Philadelphia's finances have been on the upswing in recent years.
The City of Brotherly Love has been growing its reserves, paying down its unfunded pension liabilities, and slowly but steadily growing its population.
But it faces a new threat to the fabric that holds a city together.
If the transit system that serves Philadelphia, the Southeast Pennsylvania Transportation Authority, can't secure funding, the resulting economic damage could flip the city's economic trajectory.
SEPTA needs Pennsylvania to allocate more than $200 million to fill a budget gap, but the state government is locked in a budget impasse over the issue.
Even more drastic cuts will come if the state legislature doesn't fill the gaps by January.
SEPTA was chartered by the state in 1964 to serve the five-county region anchored by Philadelphia, which is its own county.
The money isn't just needed to keep SEPTA running, according to Ethan Conner-Ross, vice president at Econsult Solutions. Philadelphia and the four surrounding counties would lose millions of dollars of revenue without it.
SEPTA commissioned Econsult to study the economic impact of its proposed cuts. The study found an $11.4 billion drop in state and local tax revenue, or $674 million annually.
Property values in the region served by SEPTA could decline by $19.9 billion in net present value. The study found 76,700 potential jobs lost, and $6 billion of potential lost earnings.
"When you provide inferior service or substantially reduced transit service, fewer people are able to actually get to jobs," said the Urban Institute's Yonah Freemark. "So what you're likely to see is somewhat higher unemployment among people with very low incomes, which could increase the demands on the social services system of the city and the state."
The SEPTA cuts scheduled to take place in January would eliminate all rail and metro service after 9 p.m. This would cause serious damage to what Conner-Ross calls Philadelphia's "nighttime economy."
More than 29,000 people use SEPTA at night, Conner-Ross said. People traveling for leisure may simply stay home, keeping their money with them. But the one in five nighttime workers in healthcare, tourism and essential services who use SEPTA to commute could risk losing their jobs.
SEPTA's January cuts would also eliminate the special bus service that the system offers for events like concerts and sports.
"The timing couldn't be worse, from an economic development strategy standpoint," Conner-Ross said.
In 2026, Philadelphia is supposed to host celebrations for the 250th anniversary of the Declaration of Independence and the FIFA World Cup.
"The city was picked by FIFA, in part, because of the infrastructure that can handle these crowds of people," Conner-Ross said.
"To not put your best foot forward, and to have spent all this money, and then failed to deliver a kind of a basic and necessary service … it would definitely undercut the kind of economic development direction that the region has been going in," he said.
"When you reduce investment in public services and public goods, like a transit system, what you're likely to see as a consequence over the long term, is less private investment in the city," Freemark said.
SEPTA is one of Philadelphia's biggest advantages for enticing employers, Freemark said. Losing that draw could hurt the city's tax revenue in the long term.
"Philadelphia has a harder time competing if people are forced to drive," Freemark said, "because the city is structured around the transit system."
Econsult calculated an additional "social cost" to the region's residents, from factors like vehicle ownership costs, increased carbon dioxide emissions, more car accidents, and higher SEPTA fares. These total $267 million a year, Conner-Ross said.
Philadelphia is better equipped to handle these costs than it once was, according to Moody's Ratings analyst Dan Seymour.
In November, S&P Global Ratings upgraded the city to A-plus, allowing it to claim its
Still, Philadelphia is poorly positioned to handle an abrupt decline in tax revenue, Seymour said.
The city has $1.4 billion of reserves, Seymour said; a decrease of $620 million would trigger an automatic downgrade.
"That's the benefit of the city having built up more fund balance over the last few years. It did position them better for this than they would have been five to 10 years ago," Seymour said.
"I think what remains to be seen is the extent to which these cuts are, in fact, permanent. The city has publicly put out commentary that it expects some kind of resolution," Seymour said. "I think it's really premature to make definitive statements about the effect that it might have on the economy of Philadelphia, or the city of Philadelphia's budget or its credit quality."
The city
