Phila. among few big cities entertaining tax hikes

Posted: May 19, 2009

Few major U.S. cities are trying to raise taxes to close budget shortfalls amid the economic downturn, according to a report issued yesterday.

Of 13 cities studied, just four - including Philadelphia - have proposed or enacted tax increases as a way of generating revenue and preserving services and jobs.

The study, from the Pew Charitable Trusts' Philadelphia Research Initiative, also found that Philadelphia falls somewhere in the middle in the size of its projected budget gap for next year, with a $428 million shortfall representing about 11 percent of its $3.8 billion budget.

Seattle was in the best fiscal shape of the cities studied, with a deficit amounting to 5 percent of the budget, while Detroit faces the toughest times, with a 20 percent shortfall.

Pittsburgh stood alone in having a small surplus, largely because of a government overhaul five years ago as a result of a previous financial crisis.

"We found that almost every city we studied has a significant budget problem on its hands, largely due to falling tax revenues, decreased state aid, and weakened pension funds," said Larry Eichel, project director of the Philadelphia Research Initiative, created by Pew last fall. "But the size of the problem varies dramatically from place to place, as do the strategies for dealing with it."

The report examined decisions implemented or under consideration in each of the cities, which were chosen for geographic and demographic reasons. Also, the budget year for most of the cities selected begins July 1, Philadelphia among them.

Besides Philadelphia, the cities studied were Atlanta; Baltimore; Boston; Chicago; Columbus, Ohio; Detroit; Kansas City, Mo.; Los Angeles; New York; Phoenix; Pittsburgh; and Seattle.

Noting that the final outcome in each city could differ from current proposals because the budget process is still under way, Eichel said a follow-up report would be issued this summer.

The report presented no grand conclusion, but was a snapshot of how cities are dealing with difficult financial times.

Atlanta cut the hours and salaries of most employees 10 percent, including those of police officers, firefighters, and prison guards.

However, in the aftermath of several high-profile crimes, that strategy is being reevaluated, with Mayor Shirley Franklin now pushing a property-tax increase instead of cuts.

New York City is moving forward with a plan to lay off 3,759 workers, while eliminating 9,782 other jobs through attrition.

And Chicago and Los Angeles each are weighing at least 1,000 layoffs, with the mayors of each warning the job losses will happen unless unions give concessions as they forge new contracts.

Philadelphia's four municipal unions are bargaining for new deals as well, with existing contracts set to expire June 30. Though Mayor Nutter has not spoken in specific terms of how many jobs could be lost if workers do not concede some benefits, he, too, is making the case for employees to "share the pain."

"It's certainly fair to say that [Nutter] has not sort of confronted the unions head-on the way, at least so far, it has developed in other cities," Eichel said. In Chicago, for instance, he noted, Mayor Richard Daley has stated he is prepared to lay off 1,100 workers on June 1 if workers do not agree to 14-day furloughs for nonuniformed personnel.

In Philadelphia, 47 workers were laid off last fall, and an additional 250 positions are expected to be eliminated as of July 1, including 74 more layoffs.

Those figures, though, do not tell the whole Philadelphia story, Budget Director Stephen Agostini said. "We feel almost 3,000 positions we eliminated in the fall were forgotten," he said. Many of those were contract and part-time positions.

Consequently, he said, "the magnitude of what these other cities are doing now looks so much larger."

While none of the cities studied is considering closing library branches - as Nutter initially proposed, to a storm of protest - some (Atlanta, Baltimore, Phoenix, and Columbus) have closed recreation centers. Philadelphia has shut none.

The size of police departments in the 13 cities remains relatively unchanged, but fire departments are shrinking.

Interestingly, Eichel observed that none of the cities used the economic collapse as an opportunity to revamp their government structures. "I don't think we have seen any dramatic restructuring of government services," he said.

The study also found that Philadelphia is in little company as it seeks to close its budget gap next year by, in part, raising the sales tax from 7 percent to 8 percent.

Just New York is considering increasing two taxes, by ending a property-tax rebate and seeking to increase the sales tax to 8.875 percent.

Columbus has proposed increasing the income tax rate to 2.5 percent from 2 percent, a levy that has not gone up since 1982. And Atlanta is weighing a 7 percent property tax.

In Boston, Los Angeles, and other cities, tax increases are difficult to adopt because of state laws, constitutional restrictions, and ballot initiatives, the study said.

Philadelphia stands apart in that it is the only city that must prepare a balanced budget for the next five years, one that must be approved by the state-created Pennsylvania Intergovernmental Cooperation Authority.

As a result, the report said, "unlike some other cities, Philadelphia cannot finesse its budget problem this year with stopgap measures, thereby pushing the day of reckoning down the road."

Contact staff writer Marcia Gelbart at 215-854-2338 or

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