In the "My Philadelphia" contest, students from Philadelphia shared their visions of the city. Check out the winning entries.
"My Philadelphia"
User login
SYNDICATE CONTENTCitizens Agenda: Taxes and Budget
Nov. 25, 2007
Here is the problem: Philadelphia has the second-highest tax burden among America’s big cities. Yet the city still lacks money to provide the services its citizens have every right to expect in return for paying that hefty tab.
It’s not as though the city isn’t spending money. The sums City Hall spends for basic operations have gone up at double the rate of inflation during the last five years (23 percent vs. 12.2 percent).
What’s up with all that? You can’t just blame it on tax-and-spend habits at John Street’s City Hall, as tempting as that may be to some. Mayor Street has in fact cut taxes steadily, if sometimes reluctantly. He’s been pleasantly surprised, along with many skeptical citizens, that economic growth spurred by the cuts has kept city revenues healthy.
Street also has reduced the operating budgets of many city departments. Adjusted for inflation, spending for department operations has gone up a paltry 1 percent total during Street’s second term.
So where’s all the money going? To run prisons. To pay debt service. And, most of all, to pay for employee benefits, mostly pensions and health care.
Benefit costs are up 64 percent during the last five years, five times the inflation rate.
These are baked-in-the-cake expenses, mandated by union contracts. If they remain unchanged, they will continue to rise – and rise and rise and rise.
When Street took office in 2000, 13 cents of every dollar spent on city government went to benefits. This year, the figure is 21 cents. Four years down the road, it is projected to be 25 cents.
On City Council, Michael Nutter forced Street to cut taxes faster than the mayor wanted. As mayor-elect, Nutter rightly wants to keep whacking the wage tax, slash job-killing business taxes, and fix the outdated, unfair property tax system.
In an ideal world, a mayor would be able to cut taxes, improve services and preserve union benefits. In the gritty real world, where federal aid to cities is weak and state aid fragile, Nutter won’t be able to do all three. He’ll have to choose.
Here’s some advice on those choices:
The No. 1 Priority: Keep cutting wage and business taxes aggressively.
Why it matters:
The city will never develop the job base it needs to lift people from poverty and support a strong middle class if its tax burden stays this big. When taxes are as uncompetitive as Philadelphia’s, cutting them really does spur growth that replaces much of the lost revenue. It’s worked that way so far; this is no time to stop.
The city will never develop the job base it needs to lift people from poverty and support a strong middle class if its tax burden stays this big. When taxes are as uncompetitive as Philadelphia’s, cutting them really does spur growth that replaces much of the lost revenue. It’s worked that way so far; this is no time to stop.
What to do:
Stick, no matter what, to the targeted reductions in the residential wage tax and commuter tax through 2015. Use any casino revenues to accelerate, not replace, that city effort. Take down that Keep Out! sign to entrepreneurs, a.k.a. the gross-receipts business tax. Eliminate that levy by 2015, while reducing the net profits tax rate to parity with the wage tax rate.
Stick, no matter what, to the targeted reductions in the residential wage tax and commuter tax through 2015. Use any casino revenues to accelerate, not replace, that city effort. Take down that Keep Out! sign to entrepreneurs, a.k.a. the gross-receipts business tax. Eliminate that levy by 2015, while reducing the net profits tax rate to parity with the wage tax rate.
Near-term actions
Tough at the table:
Don’t blink during the contract talks for all non-uniformed employees this year. The mayor, and the public, must be willing to take a strike to get pension and health-care costs under control. If that doesn’t happen, forget about fulfilling many of the nice promises Nutter made to get elected. A two-tiered retirement plan, with a less-costly benefit for younger employees and new hires, is a must. So is more cost sharing and cost containment on health care.
Don’t blink during the contract talks for all non-uniformed employees this year. The mayor, and the public, must be willing to take a strike to get pension and health-care costs under control. If that doesn’t happen, forget about fulfilling many of the nice promises Nutter made to get elected. A two-tiered retirement plan, with a less-costly benefit for younger employees and new hires, is a must. So is more cost sharing and cost containment on health care.
Public budgeting:
Invite meaningful, timely taxpayer input on budget priorities and trade-offs. Work with civic groups such as the Economy League to create plain-English budget documents that connect dollar figures to real-life outcomes. Nationally, innovations such as online budget games and “Budgeting for Outcomes” hearings abound; try some of them.
Invite meaningful, timely taxpayer input on budget priorities and trade-offs. Work with civic groups such as the Economy League to create plain-English budget documents that connect dollar figures to real-life outcomes. Nationally, innovations such as online budget games and “Budgeting for Outcomes” hearings abound; try some of them.
Cut the “political tax”:
Find money for real priorities by eliminating the hidden waste from pay-to-play politics. It should help that the new mayor won office while abiding by campaign-finance rules that he helped pass. Offer no sweetheart, no-bid contracts. Put routine legal/investment work – on bonds, for instance – out to national bid. Many cities have saved big doing that.
Don’t mess with success:
Keep the citywide property tax abatement for new construction and renovation. It has fueled a construction boom while actually raising tax revenues. Do reduce it from 100 percent to 90 percent, earmarking the 10 percent in revenues to feed the city’s affordable housing fund. Do not pursue Nutter’s plan to adjust the abatement rate between neighborhoods; the real estate market is too fragile and volatile.
Keep the citywide property tax abatement for new construction and renovation. It has fueled a construction boom while actually raising tax revenues. Do reduce it from 100 percent to 90 percent, earmarking the 10 percent in revenues to feed the city’s affordable housing fund. Do not pursue Nutter’s plan to adjust the abatement rate between neighborhoods; the real estate market is too fragile and volatile.
Back to basics:
Focus long-term borrowing on raising capital for overdue repairs and renovation to the city’s basic infrastructure. Too much long-term debt has been incurred recently to pay for flashy pet projects.
Focus long-term borrowing on raising capital for overdue repairs and renovation to the city’s basic infrastructure. Too much long-term debt has been incurred recently to pay for flashy pet projects.
Long-terms efforts
Bite the bullet:
Ignore the howls and reassess the city for property taxes at full market valuation. The current system is slapdash, confusing and unfair; it makes lower-income homeowners subsidize tax bills for affluent condo dwellers. What’s more, if the city procrastinates, the courts probably will order a revaluation. If the city does the job willingly, it can build in proper buffers against huge, year-over-year tax increases (e.g. a five-year rolling average of assessments) and protections for low-income seniors (e.g. escrow tax increases, to be paid at sale of the home).
Ignore the howls and reassess the city for property taxes at full market valuation. The current system is slapdash, confusing and unfair; it makes lower-income homeowners subsidize tax bills for affluent condo dwellers. What’s more, if the city procrastinates, the courts probably will order a revaluation. If the city does the job willingly, it can build in proper buffers against huge, year-over-year tax increases (e.g. a five-year rolling average of assessments) and protections for low-income seniors (e.g. escrow tax increases, to be paid at sale of the home).
Soften the bullet:
Take other steps to ease the pain of a reval. City Council must discipline itself to set property tax millage after an annual reval, not before; that means a lower millage and no more back-door tax increases. Consider a “homestead exemption” for a fixed percentage of assessed value, to help the city’s many lower-income homeowners. Consider basing a larger share of tax assessments on the value of the land, as opposed to buildings. This punishes land speculation and rewards homeowners for improving their properties.
Take other steps to ease the pain of a reval. City Council must discipline itself to set property tax millage after an annual reval, not before; that means a lower millage and no more back-door tax increases. Consider a “homestead exemption” for a fixed percentage of assessed value, to help the city’s many lower-income homeowners. Consider basing a larger share of tax assessments on the value of the land, as opposed to buildings. This punishes land speculation and rewards homeowners for improving their properties.
Farm work out:
Revive the Rendell-era quest to find savings by contracting out some city services. The litmus test: If a city function involves its legal enforcement powers – e.g. inspections, prisons – it shouldn’t be contracted out. But if it’s the kind of customer service that businesses already do (e.g. grass-cutting, maintenance), put it out for competitive bid, and let the unions compete for the work.
Revive the Rendell-era quest to find savings by contracting out some city services. The litmus test: If a city function involves its legal enforcement powers – e.g. inspections, prisons – it shouldn’t be contracted out. But if it’s the kind of customer service that businesses already do (e.g. grass-cutting, maintenance), put it out for competitive bid, and let the unions compete for the work.
Buy a watchdog:
Set up a smart, independent, citizen-friendly, results-oriented fiscal watchdog for Philadelphia like the federal GAO or New York City’s Independent Budget Office. Philly has agencies and nonprofits that do elements of that, but all have drawbacks: too politicized, too regional or too obscure.
Set up a smart, independent, citizen-friendly, results-oriented fiscal watchdog for Philadelphia like the federal GAO or New York City’s Independent Budget Office. Philly has agencies and nonprofits that do elements of that, but all have drawbacks: too politicized, too regional or too obscure.
A worthy partner:
Do a much better job of making the case for more regional, state and federal aid to the city. The city whines a lot, but rarely looks honestly at how its bad habits – corruption, hardball partisanship, mixed signals on priorities, weak accountability, and failures to plan for the long term – compound its problems in getting a fair share of aid.
Do a much better job of making the case for more regional, state and federal aid to the city. The city whines a lot, but rarely looks honestly at how its bad habits – corruption, hardball partisanship, mixed signals on priorities, weak accountability, and failures to plan for the long term – compound its problems in getting a fair share of aid.
Ideas from citizen forums
Case not made:
Frankly, were this agenda to echo the majority views expressed at forums, it might oppose, not endorse, aggressive tax-cutting. Natives complain as well about the tax abatement, seeing it as unfair coddling of the rich. And full market valuation is a prospect that causes spasms of anxiety and anger among many. This citizen input tells advocates of these fiscal steps that they must do a much better job of presenting the evidence and clarifying the math. They must show how these steps support citizen priorities such as equity in taxes and services, job creation, and neighborhood stability. More listening, less lecturing might help.
Promote the abatement:
In that vein, citizens said the city needs to do a much better job of promoting and explaining the tax abatement for construction and renovation in neighborhoods outside Center City, and to individual homeowners, as opposed to developers. Once people hear that the program is available citywide, and applies to renovation as well as new construction, support increases.
(Illustration by Tim Ogline)
