Philly mayor floats smaller budget following coronavirus hit

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A revised budget proposed by Philadelphia Mayor Jim Kenney reflects a massive revenue shortfall the city faces as a result of the economic shutdown related to the COVID-19 pandemic.

The updated $4.9 billion 2021 fiscal plan seeks tax hikes to help combat an estimated $649 million budget hole. The new proposal is $341 million lower than the $5.2 billion budget Kenney initially unveiled on March 5, prior to the stay at home orders.

"We face an economic downturn that will equal and probably exceed the worst of the Great Recession of 2008,” says Philadelphia Mayor Jim Kenney.

“Now with the impact of the virus requiring a stay at home order and the closing of non-essential businesses we face an economic downturn that will equal and probably exceed the worst of the Great Recession of 2008,” Kenney said in a recorded address released Friday morning. “This reality includes a dramatic decline in tax collections from the shutdown of business activity and the resulting drop in wages.”

The Kenney administration is looking to raise around $50 million of new revenues from a series of tax hikes and fee increases, including upping parking taxes to 27% from 22.5% for an estimated $16.9 million in extra income. The nonresident wage tax would also rise from 3.4481% to 3.5019% to bring in around $17.2 million of new revenue.

Property taxes under the revised budget would also jump 3.95%. This hike will help raise $30 million for the general fund to cover deficits in the Philadelphia School District. Kenney is proposing a $252 million contribution to the financially struggling district, which the city assumed control of in July 2018 after more than 16 years being run by the School Reform Commission.

The new budget also includes $370 million in additional spending reductions. The city instituted a hiring freeze on April 20 and part-time, temporary and seasonal worker layoffs are planned. Additional savings will be realized by closing public pools this summer and by agencies cutting $43 million earmarked for project upgrades.

Kenney, who was elected to a second term last November, took steps during his first few years in office to brace the city for worst-case economic scenarios by making the first contribution into a rainy day fund, established in 1991. The entire $34.1 million in that fund will be used in the 2021 budget to offset revenue losses and no deposits are planned through 2024 under a revised five-year plan.

Philadelphia’s reserve levels will also take a hit from COVID-19 restrictions, with the Kenney administration now planning a 2021 fund balance of $87 million compared with the $316 million goal from early March. This would equate to 1.7% of all spending, falling well below the city’s surplus goal of 6% to 8%. The city is hoping to boost the fund balance to $132 million, or 2.44% of planned spending, by 2024 under the revised five-year plan.

Prior to the current crisis, Kenney proposed earmarking $56.7 million for a newly established recession reserve. The revised budget would lower this deposit to $20 million.

Philadelphia’s general obligation bonds are rated A-minus by Fitch Ratings, A by S&P Global Ratings and A2 by Moody’s Investors Service. The city has a positive credit outlook from Fitch and is viewed as stable by Moody’s and S&P.

An April 27 analysis released by Philadelphia City Controller Rebecca Rhynhart cautioned that wage taxes, which comprise the city’s largest revenue source, face an estimated $108 million of losses by the end of the 2021 fiscal year under a “moderate” pandemic economic impact scenario with a six-month downturn. A more severe scenario could cause wage tax revenues to fall $259 million, or 7%, according to Rhynhart.

“While it’s clear that the current crisis will have a major impact on the city’s tax revenue, in both the moderate and severe scenarios, we anticipate that the economy should rebound in calendar year 2021,” said Rhynhart in a statement. “My office will continue to ensure the city is operating efficiently and effectively as we recover from this unprecedented crisis.”

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