How a gap in city's budget became a $1 billion canyon

Green, too, said the pension bond was "speculative," and described the administration's projections for real estate transfer, business-privilege, and wage taxes as overly aggressive.

He pointed out, for instance, that the administration assumed wage-tax growth would exceed inflation and that real estate transfer taxes would flatten out and show small growth after two years of strong decline.

"It was clear that the economy was slowing down, and I thought it was unreasonable to expect we were going to have all kinds of tax growth in all kinds of categories," said Green, who nevertheless voted with all 16 fellow Council members to approve Nutter's budget.

Green acknowledged that different forecasts would not have changed the city's predicament, but argued that making tougher choices in the spring would have alleviated some of the pain now.

Others, including Butkovitz and the Pennsylvania Intergovernmental Cooperation Authority, which must approve the city's five-year plan as required by the state, signed off on Nutter's revenue projections and are not changing their tune now.

"I don't think Green or anyone else foresaw a $250 million annual problem," said Tony DiMartino, assistant city controller.

"To be perfectly frank," said Uri Monson, executive director of PICA, "if I went to my board and said they can't approve the plan because business-privilege taxes are going to be $40 million under and Lehman Bros. is going to file for bankruptcy, they would fire me."

City budget director Stephen Agostini built the econometric model predicting growth in the city's economy. It includes information from the Congressional Budget Office, the Federal Reserve, and the Blue Chip Economic Indicators.

Agostini said the city's projections had been circulated among experts and compared with national numbers, but "everybody's going to be wrong" in the kind of dynamics that have shaken the economy since the summer.

"Many of us have not seen this in our lifetime," he said.

Going forward, Agostini said, the city's fortunes will rise and fall with the economy.

"If the economy goes in the tank in the next three to six months - which is conceivable - all bets are off," he said.