Philadelphia Mayor Michael Nutter has proposed a budget and five-year financial plan that anticipates low fund balances in its general fund.
The budget anticipates the fund balance will shrink from $257 million in fiscal year 2013 to $107 million in fiscal year 2014 and $50 million in fiscal year 2015. In the plan presented to the city council on March 6, the city anticipates the fund balance will shrink even further, to $24 million in fiscal year 2016 before gradually recovering to $72 million in fiscal 2019.
Fund balances for the fiscal year 2015 would be 1.1% of spending and for the fiscal year 2016 would be 0.6%.
"This is well below the city's target of having an unreserved fund balance of roughly 6-8% of general fund expenditures," the city stated in the plan.
"Our fund balance guidelines are intended to be educational and aspirational," said Nutter's press secretary Mark McDonald. "They are also informed by the levels recommended by the Government Finance Officers Association. We never thought we'd get to those numbers in one year and even in a Five Year Plan, but until we've laid out that policy, there's nothing that we could cite to explain why we are trying to build up a fund balance.
"The fund balances are low early on because of our weaker than expected wage tax receipts and because we settled our DC47 collective bargaining agreement very late in our process and it depressed our fund balance numbers. The fund balances do get larger by the end of the plan."
Nutter is proposing that expenditures jump to $4.491 billion in fiscal 2015 from $3.995 billion in fiscal 2014. The jump is primarily due to the city's plan to use most of the profits from the sale of the Philadelphia Gas Works to make a one-time payment towards its workers' pensions.
Pension costs have increased to 17% of general fund expenditures in fiscal 2014 from 8% of general fund expenditures in fiscal year 2000. At the present time the city pensions are funded at 48% of actuarial recommended levels.
The city is proposing a general fund budget with 6% of spending for debt service.
Philadelphia is rated A-plus by Standard & Poor's, A-minus by Fitch ratings, and A2 by Moody's Investor's Service.
The budget proposes ramping up the city's capital program and thus its bond selling. Total capital funding is proposed to go to $146 million in fiscal 2015 from $117 million in fiscal 2014. The fiscal 2015 total is to be funded through $131.5 million of new general obligation bonds and $14.5 million of pre-financed GO bonds.
Under the Pennsylvania constitution the city's total debt capacity is limited to 13.5% of the ten-year average of the annual assessed valuations of taxable realty in the city. The city's recent comprehensive reassessment of the city's real estate known as the Actual Value Initiative has resulted in a total assessed value of $99.9 billion in fiscal year 2014 versus $12.4 billion in fiscal year 2013.
The new higher assessed value will allow the city to borrow more, the city reports. It plans to borrow $762 million over the next six years.
In other Philadelphia news in the budget, Nutter said he will advocate for state approval of a cigarette tax in order to increase funding for the Philadelphia School District.
Moody's gives an underlying rating of Ba2 to the school district's general obligation bonds. In January it said that how much Pennsylvania and Philadelphia cooperate in funding the district and whether they identify permanent new revenue sources for the district would be important factors in determining the direction of the district's credit.
