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Questions and answers on Phila. budget

Philadelphia has been in a state of fiscal crisis for more than a year. The twists and turns have been difficult to follow, particularly in recent months, as the action has shifted to Harrisburg.

Philadelphia has been in a state of fiscal crisis for more than a year. The twists and turns have been difficult to follow, particularly in recent months, as the action has shifted to Harrisburg.

So let's recap:

Why is Philadelphia broke?

Although the city has been in precarious financial shape for years, the collapse of the national economy caused the current crisis. Tax collections plummeted and the city pension fund was hit hard by the stock market collapse.

Thus far, the city has pared $1.7 billion from its five-year spending plans. Even so, Philadelphia is $700 million short of what Mayor Nutter says it needs for the next five years.

How come Harrisburg is involved?

Because the city's plan to close the $700 million gap is based on a temporary sales-tax hike and a two-year deferral of payments into the pension fund. The city needs the approval of state lawmakers for both.

Could the city have solved the problem on its own?

Theoretically, yes. Nutter and City Council could have cut spending further. They could have raised property taxes or business taxes without state approval. They also could have raised the wage tax, although that was unclear at the time a budget deal was reached.

But drawing up a budget in this economic climate without state help would have been extraordinarily difficult. Nutter initially proposed a temporary 19 percent property-tax hike, and even that would have required a sales-tax hike and other state assistance.

Why are state lawmakers taking so long?

The city's budget legislation was not introduced until July 3, more than a month after Nutter and Council had reached a deal. After that, the city's requests got caught up in bigger political debates, such as Gov. Rendell's fight with Senate Republicans over the state budget. Later, the bill became a vehicle for broader statewide pension reforms.

What pension reforms are included?

At this point, not many. The Senate had sought to reduce the cost benefits for future Philadelphia workers and to cap the pensions of current employees. But the House stripped that language out of the bill yesterday. The legislation does, however, still include a ban on participation in the Deferred Retirement Option Plan for future elected officials.

What is PICA, and why does it matter?

The Pennsylvania Intergovernmental Cooperation Authority is a state agency with authority over the city's long-term planning. Its five-member board must approve Philadelphia's five-year plan.

Yesterday, PICA conditionally approved a five-year plan that assumes the state will come through with sales-tax and pension help. If that does not happen by Sept. 18, Nutter will have to go back to PICA with Plan C, which would spell out how the city would get by without state help.

What is Plan C?

It is Nutter's "doomsday" budget, his fallback plan in the event Harrisburg does not come through for Philadelphia. The plan closes the budget gap entirely through spending cuts, and includes such extreme provisions as eliminating court-system funding, shutting down all libraries and recreation centers, deep public-safety reductions, and up to 3,000 layoffs.

PICA was scheduled to vote on Plan C yesterday but instead sent it back to the administration. The agency gave Nutter an unambiguous message: Rewrite Plan C and come back with a more reasonable version that includes funding for the courts.

Wait, this doesn't add up; why would the cuts need to be so big?

Given the city's $3.8 billion budget, the $700 million over five years does not seem at first glance like enough to warrant such widespread layoffs and service cuts.

But the five-year $700 million deficit is front-loaded, meaning it will hit the city hardest in the first two years, requiring sharper cuts now. Further, much of the city's $3.8 billion budget is locked up in costs Nutter cannot control, such as payments on bonds and pension obligations.

When would Plan C go into effect?

The official date is Oct. 2. Another key date is Sept. 18, when layoff notices would go out to city workers.

If enacted, can Plan C be rolled back?

Not very easily, and not very quickly. If, for instance, Harrisburg approved the city's relief legislation in December, Philadelphia could begin hiring its workers back and eventually start reopening libraries and other facilities. But the bureaucratic procedures for bringing laid-off workers back are complicated and time consuming. Nutter administration officials say it would take months to complete the process.

So where do things stand?

The city's budget-relief bill is back in the Senate, where its fate is uncertain. Republican leaders there had hoped to get broad pension reform out the deal. Now that those elements have been stripped out of the bill, it is unclear whether they will still support it. A vote is expected next week.