City Council Presentation 02/09/2009
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City Council Presentation 02/09/2009

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Mayor Michael Nutter's FY 2010 - 2014 Budget Briefing for City Council

Mayor Michael Nutter's FY 2010 - 2014 Budget Briefing for City Council

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City Council Presentation 02/09/2009 City Council Presentation 02/09/2009 Presentation Transcript

  • FY 2010-2014 Budget Briefing for City Council Mayor Michael A. Nutter February 9, 2009
  • Table of Contents
    • Rebalancing the budget in November 2008
    • The current deficit - $1.04 billion
    • The process for closing the $1.04 billion deficit
    • Department budget scenarios for 10%, 20%, and 30%
    • Revenue options for closing the deficit
    • What other cities are doing
    • Next steps
  • Rebalancing the Budget in November 2008 A Look Back At What We Did
    • Solved for a $1 billion shortfall over the life of the five year plan, FY09-FY13
    • In FY09 alone the projected shortfall totaled $108.1 million
    Rebalancing the Budget in November 2008
  • The Largest Component of the FY2009 Rebalancing Plan: Suspending Tax Reductions
    • City funded tax reductions after FY09 were suspended
    • Dollar value of tax suspensions equated to almost $230 million from FY09-FY13
    • Tax reductions will resume as scheduled in FY15
  • How We Closed the $108.1 Million Budget Gap for FY 2009
  • Some Examples of Cost-Savings from FY2009 Rebalancing Plan
    • Reduction in Police overtime: administrative overtime, arrest/investigative overtime ($8m)
    • Furloughs for exempt employees
    • Salary cuts for Mayor’s office and Cabinet members
    • Consolidation of IT functions
    • Increased permit, license and registration fees
    • Reduce trash setout limits from 12 bags and 6 cans to 8 bags and 4 cans.
  • Workforce Reductions in FY2009 Rebalancing Plan # of Positions Full time (filled and unfilled) 800 Part-time 20 Seasonal 1,500 Contractual 550
  • Independently Elected Officials
    • 10% budget reductions were received from:
      • City Council
    • 5% budget reductions were received from:
      • Register of Wills
      • Courts
      • Controller
      • Sheriff
      • District Attorney
  • The Challenge We Are Facing Today
    • The current deficit is projected to
    • total $1.04 billion
  • Projected Negative Fund Balance Totals $1.04 billion Over 5 years FY09 FY10 FY11 FY12 FY13 FY14
  • Major forecasters expect the US economy to shrink in 2009 as part of a global contraction in economy activity Forecasts of US Economic Growth, 2009 and 2010 (forecast as of January 2009) 2009 2010 Blue Chip Consensus Forecast -1.6 2.4 Moody's Economy.com -1.6 2.0 International Monetary Fund -1.6 1.6 Congressional Budget Office -2.2 1.5 Global Insight -2.5 2.2
  • The speed and depth of the unfolding recession has caught economists and forecasters by surprise In the 5 months between September 2008 and February 2009, the Blue Chip Consensus Forecast of US growth fell by 3.4 percent
  • City of Philadelphia is using Congressional Budget Office Forecasts to Develop Forecasts of City Revenues
    • Office of Budget and Performance Evaluation (OBPE) is using the most recent Congressional Budget Office projections (January 2009) of US economic growth in its forecast
    • These national economic forecasts are used to develop forecasts of the city’s tax base growth and revenue growth
    CY2009 CY2010 CY2011 CY2012 US GDP Growth (CBO, January 2009) (2.20) 1.50 4.20 4.40
  • OBPE forecasts of the local economy are not as pessimistic as other forecasters
    • OBPE expects the Philadelphia economy to slow considerably in CY09 and begin to rebound in CY10 as measured by total Philadelphia personal income and total wages
    • In contrast, Moody’s Economy.com anticipates much slower growth for Philadelphia in 2010 and 2011, particularly in total wages
    Growth Rates for the Measures of the Philadelphia Economy CY2009 CY2010 CY2011 CY2012 OBPE, Total Personal Income 0.9% 2.5% 3.8% 4.2% Moody's Economy.com Total Personal Income 1.2% 1.3% 2.7% 4.3% OBPE, Total Wages 1.6% 2.6% 3.5% 3.8% Moody's Economy.com Total Wages 0.3% 0.1% 1.6% 3.8%
  • Adopting Moody’s Economy.com forecast for personal income would increase forecast tax revenues marginally over the FY10-FY14 Plan For example, if the City adopted the Economy.com personal income forecast, sales taxes would be higher by at least $2.3 million over the FY10-FY14 Plan
  • However, adopting Moody’s Economy.com forecast for wages would decrease forecasted wage tax revenues by at least $214.5 million over the FY10-FY14 Plan The lower growth rate for wages in the Economy.com forecast substantially lowers wage tax revenues during the FY10-FY14 Plan.
  • Economy.com Forecasts Significant Job Losses for Philadelphia
    • Employment in Philadelphia is projected to fall from the peak of 660.2 thousand jobs in 2007 to a low of 637.2 thousand jobs in 2011.
    • Unemployment is expected to rise from the current rate of 8.6% in December 2008 to 12.3% in 2010.
  • FY09 RTT revenue has fallen significantly since 2008, compared to the same quarter last year
  • FY09 wage tax revenue has fallen since 2008, compared to the same quarter last year
  • FY09 sales tax revenue has fallen, compared to the same quarter last year
  • Total Projected Tax Revenues Have Fallen Over $1 Billion
  • Business Privilege Tax Revenue Projections Have Fallen Over $425 Million
  • Real Estate Transfer Tax Revenue Projections Have Fallen Over $316 Million
  • Real Estate Revenue Projections Have Fallen Over $70 Million
  • Wage Tax Revenue Projections Have Fallen Over $60 Million
  • Sales Tax Revenue Projections Have Fallen Over $60 Million
  • The current economic situation remains unstable and uncertain
    • The unprecedented financial and economic crisis remains volatile and exceptionally uncertain
      • “ the uncertainty surrounding the outlook was considerable and that the downside risks … were a serious concern.” Federal Open Market Committee minutes December 15-16, 2008
    • Economists continue to change national growth forecasts as a result
      • The Blue Chip Consensus Forecast released today lowered economic growth assumptions for the US to -1.9% from -1.6% for 2009, and to 2.1% from 2.4% for 2010.
    • Things may continue to worsen, further lowering Philadelphia’s revenues
      • Two noted economists, Nouriel Roubini, at NYU Stern School of Business (one of the few to accurately predict the timing and scale and impact of the financial crisis) and Kenneth Rogoff, of Harvard, argue that the recession may be deeper and last much longer than currently forecast by most economists.
  • Impact of the Proposed Stimulus Package for Philadelphia
    • Stimulus legislation is a moving target, and as a general matter we should not rely on these potential funds in our FY10 budgeting
    • Furthermore, most of the potential stimulus funding will support Capital rather than our Operating Budget, although there would be some for the operating budgets of the School District and Philadelphia Housing Authority
    • The major exception to this is the way the stimulus may interact with the Governor’s recently proposed State budget
    • Some stimulus cuts could lead to indirect impact on the Pennsylvania budget that might affect our reimbursements, especially for Social Services.
  • Major Drivers of Philadelphia’s Budget
    • Increasing obligations from the following areas constrain Philadelphia’s finances:
      • Pensions
      • Employee Health Benefits
      • Criminal Justice
  • Percentage Change from FY2000-FY2008 of Major Budget Drivers
  • The Rise in Projected Pension Costs from FY09-FY14
    • Major Assumptions:
    • Pension fund loses 30% in FY09 (through December, the fund had lost just over 20%).
    • In FY10 and moving forward, the fund returns to making its earnings assumption of 8.75%
    • Major Risks: Losses beyond 30% in FY09 or failure to hit earnings assumption in future years.
    • Opportunities to Outperform Budget: Losses below 30% for FY09, earnings in excess of assumption in future years, legislation in Harrisburg or Washington or ability to issue pension obligation bonds at attractive rates.
  • The process for closing the $1.04 billion deficit
  • Process: The Lead Up
    • Town Hall Meetings: Nov & Dec 2008
      • 8 meetings, citywide
      • After rebalancing the FY2009 budget, we knew we were about to start another, longer budget process for FY2010
      • We heard the public:
        • They want us to look at everything
        • They want to better understand the options and trade-offs Philadelphia faces
  • Process: Informing the Public
    • This unprecedented level of public engagement in the budget process is a demonstration of the Nutter Administration’s commitment to dialogue, education, and moving forward together as one city.
    • Five PhillyStat sessions on the budget
      • 2 informational, context setting sessions
        • January 26: The State of the City
        • January 28: The State of the City’s Finances
      • 3 sessions, led by the Mayor, on budget scenarios
        • February 12: Health and Opportunity
        • February 17: Public Safety
        • February 18: Transportation & Economic Development
  • Process: Engaging the Public
    • Community budget workshops coordinated by the Penn Project for Civic Engagement and WHYY
      • Thursday, February 12, 2009
      • Northeast: St. Dominic’s School
      • Wednesday, February 18, 2009
      • Germantown: Mastery Charter School
      • Thursday, February 19, 2009
      • South Philadelphia: St. Monica’s Catholic School
      • Monday, February 23, 2009
      • West Philadelphia: Pinn Memorial Baptist Church
  • Process: Transparency & Communication
    • Transparency of Scenarios
      • Scenarios from departments are public
      • These scenarios will be the bases for discussions
    • Meetings with stakeholders on the challenges and choices
      • Conducted by the Mayor and his senior staff
    • Conversations across the City
      • Kitchen table chats
      • Visits to faith institutions
      • Meetings with Block Captains
      • Participation in civic and community meetings
      • Stop bys at local diners, businesses, barbershops and salons
  • Process: City Managers
    • The Budget Director has requested 10%, 20% and 30% budget reductions from:
      • The Administration’s Department Heads
      • Independently Elected Officials
      • City Council
    • Financial, personnel and service/program impacts have been requested at all levels
  • Guiding Principles
    • Any proposed reductions and revenue enhancements should be considered within the context of increasing:
      • Fiscal integrity
      • Safety
      • Education
      • Jobs
  • How do we begin to close the gap? How do we begin to close the $1 billion gap?
  • $1.8 Billion of the City’s FY09 Budget is Discretionary $2.1 Billion of the City’s FY09 Budget is Nondiscretionary
  • Closing the $1 Billion Deficit
    • A 10% reduction across all departments would provide $187.5 million annually
    • A 10% reduction across all departments would provide $937.5 million over the five year plan
    • This is still $107.5 million less then what is needed to close the gap
  • Impact of a 10% cut across the board These departments would comprise 70% of all cuts
  • What happens when departmental cuts are removed from the plan?
  • The Budget Scenarios
    • Department scenarios for 10%, 20% and 30% budget reductions
  • The Budget Scenarios:
    • Reflect potential impacts from service reductions and revenue enhancements
    • Demonstrate the depth and scale of the challenges and tradeoffs we face
    • These are potential scenarios that help us evaluate our choices
  • Police Positions $ 2,598 sworn, 107 civilian $157,517,172 30% Reduction 1,765 sworn, 87 civilian $104,982,383 20% Reduction 929 sworn, 73 civilian $52,499,653 10% Reduction Positions Lost Reduction Value 6,624 sworn, 838 civilian $524,996,525 2010 Base Budget 6,624 sworn, 843 civilian $536,442,088 2009 Rebalanced Budget 6,824 sworn, 843 civilian $524,001,749 2009 Original Budget 6,624 sworn, 822 civilian $523,965,930 2008 Actual Budget
  • Fire 627 uniform 395 uniform 163 uniform Positions Lost 2,157 uniform, 115 civilian 2,321 uniform, 114 civilian 2,469 uniform, 114 civilian 2,389 uniform, 114 civilian Positions 15 engine companies, 8 ladder companies, 13 medic units 9 engine companies, 5 ladder companies, 8 medic units 3 engine companies, 2 ladder companies, 3 medic units Service Levels $ $5 million Increase transport fees Value Revenue $57,838,917 30% Reduction $38,559,278 20% Reduction $19,279,639 10% Reduction Reduction Value $192,796,390 2010 Base Budget $195,831,554 2009 Rebalanced Budget $192,693,965 2009 Original Budget $189,179,212 2008 Actual Budget
  • Prisons Positions $ 590 $65,640,002 30% Reduction 210 $42,134,271 20% Reduction 40 $18,628,540 10% Reduction Positions Lost Reduction Value 2,360 $235,057,310 2010 Base Budget 2,400 $230,180,119 2009 Rebalanced Budget 2,400 $230,001,319 2009 Original Budget 2,400 $222,013,102 2008 Actual Budget
  • First Judicial District $ $23,941,740 30% Target $20,090,750 20% Target $12,667,750 10% Target Target Value $103,096,983 2010 Base Budget $108,824,593 2009 Rebalanced Budget $114,552,203 2009 Original Budget $120,016,366 2008 Actual Budget
  • Streets $18.75K City Plan fee $3 million Commercial Property Collection charge $230k Increase hauling permit fee Positions $ $26.5 million for Q4 FY10; $106 million annually ($5 per week per household) Save as you throw Value Revenue 372 $23,941,740 30% Reduction 274 $20,090,750 20% Reduction 110 $12,667,750 10% Reduction Positions Lost Reduction Value 1,796 $126,622,858 2010 Base Budget 1,906 $133,188,280 2009 Rebalanced Budget 1,966 $145,092,480 2009 Original Budget 1,839 $128,589,201 2008 Actual Budget
  • Licenses and Inspections Positions $ 100 $8,062,677 30% Reduction 55 $5,375,118 20% Reduction 6 $2,687,559 10% Reduction Positions Lost Reduction Value 330 $26,875,594 2010 Base Budget 336 $27,307,561 2009 Rebalanced Budget 374 $27,635,668 2009 Original Budget 356 $30,254,839 2008 Actual Budget
  • Human Services Positions $ Subject to State or Federal funding $58,651,297 30% Reduction Subject to State or Federal funding $38,644,692 20% Reduction Subject to State or Federal funding $18,638,087 10% Reduction Positions Lost Reduction Value 1,871 $591,305,201 / $61M City share 2010 Base Budget 1,871 $605,419,669 / $67M City share 2009 Rebalanced Budget 1,871 $616,308,936 / $60M City share 2009 Original Budget 1,772 $614,779,975 / $71M City share 2008 Actual Budget
  • Free Library 162 96 67 Positions Lost 628 619 730 739 Positions $ 30 branches closed, 19 branches 5 days/week, 3 regionals 6 days/week, Central 7 days/week; 162 positions $8,886,505 30% Reduction 23 branches closed, 26 branches 5 days/week, 3 regionals 6 days/week, Central 7 days/week OR 17 branches closed, 23 branches at half days, 3 regionals and 9 branches 6 days/week, Central 7 days/week $5,666,899 20% Reduction 10 branches closed, 32 branches 3.5 days/week, 3 regionals 6 days/week, Central 7 days/week OR all 49 branches 3 days/week, 3 regionals 6 days/week, Central 7 days/week $2,447,294 10% Reduction Service Levels Reduction Value $32,196,051 2010 Base Budget $36,984,508 2009 Rebalanced Budget $40,245,065 2009 Original Budget $40,458,971 2008 Actual Budget
  • Recreation Positions $ 58 recreation centers closed 182 $8,989,974 30% Reduction 28 recreation centers closed OR 40 centers operate at half day schedule 121 $5,993,316 20% Reduction 69 $2,996,659 10% Reduction Service Levels Positions Lost Reduction Value 160 recreation centers 440 FT/98 PT $32,156,586 2010 Base Budget 484 FT/231 PT $38,746,870 2009 Rebalanced Budget 517 FT/141 PT $ 40,395,732 2009 Original Budget 496 FT/114 PT $ 38,769,657 2008 Actual Budget
  • Fairmount Park 105 40 16 Positions Lost 169 169 189 170 Positions $ All (13) Park fountains, summer and fall seasons of historic mansions, Horticultural Center, Lloyd Hall, Welcome Center at JFK Plaza $3,627,730 30% Reduction All (13) Park fountains, summer and fall seasons of historic mansions $2,368,486 20% Reduction $1,259,243 10% Reduction Service Levels Reduction Value $12,592,432 2010 Base Budget $14,301,486 2009 Rebalanced Budget $15,740,540 2009 Original Budget $13,172,039 2008 Actual Budget
  • Public Health $1,022,000 Sliding scale co-pay for uninsured visits at Health Centers Close Nursing Home, close three health centers 157 $14,804,997 30% Reduction $759,769 Charge fee for pre-employment and “back to work” physicals Value Revenue Positions $ Close Nursing Home, close one health center 58 $9,869,998 20% Reduction 6 $4,934,999 10% Reduction Service Levels Positions Lost Reduction Value 740 $119,149,986 2010 Base Budget 746 $121,062,235 2009 Rebalanced Budget 757 $ 122,778,884 2009 Original Budget 665 $ 112,695,423 2008 Actual Budget
  • Supportive Housing Positions $ 501 family beds and 350 single adult beds lost 13 $11,659,080 30% Reduction 334 family beds and 233 single adult beds lost 11 $7,772,720 20% Reduction 167 family beds and 117 single adult beds lost 6 $3,886,360 10% Reduction Service Levels Positions Lost Reduction Value 134 $38,863,600 2010 Base Budget 137 $39,650,143 2009 Rebalanced Budget 138 $40,210,085 2009 Original Budget 131 $40,544,073 2008 Actual Budget
  • Records Value Revenue $3 million Update recording fees by $30 33 filled $2,687,156 30% Reduction Positions $ 28 filled $2,077,766 20% Reduction 23 filled $1,468,377 10% Reduction Positions Lost Reduction Value 69 $6,093,897 2010 Base Budget 69 $6,952,884 2009 Rebalanced Budget 76 $7,679,871 2009 Original Budget 76 $7,633,941 2008 Actual Budget
  • Revenue Options
  • Value of Potential Tax Rate Changes (amounts in millions) Additional Revenue Increase Current 3.4997% 3.9296% 20.0% 5.0% 6.45% 3.0% 1.415 mills 3.305% 7.0% $10.8 1 mill Real Estate $12.8 0.1 percent Sales (requires State authorization) $4.3 0.1 percent Real Estate Transfer Tax $5.0 .1 mill BPT – Gross Receipts $3.5 1 percent Parking $3.7 1 percent Amusement $1.6 0.01 percent Wage – Non Resident (requires PICA approval) $2.3 0.01 percent Wage – Resident (requires PICA approval) $4.2 0.1 percent BPT – Net Income
  • Annual Resident Wage Tax Burden for a Hypothetical Family of Three in Philadelphia, 2007
  • Annual Real Estate Tax Burden for a Hypothetical Family of Three in Philadelphia, 2007
  • Annual Sales Tax Burden for a Hypothetical Family of Three in Philadelphia, 2007
  • Business Privilege Tax Burden
    • According to a study by Wharton Economist Robert Inman, increasing the City’s business tax rate will result in revenue increases in the short term, but a reduction in revenues in the long term – because businesses become less likely to stay or move to Philadelphia.
    • Source: Robert Inman, “Local Taxes and the Economic Future of Philadelphia: 2008 Report.”
    • We are one of only a few cities which tax businesses on both income and receipts.
  • What Other Cities Are Doing
  • New York, NY
    • Balanced $500 million problem for FY09
    • New $4 billion gap for FY10 out of $43.3 billion total budget
    • The Four Components of Mayor Bloomberg’s Plan:
      • Reduce operating expenses: $1 billion
      • More generous Medicaid reimbursements from federal government: $1 billion
      • Pension reforms, health care contributions and other sources from unions and the state: $1 billion
      • Increase sales tax to 8.625 percent from 8.375 percent: $894 million
  • New York, NY
      • Reduce operating expenses: $1 billion
      • Reduce the number of education employees by 1,440: $91 million
      • Reduce subsidies to libraries by 7 percent: $20 million
      • Reduce money for senior centers by 5 percent: $5 million
      • Reduce the police force by 1,000 officers, to 34,700: $48.9 million
      • Reduce firefighter crews from 5 to 4 per company or eliminate companies in dual-company fire houses
        • (requires union negotiations)
  • New York, NY
    • More generous Medicaid reimbursements from federal government: $1 billion
      • Not applicable to Philadelphia
    • Pension reforms, health care contributions and other sources from unions and the state: $1 billion
      • Tier 5 pension system for new employees: $200 million
        • work longer and retire at a later age
        • legislation pending
      • Bloomberg has asked for the suspension of pay raises
  • Los Angeles, CA
    • Balanced $406 million shortfall for FY09
    • New $433 million problem in FY10 of $7 billion budget
    • Considerations by Mayor Villaraigosa include:
      • Recall take-home vehicles
      • Voluntary retirement of union employees
      • Layoffs
  • Chicago, IL
    • Balanced $469 million problem for FY09
      • 420 layoffs
      • Furloughs for all employees
        • Unions agreed to furloughs to avoid 1,000 layoffs
      • New taxes, fines and fees
      • Privatization of the Chicago Skyway, Midway Airport, downtown parking garages and city parking meters
      • Slowed police hiring
    • New estimated $50.5 million deficit for FY10 (revised twice since November)
    • Mayor Daley has requested additional cuts from departments and concessions from labor unions to help balance
  • Phoenix, AZ
    • Balanced $250 million problem for FY09
    • New $270 million in FY10 out of $1.2 billion general fund and $3.7 billion total budget
    • Mayor Gordon’s Budget includes:
      • Eliminate 50% of afterschool programs
      • Cut branch library hours and only 1 of 8 branches now open on Sunday
      • Close "mini" city-hall offices
      • Leave 250 police officer positions and 51 firefighter slots vacant
      • Reduce graffiti removal
      • Eliminate softball leagues from 12 parks
      • Eliminate 1,091 positions
  • Phoenix, AZ
    • Reductions (continued)
      • Increases in all fees
      • Cut maintenance for parks and streets
      • Increase the weekly garbage and recycling trash rate by $1.35 a month for homeowners from $25.45 to $26.80 a month and increase commercial trash fees by $2 a month from $36.25 to $38.25 a month
      • Close transfer stations on holidays and weekends
      • Reduce hazardous waste events from ten to four times a year
      • Cut daytime security officers
      • Eliminate weekend clean-up staff
      • Cut quarterly pick ups for old sofas, kitchen appliances, yard trimmings and other bulk items to twice a year.
  • Detroit, MI
    • $300 million deficit for FY10
    • Mayor Cockrel’s plan includes:
      • 20% Mayoral paycut
      • Cut $2 million from Mayor’s Office budget
      • 10% paycut for all 15,000 City workers
        • Alternative is 1,000 layoffs
    • Downgraded to below investment grade due to poor financial management
  • Fundamental Questions as We Address the Budget Problem
    • What city services should we provide, and at what level?
    • What is the best way to pay for these services?
  • Where We Go From Here
    • Continue to engage with City Council
    • Maintain a vigorous public participation process
    • Conduct meetings with stakeholders
    • Mayor presents his budget to City Council on March 19, 2009
  • FY 2010-2014 Budget Briefing for City Council Mayor Michael A. Nutter February 9, 2009