When he took office in January, the biggest crisis facing Michael Nutter as mayor of Philadelphia was that he did not have a crisis.

Mayor…um…Street (How quickly we forget!) had left Nutter a budget surplus.  Revenue from the broad array of city taxes was increasing year-to-year - sometimes in excess of the rate of inflation.

The dilemma facing Nutter was: How do you get people to confront the hard choices facing city government when it came to cost of services?

He knew (and most folks who study government knew) that the city’s obligations exceeded its capacity and that sooner or later something would have to give. Philadelphia government was living beyond its means.

But, it wasn’t an emergency. It got a little worse each year, but it was a problem that oozed. And people usually won’t react to problems that ooze –until they are up to their necks in it.

Thanks to the economy tanking, Mayor Nutter has his crisis.  A drop in tax revenues has left a $1 billion hole in the budget over the next five years.  The Mayor will take to the airways today at noon to present a plan that makes painful cuts in city services.  According to The Inquirer, the cuts include layoffs, closing libraries, rec centers and pools and heaven knows what else.  All we know is, it is going to hurt.

On the surface, there is a “What’s the big deal” aspect to this problem.  Sure, it is a $1 billion deficit, but that is spread over five years.  The city budget for the same five years will total $20.4 billion.

In other words, all the government must do is reduce spending 5%.  It may hurt, but who can’t do that?

The problem is those darned “fixed costs.”  You’ll be hearing a lot of them in the coming days.  Maybe the best way to explain them is to use yourself as an example.

Suppose you and your wife have a combined annual income of $100,000.  She is self-employed and loses a client and it means that she will be bringing in $5,000 less this year.  You have to cut, so where do you start?

Well, here are some places where you can’t start: your taxes, your mortgage, your car payments, your credit card debt (remember when you did the kitchen renovation and paid for it with your Master Card?).  Then, there’s your daughter, Susie.  She is in college, has gotten a big scholarship, but you still have to kick in $6,000 a year to the school.

Add up these “must pay” bills and they come to around $60,000. Another term for them is fixed costs.

That means you have to make the $5,000 cut out of the $40,000 in disposable income you have left.  Your 5% cut has ballooned into a 12% cut.  And it has to come out of living expenses for utilities, food, entertainment, the family vacation.  It hurts and it will be hard.

Ditto the city.  It has a $4 billion annual budget, but 60 percent of it consists of fixed costs: payroll, the cost of employee benefits, debt payments,  payments in city matching funds that generate millions of state and city money, etc. and so forth.

That $1 billion in cuts, instead of meaning a 5% reduction, suddenly becomes a 12% cut.  Enter the plan to close rec centers, lay off employees, reduce city services, etc. It hurts and it will be hard.

This is nothing new.

Whenever confronted with a deficit, city government has tended to trim the easily trimmable.

From a fiscal standpoint - I hate the word fiscal, but you got to use it once in a while - it makes sense.  Philadelphia is a city of about 1.4 million supporting services for a city of 2 million, which was the city population into the 1960’s.

There are rec centers, libraries, pools, fire stations etc. that are underutilized.  (Though try telling that to the people who play basketball in those rec centers, swim in those pools and go those libraries every week.)

In other words, the financial crisis gives the city the excuse to downsize these services to bring expenses in line with income.

But isn’t there one unresolved issue? What about those fixed costs? Simply put, can the city afford its current level of employment, benefits and debt going forward?  The answer is: No.

And if it tries to get through this crisis without reducing those fixed costs (which equal 60% of the pie), they will suck up more and more revenue and Nutter will have to return, again and again, to making his cuts from the 40%.

To put it another way, today begins the easy part — going after the costs that can be cut by mayoral directive. Tomorrow comes the hard part, wrestling with those fixed costs.

To quote Winston Churchill, today’s Nutter speech is not the beginning of the end, it is the end of the beginning.

The toughest challenges to this new administration lay ahead.  Let’s hope they have the moxie to deal with them.