Inside Take: 6 Key Takeaways From Mayor Nutter’s Final 5-Year Plan

(Editor’s note: This is an opinion column from a Citified insider.)

For City budget-watchers, while the Operating Budget in Brief is a useful document, it’s the Five Year Financial and Strategic Plan that offers more detailed explanations of what’s happening with revenues and expenditures. The Five Year Plan also discusses the capital budget, the City’s debt management plan, and the City’s fund balance projections.

Below are a few interesting takeaways from the most recently proposed Five Year Plan (for fiscal years 2016-2020):

1. The wage tax rate is going down in 2016 year for both residents and non-residents. Sure, it’s only going down by 0.0098% for residents and 0.0087% for non-residents, which translates to about $5 less in wage taxes for a person earning $50,000 a year, but it’s a start! By 2020, that same earner will be paying about $90 less if they’re a resident and $80 less if they’re a non-resident.
2. Property reassessments won’t happen until 2017. The City reassessed all the properties in Philadelphia in 2013 and moved to a new property tax system in 2014—the Actual Value Initiative (AVI). Under AVI, the Nutter administration said it would reassess all properties on an annual basis. In practice, that hasn’t happened. This year, the City did not reassess because it was still processing 2014 appeals. For 2016, the City will partially reassess areas of the City that may have been under or overvalued. Beginning for fiscal year 2017, the City will reassess all properties again, and continue to do so on an annual basis. That’s the plan, anyway.
3. The City’s capital budget includes $22 million for the purchase of all new voting machines and technology. I wonder what the future holds for the “Coffee Can of Destiny”?
4. As part of a three-year strategy, the budget for the Department of Licenses and Inspections (L&I) will increase by 9.2 percent from this fiscal year to next, for a total of $31,476,558. While many are applauding this investment, one does have to wonder if L&I’s  problems are the product of past budget-cutting. In 2008, the City spent $30,254,839 of its General Fund on L&I. After cuts in 2009, 2010, and 2011, L&I’s funding dropped by 30 percent to $21,176,304 in 2012 (see page 75). Essentially all the City is doing is restoring expenditures to 2008 levels. Whether this will solve L&I’s problems remains to be seen since the department’s problems don’t necessarily stem just from underfunding; they also stem from entrenched issues like poor management.
5. Our general fund balance (aka  how much cash is left over at the end of the fiscal year) is projected to shrink from $145 million this year to $65 million next year, and dip even lower to $33 million in 2017. Fund balances are important because they help with cash flow issues and can help or hurt bond ratings. The Government Finance Officers Association (GFOA) recommends that governments maintain a fund balance equal to two months of spending—or 17 percent. This would be about $672 million for Philadelphia. In 2011, then Councilman Jim Kenney proposed, and City Council and Philadelphians approved, an amendment to the Home Rule Charter to establish a “rainy day” fund, where 0.75 percent of taxes and locally generated non-tax revenue would be put into the rainy day fund if the general fund balance equaled or exceed 3 percent of general fund appropriations. Since the charter change, the City has never achieved a fund balance equal or exceeding 3 percent of appropriations, and so no money is currently in our rainy day fund.
6. Speaking of Home Rule Charter changes, in 2012, then Councilman Bill Green proposed, and Council and Philadelphians voted to amend the Home Rule Charter to authorize the City to implement program-based budgeting, with a breakdown of costs by category and the effectiveness of each function measured by agreed upon metrics. By my reading of the charter change, it looks like this program-based budgeting data should have accompanied the Mayor’s 2016 budget proposal. It didn’t. So, it looks like the issue of program-based budgeting is being kicked down the road to the next Mayor. That being said, the City’s budget office is supposedly acquiring a new “state of the art budgeting system” that will go live this summer. I’ll be keeping my eye out to see if that actually happens.

Perhaps the most important takeaway is that Nutter’s entire five-year plan may be moot because 1) some of these proposals hinge on Council’s approval, and 2) a new Mayor will come into office halfway through the 2016 fiscal year. Whether the new Mayor shares the same taxing and spending priorities as Mayor Nutter remains to be seen. Suffice it to say that any proposals in this Five Year Plan should be taken as just that—proposals—and are not guaranteed.

Rachel Meadows used to do budget analysis as a staffer to former Councilman Bill Green, and she currently helps teach a graduate-level budgeting course at Penn’s Fels Institute of Government. You can follow her on Twitter @rachelmeadows.