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The $103M question: How to fund the schools?

They want to fund the city's schools, yet every mayoral candidate bashes Mayor Nutter's solution - a property-tax increase.

The city could try again to tax sugary drinks. Such a plan has failed twice. (Bloomberg)
The city could try again to tax sugary drinks. Such a plan has failed twice. (Bloomberg)Read more

They want to fund the city's schools, yet every mayoral candidate bashes Mayor Nutter's solution - a property-tax increase.

Nutter, in turn, calls their ideas "bogus," from suing the state over school aid (Lynne Abraham), to asking private funders to chip in (Anthony Hardy Williams), to capitalizing on the liquor tax by keeping bars open later (Nelson Diaz, Doug Oliver). And he's cool to the City Council president's call for selling off commercial tax liens.

Maybe they should keep brainstorming.

As candidates and Council members wrangle over Philadelphia's biggest, prickliest issue this election year - how to fund its schools - experts say options besides Nutter's proposed 9.34 percent property-tax increase do exist.

Below are four.

None are likely to net the $103 million the School District wants, or provide the sustainable revenue stream Nutter hopes for.

But experts suggest viewing the list, from taxing plastic bags to squeezing pennies out of nonprofits, as an  a la carte  menu. No item alone is quite palatable or filling enough.

"The less you have to do of each one, the less bad it is," said Michael Masch, a former finance chief for both the city and the district. "The best course of action would be some creative compromise."

Cuts 'here and there'

In budget hearings, some Council members have wondered aloud what it would look like to cut $103 million from the proposed budget.

The answer from city officials: ugly. Experts say it would likely mean layoffs or salary cuts.

"My guess is, you could reduce through attrition here and there," said Stephen Mullin, who spent two years as finance director to Mayor Ed Rendell before becoming commerce director. "But it would be rather hard to cut anywhere close to $100 million in operating expenditures without a significant chunk of that being salaries."

Nutter could also trim some of the new spending proposed in his $3.95 billion budget - $5.5 million for the Department of Licenses and Inspections, $3.9 million to expand the summer jobs program, $3.6 million for police body cameras, training, and equipment.

"Theoretically all of those could be forgone," said Sam Katz, a former mayoral candidate.

More taxes?

If not property, perhaps another tax would do.

Masch said raising the city's use and occupancy tax, aimed at every business operating in the city, was feasible.

This tax on businesses, whether they occupy commercial space or are run from a home, is set at 1.13 percent of the property's assessed value. It would have to double to bring in $103 million, but a modest increase could garner part of the total, Masch said.

Councilwoman Maria Quiñones Sánchez considered this in 2013, in legislation she said would have raised $30 million for schools. But she did not bring the bill to a vote, saying she worried Harrisburg would see it as an excuse not to give Philadelphia its fair share.

It was clear, too, that the bill would put some on Council in a jam, forcing then to choose between aiding schools and assuaging business constituents.

The city could also impose new taxes on:

Plastic bags. Council considered a quarter-a-bag tax in 2009, but that, too, never got to a vote. In Washington, D.C., a nickel-a-bag tax instituted in 2009 brings in up to $200,000 monthly. That tax, though, is not considered a revenue generator. The bigger upside is environmental.

Airbnb. Many cities have tried to tax this online market for home rentals. Airbnb agreed to pay San Francisco millions in back taxes, and to pay that city's 14 percent hotel tax.

Marijuana. Philadelphia would first have to legalize it, either for medical or recreational use, then decide to tax it. The city's recent decriminalizing of small-amount pot possession makes this less of a pipe dream.

Soda. It's failed twice, but Nutter could try again to put a 2-cents-per ounce tax on sugary drinks. In 2011, the city projected such a tax would bring in $60 million a year for schools. But industry pushback was memorable. Masch, then with the district, said lobbyists swarmed City Hall.

For every school official on hand, he said, "there were two people paid by the beverage industry who were pulling City Council members out into the hallway and into their offices and working on them."

The city raised property taxes instead.

Take us to the PILOT

Council has urged a reluctant Nutter administration to take a closer look at this one: pressing nonprofits, especially the big "meds and eds," to make voluntary payments in lieu of taxes, or PILOTs, to cover a portion of what they'd owe in property taxes if they were not exempt.

Experts say instituting a PILOT program before the budget's annual June 30 deadline is a tall order, but possible. PILOTs were last used in the 1990s, when nonprofits kicked in to help the city through a financial crisis.

Katz said it could happen again "if there's political will."

The timing would be tight, but delay can be fatal, said Donna Cooper, Rendell's policy and planning director in Philadelphia and later in Harrisburg. It gives opponents time to organize.

"Anything in the political process can be done quickly," she said. "Most things happen quickly. . . . When they're slow, they die a thousand deaths."

In January, Council President Darrell L. Clarke seemed ready to press the nonprofits for help when he announced Council was looking to formalize how universities support local schools. He said contributions could be financial or in the form of services.

At the time, Clarke said he wanted to launch a program quickly. But he hasn't laid out a formal plan.

Creative budgeting

This is where the dark arts of what Masch calls budgetary "gimmicks" can serve the needs of politicians - in this instance, to provide a one-year fix for the schools.

"There will be a lot of temptation to do that," Masch said. "The mayor gets to say, 'I funded the schools at the level I wanted,' and the legislators who are running for office get to say, 'I didn't raise taxes.' And in the back room they may or may not all understand that, no, really they just kicked the can down the road for a year."

He said options include raiding an existing fund or underestimating an expense, such as debt service. Or the city could put off helping its pension fund, now in a $5.7 billion hole, for one more year.

That last one, Mullin said, would be "a really tough thing to sell."

"Is it really doable? The answer is yes, by a mile," he said. "But politically it may not be very easy."

He and others stressed that underfunding pensions, putting off infrastructure expenses, or shifting finances to get by - while feasible - would be risky, even negligent.

"We're kind of scraping by as it is, at best, with meeting those obligations and being good stewards for my kids and their kids," said Michael Nadol, a former city finance director. "And so to think about shorting that just to kind of get through this year, it's just the wrong way to go. Whatever the answer is here, I really hope it's more of a structural and sustainable approach."

215-854-2730 @TriciaNadolny