Mayor Nutter plans to unveil his city budget this week, and already the municipal unions and some City Council members are digging in for a fight.
The final numbers are still being tweaked, but it seems clear Nutter plans no raises for employees and wants union workers to contribute more toward their health and pension costs.
Many of those measures - while painful for the workers - are long overdue and badly needed. If anything, the proposed pension and health-care cuts don't go far enough.
One plan being floated by Nutter called for reducing health and pension costs by $125 million over five years. That seems like a lot, until you measure that savings of $25 million a year against a $4 billion annual budget.
Health and pension costs for city workers come to $960 million a year. So, a reduction of $25 million is only a 2.6 percent cut.
Most of the proposed savings would come from the health costs, which are about $369 million or almost 10 percent of the annual budget. Keep in mind that the city's unionized workers in most cases pay little or nothing toward their health-insurance premiums and have a co-pay of only $5 for a doctor visit.
From fiscal 2002 to 2007, the city's health-care costs jumped 80 percent. Among other big cities, only Detroit spends more per worker on health care than Philadelphia's roughly $12,500 per employee.
So, Nutter is on the right track on health insurance, but the savings need to be even greater. Nutter is also correct in asking employees to increase their contributions toward their pensions.
The city's annual payment to the pension fund has jumped from $150 million in 2003 to $350 million last year, while employee contributions are below the rate in most other cities.
Last week, Nutter proposed bills that would eliminate cost-of-living increases for retirees and do away with the guaranteed 4.5 percent return on pensions for soon-to-retire employees in the so-called DROP program.
The unions are already squawking.
Brian McBride, head of the local firefighters union, said it was "unrealistic" for Nutter to think employees are "going to have to give up benefits and raises and everything else to satisfy this budget."
Perhaps he'd rather see layoffs.
Given that 60 percent of the city's annual budget - or $2.4 billion - goes to fund salaries, benefits, and pensions for employees, that's exactly where Nutter needs to reduce costs.
If anything, city workers are getting off easy in this budget-cutting process. Other governments and businesses impacted by the economic collapse have slashed jobs.
Nutter has so far avoided layoffs. Instead, he's asking city residents to shoulder most of the pain.
After ending most tax cuts last year, Nutter is now poised to raise property and sales taxes. One proposal calls for raising property taxes by 17 percent and increasing the sales tax by 14 percent. The two tax hikes are supposed to be temporary and rolled back in a couple of years, but don't hold your breath.
Several Council members are rightly resisting any increase in property taxes, which would drive down property values even further and hike costs for Philadelphians who are already struggling.
That leaves Nutter getting push-back from both sides. Given that the city's taxes are already among the highest, he needs to reconsider that approach. Instead, the mayor needs to cut costs even more. He is going to get a fight from the unions on any trim, so he might as well aim high.
One thing is very clear: If Nutter doesn't use the worst financial crisis in recent memory to dramatically lower the city's cost structure, these budget woes won't go away, even when the economy turns around.