Mayor, Council reach an accord on tax rise

May 12, 2009|By Jeff Shields and Marcia Gelbart, Inquirer Staff Writers

Dropping his push for a steep but temporary two-year increase in property taxes, Mayor Nutter yesterday agreed to back City Council's proposal for a five-year sales-tax increase to help close Philadelphia's $1.4 billion budget deficit.

Ending a weeks-long stalemate, the two sides announced a five-year budget deal that also calls for an unusual two-year delay in $230 million worth of annual contributions to the employee pension plan.

"We have collectively engaged in a series of what anyone would consider heavy lifts, and through that process, we are unified in our commitment to the citizens of this city," Nutter said at a late-afternoon news conference, surrounded by 10 of the 17 Council members. "We have found common ground.

Besides the property-tax rise, Nutter had also supported a sales-tax increase for three years and rejected City Council's five-year sales-tax alternative.

"We did hear what the citizens of Philadelphia told us, and today we want them to know that hearing them, we are acting in one voice," Council President Anna C. Verna said. She and Nutter stressed the need for Council and the mayor to speak with a single voice as Philadelphia's budget battle turns to Harrisburg.

The city's plan hinges on what happens in the capital, since the General Assembly's approval is required for the city to increase the sales tax from 7 percent to 8 percent, delay the pension payments, and make other changes to the accounting of the pension fund.

Instead of paying a total of $230 million into the plan in 2010 and 2011 - about 30 percent of the city's total obligations to the pension fund - the city will wait to deposit those dollars until 2012, paying the entire sum by 2014.

Until now, the city had planned to ask the legislature to let it spread its liability for pension payments from 20 years, as is currently the law, to 40 years. The plan as of yesterday cuts that to 30 years, an apparent concession to general concerns of overburdening future generations with pension obligations.

As Nutter acknowledged, the fight in Harrisburg will not be easy - and if the city loses, drastic layoffs and service cuts could be in store for Philadelphia.

"It was difficult before, and it's more difficult now," Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi (R., Delaware), said of the latest proposal, which calls for raising the sales tax for five years instead of three.

He called the request for a pension payment delay "another complicating factor."

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