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Council President Verna and members of City Council:
Thank you for the opportunity to speak to you and the people of Philadelphia this morning about the tremendous opportunities and critical challenges facing our City.
Mayors normally address Council in this way only when the City budget is proposed in January.
So, I want to thank you for this opportunity today.
For much of the last decade, we benefited from the longest period of economic expansion in our nation's history.
But today, America finds itself in the grips of a recession, intensified by the new threat called terrorism.
This recession has thrown federal, state and local budgets across our country out of balance.
Just last week, Mayor Bloomberg of New York unveiled a drastic plan of service cuts and increased tax rates to close a projected $7.4 billion deficit.
Mayor Williams of Washington, D.C. is raising taxes by $122 million and reducing spending by $203 million.
Virtually every major city is facing significant budget gaps resulting from plummeting revenues driven by the national economy.
Cities are cutting services, eliminating jobs, postponing pay raises, delaying tax reductions, and even RAISING tax rates to cope with spiraling budget deficits.
And Philadelphia is not immune from the ravages of the economy!
Just as Pennsylvania is being forced to balance its budget with reserves accumulated in the 90s, Philadelphia finds its reserves being depleted in response to economic events beyond our control.
Despite our fundamental strengths as a city; despite the fiscal discipline we have exercised, we are faced with deficits that are a direct result of the downturn in the national economy.
I am here today to share with you the facts of our fiscal condition, and to suggest the steps we must take to squarely meet this challenge.
I am proud to report that even in the face of our challenges, the condition of our City remains strong.
However, to preserve our strength and grow, we must face up to the economic hurdles that threaten our future.
We must make the difficult choices required to balance our budget, provide essential services and invest in our future.
Philadelphia, like many other cities, stands at a crossroad between prosperity and peril, between fiscal health and fiscal calamity.
We face a potential cumulative five year operating deficit of $612 million by June 30, 2007, and unless we act to prevent fiscal chaos this circumstance could be more devastating than the 1991 financial crisis that almost ruined the city's future.
This very real crisis grows out of risks and uncertainties which I noted in my January budget message - many of which I am sad to report are now a reality.
In FY02, we increased local support for public schools by $45 million a year, a prerequisite of our landmark agreement with the Commonwealth that resulted in significantly increased state funding for our public schools.
Criminal justice costs are $28 million over budget, and we have incurred $18 million of one time essential security costs.
To compensate for two years of negative pension fund investment returns, the City will have to contribute an additional $190 million to its pension fund in the current five year plan to protect the retirement benefits of city workers as well as our retirees.
This could be a conservative number if the equity markets continue to fall.
The recent Police arbitration award will cost an additional $148 million, including a staggering 37% increase in health care costs.
We are currently engaged in contract arbitration with our Fire Fighters.
Still to come are negotiations with District Councils 33 and 47, who represent our sanitation, clerical, maintenance and other workers who are the backbone of our operating departments and deserve a fair contract!
State mandated increases in trash tipping fees and increases in prison health contract costs add an additional $80 million in expenses within our current Five Year Plan.
Over the past few months, senior members of my administration have provided detailed City budget briefings for decision makers locally and in Harrisburg.
Our message has been direct and uncomplicated.
Philadelphia, like the Commonwealth, has a real financial challenge which we can manage if our revenues are not further reduced by legislative action.
Let's be clear.
For Philadelphia to become more competitive and to create greater opportunities for residents and taxpayers, the local tax burden must be reduced.
We will implement our current tax reduction program and create a new culture in this government that will allow us to accelerate those tax cuts even further.
But it must be noted that the current tax reduction plan will reduce revenue over the next five years by an estimated $290 million.
The absence of those revenues will make our decisions more difficult but also more rewarding.
In the weeks ahead, this government must make choices that will define the future of our City.
We can work at cross-purposes or we can forge ahead together --making courageous choices, which will lead to a better Philadelphia.
When I stood before you in January 2002 to deliver my budget message, I stressed that managing our financial affairs in the midst of the economic uncertainty that surrounded us was a work in progress.
We live in an environment of serious change and challenges.
I cautioned that we would surely have to take corrective measures if the economy did not improve or got worse.
Since then we have made and implemented the tough decisions required to preserve our financial stability, improve critical services, and sustain our investments in the future.
All departments except police and fire have been directed to reduce their FY03 target budgets by 5% for a savings of $22.5 million annually in addition to the 1.5% cut in personnel costs already mandated.
The use of automobiles and cell phones will be reduced with a goal of saving from $5 to $8 million over the next five years.
The budget for outside legal counsel will be reduced by 16% annually at a cost savings of over $1.2 million.
The current hiring freeze which has reduced the City's workforce by over 400 positions and saved $7 million since last November will continue in effect.
Through the DROP program, we will save $68 million by eliminating a minimum of 500 positions.
Together, these measures will produce approximately $290 million of savings over the life of the current Five-Year Plan.
Our work has pointed us in the right direction, but it will not get us across the finish line.
But we must do more; A lot more!
To achieve that objective we must fundamentally and responsibly reform and permanently reduce the employee population of this government.
With that in mind, I will be recommending in my next budget and the Five-Year Plan that we reduce the number of employees in this government by a minimum of 10%, or 2500 employees over the course of that Plan.
These reductions will start with exempt employees, but will reach across the entire government to enable us to achieve our targets.
In making those reductions we will not jeopardize public safety, but we will secure our future.
I will work closely with City Council, the unions who represent our employees, our Chambers of Commerce, civic, religious and other leaders, as well as representatives from our state and federal delegations to pursue greater efficiencies and to redefine:
* the right organization for municipal government to provide quality services and promote economic growth; and
* the right-size for our infrastructure - an infrastructure built for two million people before the age of technology. We will consider asset sales! Privatization opportunities! We will evaluate all existing programs and facilities in ou
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