Why taxes keep going up in Philly

Posted: June 26, 2013

YEAR AFTER YEAR, Philly lawmakers stare down financial crises. And year after year, their solution has a common ingredient: taxes.

This year, as Mayor Nutter and City Council look to fulfill the school district's request for $60 million more in city aid, the emerging solution appears to be a new $2-per-pack tax on cigarettes and a pledge to increase collections on delinquent taxpayers.

One discarded proposal, from Council President Darrell Clarke, was to hike the "liquor-by-the-drink" tax. Another, from Councilwoman Maria Quinones-Sanchez, was a $32 million increase in the Use & Occupancy (U&O) Tax on commercial real estate.

What do these things all have in common? Your money.

Local government levies 17 taxes on Philadelphians, who also pay state and federal taxes. The city is consistently ranked as having one of the highest tax burdens in the country, most recently coming in at No. 2 in an analysis by the municipal government in Washington, D.C. (Bridgeport, Conn., was No. 1.)

By Philly standards, Nutter is far from a government-bloating tax-and-spender. He favors business-tax cuts and found a way to save billions during the recession.

So how does such a mayor end up raising taxes almost every year he's in office? Crisis. And in Philadelphia, crisis is unending.

David L. Cohen, a Comcast executive and former chief of staff to Mayor Ed Rendell, has been on both the business and government sides of the debate. He believes Philadelphia is overtaxed but, given each year's circumstances, doesn't fault Nutter for recent hikes. They include two years of property-tax increases for the schools, five years of higher sales taxes for pension payments and a pause in scheduled wage-tax cuts in the recession.

"I can't look at any individual decision and criticize it," he said.

The solution, Cohen said, is to reduce "structural costs," like the massively underfunded pension system, to avoid having so few options when problems arise.

"If you have to raise taxes five years in a row in order to afford the government, then you better start looking at the government because it is clearly not a government you can afford," Cohen said.

Again, Nutter's heart is in the right place (at least for the business community). He's fought bitterly with organized labor to cut costs, and as a result three of the city's four biggest unions have been working without contracts since 2009. But he's so far failed to achieve broad reforms to pension or health-care costs.

The city government now employs about 23,000 people, far lower than its peak of more than 30,000. But the city's population has declined as well, from more than 2 million to just under 1.6 million.

Clarke said he believes reducing the size of city government leads to worse city services.

"I tend to be a person, particularly given the neighborhood that I represent, to opt to where there's enough revenues in place for us to ensure we can make our communities safe, be it police, be it quality of life," said Clarke, whose district covers much of North Philadelphia.

Others, however, think it's time to downsize.

"We have a lot of city facilities and city services and other things that were built for a larger city government," said Steve Wray, executive director of the Economy League of Greater Philadelphia. "We put those decisions off and then they become bigger decisions when you get to that point of having to make either huge cuts or a revenue choice."

Finance Director Rob Dubow said the city eliminated about 1,200 positions during the recession and is committed to finding efficiencies in government. He pointed to a report by FTI Consulting that the administration commissioned to find new money through uncollected revenue and cost reductions.

The mayor unveiled the report and pledged to follow many of its recommendations at a Chamber of Commerce luncheon in February, weeks before he sent his budget proposal to City Council.

"The process started with efficiencies," Dubow said.

Nutter last month gave a news conference to announce his plan for the schools. Asked why the city is turning once more to taxes to solve its problems, he pointed out that the school district has made massive cuts in the past year and that the city scraped by during the recession.

In the end, the decision was not whether to tax, but how.

"Because we have raised property taxes twice in the last two years and because we raised U&O last year, I did not want to look at those general broad-based taxes again, as these residents and business owners have contributed significantly," he said. "At this point, I thought that we should look at other potential revenue sources."


On Twitter: @SeanWalshDN

Blog:ph.ly/PhillyClout

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