Yesterday the Mayor announced the horrible set of possible scenarios facing all of us in the next fiscal year starting July 1. It doesn't have to be that way. Here is One Philadelphia's plan to avert catastrophe. For more info, go to our website at onephiladelphia.org

ONE PHILADELPHIA FIVE YEAR BUDGET PROPOSAL

Mayor Nutter is forecasting a deficit of more than $1 billion over the life of the City's next Five Year Plan covering the period from Fiscal Year 2010 to 2014. To cover the shortfall, City officials have revealed that major service cutbacks are likely in such areas as trash delivery, homeless services, health centers, libraries, fire and police services, recreation centers and virtually everything else that Philadelphians rely upon. These cutbacks would come in the face of a growing economic upheaval that is throwing thousands of Philadelphians out of work and stressing the City's social service delivery service system to the breaking point.

One Philadelphia recognizes the fiscal challenges that the City faces. We also applaud the Mayor's efforts to explain in detail the nature of those challenges and to solicit input from residents throughout the City to deal with them. One Philadelphia intends to provide that input, and hopes that the Mayor's budget process guarantees thoughtful review of the positions presented below, as well as all other community offerings.

OUR POSITION

One Philadelphia is a network of organizations committed to building a united Philadelphia community, one that advances the fundamental rights of all of its people to a living wage, decent housing, adequate food, education and medical care and necessary social services, in a safe and healthy environment.

Solutions to this crisis must be based on values and priorities that flow from a vision of a just world. We cannot impose the burden of solving problems on the backs of those who already have little or nothing left to sacrifice, nor on those working people who are just struggling to get by.

Further, this crisis was not created overnight, and to be resolved in an equitable manner, cannot be solved overnight. Fortunately, the City is committed to a five year planning process. That five year process should apply to the effort to develop new and better funding streams, as well to any efforts to make the City government more efficient. If we try to solve the $1 billion shortfall all in the first year, much unnecessary suffering will be caused.

With a long range perspective the City can solve the main five problems that inhibit its ability to raise the funds it needs to preserve and enhance City services.

In order of importance these problems are the following: 1) failure of the City to use all of its revenue-raising tools; 2) lack of federal support for cities; 3) failure of the Commonwealth to adequately fund City services; 4) failure of the Commonwealth to empower the City to enact progressive tax measures; and 5) the need for the City to restructure its taxes.

1. Failure of the City to use all of its revenue-raising tools.

A variety of good revenue sources are available that have been ignored by the City. The City Controller recently identified up to $400 million of uncollected fees, fines and other debts due the City that the City has failed to collect, or sometimes even bill for. The Eagles and Phillies are doing little for a City that has done so much for them. The Eagles owe the City $8 million in superbox fees, and both teams collect a total of $30 million a year for debt service on their stadiums, an amount the City can't afford. The teams should be asked to waive or defer those payments until the crisis is over. Huge non-profit institutions like the University of Pennsylvania and a variety of hospitals consume services but pay no taxes to the City. They should be asked for contributions in lieu of taxes. Grantees of other abatements could be asked to waive them, and the program cancelled going forward.

The City should also look to cut expenses is ways that don't impact services. For instance, it should review all of its outsourcing and cancel contracts for services that it could provide more cheaply in-house.

The Solution: The City should vigorously pursue to conclusion all of these options before assuming that any of its revenue gap must be filled through service cuts or increases in regressive taxes.

2. Lack of Federal Resources

Cities have been the unwanted stepchildren of the national government at least since Ronald Reagan's presidency. But cities remain the center of commercial, cultural and lifestyle dynamism in the United States, not to mention the place in which most of us live. The federal government can no longer simply leave cities to their own declining resources. This is especially true when Washington has extended massive aid to huge Wall Street brokerage and banking firms whose greed and hubris are directly responsible for major urban budgetary shortfalls. In Philadelphia, as Mayor Nutter has pointed out, the collapse of Wall Street has massively grown the City's unfunded pension debt.

The Solution: Our federal representatives must step up to demand that the TARP program include low interest loans to urban pension funds like Philadelphia's, and provide other sources of low interest credit to cities. This single step could save the City hundreds of millions of dollars over the next five years in increased pension expenses.

We also applaud Congressman Brady's legislation to restore revenue sharing to cities, and support that measure.

3, Failure of the Commonwealth to Fund City Services

In its final report, the City Tax Reform Commission noted that the City's overall tax burden is seven times higher than the median of other Pennsylvania counties, and more than ten times the average burden of other Pennsylvania cities. These ratios are unconscionable and require that our representatives insist on fair treatment.

The Solution: One immediate step they could take would be to provide funding for the Philadelphia courts, as required by the State Supreme Court years ago, but to no avail. In addition, the State should substantially increase funding for City social services. An emergency revenue sharing stream should be created for all cities in the Commonwealth with distressed pension funds. Finally, state law should provide that large institutional non-profits must pay a fee in lieu of real estate taxes so that they bear a fair proportion of the City services that they consume.

4. Failure of the Commonwealth to empower the City to Enact Progressive taxes

As we have pointed out, the City is overtaxed. But after 16 consecutive years of tax cuts, it may be time for the City to at least temporarily reverse course. However, the City's ability to do that in any kind of fair way is inhibited by restrictions imposed under state law. The chief problem is the "uniformity clause" of the State Constitution. That provision, creates legal uncertainty, at best, about any City efforts to structure state or local taxes in a progressive manner.

The Solution: The clause should be repealed. In addition, state law protects banks, insurance companies and PECO from being taxed at the same rates as all other businesses in Philadelphia. That provision also must be repealed. Other measures that are recommended below in the City tax restructuring section may also need state approval in order to be enacted.

5. The City Must Restructure Its Taxes.

The City may well have to raise some or all of its major City-based taxes, namely its wage, business and property taxes. Each of them should ideally be restructured before they are increased. In the event that there is insufficient time to obtain needed authority from the state in order to avert service cuts, however, One Philadelphia supports such increases in current taxes as they are currently structured to the extent needed.

The Solution:
The following changes should be made in the tax structure:

a) Wage Tax. The City should use its current authority to exempt low wage workers from the tax. As soon as possible, the wage tax should be converted to an income tax, preferably with progressive rates, which would broaden the tax to cover dividends and capital gains.

b) The Business Privilege Tax. This is actually two taxes, one of which falls on business gross receipts, the other on net income. There are a number of ways to target this tax to fall more heavily on big, profitable businesses, particularly those that are located outside the City that sell products or services into the City. To accomplish that, the gross receipts portion of the tax should be amended to do one or more of the following:

1) exempt the first $25,000 of receipts from the tax;
2) allow businesses to deduct the gross receipts tax that they pay against their net income tax liability.

In addition, insurance companies, banks, utilities, stock brokerage firms and port related businesses should pay the tax at the same rate as all other businesses. And an oil processing tax that was in effect for only one year in the 1980's should be reinstated.

c) Real Estate Tax

The real estate tax is highly regressive since it is imposed without any regard for the income of the payer. And it is highly arbitrary in Philadelphia due to an assessment system that is skewed against people living in lower income neighborhoods. Two things should happen before there is any increase in the real estate tax; the assessment system must be equalized, and protections must be created for low income homeowners. Either of the following would be acceptable protections for low income homeowners:

1) a circuit breaker that would cap taxes paid at a certain income percentage of income; or

2) an exemption of a certain dollar amount of a property's assessment application of the tax.

Instead of an absolute exemption, a deferral of the tax that would otherwise be exempted would be acceptable.

In addition to these two measures, the property tax abatement should be repealed.

What we've presented here is a menu of options that would help fill the revenue gap that the City now faces. We hope and trust that together these ideas advance the discussion of how to preserve vital city services in a manner that is just and affordable to all the people and businesses in our City.