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The city budget has been a source of pain for past Philly mayors. Under Jim Kenney, it’s been a bright spot.

While Philadelphia still has enormous fiscal challenges and its socioeconomic issues would require billions more to address, the last eight years have put the city budget in a better position.

During Mayor Jim Kenney's tenure, the city budget has included healthy reserves and the pension fund has improved. Finance Director Rob Dubow, left, was instrumental in the administration's handling of fiscal matters.
During Mayor Jim Kenney's tenure, the city budget has included healthy reserves and the pension fund has improved. Finance Director Rob Dubow, left, was instrumental in the administration's handling of fiscal matters.Read moreAnton Klusener/ Staff illustration; Staff photos/ Getty Images

Mayor Jim Kenney will undoubtedly be remembered for the crises that gripped Philadelphia during his tenure.

So it’s easy to forget that the city budget, the cause of crises for so many past mayors, has largely been a success story during his administration.

The city’s credit ratings are up, the pension system’s unfunded liability is down, and annual budgets finally include adequate cash reserves, finance experts say. Meanwhile, the city has managed to incrementally cut the wage and business taxes while increasing its contribution to the school district.

Philadelphia still has enormous fiscal constraints, its socioeconomic issues would require billions more to address, and city services have suffered since the pandemic. But when judged by the typical measures of the city’s fiscal health, the last eight years have put Philly in a better position for the future.

» READ MORE: Mayor Jim Kenney wants to be remembered as ‘someone who cared’ — even if he didn’t always seem like it

Kenney, who leaves office in January, has benefited from a strong national economy and an unprecedented $1.4 billion in federal pandemic relief. And recent gains can be seen as the result of decades of consistent fiscal policy that began after the city’s early 1990s fiscal crisis.

But by most accounts, Kenney’s administration — under the guidance of a longtime city finance official — made smart moves, making significant new investments in social services while addressing long-standing fiscal dilemmas.

“The mayor made strategic policy decisions about what he was able to spend money on,” said Kevin Vaughan, who chairs the Pennsylvania Intergovernmental Cooperation Authority, a state board that oversees the city’s finances, and worked on Kenney’s 2015 election. “They’ve put money aside, they made sure that the fund balance was funded, they made sure that their union contracts were funded. That’s a big one for the city.”

Kenney is not without critics when it comes to his handling of the budget. The Chamber of Commerce for Greater Philadelphia has pushed for more aggressive tax cuts to promote job growth. Progressive leaders have called for the city to maintain or raise taxes to generate more revenue for needed services.

And many are concerned that city spending, which increased by more than 50% under Kenney, could become unsustainable.

But barring an unexpected economic downturn, Kenney will leave Mayor-elect Cherelle Parker in a strong position when she inherits the city’s $6.3 billion budget in January.

The man behind Kenney’s budgets

One of the more consequential moves Kenney made was retaining Finance Director Rob Dubow, who held the same title under former Mayor Michael A. Nutter and has had key roles in city finance for decades.

Although he is largely unknown to the general public, Dubow holds enormous influence in City Hall. His preferences for making small but consistent tax cuts, boosting annual reserves, and prioritizing the pension fund have won the day under both Nutter and Kenney, despite the two mayors being political enemies.

“After years of financial crisis and economic volatility, it was important to make it clear to key stakeholders — including ratings agencies, investors, and PICA — that the administration valued continuity of leadership and sound financial management over political differences,” Kenney said of keeping Dubow.

Dubow has been finance director for 16 years — a decade longer than anyone else since at least the 1950s — and he doesn’t appear to be going anywhere. Parker is encouraging him to stay on in her administration, according to two sources with knowledge of the talks.

Dubow declined to comment on his future, but said Kenney deserved credit for having “discipline” when faced with funding requests that could have overextended the budget.

“He’s the one who has to make the hard decisions,” Dubow said. “While we’re in better fiscal shape, part of it is he is willing to say no to things. And he gets calls about it, and he’s willing to stick with it.”

Kenney only once had to deal with a serious threat to the city budget, and it turned out to be short-lived. Initially, the pandemic appeared like it could devastate city finances, and Kenney had to plug a projected $749 million shortfall.

The resulting $4.8 billion budget deal approved in June 2020 included targeted layoffs, reductions in city services, and a temporary freeze on tax cuts. But federal aid came, and tax revenues rebounded more quickly than expected. The next budget restored spending to roughly pre-pandemic levels.

More money, one problem

At the end of his first term, in 2019, Kenney was flying high with progressive accomplishments and thoughts of higher office. But the budget had grown a staggering 25% — from roughly $4 billion to $5 billion — and it appeared to many that the city was once again in a period of runaway spending.

As his second term draws to a close, Kenney has seen his popularity fall. The city budget, though? Couldn’t be better.

In fact, the city is struggling to spend the money it is collecting, a predicament past mayors could only dream of. But that is due in part to the city’s difficulties with hiring: About one in five city jobs are currently vacant. While that is good news for the city budget, it has been disastrous for city services, from policing to building inspections.

» READ MORE: Amid a staffing crisis, Philly Mayor Jim Kenney urged people to apply for city jobs: ‘We need your help’

The fund balance, or the amount of money left unspent, was $981.6 million for the budget year that ended in July, the highest its ever been. That left the city just shy of the level of reserves that the Government Finance Officers Association recommends: 17%, or about two months of spending. At $681.8 million, this year’s projected fund balance is also much larger than usual.

The fund balance doesn’t include $449 million that the city still hasn’t spent from its $1.4 billion in federal pandemic relief. That money must be spent by the end of 2024, giving Parker even more wiggle room in her first budget.

Philly has taken a conservative approach to the unprecedented federal windfall. While other cities dedicated money to one-time projects, Philly categorized all of its relief funding as needed to replace revenue lost during the pandemic.

City Councilmember Jamie Gauthier has for several years pressed the Kenney administration to spend more on city services that would improve the quality of life in neighborhoods most acutely impacted by gun violence.

» READ MORE: City Council wants the next budget to fix ‘black hole’ created by quality-of-life problems, from trash to broken streetlights

“We’ve taken a somewhat conservative approach that has definitely helped our [cash reserves], definitely helped our financial stability, but I think that coming out of that dark time, I would have invested more heavily in the well-being of neighborhoods,” said Gauthier, who was the only member to vote against the current budget. “There’s also an aspect of just having people feel good about living in the city.”

Bond ratings and pensions

Philly now has its best combination of credit ratings in 40 years, according to the administration. Stronger ratings save money for local taxpayers by reducing the city’s borrowing costs.

Since 2013, all three major agencies have given Philly’s general obligation bonds versions of “A” ratings. During Kenney’s administration, the ratings and outlooks have improved. Philly’s grades are now slightly worse than those of New York City and Los Angeles, and slightly better than Chicago’s.

“Fitch believes the city will continue its trend of prudent and conservative budget management,” the agency said in a May report.

A big reason for the improved ratings is Philly’s recent success in shoring up its municipal pension system, a trouble spot for many cities.

The pension fund was only 44.8% funded when Kenney took office. It is now 57.6% funded, and the city projects it will be 80% funded in five years, a remarkable turnaround driven by labor contract reforms, investment strategy changes, and a dedicated revenue stream from a sales tax increase approved before Kenney took office.

» READ MORE: How will a new mayor handle Philadelphia’s biggest expense — pension funding — especially with a threat of recession?

Kenney, whose father was a Philly firefighter and who was elected with strong labor support, had enough credibility with the municipal unions to achieve pension reforms. He convinced them to increase employee contributions and reduce benefits for new hires, offering significant raises in return.

Budgeting for hindsight

Still, some financial decisions — or shortcomings — of the Kenney era may appear worse in retrospect. The city payroll grew exorbitantly during his first term. And the city remains dependent on the highly volatile wage tax, which could become more problematic if the exodus of office jobs from Center City continues.

Kenney also championed a new tax on sweetened beverages that raised revenue but that critics say is regressive. Additionally, his administration has struggled to fairly and consistently reassess real estate, a problem that most agree needs to be fixed before tackling broader tax reform.

» READ MORE: A timeline of Philadelphia’s soda tax

Sam Katz, a former Republican mayoral candidate and municipal finance expert, generally praised Kenney’s handling of fiscal issues. He even went so far as to say that the beverage tax, which Katz opposed, showed the mayor was willing to pay for his priorities.

But Katz warned that while Kenney balanced the books during his time, the overall growth of city spending under his watch may look different in hindsight.

“At the point in time that you ultimately face the downturn in the economy, which translates into lower tax collections,” he said, “we can look back and say all those good things that he did to benefit the city’s employees, which they may have deserved, may then become unaffordable.”