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Good economic news for Philadelphia: Tax revenues, wages up | Joel Naroff

Even if you exclude the beverage tax, revenues were up nearly 10 percent.

Philadelphia skyline from the top of the City Hall tower.
Philadelphia skyline from the top of the City Hall tower.Read moreHEATHER KHALIFA / Staff Photographer

There are lots of high-profile stories about Philadelphia's government, most questioning its operations.

Yet, when a good report about the state of the city's finances was published, it went largely unnoticed. Specifically, Philadelphia's operating budget ended the fiscal year in surplus! Given the soaring federal deficit and the budget morass in Harrisburg, why we aren't talking about Philadelphia's finances is a wonder. So let's do that.

Recently, the Pennsylvania Intergovernmental Cooperation Authority (PICA) released its report on the city's finances for the 2018 fiscal year that ended June 30th. PICA was created in 1991, when the city teetered on bankruptcy, to oversee the city's financial condition and provide confidence in the numbers. The data are eye-opening — in a good way — and they point out the positive economic changes occurring in the city.

Let's start with total local tax revenues, which jumped by more than 11 percent. OK, part of that was due to the beverage tax, which was in existence for the entire fiscal year but only five months in fiscal year 2017. Even if you exclude the beverage tax, revenues were up nearly 10 percent.

The majority of Philadelphia-based tax revenue comes from the wage tax, and the good news is that job growth is strong. In June, payrolls were up 2.9 percent over the year. In comparison, the suburbs and the state rose 1.7 percent while the nation increased only 1.6 percent. As a result, wage-tax revenue jumped nearly 6 percent.

The improving wage-tax income is not coming strictly from the expanding employment base. Rising pay is also chipping in. According to Glassdoor Economic Research, Philadelphia's wages rose at the fastest pace of the 10 large cities it compared. Much of that gain came from improved hiring in higher-paid occupations.

Growing wages and jobs implies that businesses are doing better, and the 8.3 percent jump in the city's Business Income and Receipts Tax leaves little doubt that the business sector is healthy.

As for the city's real estate market, it is booming. We see it in the new buildings going up, be they residential, commercial, or industrial. The issue of gentrification, which hits the news weekly, is another indicator of the health of the real estate market.

Not surprisingly, property-related tax revenues skyrocketed. The Realty Transfer Tax was up an amazing 37.2 percent. The real estate tax increased by more than 11 percent. Values are rising, as well as demand, and that is translating into more money flowing into the city's coffers. If that doesn't say that the city has become a desirable place to locate, nothing will.

With more people moving into the city and businesses expanding, one would expect that retailers would be doing a lot better — and they are. The city sales tax revenues increased more than 10 percent. Since inflation was only about 2 percent, a lot more goods were sold.

And finally, the city's hospitality sector is benefiting from the improved national economy and the willingness of families to travel. The amusement tax take was up more than 9 percent.

If tax revenues are a window into an area's economy, then what we have is a city that is expanding quite nicely.

But Philadelphia's financial situation is not secure by any means.

City-based taxes and fees account for only about three-quarters of its revenue. The rest comes largely from the state and federal governments.

Unfortunately for Philadelphia, Pennsylvania is in a perpetual limited spending mode, and although federal government outlays are soaring, it is not for social programs, the city's greatest need.

Also, the city's expenditures are rising briskly. Philadelphia has the highest poverty rate of the 10 largest cities, which will continue putting pressure on city services.

Finally, school district expenses, as well as pension costs, are likely to expand at a pace that exceeds the increase in tax revenues. And the city can hardly expect the state or the federal government to step up to the plate to help.

Although the city has run operating surpluses recently, PICA estimates that it will start running deficits in the near term, especially if the wage tax, which is generally considered a major impediment to business attraction, growth, and retention, is reduced.

More has to be done to expand Philadelphia's tax base as well as control its expenditures. But the good news is that an awful lot has already been accomplished.

Philadelphia's finances are a lot better now than they have been in decades. Given Philadelphia's role as the home for much of the region's poorest and least educated, that is an impressive performance.

It is something more people should be talking about.