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Philly’s budget is in its best shape in years. But Mayor Jim Kenney’s administration is worried about future risks.

The city finished last budget year with a $779 million fund balance, which refers to money left unspent, and projects it will finish this year north of $500 million.

City Council is poised to approve a midyear budget transfer that will help shore up the Pension Fund amid lower-than-expected investment returns.
City Council is poised to approve a midyear budget transfer that will help shore up the Pension Fund amid lower-than-expected investment returns.Read moreHeather Khalifa / Staff Photographer

Philadelphia, which in the 1990s nearly became the first major U.S. city to declare bankruptcy and which has struggled to adequately fund many basic services for decades, is now in an unfamiliar position.

City coffers are flush with cash, and Mayor Jim Kenney’s administration is struggling to spend money.

The city finished last budget year with an unprecedented $779 million fund balance, which refers to the amount of money left unspent, and projects it will finish this year with north of $500 million unspent out of $5.73 billion in projected revenues.

That’s just above the city’s goal of leaving up to 8% of revenue unspent, but still well below the Government Finance Officers Association’s recommendation to reserve the equivalent of 17% to deal with unexpected financial difficulties.

» READ MORE: How short staffing across Philadelphia city government affects you

The cash influx is due to myriad factors, including unexpectedly high tax collections, especially in the business and real estate transfer levies; a slow-spending approach to the $1.4 billion in federal aid Philly received from the American Rescue Plan; and difficulties filling positions amid a tight labor market affecting local governments across the country.

The strong cash position has made Wall Street view the city more favorably: Fitch upgraded its ratings of Philadelphia’s city bonds from “A-” to “A” over the summer, which saves Philly taxpayers money when the city takes out loans.

But the staffing shortages that have helped make the situation possible are significantly affecting city services. About 18% of city jobs are vacant, and the problem is getting worse: The city had 135 fewer employees at the end of September than it did at the end of June, despite efforts to boost staffing levels. About 4,600 of the city’s 25,489 budgeted jobs were vacant at that time.

The city uses empirical measures to judge the effectiveness of many of the services it provides — such as the number of nuisance properties inspected within 20 days of a complaint — and its most recent Quarterly City Managers Report showed 71% of services were meeting or exceeding their targets.

“Philadelphia ended [fiscal year] ’22 with a higher fund balance than expected, but this reflects services that residents didn’t receive as we struggled to fill positions and onetime spikes in volatile tax revenues,” Budget Director Marisa Waxman told City Council members last week. “We’re also preparing for future economic deterioration as many economists predict an upcoming recession.”

The Kenney administration is continuing its cautious approach to using federal aid the city received to deal with the effects of the coronavirus pandemic. Of the $1.4 billion Philly got from Washington, the city spent $250 million last year and plans to use an additional $335 million this year, leaving more than $840 million available in the next two years.

Council members have urged the administration to be more aggressive in spending amid the gun violence epidemic and the uneven economic recovery since 2020.

Councilmember Isaiah Thomas, who sits on the Appropriations Committee, recently called for using more of the city’s unspent revenues on anti-violence programs, some of which is reflected in a $275 million midyear budget transfer advancing through Council.

“We’re all working together, all rowing in the same direction,” Thomas spokesperson Max Weisman said. “We just hope that there’s as much of a sense of urgency on the spending side of things as there is on the appropriating side of things.”

Council’s Committee on Appropriations last week approved the budget transfer bill, which included $210 million for the Pension Fund to make up for lower-than-expected investment returns and $25 million for the city’s rainy day fund, a rarely used reserve that is separate from the fund balance. The administration is also setting aside $25 million for a fund aimed at helping city agencies navigate inflation and a potential recession.

Council added an additional $16.5 million to the transfer ordinance, including $3 million for Sayre-Morris pool, $3 million for labor costs at the District Attorney’s Office, and $3 million for the African American Museum of Philadelphia.

While the city can afford those funding boosts now, Waxman said the administration is concerned about dipping too far into its reserves given the economic uncertainties over the coming year.

“Unfortunately we’re driven by a lot of things [like] the war in the Ukraine,” Waxman said. “How cold this winter is in the U.K. is going to determine how much we’re paying for natural gas. I can’t control British weather, but what we can do is make sure that, financially, we have the resiliency to weather these shocks.”