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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 our efforts to achieve financial balance, neighborhood stability and service excellence.
Complementing our work will be the Tax Reform Commission approved by the voters earlier this month to make recommendationson tax policy.
This group will have the critical challenge of looking at the City's complete tax structure, including the real estate assessment practices of the Board of Revisions of Taxes, as well as identifying the right mix of revenue sources to balance the City's budget, provide quality services and grow the local and regional economy.
Today, I am asking City Council for a moratorium on tax reduction bills to provide the Commission with the time to do its work.
With your input, cooperation and support, we can make the important decisions required to
right-size and
re-engineer local government.
We will be able to make sensitive, fair and correct decisions to balance our budget and our Five-Year Plan.
But make no mistake, the work I invite you to join in will be difficult.
The easy cuts and efficiency improvements have already been implemented over the last decade.
The decisions we will be called upon to make will require courage, sacrifice, and political risk.
But we must work together to implement the reforms required to realize the full promise of Philadelphia.
As I said at our prayer service on September 11th, Americans have so much more in common than we have differences.
Our differences, yours and mine, deserve respect, but if we allow ourselves to be irrevocably divided by them, we will sacrifice the momentum that has made Philadelphia a world-class city.
By working together we can grow and prosper as a city that recognizes diversity as a strength and a city of opportunities for everyone -White, Asian, Hispanic, African American, old, young, women, disabled, straight or gay, everyone!
Next year will be a tough budget year for Philadelphia.
The next five years will require a clear vision and courageous leadership.
To build upon Philadelphia's progress -- to attract the marquee retail stores required to complete the economic renaissance downtown -- to prepare ourselves to compete in an increasingly knowledge-based
economy -- we must make the sacrifices and investments required to improve public education, and
expand youth development programs that provide a bright future for our children.
We must also remove blight and drugs from our neighborhoods and build upon the success of our hospitality industry.
A world class city must have a world class public school system.
City Council made the right decision when it increased the city's investment in our public schools.
Working with Governors Ridge and Schweiker we have brought a school reform plan to Philadelphia that has the ingredients for success.
Education advocates, parents, and community leaders rightly stood with me against turning the management of our schools over to Edison.
We were right to insist on hiring a strong CEO like Paul Vallas to manage our school system.
We must fix the labor / management problems at the Pennsylvania Convention Center and work for its expansion.
The Convention Center has been a five-star investment for greater Philadelphia and all of Pennsylvania since it opened in 1993.
It supports 57,700 Philadelphia jobs; which generate $1.3 billion annually in wages; and it has nurtured and revitalized our hospitality community.
As a candidate for Mayor I committed to the people of this City that neighborhoods would be a serious priority.
I have kept that promise.
We are implementing the most comprehensive anti-blight program ever attempted in America.
It is working and generating enthusiasm.
Pulling together to carry out our ambitious vision for NTI is the fair and far-sighted thing to do.
The same can be said about Operation Safe Streets!
I am proud of the great work our police department is doing and every citizen in Philadelphia should be proud of this program.
I do not want to live in a City where good people are locked inside their homes and the drug dealers own the streets!
Today, children can play on the sidewalks of every neighborhood.
Parents and Grandparents are able to enjoy a summer evening on the porch or simply walk to the corner store.
Budget concerns notwithstanding, I will not compromise public safety!
We will make the largest, most strategic investment in public safety in the long storied history of our city.
This includes the most aggressive and successful anti-drug initiative in the history of any major city - The Safe Streets Program.
You cannot transform drug ridden, crime infested neighborhoods!
Over the next five fiscal years we estimate the Safe Streets Program will cost approximately $100 million.
$35 million in 03; $25 million in 04; $15 million in 05; $12.5 in 06; and $12.5 in 07.
How do we pay for it?
In the current five year plan we expect and anticipate spending approximately $2.15 billion for our police department, over $200 million in overtime unrelated to Safe Streets.
I have directed Commissioner Johnson to generate internal savings of $45 million dollars over five years or 2% of the total police department budget to support Safe Streets.
We will aggressively confiscate the real and personal property of people selling drugs in our city.
This year alone, we have confiscated $4.5 million in cash and 450 automobiles that can also help fund Safe Streets.
I estimate that approximately $5 million will be collected each year through the forfeiture of cash, and real & personal property.
We estimate spending $100 million over five years to support Safe Streets.
$45 million will come from internally generated savings and approximately $25 million will come from our forfeiture efforts requiring an additional $30 million to come from local, state, federal, and other sources!
We can ill-afford to compromise the effectiveness of this neighborhood saving program.
Operation Safe Streets is a WINNER!
According to this year's Citizen Satisfaction Survey, 71% of the citizens in neighborhoods with historically high incidents of major crime are satisfied with police protection - up from 54% last year.
And major crime is down everywhere!
But what especially warms my heart are the stories I hear from police officers and neighborhood residents.
They tell me routinely that Operation Safe Streets is
bridging the divide of distrust that has existed in some neighborhoods between the people and their own police department.
We will not now turn our backs and surrender our neighborhoods to the drug dealers.
We all have been part of the rebirth of Philadelphia over the last decade.
We all continue to enjoy the expanding interest and opportunities in our great city.
Market-rate housing, restaurants and entertainment venues are going up in Northern Liberties, Fairmount, Brewerytown, Queens Village, University City, Roxborough, Manayunk, South Philadelphia and parts of the Northeast, not just Center City.
Those neighborhoods are experiencing population growth and for the first time in many generations our citizens are creating wealth in their largest single investment -- their home.
Students are flocking to our colleges and universities in record numbers.
The Constitution Center is nearing completion, two state-of-the-art sports facilities are under construction and the Phoenix is open in Center City.
On the waterfront. Commercial and residential projects are about to join Kvaerner at the Navy Yard; suburban and national developers are poised to build skyscrapers and over 1.5 million square feet of major retail development projects in the Northeast, along Delaware Avenue and in South Philadelphia.
We are exploring ways to stimulate residential and commercial development along the North Delaware River corridor, a strategic plan is in the works for the future of Fairmount Park, and the world famous Barnes Foundation wants to relocate its magnificent art collection to the Benjamin Franklin Parkway, joining the new Calder Museum.
Unfortunately, the turbulence in our national and local economies is threatening the fiscal stability we have fought so hard to achieve and maintain.
As a result, we are faced with difficult choices, choices between where to tighten our belts and where to make indispensable investments in our future.
Today, I am here simply to ask that we work together to realize the full promise of Philadelphia.
Every member of Council is a leader in his or her own right or you wouldn't be here.
To achieve our goals we must exercise leadership and courage.
One writer said "courage is making things right not smoothing things over."
I'm partial to the theologian who said, "courage is fear that has said its prayers."
We are about to embark on a journey which will require great change in the way our city does its business or we will not reach our goal.
Massive change cannot occur without some conflict.
Our ability to cope with chaos and complexity will be tested.
We cannot be both indecisive and effective.
We must know what we want!
Over the next 12 months we must stay focused and see the big picture.
We must not let minor obstacles blur our vision and cause us to lose our way.
We must show the people of this city we care and that we will protect their future.
A smart man once said, "people don't care how much you know until they know how much you care!"
Separating the policies of the past from the promise of the future will be difficult if not impossible for some, but we must do it!
We must at all times be tolerant, persistent, flexible and above all respectful.
John Maxwell said, "A leader can give up anything except final responsibility."
Madam President, Council Members, we are all leaders and as such must accept our individual fair share of the final responsibility.
Thank you.
John F. Street
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