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FY 2010-2014 Budget Briefing for City Council. Mayor Michael A. Nutter February 9, 2009. 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%
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FY 2010-2014 Budget Briefing for City Council Mayor Michael A. Nutter February 9, 2009
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 Table of Contents
A Look Back At What We Did Rebalancing the Budget in November 2008
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
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 The Largest Component of the FY2009 Rebalancing Plan: Suspending Tax Reductions
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. Some Examples of Cost-Savings from FY2009 Rebalancing Plan
10% budget reductions were received from: City Council 5% budget reductions were received from: Register of Wills Courts Controller Sheriff District Attorney Independently Elected Officials
The current deficit is projected to total $1.04 billion The Challenge We Are Facing Today
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
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
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
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.
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. Economy.com Forecasts Significant Job Losses for Philadelphia
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
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
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. The current economic situation remains unstable and uncertain
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. Impact of the Proposed Stimulus Package for Philadelphia
Increasing obligations from the following areas constrain Philadelphia’s finances: Pensions Employee Health Benefits Criminal Justice Major Drivers of Philadelphia’s Budget
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
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: The Lead Up
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: Informing 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: Engaging the Public
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: Transparency & Communication
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 Process: City Managers
Any proposed reductions and revenue enhancements should be considered within the context of increasing: Fiscal integrity Safety Education Jobs Guiding Principles
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?
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 The Budget Scenarios:
