Mayor Jim Kenney wants to hike taxes, lay off hundreds of city workers, and keep swimming pools closed this summer to fill an estimated $649 million budget hole caused by the coronavirus pandemic.
The revised spending plan for the coming fiscal year offers a grim outlook for Philadelphia’s finances as the city remains under a stay-at-home order. It comes less than two months after Kenney released an ambitious $5.2 billion budget with a proposal to make community college free for many students, expand residential street sweeping, and include no tax hikes. Expanded street sweeping is not part of the new $4.9 billion budget proposal, officials said Thursday, and the community college scholarship program will be delayed and reduced.
Kenney proposed increasing the rates for the city’s property tax and parking tax, as well as the wage tax for suburban commuters, as well as freezing planned reductions in business taxes and the wage tax rate for city residents, and eliminating a discount for property-tax payers who pay their bills early.
The tax proposals are sure to face scrutiny from City Council, which must hold hearings and approve a budget before the start of the next fiscal year on July 1.
“The first response to [decreased revenue] is sticking your hands into the taxpayers’ pockets,” Council President Darrell L. Clarke said Thursday morning in a virtual round-table meeting with some of his colleagues. “Well, guess what? The taxpayers don’t have much in their pockets.”
Jim Engler, Kenney’s chief of staff, said the administration is also reducing expenses and spending reserve funds, and called the budget proposal “a balanced approach” to soften the blow of the coronavirus pandemic.
“We look forward to discussing all of this with City Council over the next two months,” Engler said. “And welcome any proposals that they’re going to have for other options to raise revenue or to make other cuts.”
City budget officials estimate a $535 million drop in revenue in the next year, and $30 million in additional expenses due to the pandemic. Those estimates do not include impacts in the current fiscal year, which ends in June.
“As bad as these projections are, things could get worse,” Budget Director Marisa Waxman said.
The city will put in place a hiring freeze and pay reductions for nonunion employees. The city’s labor unions will receive pay raises, however, as part of one-year contract extension agreements, even as some of their members likely will face layoffs next year.
The proposal also includes projected savings for laying off or not hiring part-time and seasonal workers, such as those who staff city pools and portions of the workforce in various city departments. The city has not yet determined how many of its more than 25,000 full-time workers it will need to let go, but Engler said the cuts will affect both unionized and exempt employees.
“There will be several hundred either part-time, seasonal, or full-time employees that will be separated from the city,” Engler said. “We’re still working through all of it. It’s going to be a substantial number.”
Kenney is proposing a property tax rate hike of 3.95%, which would result in a $58 tax increase next year for the owner of a home assessed at $150,000. The additional revenue raised would all go to the School District.
Kenney last proposed a property tax hike in 2018; Council rejected it amid outrage over assessment changes that resulted in significant tax increases for thousands of homeowners.
“You cannot tax your way out of this pandemic,” Councilmember Allan Domb said Thursday, adding that he hoped the city could trim expenses and increase efficiencies instead.
The city’s parking tax would increase from 22.5% to 27% under Kenney’s proposal, and the nonresident wage tax rate would increase from 3.4481% to 3.5019%. The wage tax rate for residents would remain at 3.8712%. For a worker who commutes into Philadelphia and makes $50,000 per year, the increase would result in about $26 in additional tax annually.
Passing a budget with tax hikes, layoffs, and cuts to popular services will be politically delicate. City Controller Rebecca Rhynhart suggested the city should explore how to “do things better before looking at tax increases and service reductions.”
“We need to be looking at how to operate more efficiently, and I don’t think that significant layoffs or raising taxes should be on the table until we’ve looked at every single area of this budget," said Rhynhart, the city’s elected financial watchdog and a frequent critic of the administration.
The administration’s budget proposal prioritizes public safety — with no layoffs in the Fire or Police Departments — as well as health and education, Waxman said. Existing funding for Kenney’s signature pre-K and community schools programs, which are paid for by the sweetened beverage tax he championed during his first term, will be maintained, but the programs will not expand as planned.
The city’s libraries and rec centers will remain open but with reduced hours and programming.
Other revenue increases in Kenney’s budget proposal include hiking permit and license fees and a fee for commercial trash.
Administration officials said they also worked to leverage federal funding, including reimbursement for expenses to respond to the coronavirus pandemic.
And city officials are holding out hope that more help from the federal government could still be on the way.
“My hope is that the federal government steps up and provides essential financial support to both cities and states around the country," Councilmember Cherelle L. Parker said Thursday, “and that this support comes before City Council has to adopt a budget that closes a $649 million budget hole."