3 hikes and we're out: City should start cutting

Posted: June 20, 2012

LAST THURSDAY'S City Council vote to put off the Actual Value Initiative property tax fix for another year came as no great surprise. But that lack of surprise is testament to how complicated the fix for a broken tax system has become, and with every new data point and economic analysis on AVI that was released, it got even more so.

Within a matter of weeks, the estimated aggregate value of the city's properties dropped by $40 billion, which drove up the necessary millage rate to a point where early expectations of AVI — that many homeowners would see a drop in their taxes, and that enough mechanisms would be put in place to mitigate the steeper increases — got turned on its head. Although we hate the delay because of how long AVI has already taken, we almost see the wisdom in holding off.

This delay means that Council had to find a new way to find money for the school district, and this time, it reverted to form: To raise $40 million for the schools ($50 million less than the district was hoping for), Council hiked the property tax, for the third time in three years.

This, too, isn't surprising. The go-to move for Philadelphia since the 2008 recession began has been to deal with budget shortfalls by reaching deeper into taxpayers' pockets.

We did some ballpark calculations to see how much the city has dealt with its budget shortfalls through tax hikes, and how much with spending cuts. The city has raised about $370 million through a sales-tax hike and two "temporary" property-tax hikes (now permanent) in the three fiscal years since the recession. Meanwhile, the city has cut $175 million in spending — if you don't count the money the city "saved" by deferring pension payments, and you shouldn't, because that was no spending cut.

In other words the city has raised taxes at more than twice the rate it has cut spending.

This is not to say the city hasn't worked to reduce spending. The Nutter administration has made significant cuts — or, if you want to be generous, found significant efficiencies — in many of the service departments. It has cut the payroll by 1,400 jobs out of 27,000, although the reduction has been primarily through attrition. Unfortunately, all the cuts have been partly neutralized by spending increases in other areas, including employee benefits and debt payments.

Next year, the mayor and Council will almost certainly debate AVI again. And almost certainly, they'll be asked again to come up with more money for the school district.

They should not plan on using AVI to solve this problem. Nor should they wait until the school district appears before Council in the spring, then push through another last-minute tax hike.

Instead, the city should use this summer to plan cuts — real cuts. Savings could be found in the areas where costs have increased (this is a good time to point out that the city's blue- and white-collar unions are still in contract negotiations). There may be other tough choices ahead — and if our elected officials think AVI is hard, just wait for those tough conversations. Still, one way or another, Philadelphians need to be shown a real alternative before the city sticks its hand in our pockets yet again. n

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