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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


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fy 2010 2014 budget briefing for city council

FY 2010-2014 Budget Briefing for City Council

Mayor Michael A. Nutter

February 9, 2009

table of contents
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%

Reductions and revenue options for closing the deficit

What other cities are doing

Next Steps

Table of Contents
slide4
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

the largest component of the fy2009 rebalancing plan suspending tax reductions
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
some examples of cost savings from fy2009 rebalancing plan
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
independently elected officials
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
slide12
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
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

slide14
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 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
slide16
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

slide17

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.

economy com forecasts significant job losses for philadelphia
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 RTT revenue has fallen significantly since 2008, compared to the same quarter last year
the current economic situation remains unstable and uncertain
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
impact of the proposed stimulus package for philadelphia
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
major drivers of philadelphia s budget
Increasing obligations from the following areas constrain Philadelphia’s finances:

Pensions

Employee Health Benefits

Criminal Justice

Major Drivers of Philadelphia’s Budget
the rise in projected pension costs from fy09 fy14
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
The process for closing the

$1.04 billion deficit

process the lead up
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
process informing the public
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
process engaging 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
process transparency communication
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
process city managers
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
guiding principles
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 gap?

How do we begin to close the

$1 billion gap?

slide41
$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
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
Impact of a 10% cut across the board

These departments would comprise 70% of all cuts

the budget scenarios1
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:
business privilege tax burden
Business Privilege Tax Burden
  • According to a study by Wharton Economist Robert Inman, increasing the City’s business tax rate will result in revenue increases in the short term, but a reduction in revenues in the long term – because businesses become less likely to stay or move to Philadelphia.
  • Source: Robert Inman, “Local Taxes and the Economic Future of Philadelphia: 2008 Report.”
  • We are one of only a few cities which tax businesses on both income and receipts.
new york ny
New York, NY
  • Balanced $500 million problem for FY09
  • New $4 billion gap for FY10 out of $43.3 billion total budget
  • The Four Components of Mayor Bloomberg’s Plan:
    • Reduce operating expenses: $1 billion
    • More generous Medicaid reimbursements from federal government: $1 billion
    • Pension reforms, health care contributions and other sources from unions and the state: $1 billion
    • Increase sales tax to 8.625 percent from 8.375 percent: $894 million
new york ny1
New York, NY
  • Reduce operating expenses: $1 billion
  • Reduce the number of education employees by 1,440: $91million
  • Reduce subsidies to libraries by 7 percent: $20 million
  • Reduce money for senior centers by 5 percent: $5 million
  • Reduce the police force by 1,000 officers, to 34,700: $48.9 million
  • Reduce firefighter crews from 5 to 4 per company or eliminate companies in dual-company fire houses
    • (requires union negotiations)
new york ny2
New York, NY
  • More generous Medicaid reimbursements from federal government: $1 billion
    • Not applicable to Philadelphia
  • Pension reforms, health care contributions and other sources from unions and the state: $1 billion
    • Tier 5 pension system for new employees: $200 million
      • work longer and retire at a later age
      • legislationpending
    • Bloomberg has asked for the suspension of pay raises
los angeles ca
Los Angeles, CA
  • Balanced $406 million shortfall for FY09
  • New $433 million problem in FY10 of $7 billion budget
  • Considerations by Mayor Villaraigosa include:
    • Recall take-home vehicles
    • Voluntary retirement of union employees
    • Layoffs
chicago il
Chicago, IL
  • Balanced $469 million problem for FY09
    • 420 layoffs
    • Furloughs for all employees
      • Unions agreed to furloughs to avoid 1,000 layoffs
    • New taxes, fines and fees
    • Privatization of the Chicago Skyway, Midway Airport, downtown parking garages and city parking meters
    • Slowed police hiring
  • New estimated $50.5 million deficit for FY10 (revised twice since November)
  • Mayor Daley has requested additional cuts from departments and concessions from labor unions to help balance
phoenix az
Phoenix, AZ
  • Balanced $250 million problem for FY09
  • New $270 million in FY10 out of $1.2 billion general fund and $3.7 billion total budget
  • Mayor Gordon’s Budget includes:
    • Eliminate 50% of afterschool programs
    • Cut branch library hours and only 1 of 8 branches now open on Sunday
    • Close "mini" city-hall offices
    • Leave 250 police officer positions and 51 firefighter slots vacant
    • Reduce graffiti removal
    • Eliminate softball leagues from 12 parks
    • Eliminate 1,091 positions
phoenix az1
Phoenix, AZ
  • Reductions (continued)
    • Increases in all fees
    • Cut maintenance for parks and streets
    • Increase the weekly garbage and recycling trash rate by $1.35 a month for homeowners from $25.45 to $26.80 a month and increase commercial trash fees by $2 a month from $36.25 to $38.25 a month
    • Close transfer stations on holidays and weekends
    • Reduce hazardous waste events from ten to four times a year
    • Cut daytime security officers
    • Eliminate weekend clean-up staff
    • Cut quarterly pick ups for old sofas, kitchen appliances, yard trimmings and other bulk items to twice a year.
detroit mi
Detroit, MI
  • $300 million deficit for FY10
  • Mayor Cockrel’s plan includes:
    • 20% Mayoral paycut
    • Cut $2 million from Mayor’s Office budget
    • 10% paycut for all 15,000 City workers
      • Alternative is 1,000 layoffs
  • Downgraded to below investment grade due to poor financial management
where we go from here
Continue to engage with City Council

Maintain a vigorous public participation process

Conduct meetings with stakeholders

Mayor presents his budget to City Council on March 19, 2009

Where We Go From Here
fy 2010 2014 budget briefing for city council1

FY 2010-2014 Budget Briefing for City Council

Mayor Michael A. Nutter

February 9, 2009