Philadelphia’s fiscal watchdog approved Mayor Jim Kenney’s five-year fiscal plan on Tuesday but noted troubling signs in the coming years.
Pennsylvania Intergovernmental Cooperation Authority Board Member Alan Kessler questioned the optimistic outlook of Kenney’s five-year plan and raised concerns about the increase in overtime pay, particularly in the Philadelphia Fire Department; funding for the school district; and how the city’s taxes would fare in an anticipated economic recession.
“This is a pretty rosy five-year plan,” Kessler said.
An economic recession could have a "severe" impact on the city due to an uptick in hiring and spending since the recession of 2008, said Harvey Rice, executive director of PICA.
“If they need to make cuts, they will be more severe,” Rice said, “but that would depend on how deep the recession is.”
In a statement, Kenney said his administration was making investments in the school district, to combat the opioid epidemic and to reduce gun violence.
“We are prioritizing our schools, the safety of our neighborhoods, and making sure Philadelphia’s economic growth is inclusive and equitable,” Kenney said. "Our spending priorities will allow the City to remain fiscally responsible, build on the momentum we’ve achieved, and address the challenges ahead."
The mayor's five-year plan projected that city spending would rise from $5.02 billion in the current budget to $5.41 billion in 2024 — an increase of 7.8%.
Robert Dubow, the city’s director of finance, said at the meeting that Philadelphia’s fiscal outlook “has really improved over time.”
However, he said, the city must to increase its fund balance and ensure its pension system is funded, the latter of which he said was “on the road to health.” (The pension system is currently underfunded 53% and $6.1 billion.)
“I think where we are heading in the right direction, but we have still more to do,” Dubow said.
The city’s fund balance, or surplus, was expected to hit $297 million in the fiscal year 2019, which Harvey Rice, the executive director of PICA, said was “very significant” at Tuesday’s board meeting in the group’s Walnut Street office. The fund balance was expected to reach $209.9 in this year's budget. In fiscal year 2018, the surplus was $368.8 million and $189.2 million the year before that.
Overtime pay was expected to be $181.9 million in fiscal year 2019 that ended in June, which blew past the Kenney Administration’s budgeted funds by $27.1 million and marked the ninth consecutive time the city has exceeded its budgeted overtime costs.
Responding to the language in the PICA report that stated the city “only exceeded” overtime spending by 1.4% compared to 2018 levels, Kessler said it was a “hollow victory.”
The Philadelphia Fire Department was among the top city overtime spenders last year, costing taxpayers $51.1 million in overtime — the highest in the history of the department.
Fire department officials cited various factors in PICA’s report that contributed to higher overtime costs, including staffing special events, backfilling vacancies and training new employees.
But Kessler said there appeared to be a lack of oversight of fire department spending and doubted the fire department was getting its overtime under control.
“I don’t see any of these factors being unique to 2019 because they are the same factors they [the fire department] face every year,” Kessler said.
Rice said the fire department lacked any specific plans about how to reduce or control overtime costs.
School district funding
The School District of Philadelphia and its financial issues remain a source of concern for PICA. Kenney’s five-year plan would increase funding for the district 8.3% through 2024, going from $222.5 million in fiscal year 2020 to $273.2 million.
But the school district’s own projections show deficits of $76.4 million in 2022, growing to $296.7 million two years later.
Kessler questioned whether the school district ought to consider reducing costs and making better use of its district headquarters at 440 N. Broad St., such as renting out a portion of it.
“That’s prime real estate on Broad Street,” he said.
Dubow said the school district has cut administrative costs in recent years and any more cuts would threaten services.
“For them to make cuts without affecting services," he said, "would be pretty hard."
But while the city's fiscal health was improving, poverty remained at 26%. Dubow said the city was making investments in various areas to combat poverty, which included the school district and pre-kindergarten.
"There are a lot of things that we're doing," he said, "to address poverty."