Deconstructing Philadelphia’s Budget Crisis

For 18 months, Philadelphia has veered from one 3. The Crisis Arrives
budget crisis to the next. Yawning deficits are filled Combined, high pension costs and a weak tax base left Philadelphia particularly vulnerable to a recession.
In 2008, tax collections sagged and the city pension fund was battered by the stock market collapse. Mayor Nutter
through spending cuts and tax hikes, only to be found himself a cumulative $2.1 billion short for the years 2009-2013, according to Inquirer calculations.
replaced with new budget gaps months later. Between past budgets and his current proposal, here’s how Nutter has closed that gap:

How did the city get here? How has City Hall Figures are in millions.

dealt with these crises? And how likely is it that Spending reductions: 44 percent Fee increases, tax hikes: 56 percent
Philadelphia will find itself in a similar bind $577.7 $403.6 $228.7 $484.9 $324.0 $192.5
in the years to come? — Patrick Kerkstra
Net spending Spending cuts Delayed Sales-tax hike Garbage Soda
reductions transferred to tax cuts fee tax
pension payments
1. A Long Time Coming NOTE: Figures do not add up to $2.1 billion because end of the five-year fund balance is higher than the beginning fund balance. Other fees $15.0
The crisis is rooted in decades-old problems, such as Philadelphia’s Mix of reductions and increases could change depending on what City Council does with the current budget.
declining population and high poverty rate. These factors of a weak
tax base make it difficult for the city to collect enough revenue to run
a government without high and uncompetitive tax rates. 4. Is Recovery Ahead?
The city projects tax collections will pick up slowly as the economy recovers. And for the first time in six
Philadelphia Population Philadelphia Poverty Rate decades, Philadelphia gained in population last year. Poverty, though, remains a stubborn and likely
Percentage of total population long-lasting challenge for the city. The pension payments are not going away, either. Philadelphia arguably
1950 living below the poverty line. remains just as vulnerable to the next recession as it was to the last one.
2,071,605 24.3%
2.0 2009 22.2%
(estimate) 20.2% 19.8% 16.8%
1,547,297 20% The state granted 16.4%
16.2%
1.5
15.1%
Philadelphia
2000 a partial deferral 15.8% 15.7%
15 15.7% 15.5%
1,517,550 of its pension 15.4%
1.0 15.2%
payments for 15.6% 15.5%
10 15.5% 15.4%
2010 and 2011, 15.2%
to be paid 15.0%
0.5 5 14.6%
in 2013 14.5%
and 2014. 14.0%
0 0
’50 ’60 ’70 ’80 ’90 ’00 ’09 ’70 ’80 ’90 ’00 ’08
General Fund Pension and Pension Bond Obligation, 2011-2030
Story slug SE1BUDGET04
An estimated $14 billion will be spent on city pensions 12.9% Hermes slug SE1BUDGET04-A
$885.2
2. The City’s Pension Fund 11.7% 11.7% 12.4% during the next 20 years.
Balloon
Mac slug city budget charticle
Then there are fast-growing employee pension $800 million Payment Location HOT ART/graphics server
expenses. The high costs are partly due to in 2029
contracts favorable to unions, but politicians A final $200
Artist tierno 2866
share in the blame. They lacked the 11.0% million payment Pub date April 4, 2010
foresight to make needed investments 600
in the pension fund, a failing that the 10.1%
on the city’s
pension
Section B
Nutter administration is paying for 9.3%
9.4% obligation Assigning Editor Busby
now. Each year, mandatory pension
payments consume a bigger 400
bond is due
in 2029,
Size 65p3 x 71 lines
chunk of the city’s budget. From 2012 onward, employee pension payments giving the
will exceed the total cost of the city Police Department. city some Verification
Percentage of 200 pension
General Fund Spent 6.7% 6.6% payment Copy editor
Actual Projected relief approval
on Pensions 7.1%
in 2030.
6.5% 0
’11 ’13 ’15 ’17 ’19 ’21 ’23 ’25 ’27 ’29
ABOUT THIS ANALYSIS
The Inquirer developed
this analysis with assistance 5 PERCENT
from the staff of the Pennsylvania
Intergovernmental Cooperation
Authority, a state agency that
oversees the city’s budgeting. 2001-2005 2006-2010 2011-2015 2016-2020 2021-2025 2026-2030
SOURCES: City of Philadelphia;
U.S. Census Bureau. Research and analysis: PATRICK KERKSTRA / Staff Writer Graphic: JOHN TIERNO / Staff Artist