Philadelphia Mayor Michael A. Nutter yesterday delivered his first budget address, which included a $3.97 billion fiscal 2009 operating budget, a five-year plan for the city, and a proposal to issue $4.5 billion of pension obligation bonds by the end of the calendar year.

"We confront fiscal issues that have been ignored for too long," Nutter said in his address. "The time for heavy lifting has arrived."

The $4.5 billion POB initiative is in response to Philadelphia's $3.9 billion unfunded pension liability, which is about 52% funded, Nutter said. If the bonds were issued, it would stabilize the pension fund to about a 95% funding level, he said in his address.

"It's our way of attacking one of our biggest financial problems, which is our unfunded pension liability," said finance director Robert Dubow in an interview.

As the POB proposal is in its preliminary phase, the administration has not yet put together a team or determined what structure or timing options the city would use, Dubow said. Still, he noted that the goal would be to have the POB deal completed by the end of this calendar year.

Debt service payments on the bonds would be lower than the projected payments the city is scheduled to make to the pension fund, Dubow said. The city would place about $50 million of savings from the deal into the general fund annually, and additional savings would be put in a reserve fund that could be used towards the pension fund if needed.

Nutter's $3.97 billion budget for fiscal 2009, which starts July 1, is an increase of 1.4% from last year's $3.92 billion budget. One of his central concerns is addressing public safety, and the budget calls for spending $5.6 million to hire more police officers as part of a five-year goal of spending $78 million for additional officers. Nutter would like to see 200 new officers on Philadelphia streets by May, with an additional 200 officers by the end of fiscal 2009.

Dubow said the biggest single percentage increase in the budget is more funding for Community College of Philadelphia - as part of Nutter's commitment to improving education. The college would receive $28 million, up from $24 million from fiscal 2008, and funding would increase by $4 million annually over the course of the five-year plan.

Nutter also proposed an increase in the city's parking tax to 20% from the current 15%. This increase would generate an additional $16 million in revenues which would be used for a pay-as-you-go capital program for repairing streets, as well as supporting the city's Fairmount Park. If the parking tax increase is not approved, the city will not make these investments, Dubow said.

Another highlight of the budget calls for eliminating the gross receipts portion of the business privilege tax over eight years. Also, for the first time, the net income portion of the business privilege tax would reduce to 6% from its current 6.5% by fiscal 2013, Nutter said. And for the first time in 30 years, the resident portion of the wage tax would drop below 4% in 2011.

As part of the administration's plan to promote healthy and sustainable neighborhoods, Nutter said he wants to establish Philadelphia as "The Green City" in America, with an emphasis on green construction practices and leading the recycling movement. Nutter proposed investing $6 million this year and $25 million over the next five years to promote recycling and to create a recycling process that is more user friendly.

The Nutter administration's proposed capital budget for fiscal 2009 is about $120 million, which includes about $50 million for new borrowing. The amount also includes about $40 million that would come from the Pennsylvania Intergovernmental Cooperation Authority, the city's state-appointed oversight board that watches over the city's finances.

PICA borrowed the money to fund Philadelphia's capital program several years ago, and the $40 million represents money that was not spent, Dubow said. Additionally, the remaining $30 million that Philadelphia would use for its capital budget in fiscal 2009 would come from capital projects from earlier years that came in under budget or projects that were proposed but not implemented. Dubow said that the capital budget for subsequent years in the five-year plan would be roughly about $50 million annually.

Nutter noted that 60% of Philadelphia's operating budget is consumed by salaries and benefits to city employees. As contract negotiations are set to begin shortly with the city's four municipal unions, Nutter said that the administration and city employees have tough choices to make together. q

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