City Controller Alan Butkovitz tried to bring tough love to the City of Philadelphia budget again. This time, however, the Pennsylvania Intergovernmental Cooperation Authority sided with Mayor Michael Nutter’s Administration and endorsed its Updated Five Year Plan.
Responding to PICA’s request for an opinion on the Updated Five Year Plan, Butkovitz examined the City’s Forecasted General Fund Statements of Operations for the fiscal years ending Jun. 30, 2014 through Jun. 30, 2018 (The Updated Plan) and found its assumptions did not provide a reasonable basis for the City’s forecast.
Inadequate allowances for labor costs were one key problem. Rosy predictions of new property-tax revenue were another.
“Over the life of the Updated Plan there is a steadily declining fund balance to a critically low amount of $8.5 million in Fiscal Year 2017,” said Butkovitz.
The FGFSO is prepared by the City’s Finance Office and then submitted to PICA.
The decline in the fund balances to extremely low amounts occurred because the City failed to update the revenue amounts in the Updated Plan for the anticipated favorable financial impact that management assumes will take place because of the ongoing economic recovery.
“No recent Five Year Plan has had these critically low fund balances,” said Butkovitz. “Any significant deviation because of unforeseen circumstances such as litigations, severe weather, or future unexpected commitments to the School District of Philadelphia could drastically impact city operations.”
In addition, the Updated Plan continues to include some risky assumptions, Butkovitz argued.
The City expects it will realize $536.6 million of property-tax revenue for FY 2014 and $2.26 billion over the remaining years of the Updated Plan. However, these estimated revenues may not be fully realized, because it is difficult to estimate the extent of tax appeals that may arise as a result of the City’s newly implemented Actual Value Initiative and because of more-aggressive tax-collection efforts implemented by the City with respect to additional current- and prior-year property-tax receivables.
The Updated Plan does not include any additional potential costs above the estimated $36 million for its final offer to District Council 33 made on Jan. 16, 2013 for a contract to run Jul. 1, 2009 through Jun. 30, 2014. Nor does it include any potential costs above the estimated $21 million for the most recent offer to District Council 47.
“I urge PICA to reject the City’s Updated Five Year Plan as presented because the assumptions are not reasonable,” Butkovitz concluded.
Butkovitz’s concerns were echoed by PICA’s own staff, which also advised the Five Year Plan be rejected.
However, the five-member board shied away in the end from this drastic step. PICA Chairman Sam Katz has long called a thumbs-down on the Five Year Plan a “nuclear option” which would trigger automatic loss of large sums of state money now earmarked for the City.
Last year the Controller also asked PICA to reject the City’s Five Year Plan. That warning bell led PICA to renegotiate the plan with the Nutter Administration to make it safer.
1323 South Broad Street
Philadelphia, PA 19147
Tel: 215-755-2000 Fax: 215-689-4099
For Advertising, email John David at firstname.lastname@example.org