Inside Take: Behind the Philadelphia Budget Curtain

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EDITOR’S NOTE: A city’s priorities take form in its budget. Insider Rachel Meadows, a city budget maven and staffer in former at-large City Councilman Bill Green’s office will give Citified readers a guided tour of Philadelphia’s budget in the weeks to come. Today, Budgeting 101.

Each year, in late February/early March, the mayor delivers his Philadelphia budget address to City Council. Sometimes this address is eventful (warning: turn your sound down before clicking!), but most of the time, it’s pretty mundane.

Mayor Nutter frames his budget within the context of his five goals for the City. He may talk about some notable achievements from the past year and highlight some key spending priorities for the upcoming year. It’s basically a “State of the Union” speech, but with less standing ovations and fewer passive-aggressive arm-foldings. A few weeks later, the Mayor delivers his Budget Book and Budget in Brief to City Council members and their staffers (while you may argue that a 100+ document is not, in fact, “brief,” it certainly is compared to the 2,100+ paged Budget Book).

This year, Mayor Nutter’s Philadelphia budget address is scheduled for Thursday, March 5th. In the weeks and months after, City Hall will be consumed by its yearly process of deciding how much to spend on things like police, fire, parks, libraries, etc. and projecting how much money the City will raise from its many, many taxes over the next fiscal year  (which begins on July 1, 2015, and ends on June 30, 2016).

Here are some budgeting basics to keep in mind:

1. The City must pass a balanced budget: This means that Philadelphia cannot legally plan to spend more than it predicts it will collect in taxes and other revenues. Period. The same is true for most governments around the country. One notable exception: the feds.
2. The budget is a reflection of a Mayor’s priorities: As mentioned earlier, Nutter has five main goals. The spending in his budget reflects these priorities, and the City currently spends about half its operating budget on achieving them. For example, the City currently spends 26 percent of its operating budget on making Philadelphia “one of the safest cities in America.” It spends 11 percent of its operating cash on departments like the Office of Innovation and Technology, Department of Public Property, and Fleet Department (aka cars, trucks, and other vehicles) to create a government that “works efficiently and effectively, with integrity and responsiveness.” However, Nutter proposes spending only 1% (mostly towards the Department of Commerce, which is the umbrella department for all economic development activity in the City) on the goal of “Philadelphia is a place of choice,” which makes one wonder if that really should be a goal at all, considering the relatively measly funding.
3. The budget is a political document: The Philadelphia budget process doesn’t end after the Mayor presents his plan to City Council (which he must do at least 90 days before the final budget is due – aka before the end of the fiscal year – June 30th). Council may or may not agree with the Mayor’s budget priorities, and surprise, surprise, it doesn’t always agree. So, after the Mayor presents the budget to Council, councilmembers have a full two months (or more) to consider the budget and make changes. Technically, Council should pass the budget 30 days before the end of the fiscal year, but this doesn’t always happen. Those months when Council is considering the budget is when politics really comes into play. Why? Think about it – this is a document that dictates who gets money and who doesn’t, and who gives money and who doesn’t. With $4.5 billion at stake, it’s inevitable that the budget becomes politicized.
4. The buck doesn’t stop with Council: City Council isn’t the only entity that influences the budget in those months after its introduced by the Mayor and before it’s passed into law. Lobbyists and stakeholders work behind the scenes to get Council members to put more money into one department or another or to change a tax rate. Members of the public can also publicly weigh in before Council votes on the final budget. Due to the City’s atrocious budgeting practices of the late 1980s, the Pennsylvania Intergovernmental Cooperation Authority (PICA) was created by the state in the early 1990s to provide “cooperation, assistance and oversight” with the City’s “revenue collection and spending processes.” The state also mandated that Philadelphia prepare a Five Year Plan to accompany its budget. PICA must approve the Five Year Plan each year, and part of that approval hinges on PICA evaluating the “reasonableness of the assumptions and estimates” in the plan. PICA has never once failed to approve a Five Year Plan, but in 2012 it delayed its vote to determine if the plan met its “reasonableness test,” and in 2014, it approved the plan “with reservations.”
5. The budget is a dynamic document: It’s not like once a budget is passed, it’s put in a drawer and never looked at again. The City produces quarterly reports that track expenditures and revenue. At the end of each fiscal year, it creates Comprehensive Annual Financial Reports and Supplemental Reports of Revenues and Obligations. Say it’s the middle of the fiscal year (November), and revenues are coming in lower than expected. Then the City is going to have to make budget cuts. Thankfully, that doesn’t happen often (2008 being one huge, painful exception due to the recession). If revenues come in higher than expected, the Mayor can ask City Council to authorize the spending of more money. While the Mayor can only spend money with Council’s approval, the Mayor can also choose to not spend money, even if City Council has authorized it. The Mayor can also reduce or eliminate line items from the budget (except appropriations to the Controller, Personnel Director, and Ethics Board – the funding of these entities is protected in the Philadelphia Home Rule Charter for balance-of-power purposes).

Rachel Meadows was a staffer to former Councilman Bill Green, and she currently helps teach a graduate-level budgeting course at Penn’s Fels Institute of Government.