Philadelphia is projected to have just $51 million in cash left by next July, as the city expects to have spent $387 million of its long-term reserves to weather the economic impact of the coronavirus.
The $51 million fund balance projected for the end of the fiscal year that begins Wednesday leaves very little wiggle room to handle additional expenses or lost revenue. City officials also expect to have a $50 million fund balance by July 2022, the end of the following fiscal year.
The new numbers, released in an updated five-year plan based on the budget City Council approved last week, show the extent to which the pandemic has hurt the city’s finances. Mayor Jim Kenney signed the budget into law on Friday. It fills a projected $749 million hole by raising taxes, laying off more than 450 employees, cutting services, and spending reserve funds.
Mike Dunn, a spokesperson for the Kenney administration, said the city is prohibited from running a deficit.
“If further adjustments to the just-approved spending plan prove necessary, we would further curtail spending accordingly,” he said.
Of the $387 million in reserve funds that will be spent before next July, about $184 million will cover the deficit in the current fiscal year, ending Tuesday. An additional $203.5 million is expected to be spent from reserves in the fiscal year beginning Wednesday and continuing through next June.
The city’s fund balance is essentially the amount of money left over at the end of a fiscal year, and is calculated by taking the amount carried over from the previous year, adding revenue earned during the year, and subtracting expenses. The final fund balance is not known until months after a fiscal year ends, as some expenses and revenues are delayed in being collected or paid.
The city has worked to increase its fund balance since the Great Recession, when fiscal years 2009 and 2010 both ended with negative fund balances of more than $100 million. Last year, the city ended fiscal year 2019 with $439 million — the largest amount in many years. But still, officials warned that in a severe recession, that fund balance would not be sufficient. It would cover only 33 days in city spending, they said.
Philadelphia has lagged other large cities in the size of its fund balance compared with overall revenue. The $439 million fund balance at the end of fiscal 2019 was short of the amount Philadelphia should have had under national best practices.
Cities should have at least two months of expenses set aside, according to the Government Finance Officers Association. By that standard, Philadelphia should have had $869 million on hand Tuesday.
The Pennsylvania Intergovernmental Cooperation Authority (PICA), the state board that oversees the city’s finances and must approve a five-year plan annually, has raised concerns about the size of the fund balance. PICA will vote in July on the latest five-year plan.
A city’s low fund balance also has a negative impact on its credit rating, which makes it more expensive to borrow money.
The fund-balance projections also indicate the expected length of the economic crisis caused by the coronavirus pandemic. The city’s five-year plan projects that the fund balance will remain at only about $50 million through the fiscal year that ends in June 2022. That is based on economic advisers’ projections that the city’s revenues will suffer for the next couple of years, Dunn said.
“Even in best case scenarios, the economy — in the city, region and nationally — will not instantly rebound,” he said, “so it is prudent to reflect that in our revenue projections.”