We don’t have to let the city’s budget crisis be solved by laying off workers and raising taxes on working people, as Mayor Jim Kenney proposed to do earlier this month. And we shouldn’t.
The city’s current economic crisis was not caused by a “structural deficit,” where planned spending was greater than projected tax collections. It was caused by the federal government’s mishandling of the pandemic. The city is losing wage, business, and amusement taxes, and will lose more revenue as out-of-work families find themselves unable to pay rent, real estate taxes, and mortgages. On top of that, the School District is projecting a billion-dollar deficit.
We cannot hold the mayor responsible for the crisis, but we can for his response. Sadly, that response so far lacks imagination: the same old laying off workers and raising property taxes on middle-class residents that gets suggested year after year by the people who want government to do less.
Neither laying off workers nor raising real estate taxes will help create a better future for our city. If you believe in a multiplier index where one job creates a portion of another, then you should recognize that eliminating a job eliminates part of another, lowering the city’s tax revenues even more.
The same is true for taking more money out of middle-class families’ pockets. There will be less money spent in the city and less economic growth.
The city must find creative, helpful ways to solve its financial crisis. That should include using PICA, the Pennsylvania Intergovernmental Cooperation Authority, to borrow money to give us time to recover from the effects of COVID-19. PICA was used to solve the city’s financial crisis before — such as when PICA borrowed $206.9 million in 2010 — and we can use it now. Because interest rates are currently so low, the cost of borrowing will be very little, and the loan will give the city time to heal without laying off workers or raising property taxes.
The economic and civic life of the city depends on independent stores, restaurants, bars, and services. The city must support and grow these small independent businesses. That means the mayor should entrust a task force to protect them, and consider suggestions such as changing zoning to give independent businesses a level playing field and offering cooperative buying for unemployment and other mandated insurance. It should also “net” bids to award contracts. Right now, the taxes that a business pays to the city are not factored into the bid price. By locating production and office space outside of the city, companies can become the low bidder.
This not only hurts our small businesses; it fails to save taxpayers a single penny. Regardless of the price of the goods or services, we lose out on the taxes not collected from those companies.
Finally, we have to help keep money in the pockets of our citizens. Philadelphia’s law department should join with other cities to seek damages from businesses that are profiteering — starting with credit card companies who refuse to lower interest rates.* The Federal Reserve has reduced the interest rates to zero. Yet some credit cards are still charging over 24%. Some car insurance companies have said they will be lowering rates. It’s a good start, but it’s not enough. Not only are we driving less, but interest rates have been slashed, saving insurance companies billions. All car and homeowner’s insurance should be reduced. The city should use its law department to file for the reductions.
What we cannot do: lay off needed workers, cut services, raise real estate taxes, and expect things to get better. The budget deficit should not translate into a deficit of ideas.
Lance Haver is a consumer advocate for WPVI’s Call for Action. Lance@Lance.Haver.com