in library hours branch or, even worse, a temporary closing of branch libraries, I see absolutely no justification for deciding today that 11 branches of the library should close and their buildings be shut down and sold.
Of course, maybe the Nutter administration’s budget proposals were actually based on more optimistic than pessimistic estimates of tax revenues of the next six months. I suppose that’s possible.
But, we really don’t know, do we? For the Nutter administration has not revealed, at least to the public, either its assumptions about the national and Philadelphia economy over the next years or its assumptions about tax revenues. Perhaps it told City Council in the closed door meetings it has been having. So there is absolutely no way for any of us to know to evaluate the need for some of these extreme cuts.
And that brings me to my next post, about transparency in budgeting.