Is the city's ‘final' budget in trouble?

Posted: August 09, 2012

Remember how, after much gnashing of teeth, twisting of elbows, and a little raising of taxes, Council and the mayor finally passed a city budget in June? Turns out that that budget might not be so final after all. Conversations with a source at PICA, the city's fiscal watchdog, suggest that board members there have serious reservations about the city's five-year plan, and may send it back for changes, most likely cuts. PICA would be right to make that happen.

The Pennsylvania Intergovernmental Cooperation Authority was created two decades ago during the city's near-bankruptcy to keep the city's budget math honest. It has a simple job, in theory. It confirms that Philadelphia will have enough money to cover the spending it plans over the next five years. The budget is black, or it's red. Simple. In theory.

In reality, PICA needs to deal with shades of gray. It judges assumptions that the city is making and decides if those assumptions are reasonable.

This year's gray area involves a contract for the firefighters that was awarded in arbitration, then appealed by the city and largely upheld after the city's budget for next year was completed. The administration has appealed the decision again.

The firefighters' contract, as it stands now, would cost the city about $200 million over five years — and that's $200 million that is not in the budget.

The city is hanging onto the hope that it will win reductions to the firefighters' contract on second appeal. Maybe it will. But after losing in this contract dispute twice, this is not a reasonable assumption.

Last year, then-newly installed PICA chair Sam Katz made noises about rejecting the city's plan because it funded the Deferred Retirement Option Plan, asking if it was "reasonable" to be worried that a city with a giant, unfunded pension liability couldn't eliminate even an unpopular pension perk.

We thought, in that case, that Katz was on the wrong side of reasonableness. For PICA to nix the five-year plan would have meant expressing a policy preference, which is definitively not the agency's job. In the end, PICA OK'd the budget.

This budget is different. This time, PICA is right to raise questions. It has never declined to approve a city budget, but if it does with this one, the city will need to address the board's concerns, and fast, since if PICA rejects the plan, state funds meant for the city stop. This means laying out a Plan B in case it loses the appeal. And that's where things get tricky.

The city is appealing the firefighters' award because it says that it doesn't have the money. If it comes up with an easy or painless plan to cover the cost, that could hurt the city's case in the courts. But if it comes up with a "nuclear" Plan C — a dramatic, or melodramatic plan that involves, say, laying off all police and leasing out City Hall to New Jersey — PICA is likely to reject that version, too.

More to the point, that won't serve anyone. The administration should lay out reasonable scenarios for what the city would have to give up to afford the firefighter contract.

And then, we hope that the city starts moving toward resolving the outstanding contracts with its white- and blue-collar unions, which have been left hanging for three years. Limbo may seem like a safe place to live, but it's feeling more and more like denial.

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