Saddled with $450M budget gap, Philly faces ‘really painful decisions’ on its fiscal future

The coronavirus pandemic has dramatically affected city finances by pulling down tax revenue and hiking costs, said Kenney administration officials on Tuesday.

The budget hole could result in “really painful decisions,” Finance Director Robert Dubow said Tuesday.

City Budget Director Marisa Waxman said “everything is on the table” to reduce the projected budget gap, including raising taxes, selling assets, deferring costs, and privatizing, reducing, and consolidating services.

But with months to go before the end of the fiscal year on June 30, Kenney administration officials declined to drill down on specifics about potentially new tax revenue.

“We are really early in our discussions so we haven’t gotten into any specifics about particular types of revenues,” Dubow said.

Kenney administration officials did not guarantee to maintain current funding levels to anti-poverty and anti-gun violence programs next year, although they pledged to use a “racial equity lens” and input from the community when considering cuts. During the pandemic, food insecurity has increased and homicides hit a 30-year high in 2020.

“Unfortunately, we can’t sort of ring fence any area,” Waxman said referring to protecting budgets for anti-poverty and anti-gun violence programs.

Financial officials projected $4.69 billion in total revenue for fiscal year 2022, which is short of the anticipated $5.1 billion needed to continue city services at current levels.

Last year, the pandemic arrived in Philadelphia months before the end of the fiscal year. The economic effects of the pandemic blew a $750 million hole in the city’s budget. The mayor’s financial team dipped into its fund balance (surplus) and rainy day funds but the budget still includes deep cuts and layoffs.

Many of those past options aren’t available this year.

The Kenney administration has exhausted most of its reserve funds and was expected to end this current fiscal year with a $29 million fund balance. (The Government Officers Finance Association recommends the city have a fund balance of more than $800 million.)

And while year-over-year tax revenues were projected to tick up 3.7%, they would not recover to pre-pandemic levels.

“One, we’re not starting with very much cushion at all,” Waxman said. “Two, our revenues are not bouncing back the way that we would hope.”

Much remains uncertain about the current year’s tax revenue, too. For instance, the city’s Business, Income and Receipts tax — the city’s third-largest revenue generator — isn’t collected until April.

The Kenney administration is pinning its hopes on a federal relief package for municipalities, which has the backing of President Joe Biden.

“But we don’t know if that will pass,” Dubow warned. “And if it does, (we don’t know) what it will look like, what allocations formulas will look like, so we can’t count on that.”

Kenney will deliver his budget address April 15, more than a month later than usual.

Michael D’Onofrio is a reporter for the Philadelphia Tribune, where this story first appeared.