PICA: Reject City's Spending Plan

(August 2012)

Last week, Mayor Nutter submitted the City's plan to raise and spend public money for the coming five years to Philadelphia's state-established financial-oversight agency for review and approval.  This is how it has been ever since Philadelphia flirted with bankruptcy two decades ago.  But, this year, the Pennsylvania Intergovernmental Cooperation Authority (PICA) must reject the Plan for the first time ever, and return it to the Mayor for revision because this Five-Year Financial Plan just does not add up.

The Five-Year Plan submitted to PICA is not balanced.  It fails to account for the expenses of the contract awarded to City firefighters by an arbitration panel, makes no provision for the costs of future contracts with the City's unionized workforce, and counts on nearly $50 million in savings from "Anticipated Workforce Savings" that may never be realized.  Those additional expenses would plunge the Plan into a red sea that even Moses couldn't part.

Under state law, PICA has the power to review and approve the City's Five-Year Plan and, given Philadelphia's troubled fiscal history, it is an incredibly important function.  Prior to the creation of PICA, City budgets were often balanced only on paper, the product of imaginative financial wizardry that made the City seem solvent even as it struggled to pay its bills.  Ever since, PICA has nudged and pushed City number crunchers to provide legitimate budgeting to show that the City will remain solvent, not only through the current year, but for five years into the future. 

In reviewing the City's Five-Year Plan, PICA must ensure that projections of revenues and expenditures are based on reasonable and appropriate assumptions that will allow the City to operate without a projected deficit for the current fiscal year and the life of the Five-Year Plan.  But, there is no way that one can look at the spending assumptions surrounding the City's municipal workforce and declare them reasonable.  That is why PICA must reject the Plan and return it to the Mayor for revisions that will bring the Plan into balance.

Just weeks ago, a three-person arbitration panel issued an award for City firefighters which provided for wage increases and additional funding for health benefits from 2009 to 2013.  This award closely mirrored a 2010 arbitration award, which was appealed by the Mayor, who contended the award failed to take into consideration the City's ability to afford the increases (the arbitration is supposed to use this as a factor in making its determination).  The Mayor estimates the cost of this arbitration award at approximately $200 million, which is definitely not part of the City's spending plan.  Now the Mayor is re-appealing the decision and the firefighters' union is suing to implement the award and the budget hangs in limbo.

If the arbitration award is upheld, the Five-Year Plan is in the red.  Even if the City wins its appeal on the current contract and the arbitration award is reconsidered, the firefighters are due a new contract next year.  Police officers are also due a new contract, and City white- and blue-collared employees have been working without a contract for years and deserve a contract that takes into account increases in the cost of living (not to mention the increased cost of City taxes).

This is certainly not to say that it is impossible to re-engineer our governmental services or to right-size our governmental approach to agency spending.  It is clear that government can be more efficient and more effective in service-delivery efforts, but the City's Five-Year Plan makes no suggestion that such large-scale efforts are underway.

It is simply inconceivable that Philadelphia will somehow make it through the next five years, not only without a single extra dollar being spent on increased costs for our municipal workforce, but with "anticipated workforce savings" of nearly $50 million over the next five years.  Even if it were possible to believe that Mayor Nutter could achieve these savings and avoid any future costs during his mayoralty, it is certainly not prudent to believe that we can forecast similar achievements into the next Mayor's tenure, which will commence before the end of this Five-Year Plan.

Years ago, I lauded Mayor Nutter for his approach to accounting for increases in workforce costs by explicitly including a reserve for wage and benefit increases in his first Five-Year Plan:

"By putting forth an amount for future union pay and benefit increases, the Nutter administration essentially says, ‘here's what the city can afford…if we are to pay more, we will have to change our budget priorities.'...Such an approach should help focus union negotiations on creating labor-management consensus on a way to deliver quality city services at reasonable costs."  

The current Five-Year Plan includes no such reserve and with the arbitration panels consistently awarding contracts with costs for uniformed employees -- and with no productive negotiations underway to generate savings in new agreements with white- and blue-collared employees -- its workforce-cost assumptions must be rejected.  

PICA should return this plan to the Mayor so he can incorporate contingencies to show how he will account for these increased costs.  Even better, he should sit down at the bargaining table and negotiate deals to create certainty for Philadelphia's financial future.