Like many mayors, it’s been a difficult year for Philadelphia Mayor Michael Nutter, as the city was forced to cut its five-year budget by $2 billion and watch state lawmakers delay action on measures that eventually helped close the city’s current budget and avoid enormous layoffs and service cuts.
Reflecting on the city’s — and the country’s — tumultuous year and looking at what lies ahead, Nutter on Friday spoke before 250 municipal bankers, lawyers, and industry professionals at the Municipal Forum of New York luncheon series in midtown Manhattan.
The mayor, who worked as a municipal banker at Pryor, Counts & Co. before serving 15 years on the City Council, thanked the municipal finance industry for its contributions during what many call the Great Recession of 2008 and 2009. For the mayor, it is the country’s cities that can serve as job creators through development and infrastructure projects.
“Last year through the fall and winter, the phrase 'too big to fail’ became part of our lexicon,” Nutter said. “I would suggest to you here today that cities and municipalities are too important to fail. And first and foremost I want to thank all of you, the industry that you are in, for all the help and support that Philadelphia and many other cities and municipalities across the country received.”
“In some cases, many of use would not have made it but for your hard work and your effort and your commitment. And the understanding — unlike some industries, and some businesses — that we actually do pay our bills,” he said. “We won’t go out of business because we can’t and we’re too important to the United States of America and to the economy of this country to do anything else.”
Philadelphia was already facing a $450 million revenue shortfall before the markets froze after Lehman Brothers declared bankruptcy on Sept. 15, 2008. Officials announced in November 2008 a $1 billion deficit in its five-year fiscal plan and eliminated it, only to face a second $1 billion, five-year shortfall two months later. Closing that second budget gap required increasing the city’s sales tax by one percentage point to 8% and delaying a portion of its pension contribution payments in fiscal 2010 and fiscal 2011.
The sales tax hike and postponing pension payments required legislative approval, which the city received after a 101-day period and the day before it was set to send out 3,000 layoff notices.
“It was a harrowing experience and I’m sure it made more than a few of you up here nervous,” Nutter said.
Keeping his eye on the city’s fiscal future, the mayor believes now is the time for state and local governments to make difficult changes to retirement and health care benefits that would help ease government spending.
Nutter said Philadelphia’s pension fund will remain at or below 50% funded “for awhile.” In addition, the city’s retirement costs will soon take up 25% of its budget. Switching to a defined contribution system, similar to a 401K program, from a defined benefit plan, in which retirees receive pension payments for life, would reduce Philadelphia’s retirement costs.
“This crisis forces us, more so than ever, to put on the table ideas that in difficult times, in better times, you might not even be able to have a conversation about,” the mayor said. “And that’s why we’re proposing that we have to get away from defined benefit plans for our public employees. We must go to defined contribution plans and make that transition. Governments are virtually the only place where you will find them anymore.”
Steering the city through one of its most difficult economic times has prepared Nutter for another challenge — donning a New York Yankees jersey. The mayor was set to spend Friday afternoon painting a New York City school with students while wearing the pinstriped jersey, part of the World Series bet that he made, and lost, with Mayor Michael Bloomberg. Nutter was looking forward to the school upgrade, not so much the jersey.