We Need Tough Fiscal Watchdogs

(December 2012)

Just four months ago, I called upon Philadelphia's fiscal overseers to reject the city's proposed Five-Year Financial Plan because it just didn't add up. Among other flaws, the Plan failed to account for the expenses of the contract awarded to City firefighters by an arbitration panel and made no provision for the costs of the "reopened" police contract.  Both the City Controller, who formally reviews the Plan, and the board of the Pennsylvania Intergovernmental Cooperation Authority, signed off on this unbalanced plan and allowed the City to kick its fiscal can down the road another year.

Now that the City has (again) lost its appeal of the firefighters' award and the police contract has been finalized, it is clear the Five-Year Plan is at least $250 million in the red. That does not even account for the future arbitration awards for police and firefighters that will come during the next five years or for any negotiated agreements with the City's white- and blue-collared employees, which could add another few hundred million in costs to the Plan.  More problematic, these costs will likely come in a large lump.  Since the City has appealed and re-appealed the firefighter award, and since white- and blue-collared employees have now gone nearly four years without a new contract, the likelihood is that these bills will not be spread out over the years of the contract, but could come all due at once as part of retroactive awards and "catch-ups."

We are not that far removed from the early 1990s, when Philadelphia flirted with bankruptcy and budgets balanced only on paper were the norm.  Back then, Harrisburg officials and the public so little trusted Philadelphia government, that they installed the Pennsylvania Intergovernmental Cooperation Authority as an oversight board and insisted that the City Controller offer a formal opinion on the City’s Five-Year Financial Plans.  These financial oversight entities should perform a vital service and Philadelphians are ill-served when the City is permitted to paint itself back into this kind of fiscal corner.  

If the fiscal watchdogs are not going to bark when our spending plans are out of balance, I hope they can at least roll over or catch a Frisbee on the fly like some of those “stupid-pet-trick” pooches. 

Had our fiscal watchdogs shown some bark and bite, the Five-Year Plan would have been rejected, the City would have had to budget for the increased costs, and we would have already spread out the expenses over the life of the Plan to smooth out the impact.  By failing to force the City to budget for increases, our fiscal watchdogs are making these problems worse.  Each year that these cans are kicked down the road, they create larger problems.  If, for example, we are forced to pay the entire firefighter award in a single year (instead of over the course of the Five-Year Plan) that $200 million hit will have a potentially devastating impact. 

The costs that loom in the future -- the recent labor awards and future increases in labor costs as well as the growing costs of unfunded pension liability -- threaten to force the City to continue oppressive tax increases and dramatic service cuts.  Either could be avoided with proper fiscal planning, but both could result if the City continues to avoid coming to grips with fiscal reality.

The job of the watchdog is to alert us to danger, to ward off threats, and to raise a ruckus that prevents trouble.  It is not a job for the meek or for the mild and after the fox is in the henhouse is the wrong time for a watchdog to sound an alarm.

Had the watchdogs heeded my loud and clear warning that the City's Financial Plan was and remains dangerously out of balance, we could have addressed these issues.  Now, due to their inaction, the problems have become much more of a threat and we still need a Plan that adds up.