City Council introduces bill to extend extra sales tax

Posted: May 17, 2014

With six weeks left to pass a budget, City Council on Thursday finally introduced long-expected legislation to extend Philadelphia's extra 1 percent sales tax.

In the first year, the bill would devote $120 million to the schools, money the district has been counting on to help close a huge funding gap. Any extra revenue would go to the public-employee pension system, which is about $5 billion underfunded.

But over the next three years, the pension system's share of the revenue generated by the additional penny in the sales tax - which in 2015 is expected to bring in an extra $137 million - would steadily increase, until the fourth year, when it would be split evenly between the schools and the city.

Education advocates immediately panned the proposal as robbing badly needed funds from the schools in future years.

School Superintendent William R. Hite Jr. said the bill "does not reflect the urgency of the crisis facing the School District," which says it needs $216 million in new money just to maintain its current troubled state.

Bill Green, the former councilman now chairing the School Reform Commission, said the loss of nearly $100 million in sales-tax revenue in coming years would force layoffs and make long-term labor agreements unlikely.

"This means we'll be scrambling every year . . . for another source of revenue, or making continuous cuts to our workforce," he said.

Mayor Nutter, who conditionally supports the split, nonetheless called the Council approach "risky and dangerous," because it requires a handful of permissions from the Republican-controlled General Assembly and does not have a fallback provision if the state balks.

Green called that playing "a game of chicken with the General Assembly."

But Council President Darrell L. Clarke said he was confident Harrisburg would go along with Council's proposal, and defended the need to address the city's pension albatross.

"If I'm not going to be optimistic about measures we put forth, then what's the point?" he asked. "We need to maximize opportunities for schools, but we also have to maintain the fiscal health of the city."

He noted that Council has passed $158 million in tax increases for the schools in recent years.

"If anybody has exhibited support for schools, it's this City Council and this mayor," Clarke said. "That should be without question."

Asked what would happen if Harrisburg did not grant permission to split the sales tax, Clarke said: "We'll deal with that at the appropriate time.

"We just introduced the bill today," he said. "You're asking me to turn forward to the end of June."

State Sen. Vincent Hughes (D., Phila.) said he was glad Council had started the debate but cautioned that "everybody needs to be prepared to adjust as the next six weeks go along."

"The 1 percent going to the School District cannot be lost. That would be a fatal flaw," he said. "I'm not going to tell City Council how to do its business but . . . it can't be left on the table."

During the recession, the state allowed Philadelphia to add 1 percent to the sales tax charged in the city, raising the rate from 7 percent to 8 percent. That extra tax is slated to expire on July 1.

Last year, the state passed legislation allowing the city to continue the extra tax to fund the schools.

Clarke almost immediately termed that "a bad deal."

He was among a number of leaders eyeing the sales tax as a potential solution to the pension problem, a huge annual drain on the general fund. This year, the city is expected to pay nearly $600 million into the system.

Susan Gobreski, executive director of Education Voters of Pennsylvania, said the 50-50 split would help bring the pension system back to health a few years sooner, more than a decade from now, "whereas we can make the schools significantly better now."

"One thing that's frustrating," she said, "is when politicians come up with one-year solutions, then say, 'Why are you back here again?' "

Nutter said he supported splitting the sales tax with the pension system, but only if the state also gives the city permission to enact a $2-a-pack cigarette tax to make up for the lost revenue.

Splitting the sales tax without the revenue from cigarettes would be "a disaster for the School District," he said.

"I cannot engage in a process that . . . seeks to fix the problems of our pension fund on the backs of our schoolchildren," the mayor said.



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