Philly set to face $450 million budget deficit

Mayor Jim Kenney will have to contend with a projected $450 million budget deficit as he draws up his spending plan over the coming months.
PHOTO: Metro File

Representatives from Mayor Jim Kenney’s administration said “everything is on the table” as the city prepares to confront a projected $450 million budget deficit starting in July.

Last year, Kenney found a way to close a $749 million fiscal gap brought on by the onset of the coronavirus, and the budget implemented significant cuts, leading to more than 450 layoffs.

Part of that strategy was spending down the municipality’s “rainy day fund,” a method that won’t be available this time around. The city’s cash reserves are down to $29 million, about what it spends in the course of three days.

Government groups recommend localities keep two months of operating costs in reserve, which would equate to more than $800 million in Philadelphia.

Finance officials, during a briefing with reporters Tuesday, offered no details on what departments could face cuts or what taxes could be raised, saying it was too early in the budget process.

“Everything right now we’re going to have to look at given the scale of this potential deficit,” said Marisa Waxman, the city’s budget director.

Behind the deficit is a pandemic-fueled drop in tax collections. Officials this week decreased revenue projections by $40 million and now expect to end the 2021 fiscal year down about $189 million compared to prior year, which had one quarter impacted by COVID-19.

Wage, amusement and parking levies, in particular, didn’t generate as much money as expected, according to the administration

To maintain current services, the city would have to spend $5.1 billion in the 2022 fiscal year, which starts July 1, but it anticipates bringing in just under $4.7 billion.

Kenney is set to present his proposed budget to City Council on April 15, a month later than in a typical year as officials wait on possible relief in the form of a federal stimulus bill.

His administration is pushing for flexible funding that can be used to replace the lost tax revenue.

“What we’re really hoping is that, not just for us but for cities around the country, the relief bill helps to lessen whatever actions we have to take because whatever budget balancing actions we take won’t help the economy to recover,” city finance director Rob Dubow said.

Even with a substantial bailout, cuts will still need to be made, as the pandemic has opened up structural fiscal issues that will drag on for years, Waxman said.

Complicating matters is contract negotiations with the four unions representing city employees. They all signed one-year extensions in 2020 to avoid protracted talks at the onset of the pandemic.

Officials are examining a number of possibilities, including relying on the private sector and philanthropy to meet some needs, deferring the replacement of equipment and consolidating backroom functions.

Waxman and Dubow said the Kenney administration will focus on trying to limit the damage to Philadelphia’s most vulnerable communities while the city continues to battle the virus.

Last March, days before the first COVID-19 case was diagnosed in Philadelphia, Kenney unveiled an ambitious $5.2 billion spending plan that included added funds for a community college scholarship program and expanded street sweeping.

Once the financial toll of the virus emerged, he had to pare down the plan, and the final budget included a parking tax hike and a modest increase to the wage tax for out-of-city residents.

Cuts led to workforce reductions, which mainly affected seasonal employees in the Department of Parks and Recreation and the Free Library of Philadelphia.

“We had to make a lot of very difficult decisions in the last budget cycle, and, unfortunately, it’s not looking like we’re going to be in a position to undo any of those,” Waxman said.

Kenney’s office has put out a survey to gauge residents’ feelings on what should be prioritized for the 2022 fiscal year budget. People can fill out the questionnaire at www.surveymonkey.com/r/WX7LRX3 through the end of the month.

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