DROP may scuttle Nutter’s 5-year spending plan

Nutter at 6ABC after urging residents to support new revenue for schools.
Nutter at 6ABC after urging residents to support new revenue for schools.
Posted: June 21, 2011

Two of the four current members of the state board that oversees Philadelphia's finances left open the possibility Tuesday that they might reject Mayor Nutter's five-year spending plan next month because it funds the DROP pension program.

One "no" vote by any of the four is enough to reject the plan, which could spark a cash-flow crisis, because the board could withhold certain state grants and tax funds. Rejection would also require the mayor to redo the city's spending proposals for the fiscal years 2012 to 2016.

"I have not made up my mind yet," said St. Joseph's University business school dean Joseph A. DiAngelo.

"Neither have I," said businessman and former mayoral candidate Sam Katz.

Both men spoke after a somewhat heated meeting of the Pennsylvania Intergovernmental Cooperation Authority, which must certify that the mayor's budget and five-year spending plan are balanced.

DiAngelo and Katz each questioned whether the plan was based on "reasonable assumptions." They specifically objected to the fact that while the pension fund is 53 percent unfunded, the mayor's plan in the coming years includes large cash payouts associated with the Deferred Retirement Option Plan - a controversial program that played a role in the retirement decisions this year of five City Council members who were participants in it.

Though he acknowledged Nutter's desire to eliminate the program, Katz wondered aloud if the city was on a long-term path to financial ruin because of its high pension and health-care costs. He said there was a similarity between the city's fiscal state now and its fiscal state in the years leading up to the state's 1991 creation of PICA as a way of preventing Philadelphia's bankruptcy.

No budget or five-year plan has ever been rejected.

"It is out of frustration and a sense of déjà vu that I am speaking," said Katz, who chairs the board and whose first campaign for mayor was in 1991.

In the discussion that followed, Katz, a Republican appointee of Gov. Corbett, and DiAngelo, the Senate Republican appointee, disagreed sharply with Michael Karp, the House Republican appointee, and Greg Rost, the House Democratic appointee. Senate Democrats have yet to fill a fifth PICA seat.

Terse words were exchanged between Katz and Rost, a longtime aide and eventual chief of staff to former Mayor Ed Rendell. Rost said there was little to compare about the city's fiscal condition now as opposed what it was in the late 1980s and early 1990s.

When Katz told reporters that he was undecided about his eventual vote on Nutter's five-year plan, Rost chuckled.

"Be careful of what you laugh at, Greg," Katz responded. "One of these days you might be on the receiving end of the laugh yourself."

Nutter's finance director, Rob Dubow, reiterated to PICA members that while City Council had voted to preserve DROP, the mayor wanted to end the program. However, Dubow said that it was reasonable to include costs associated with the program in the five-year plan, and that the administration had made significant cost-structure changes in employee health-care plans.

Dubow said the mayor would not submit a revised plan until early July, allowing time for any changes to be made that result from decreased city funding from the state, which is supposed to pass its budget by June 30.

Council last week also made some adjustments to the mayor's initial plan. As outlined by Dubow, they include an additional $500,000 for the Office of Housing and Community Development for the greening of vacant lots, $1 million for the Streets Department to provide alley lights, $500,000 for the city Defenders' Office, and $100,000 for the Mural Arts Program.

An additional $4 million will be shifted from the prisons department to the First Judicial District for an electronic monitoring program for recently released inmates.

Contact staff writer Marcia Gelbart at 215-854-2338 or mgelbart@phillynews.com.

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