Setting the stage for debate over how city government should navigate the coronavirus era, Philadelphia City Council members on Monday questioned Mayor Jim Kenney’s plan to raise taxes to help plug a $649 million budget hole caused by the pandemic.
“I’m not in favor of having a tax increase across the board coming out of this pandemic when people can barely afford food,” Councilmember Allan Domb said at Council’s first-ever virtual budget hearing.
The proposed revenue increases — primarily a wage tax hike for suburban commuters and a property tax increase that would benefit the School District — amount to $107 million. But they are shaping up as a point of contention as Council and the Kenney administration begin finalizing the budget for the fiscal year that begins July 1.
Raising the political stakes, Councilmember Isaiah Thomas and City Controller Rebecca Rhynhart have released their own plans to weather the coronavirus’ economic fall without raising taxes or laying off hundreds of city workers, as the mayor has proposed. Their plans include redirecting money from the sugary beverage tax — Kenney’s signature legislative accomplishment that funds pre-K, community schools, and a program to improve parks and recreation centers.
“While I recognize these decisions are not easy, raising taxes, employee layoffs, and making significant cuts to city departments should always be a last resort,” Rhynhart said in a statement.
Like state and municipal governments nationwide, Philadelphia’s bottom line has been devastated by the pandemic, which led Kenney and Pennsylvania Gov. Tom Wolf in March to issue orders shutting down all but essential businesses. Through Monday, 19,953 Philadelphians have been diagnosed with the illness and 1,040 have died.
Kenney on Monday said his budget proposal is designed to prioritize “core services" and fiscal stability.
“We must transform our priorities to best meet the needs of Philadelphians, particularly our most vulnerable residents,” he said at a virtual news conference.
Council President Darrell L. Clarke, while not taking a stance on whether to increase taxes, questioned the administration’s reasoning for each of the proposed hikes. And Councilmember Kendra Brooks asked why the city, instead of raising real estate taxes that will impact longtime homeowners, would not instead curtail the property-tax abatement program, which gives a break to property owners for new construction and improvements.
Kenney is proposing to raise the rate for the portion of the real estate tax that goes to the School District, which would result in residents paying just under 4% more in property taxes next year. For the owner of a home assessed at $150,000, that would mean about $58 more a year.
The parking tax would also go up, from 22.5% to 27%.
The nonresident wage tax rate would increase from 3.4481% to 3.5019%, while the rate for residents would remain at 3.8712%. For a worker who commutes to Philadelphia and makes $50,000 per year, the hike would mean about $26 more in wage taxes per year.
Before the coronavirus came to Philadelphia, Kenney in early March had proposed a $5.2 billion budget with no tax increases and some modest decreases in line with the city’s long-term strategy of reducing its wage and business taxes.
But the pandemic scuttled those plans. So Kenney on May 1 submitted a revised $4.9 billion budget proposal that, in addition to the tax and fee increases, included tapping reserves, laying off hundreds of city workers, freezing planned tax cuts, postponing new priorities like bringing street sweeping to every neighborhood, and eliminating funding for arts programs.
Jim Engler, Kenney’s chief of staff, said Monday that the administration was aiming for a balanced approach to the pandemic’s burden on city government. Raising the portion of the real estate tax that goes to the School District, he said, was designed to prevent a repeat of the education cuts that followed the 2008 global financial crisis, which led to “lasting ramifications that impacted a full generation of kids” in city schools.
The tax increases, he said, amount to only a small part of Kenney’s plan. “The vast majority of our balancing act was around cuts or reductions,” Engler said. The city has not finalized its plans for layoffs, but Managing Director Brian Abernathy said Monday that about 400 city workers are likely to lose their jobs.
The administration proposed raising the wage and real estate taxes, Engler said, in part because of the immediacy of the cash crunch: Adjusting those taxes can be accomplished unilaterally by the city and doesn’t require approval from Harrisburg.
“We have this immediate crisis that we’re dealing with for the next fiscal year,” he said. “There’s a number of things that we can do that require other governments to approve.”
Kenney last week objected to Thomas’ suggestion that the city could redirect soda tax revenue, saying the education programs it funds are especially vital during an economic crisis, and taking a shot at the freshman Council member.
“I’ve been through probably 27 or 28 budgets in my career. I appreciate the councilman’s effort on his first budget, but we’ll have those conversations going forward,” Kenney, who served on Council before becoming mayor, said Thursday. “But I’m not going to redirect soda tax money, beverage tax money, away from our 4- and 5-year-old children to other purposes.”
At Monday’s hearing, Thomas doubled down on his proposal.
“I already believe that we are already asking people to pay too much money right now in taxes,” he said.