A week before Mayor Jim Kenney presents City Council with his budget proposal for next year, City Controller Rebecca Rhynhart is questioning the wisdom of steep spending increases during his tenure.
The city’s now-$5 billion budget has grown well beyond what it was before the 2008 financial crisis, Rhynhart’s office found in a report released Wednesday that analyzed spending levels from 2006 through last year. That growth was driven largely by increased personnel spending, and made possible by an expanding economy, rising property assessments, and Kenney’s new tax on sugary beverages.
The report from Rhynhart, the city’s elected fiscal watchdog, described as “opaque” the administration’s pattern of pouring more money into city agencies.
“Rather than increasing spending in discretionary areas, the City could address long-standing challenges with the City’s finances and tax structure," the report said. “The high wage tax is often cited as a cause for weak job creation compared to other cities, and multiple studies have recommended that Philadelphia should become less reliant on wage tax, which has been found to suppress business development and is especially vulnerable to economic volatility.”
Kenney spokesperson Mike Dunn said the administration is continuing the city’s long-standing practice of modest annual wage-tax cuts and disputed Rhynhart’s characterization of its decision-making process.
“There’s nothing opaque about any of this, particularly given that each operating budget … is fully debated in public hearings over three months each year," Dunn said in a statement. "Our policies, priorities and commitments are an open book — in fact several large books will be delivered to Council, and to Philadelphia residents and taxpayers, next week.”
The report marked the latest chapter in a frosty relationship between Kenney’s administration and Rhynhart, who served as budget director under Mayor Michael Nutter and became chief administrative officer early in Kenney’s tenure. After leaving that post and winning an upset victory against former City Controller Alan Butkovitz in the 2017 Democratic primary, Rhynhart has frequently butted heads with the administration.
It’s also the first time Rhynhart has released an analysis of city spending just as Council and the administration prepare for budget season, which begins next Thursday with the mayor’s budget address and includes weeks of hearings on agency spending priorities.
Rhynhart, who is seen as a potential mayoral candidate in 2023, said the timing wasn’t an accident.
“A strategy to lower the wage tax or change the tax structure to incentivize business growth is something that seems to have gotten lost from the conversation,” she said in an interview, “and I do want to raise that because a time with significant resources, which the city is in now, is the time to think strategically about something like that.”
In the 2009 fiscal year, just before the recession devastated city coffers, the annual budget was just shy of $4 billion. It tumbled to about $3.5 billion in 2012, amid tense debates over painful cuts during Nutter’s administration.
While the budget recovered to almost $4 billion by the time Nutter left office, it has grown much more rapidly under Kenney, Rhynhart’s report found. From 2017 to 2019, a time when price inflation in the Philadelphia area grew only 3%, the city’s budget increased by more than 7% each year.
With wages for city workers growing modestly during that period, and purchases of services and materials declining, the primary cost growth driver was an increase in the number of city employees, Rhynhart said.
Since being sworn in to a second four-year term last month, Kenney has laid out a vision of using the city’s continuing fiscal boom to bolster support for education, prioritize public safety, and bring street sweeping to every neighborhood. He has not indicated he will make tackling the city’s tax structure a significant priority.
At 3.9% for city residents and 3.5% for suburban commuters, Philadelphia’s wage tax is the highest of any large U.S. municipality. In an effort to reduce its reliance on the volatile tax, the city has made a minor reduction in the rate almost every year since 1995.
Dunn said the five-year spending plan Kenney will release next week, along with his annual budget proposal, will include continued decreases in the rate.
“Mayor Kenney is committed to ensuring job growth in the city and to continuing gradual reductions in the City’s Wage Tax rates to make Philadelphia more competitive,” Dunn said. “These reductions will happen while still funding important new investments in key priorities.”