Title
May 15, 2003
To the President and Members
of the City Council of Philadelphia:
I am returning herewith as disapproved Bill No. 030163. Council passed this bill at its session on May 1, 2003.
While I fully appreciate and support the intent of this bill to ease the burden for low-income taxpayers, the fact is that the City cannot afford the resulting revenue loss, estimated to be almost $73 million over the life of the FY04-FY08 Five Year Plan and at least $80 million annually when fully implemented, and service reductions that would inevitably follow. Moreover, the group of citizens that would be aided by this measure will be helped by the tax reform measures in Governor Rendell’s Plan for a New Pennsylvania, but at no cost to the City treasury. That Plan has my complete support.
Under the Rendell Plan, all Philadelphians would receive a 13.5 percent reduction in the City wage tax, to a rate of 3.89 percent. This benefit would be paid for with new, offsetting state revenues. In addition to receiving the wage tax cut, low-income taxpayers would be able to take advantage of exemptions to the Pennsylvania Personal Income Tax (PIT). Thirty-one percent of Philadelphia PIT filers participated in the state’s Tax Back/Tax Forgiveness program in 2000; the eligibility threshold would be expanded under the Governor’s proposal, and with growing awareness, more Philadelphians would be expected to apply. Low-income citizens would receive the most benefit from the Governor’s Plan.
Philadelphia has weathered the effects of the prolonged economic recession better than most states and cities, including maintaining a $364 million local tax reduction program while other jurisdictions are raising their taxes. Nevertheless, we face enormous financial challenges, which my Administration has been attempting to address responsibly and with minimal impacts on service. The FY 04-08 Five Year Plan submitted to you in January, contained specified savings to address an original projected $834 fund balance deficit. Since that time, the Fire Fighters’ Arbitration Award and the enactment last week of Bill No. 030073 that offsets increases in real estate tax assessments with reductions in wage taxes, have added more than $80 million to our future costs. Just last week, Finance Director Janice Davis wrote to you about new items that had been added to our budget, most of which were requested by Council, totaling more than $20 million, and about the additional savings and changes made in the Five Year Plan to accommodate the combined $108 million in increased costs. The FY ’08 projected fund balance is now just $3.8 million. Moreover, this budget revision does not yet even take into account the impact of the deep cuts in health and social services and other programs that are now contained in the adopted state budget. If this bill were passed, the Administration would have no choice but rework the Plan, which has not yet been approved by PICA, to reflect the impact of these proposed tax reductions. As a result, we would have to find an additional $&3 million in savings before the Plan could be approved.
The bottom line is that it is not possible to continue to reduce local revenue without having a damaging effect on the City’s financial stability and the quality of life for residents. Low-income and all City residents expect clean and safe neighborhoods, quality schools, accessible health and social services and opportunities for recreation and other amenities which our City government has worked hard to provide. We have made significant progress, but a loss of almost $73 million over the life of the Plan and $80 million annually when the proposed reductions are fully in place will make it impossible to maintain what we have now—yet alone to keep on improving our City.
I do understand the strong desire by Council members to assist our low-income citizens. Again, it is my strong hope and advocacy that Governor Rendell’s Plan will be enacted to provide this tax relief, along with essential investments in public education and economic development, which also will have tremendous benefits for low-income Philadelphians. I urge the members of Council to work with our delegation to the General Assembly to attain this goal. In the meantime, I believe that adoption of any additional wage tax reduction measures would be premature and counter-productive to the quality of life improvements that we are attempting to achieve for our entire City.
Sincerely,
John F. Street, Esquire
Mayor
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