Phila. expects budget shortfall

The city's budget outlook is not getting any brighter and could easily get worse, administration officials said yesterday as they predicted a five-year shortfall of $841 million.

The number remains within the $650 million to $850 million gap in the city's five-year plan forecast by Mayor Nutter on Oct. 8. But by putting the figure at the top of that range yesterday and citing a host of unstable economic conditions and depressing revenue projections, Finance Director Rob Dubow acknowledged that "the number could go up."

Dubow testified before City Council's Committee on Fiscal Stability and Intergovernmental Cooperation, chaired by majority whip Darrell L. Clarke. The committee has been newly empowered to monitor budget developments throughout the year.

Dubow and Budget Director Stephen Agostini spent part of their testimony justifying the budget decisions and economic predictions made in the Nutter administration's first budget. They said that their estimates for modest growth in tax revenues from wages, business revenues, real estate transfers and sales were all undercut by a shaky economy, as were earnings of the pension fund.

To some Council members, Dubow's number already has gone up. Nutter's five-year plan depended on $50 million a year in savings that would result from the issuance of a pension obligation bond. That bond was supposed to shore up the city's underfunded pension fund up front and save the city from having to make catch-up payments each year.

Now Dubow and Agostini are reducing that figure to $35 million a year, and the savings would not begin until fiscal year 2011, which begins in July 2010.

Councilman Bill Green questioned whether the administration could count on floating that bond when credit markets are virtually frozen and there is no telling where the bottom of the recession lies.

Green put the five-year deficit at a minimum of $1 billion.

"Shouldn't we budget for that?" Green asked.

The bond market, which essentially lurched to a halt in recent weeks, could have other harsh consequences for the city, Dubow said. The city depends on bonds to borrow money for infrastructure and to pay bills in advance of tax revenues coming in.

If market conditions don't change, the city could have trouble borrowing to build the new Youth Study Center planned for West Philadelphia, Dubow said.

That could threaten the promise made to the residents of East Falls and North Philadelphia that the temporary site for the Youth Study Center - the old Eastern Pennsylvania Psychiatric Institute - would be for no more than three years. The altered bond market is likely to drive up the cost of borrowing in any event, he said.

Nutter has asked Council and row officers to cut budgets by at least 5 percent to address the growing crisis. Council already has agreed to a separate $367,000 cost reduction by declining to order 12 new vehicles its members were in line to get.

President Anna C. Verna first told Nutter she would not take a new vehicle; the others followed suit, according to chief accounting officer Anne Kelly-King.

Five of the 17 Council members were not expecting new cars - Clarke and Blondell Reynolds Brown were keeping their old ones; Green, W. Wilson Goode Jr. and James F. Kenney don't have city cars.

Goode said that he planned to cut his office budget 5 percent on top of what Verna's office came up with. Individual Council members have not been asked to cut back on personnel, although Council leadership insists that everything remains "on the table."