By Tom Ferrick

(part 1 of 5)

The city’s budget woes are beginning to sound like an ad for an oriental rug store: Save 10! 20! 30 percent or more!

Only in this case it is cut 10, 20, 30 percent! At least that was the directive of Mayor Nutter to his department heads the other in announcing the projected five-year deficit. A few months ago it totaled $1 billion. As of last week, it was somewhere around $2 billion.

Remember, those numbers are over the five-year period that the city uses for long-range budgeting.

In other words, the deficits amounts to about $400 million a year out of a $4 billion city budget over each of the next five years.

How much of it is real (as the mayor says) or hyperbolic scare tactics (as city union leaders allege)?

The best way to judge is to look at the city’s main sources of taxes and see how they are doing for the first half of the government’s fiscal year, which began July 1, 2008.

The real estate transfer tax?  Down significantly. This tax only gets paid at the sale of a property.  Not a whole lot of condos or rowhouses are moving right now.

The city’s business taxes? Down slightly. Business profits are sinking with the recession.

The city’s share of the sales tax? Down. Look at those lousy Christmas sales numbers for an explanation why.

The city’s wage tax? Holding its own, as of now. But the full impact of the recession - with its accelerating number of layoffs - is just being felt.

In other words, things are bad and likely to get worse.

It makes sense for the city to develop a plan of what to do over the next five years in the face of declining revenues. In fact, it is required to do so by state law.  It must come up with a five-year budget plan that balances out revenues and expenses. Otherwise, it faces sanctions under the state law that bailed the city out of financial difficulties in the late 1980’s. That was the same law that led to creation of the Pennsylvania Intergovernmental Cooperation Authority - better known as PICA, which serves as a watchdog over city spending. For an update on city tax collections, go to PICA’s latest report.

The question is: How do we get out of this mess? Close more libraries? Lay off police? Slash the budgets of every city department by 10 percent or more? Go after that old standby: waste, fraud and mismanagement?

What’s a (increasingly) poor city to do?

To quote Ronald Reagan, there are no easy answers, but there are simple answers.

There are ways to reduce government spending by upwards to $600 million without attacking basic services. And, the steps the city could take are not all that complicated. You don’t need an MBA to understand them.
But, implementing them won’t be easy.

To begin with, it will take political will - on the part of our elected officials, for sure, but also on the part of citizens. We have to be willing to (no delicate way to put this) slaughter a number of sacred cows and suffer some pain ourselves. Comfy arrangements built up over decades have to be torn asunder.

It will also take a willingness on the part of Mayor Nutter to sacrifice his political ambitions to this cause. If he implements just some of them, he will end up as a political pariah among large and important segments of the city. He could become a one-term mayor.

On the other hand, Ed Rendell confronted similar problems when he took office in 1992, forced major concessions from the city’s union workforce, cut back or eliminated a number of politically-favored programs and two things happened to him. He earned the undying enmity of the unions and he was re-elected mayor and elected twice as governor of Pennsylvania.

I think the citizens of this city are ready for that kind of leadership and are willing to make sacrifices themselves for a better Philadelphia. On the other hand, I could be wrong.

We’ll see over the next six months.

I have boiled down these Simple, But Not Easy Ways to reduce the cost of city government into five blog posts that will run over the next few days.

Tommorrow I will post Option No. 1: Ease Our Pain