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Sales Tax Extension Arrives; Schools Get $120M in First Year

City Council finally introduced legislation Thursday to extend Philadelphia's extra 1 percent sales tax, devoting in the first year the $120 million the schools were counting on to help close a huge budget gap.

After the first year, the revenue collected – expected to be about $137 million in the next fiscal year – would be split gradually between the schools and the city's public employee pension system, which is about $5 billion underfunded.

In the fourth year, the revenue would be divided evenly between the School District of Philadelphia and the pensions.

The formula introduced in Council Thursday has been under debate and discussion in City Hall and in Harrisburg for months, and would require the state's approval.

The state allowed the city to add 1 percent to the sales tax charged in Philadelphia, raising the rate from 7 to 8 percent, during the recession. That extra sales tax was slated to expire on July 1.

Last year, the state passed legislation allowing the city to continue the extra tax, devoting $120 million to the schools. But Council President Darrell L. Clarke almost immediately termed that "a bad deal."

Clarke was among a number of leaders eyeing the sales tax as a potential solution to the pension problem, a huge annual drain on the city's general fund. This year, the city is expected to pay nearly $600 million into pensions, and potentially dump the proceeds of the sale of the Philadelphia Gas Works into the system as well.

The school district, which made drastic cuts last year, needs $216 million to avoid more slashing this year. The district budgeted the $120 million from the sales tax and has asked for $75 million more from the city.

The potential source of the $75 million remains unclear, although one possibility is a $2-a-pack cigarette tax.

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