Sam Katz: Fiscal prophet or Chicken Little?

It’s fascinating to hear Sam Katz, chairman of the state board overseeing Philadelphia’s finances, says he fears the city could be headed toward another historic financial crisis.

Gives me deja vu.

I was covering City Hall back in the late ’80s, when the city was steadily going broke — raising taxes, papering over deficits with make-believe revenue, the works. By 1991, the buzzards were circling. City managers would gather on Fridays and figure out which vendors to pay, which to stiff.

At the time, Katz was a nationally recognized expert in public finance. He became a go-to source for reporters covering the gathering financial storm, and the firm he co-founded eventually played a role in the city’s turnaround under Mayor Ed Rendell.

Now Katz is chairman of the Pennsylvania Intergovernmental Cooperation Authority or PICA (would they please change the name of that thing?), the state board created as a result of the crisis to oversee the city’s finances.

By law, the city must prepare a five-year financial plan every year, and the PICA board must review and approve it, or state aid could be jeopardized.

Katz threatened to vote against last year’s plan because the city hadn’t settled labor contracts with its two largest civilian employee unions. Now, a year later, Katz is not only threatening to vote against the financial plan. He’s saying that the city’s fiscal situation is as precarious as it was in the last crisis.

“We have obviously a national recession which is nobody’s fault in Philadelphia, but the impacts are enormous,” Katz told me in an interview Monday. “We have a school district that’s looking down the barrel of illiquidity. We haven’t had a labor contract in six years.  We have a massive pension deficit, an unfunded liability, which is based on a very rosy return, and we have a tax structure which is consistently unfriendly to job growth.”

City finance director offers different appraisal

City finance director Rob Dubow was around in the meltdown of the early ’90s, too. And he says this is simply nothing like that.

“We’re not at that point now,” Dubow said. “We have significant long-term challenges, most notably our pension system, but that’s much different from where we were 20 some-odd years ago.

And Dubow says reforms from the last crisis make another one less likely. A mayor can’t just balance the next budget with made-up numbers. There has to be a five-year financial plan, which, in a rich irony, must be approved by the very state oversight board Sam Katz chairs. He was appointed by Gov. Tom Corbett.

Katz says he thinks the Nutter administration isn’t honestly confronting the city’s fiscal peril, and he’s troubled by its failure to reach contracts with its two largest civilian unions. If it can’t wrap up contracts, Katz says, he won’t vote to approve the city’s five-year plan.

There’s another historical note here. In the last crisis, Katz parlayed his reputation as a finance expert into a mayoral candidacy — the first of three, none successful.

Prelude to another run for mayor?

It’s not hard to find people who say Katz is outspoken again because he craves attention, and wants to run again. I asked Katz about that, and he chuckled.

“Well, I have a pretty bad track record in that department,” he said. “I believe that I am 0 for 3.”

Katz said he has no political plans, and no campaign committee, just a stand “on principle.”

“I’m not really concerned about what other people say,” Katz said. “And I’m willing to take whatever criticism comes my way, and I suspect there will be plenty with or without mayoral speculation.”

When I gave Katz the chance to absolutely rule out another run for mayor, he declined. Not that I think he’s seriously plotting a run — the odds would be long — but he knows he’s never really gotten the mayoral itch out of his system, so there’s no point in saying never.

There’s little sign that anyone else on the PICA board will follow Katz’s lead and oppose the city’s financial plan, and it can be approved on a 4-to-1 vote. But it’s not the best thing for rating agencies and investors to read that the chair of the oversight board has qualms.

For his part,  Dubow says he hopes the city’s financial plan will ultimately get unanimous approval from the state oversight board.