Philly’s coronavirus budget gap grows by $100 million

Philadelphia’s coronavirus-related budget hole is significantly larger than expected, officials said Monday, which will likely trigger cuts to an already curtailed spending plan.

Revised projections show the fiscal gap has grown to about $750 million, $100 million more than was anticipated in Mayor Jim Kenney’s revised budget, which was slashed $341 million compared to his original pre-virus proposal back in March.

“At this point, we’re looking at negative fund balances if we don’t do anything,” Marisa Waxman, the mayor’s budget director, told reporters during a briefing.

That’s not an option, as the city is legally required to adopt a balanced budget by June 30, the end of the current fiscal year.

Representatives from the Kenney administration didn’t say which areas could see cuts or whether the city would consider tax increases or new sources of revenue.

“We really just identified the problem, so now we know what the problem is and the next step is to identify how to solve it,” Finance Director Rob Dubow said.

The problem is that collection totals for the sales and real estate transfer taxes have come in far short of estimates officials made when Kenney introduced his revised budget May 1.

Sales tax revenue is now expected to finish the year at $195 million, about $32 million less than anticipated last month. Projections for the real estate levy have dropped about $25 million.

All other taxes appear to be stable, Waxman said, though there is some concern about business taxes, the deadline for which was pushed to July 15 to be in line with Internal Revenue Service guidelines.

The May 1 budget proposal called for an $87 million fund balance, which is money left over. Waxman said it’s still important to keep some reserve cash in case of emergencies.

Administration officials said they will spend the week in talks with Council about how to cover the unexpected shortage.

Kenney’s coronavirus budget already had included deep cuts to many departments and hundreds of employee layoffs.

“The administration’s detail on that budget gap growing larger makes the process more difficult,” said Joe Grace, a spokesman for Council President Darrell Clarke. “But Council will meet its obligation and pass a budget prior to the deadline.”

Kenney, bowing to pressure from Council and demonstrators in the streets, last week scrapped a plan to increase funding for the Philadelphia Police Department. His administration has agreed to maintain police funding at fiscal year 2020 levels, about $19 million less than what had been proposed.

Activists have called on him to divert more money away from the PPD to pay for social services and community programming.

“We’re in active discussions with City Council on the full budget,” Kenney’s chief of staff, Jim Engler, said. “That includes the police department budget as well as every other department in the city. It would be premature to comment on any of that until we can finish those discussions with City Council.”

Any significant reduction to the police budget, aside from the $19 million, would lead to layoffs, Police Commissioner Danielle Outlaw told Council members during a hearing last week. About 93 percent of the department’s budget is tied to salaries and benefits.

Advocates are pushing Kenney and Council to restore funding to some areas slated for cuts, particularly the Office of Arts, Culture and the Creative Economy and the Philadelphia Cultural Fund, both of which would be eliminated under the mayor’s plan.

The widening gap would make it more difficult without a tax increase, which has been unpopular in Council.

Kenney had originally requested a 3.95 percent property tax increase to help the School District of Philadelphia cover its COVID-19 deficit.

Clarke warned the Board of Education not to count on the proposed hike, and Kenney dropped it late last month after the state decided to maintain funding levels for districts throughout Pennsylvania.

Council’s virtual budget hearings are set to resume Tuesday at 9:30 a.m.