As the coronavirus pandemic surges in Philadelphia, city finance officials are facing a harsh reality: The $276 million in funding from the federal stimulus package must be spent by Dec. 30, and there is no more money on the way as tax revenue declines and expenses stack up.
Philadelphia is also without a budget cushion as it heads into the winter wave of the pandemic. By the end of June, the city estimates having just $22.9 million in reserves — an amount that could be spent in just a few days in an emergency such as a snowstorm or civil unrest, according to new budget estimates issued last week.
Officials hope Congress will approve another stimulus package, because every state and local government has similar problems. But they have expressed concern about the city’s budget.
“I worry every day, about everything,” Mayor Jim Kenney said last weekwhen asked if he was worried about the pandemic’s ongoing impact on the city budget.
Revenue projections in the budget approved in June were too rosy, said Finance Director Rob Dubow, because they assumed economic recovery would accelerate throughout the fiscal year.
So far, that is not happening. And new restrictions that took effect Friday to shut down indoor restaurant dining and other activities will further limit tax revenue and create a more urgent need for support for small businesses and unemployed residents.
“With the way the pandemic’s going, it’s not clear that that recovery is going to happen,” Dubow said, “which means we have both more revenue loss than anticipated and more additional costs.”
Why are Philly’s finances a cause for concern?
At the end of fiscal year 2019, the last full year before the pandemic, the city had $416 million in reserves. Even that was not enough, as officials warned it would cover only 30 days of expenses. The $22.9 million cushion estimated for the end of the current fiscal year would cover less than two days of operating expenses.
The budget approved in June included tax hikes, layoffs of more than 450 city employees, and reductions to city services to fill a $749 million budget gap caused by the pandemic. But the current fiscal year, which began in July and continues through the end of June, could essentially have a larger hole than the budget had accounted for as the pandemic rages on.
The current budget does have $25 million set aside to cover coronavirus-related expenses. Officials expect to spend that money on surge nursing facilities, quarantine and isolation space, access centers for children who need supervision during remote learning, and vaccine distribution. But it may not be enough.
The city has not yet adjusted its projected revenue or expenses to respond to the surge in COVID-19 cases, officials said they are watching the budget closely.
“To prepare for this uncertainty, we are identifying areas for spending reductions should the need arise and assessing COVID costs and other priorities for investment,” officials wrote in the latest quarterly finance report.
Can Philly get more stimulus money?
City officials are lobbying federal lawmakers for more stimulus funding, and have also been asking Harrisburg to give them a larger allocation of federal money from the CARES Act, the last stimulus package.
Philadelphia already got $276 million from the CARES Act, but is arguing it should have received more. In a letter to state lawmakers last week, Kenney and members of City Council argued that the city received only 7% of the state’s available relief funding, despite having 20% of the state’s COVID-19 cases and 12.5% of the state’s population. They said the money would pay for medical costs and to offer relief to small businesses. But the Republican-controlled legislature in Harrisburg released plans Thursday to use its remaining stimulus money to fund state government.
City officials also hope the Dec. 30 cutoff for spending the current federal money could be extended, and that a new stimulus would allow cities to use the funding to replace lost revenue.
“I don’t want to understate the help that it’s been,” Dubow said of the $276 million. “What would have been a bigger help was if revenue replacement was allowed and if it extended beyond Dec. 30.”
How has Philly spent stimulus money so far?
By June 30, the city had used $64 million in federal stimulus money. And officials project spending the rest of the money before the end of the year.
The city’s breakdown of the $276 million includes:
$76 million in payroll for public health and safety employees
$63.8 million for public health expenses
$38.6 million for small business assistance
$31 million for housing support
$8.9 million for personal protective equipment
Other allocated expenses include money for COVID-19 testing and contact tracing, food programs for needy residents, improved teleworking capabilities for city employees, and remote learning support for Philadelphia public-school students.
The city has also received other federal grants to spend on the pandemic response, but the CARES Act is the largest amount. Sarah de Wolf, who is working on allocating federal funding in her role as recovery officer and deputy finance director, said the CARES Act also comes with many restrictions on how it can be spent, so the city has looked for the most audit-proof areas to allocate it before the end of the year.
“And obviously looking at the course of the pandemic right now, it looks like we will have costs that continue beyond that point,” de Wolf said.