Mayor Jim Kenney is proposing a $5.6 billion budget that includes no tax rate increases, but assumes real estate tax revenue will increase 4.5% after new property assessments are imposed, administration officials said.
The proposed budget, which Kenney will present to City Council on Thursday, raises spending 5.5% and includes a projected financial cushion, known as the fund balance, of only $153 million for the fiscal year that will begin July 1. That amounts to 2.8% of estimated revenues, well below the city’s goal of keeping 6% of the budget unspent to deal with emergencies.
The administration is proposing that the city continue on its path of cautious spending when it comes to the $1.4 billion in federal pandemic aid allocated to Philadelphia by the American Rescue Plan passed by Congress due to the pandemic. In fact, Kenney is proposing the city spend only $335 million of that money next year. That would leave more than $800 million untouched.
Overall, the budget proposal would largely preserve the status quo, with Kenney declining to call for any significant or unexpected changes in taxes or spending. The current city budget is $5.4 billion.
The budget plan is the second-to-last for Kenney, who can only serve two terms and leaves office in January 2024. Rather than launch significant new initiatives or rethink the way the city collects or spends money, the administration’s goal in this budget cycle is to implement priorities begun in Kenney’s first term while “helping the city respond and recover from the pandemic in the best possible way,” said Jim Engler, Kenney’s chief of staff.
“Our focus with this budget was about delivering on the key services the mayor has been talking about for the last several years,” Engler said.
Administration officials said that while tax revenues are rebounding in the wake of the pandemic — and some, such as the parking and amusement taxes, have grown more quickly than expected — the city remains cautious due to uncertainty over the future course of the pandemic, potential increases in interest rates, and supply chain problems.
Finance Director Rob Dubow said Philadelphia’s economy is far from booming, noting that it still lags behind other counties in the region and the nation as a whole in job creation during the recovery.
He said the city government was in a “financial position that is much better than it was two years ago when the pandemic started, but we’re still wary of our financial future.”
The upcoming release of new real estate valuations, which have been frozen for three years as the city sought to reform its system for assessing properties and then paused its assessment process during the pandemic, will play a major factor in the debate over the budget in Council.
Dubow said the assessments will come out in April and that the delay in releasing them was caused by hiccups with implementing the new assessment system.
Although the administration is not proposing tax rate increases, it assumes property tax revenue will grow by more than $33 million based on increased valuations, to about $760 million.
If the reassessments increase projected property tax revenues by more than 4.5% — which many observers expect, given the hot real estate market and the length of time since the last assessment — the administration will work with Council to either lower the real estate tax rate or increase tax breaks like the homestead exemption to keep the increase below that amount, Dubow said.
The proposal also leaves wage and business tax rates unchanged even though Kenney followed the strategy of recent administrations in making small annual cuts to those levies. But Dubow said the administration wanted to wait until the property tax assessments were finalized before discussing all tax rates with Council.
Even with stagnant rates, the administration projects a 7% increase in wage tax collections, to $1.65 billion, and a 12% in business tax revenue, to $658 million.
All major taxes except the real estate transfer tax are projected to take in more money next year than they did in the last full year before the pandemic, fiscal year 2019. (The transfer tax, which is expected to decrease 4.3% to $300 million, is expected to dip next year thanks to changes in the city’s real estate tax abatement program that caused a one-off surge this year.)
The unveiling of Kenney’s proposal begins a thee-month budget process in which Council will hold hearings on departmental spending plans and negotiate with the administration over amendments to the proposal before approving a final version by the end of June.
Most city departments would see slightly increased spending under the plan. A significant exception are the city’s public safety agencies.
The administration is proposing to add $23.7 million to the Police Department budget, for a $782 million total, including $2.7 million for a “police mobility” program that provides cell phones and laptops to homicide detectives, as well as an extra $515,000 for forensic services upgrades.
In 2020, following the murder of George Floyd in Minneapolis, Councilmembers pressed the administration to curtail police spending. This year, however, the tide may be pulling in the opposite direction. Council Majority Leader Cherelle Parker on Wednesday unveiled a community policing plan that would add more police, and Councilmember Derek Green said he is introducing legislation to boost officer recruitment.
The Fire Department’s proposed $381 million budget reflects $7.7 million in new funding, including $4 million more for 911 improvements and a co-responder system that deploys mental health crisis specialists to some emergency calls. And the Department of Prisons would get $2.3 million in funding for food to meet the demands of an increased jail population. The overall prisons budget, however, would decrease by $5.3 million to $246 million thanks to a fall in COVID medical costs year and one-time equipment purchases made in the current budget.
Under the plan, the Department of Behavioral Health and Intellectual Disability Services would get $7.3 million in new funding for the mobile crisis unit program for a total of $27.3 million.
The Free Library’s proposed $55.8 million budget includes a $10.4 million boost, which the administration says will ensure that branches can be open five days a week. The library system has struggled to reopen branches at full service coming out of the pandemic, and some members of Council are pushing for the budget to include funding for branches to be open six days.
The budget plan also includes $269.9 million in funding for the School District of Philadelphia, a $14 million increase over this year, and $50.1 million to the Community College of Philadelphia, a $2 million bump.
Staff writer Anna Orso contributed to this report.