The Pennsylvania Intergovernmental Cooperation Authority or PICA (pike-uh), released its analysis of the City's FY07 fund balance (def: the amount by which revenue was over or under expenses - in this case over).
You see, the city is required, every year, to create a 5-year plan which anticipates the next 5 fiscal years and takes steps to make sure that the budget remains balanced or in surplus during that time. So estimates are made. In this case, the city estimated that they would have positive fund balance of about $215 million. That "balance" would then be carried over and factored into future budgets. In other words, this doesn't mean the city has an extra $215 million. All of that money has already been allocated.
However, when the 2007 fiscal year ended (last June) it became clear that the fund balance was actually about $297 million or about $80 million more than they had anticipated. THAT is an extra $80 million.
Imagine your own household budget as a comparison. In September you plan out the final three months of the year. For October you anticipate that your household will take in about $5000 bucks after taxes. You expect to spend (on housing, food, health care, entertainment, travel, utilities, etc.) about $4000. However, you know that in November and December, with the holidays coming, you'll need to use that extra thousand bucks. So you factor it in and end up with an anticipated balanced budget for those three months.
October comes and goes and at the end you realize that you actually took in about $6000 (you worked extra hours, won a grand in a raffle or one of your investments paid off bigger than expected). So now you DO have an extra $1000 because when you planned things out, you were able to balance your budget without it.
That's essentially what happened with the City. Here's how our analogy works:
- your next "3 months" = the city's next 5 years
- your October = the city's 2007 fiscal year
- your $5000 income for October = the city's revenue for 2007 (around $3.7 billion)
- your $4000 in expenses = the city's expenses for 2007
- your anticipated extra $1000 = the city's anticipated positive fund balance of $215 million
- the extra $1000 you ended up with on top of that = the extra $80 million the city ended up with
- the extra hours, raffle winnings and investment income that got you the extra $1000 = the city's higher than expected tax revenue, higher payments from the state government, and higher than expected interest income.
So does this mean you can expect an extra $1000 bucks every month? If you heed the same warnings that PICA makes for the city, you'd realize that you have to:
- Stop factoring in the repayment of that $1000 loan you made to your unemployed, drunken, unreliable uncle as part of your income in December. For the city that means, stop anticipating repayment of a $45 million loan from PGW as part of your future revenue.
- Understand that your kid is not going to go to college for free on a baseball scholarship and start getting ready for it. For the city that means, knowing that it's could be paying more to its employees for salary and benefits when their contracts expire in the summer of '08.
- Understand that your parents are going to stop slipping you $50 bucks a month. In the city's case, the federal and state governments are going to reduce the amount of cash they send its way.
- "brace" for the fact that you're younger kid is going to need orthodontic work. The city is going to have to cough up some money to the school district, which is anticipating some funding difficulties of its own.
So what should you do with that $1000? Again, if you follow PICA's suggestions for the City, you would:
- Pay back the money you borrowed from your 401k which caused it to become seriously underfunded. For the city that means actually paying the employee pension fund now, while they have this unanticipated money, to take a step toward fixing that severely underfunded obligation.
- Hire a contractor to fix that leak in your dining room ceiling that you think is coming from your bathroom but isn't so annoying as long as you put a bucket under it to catch the drips. This way, you won't be faced with a MUCH larger bill when your bath tub ends up on your Thanksgiving dinner. For the city, this means putting the extra $80 million into much needed infrastructure improvements.
- Pay down your credit card so you can reduce the amount you pay each month on finance charges. Pretty obvious one here. The city paid about $43 million more for debt service in 2007 than it did in $2001 (and it's only going to get worse). That's $43 million that didn't go to hiring police or mowing the grass at rec centers.
- Use the money to pay your tuition for your MBA so you can make the big bucks. For the city that means paying for a more competitive tax structure so that more businesses and people will move in and, in turn, increase revenues.
- Set the money aside, somewhere safe, and don't touch it unless there's an absolute emergency - like a car accident or health problem. In the city's case, that means establishing a rainy day fund in case their some totally unanticipated emergency that requires several million dollars. Emergencies include: lower than expected revenue because of a recession, a huge snowstorm requiring massive overtime costs, etc.
Of course you can divide your $1000 bucks among a number of these things, just like the city can divide its $80 million.
So now, we wait and see what the city will do.
(edited to add) So far, the Philadelphia Business Journal is the only publication I've seen that has covered this story. Hopefully they'll keep track of what the city does too.
Comments (8)
Good job Dan with your household analogy. Too bad that Street resists (at least in the past, perhaps not now) use of practical management such as debt pay down or prompt reimbursement of surplus monies to the schools -- which are still underfunded.
If Street had been able to read his own budgeting reports, Vallas could have stayed because he would have realized that the money he needed was coming.
Instead, Street antagonized Vallas with no assurance that money for the ambitious renewal of schools would be possible. Vallas refused to preside of that failure.
Street used a credit card while in office without looking at how to better manage costs. Watch Street use the money to fund OHCD or some secondary purpose while ignoring more pressing financial matters.
Posted by Anonymous | November 2, 2007 3:57 AM
I hope he spends it on cleaner safer streets -- ie street cleaning, trash removal, and criminal justice funding.
Always trying to spend it on "community development' is less pressing. Communities will develop themselves with the private market.
Street's ideas about cities are firmly rooted in the 70s. His understanding of the critical role of the private market in creating a tax base is so poor that he's been surprised by surpluses that occur after his own predictions of fiscal ill health and begging in Harrisburg.
Rendell's selling of the property tax debt to a private collector created a source of new private market renovation that lasted through Street's terms, but Street never comprehended that the dreaded "gentrification" (not involving the gentry, but just middle class people) would prevent his predictions of huge deficits and need for huge federal and state subsidy for "urban renewal."
I hope Nutter goes to Harrisburg not with hat in hand, but with proof of good municipal financial management, and requests for evidence-based program funding.
The city can do its own urban renewal by not trying to be a real estate holding company that keeps properties from paying property taxes into the coffers.
That Rendell set loose some of the vacant land and empty houses for private lien collection saved not just the city revenue from back taxes, but old gas and water liens were paid off too.
The city can't hold property for year and years without cheating schools and diminishing property taxes. Collections winnows out the property that could pay a market value tax assessment if only new owners can be allowed to competitively buy this property and do something with it.
Nutter gets this.
Street is still confused about how the private market will always outdo what government can capitalize. Simple percents -- if the city must run on taxes, and taxes are only a small portion of capital available to business, it makes sense to put the markets to work where they will work, and save the "renewal" for where the market won't.
Increasingly in Philly, that area where the market isn't working is getting smaller and smaller.
Posted by Anonymous | November 2, 2007 4:08 AM
There is a property coming up for sale in an area where properties of that size sell in gut-job condition for $250,000.
It owes about $25,000 in overdue property taxes, and with it, of course, water and gas liens from when the city would force utilities to give away their services and products for free.
The property was a store at one time. It's been vacant the whole of the Street terms.
Now, because Street let the private collection agency set up from Rendell, the collection at Tax Lien sale is offering this property, once the subject of a deed fraud matter.
The owner can't sell it because of the suspect title. No one can get title insurance. The place created a drug corner not far from where Michelle Cutner was shot years ago.
Now, because the city is finally collecting some overdue taxes again, this property will be auctioned.
I suspect that the result will be a new cafe, new high end store, or new restaurant/grille, as was the case with similarly situated properties that have almost the exact same story. Taxes, dirty title due to unchecked deed fraud, finally a sale after the city collects long overdue revenue.
This will, without the city spending one dime, totally clean up the corner that police worked so hard on for the past 4 years to clean up. Without this corner property's blight and vacancy, the drug sales will be over, so costs of policing it will plummet to almost nothing, like policing Fitler Square.
So, why is the paper always crying over tax collection under any circumstance? The people who claim poverty often own more than one property, as with this owner, or have dubious claims to it, have not done and will not do probate, etc.
The property is mired in unresolvable disputes, and if the city doesn't collect, it festers and decays.
Is this good policy on any level? Yes, this owner is technically "low income." He's on social security disability for an injury he sustained in conjunction with a history of addiction.
So in other words, this guy is a malt liquor riddled do nothing that Street has been trying to save from paying property taxes or any liens for 8 years, to give the guy a "chance" to "pay" is debt or "make arrangements." Is he sober? Accounts differ. From what I've seen, not even.
The city is too permissive with rotten incompetent owners who don't care to be good citizens as much as they like a bumper of forty.
Now finally, the charade is up. Not every low income owner is clean, sober, and interested in good citizenship. So let's be a little more real about the need to collect ON TIME AND IN FULL from everyone equally.
Equal ownership rights means perfectly equal responsibilities, don't you agree?
I'm going to throw a party, and you're all invited -- goodbye to the end of the crack corner of the past 10 years or so. Welcome to the dreaded "gentrification" of the neighborhoods where you can walk in the evening and not worry about hot lead from disgruntled hustlers.
How's that sound? Better than a payment plan to forestall foreclosure?
Sorry to sound bitter, but living three blocks from a hopping drug corner surrounded by half million dollar homes was a bit trying as I waited for Street to do the right thing. Never happened until now. Why did it take so long?
Posted by Anonymous | November 2, 2007 4:22 AM
Good story, Dan. Good use of analogies making it real some folks. Now, if only you can follow the difference between "your" and "you're", your sentences would make sense. You're is a shortened version of You Are. So, if you replace you're with "you are," here is what you get: "For October you anticipate that you are household will take in about $5000 bucks after taxes." No longer makes sense, does it?
Again, great story, good coverage of the city and watching the money. Spellcheck, unfortunately, won't always help, so like the city needs someone to look over its (not it's) shoulder to watch the money, another set of eyes could put that nice, clean touch on your writings.
Posted by Picky Person | November 2, 2007 2:26 PM
Thanks, Dan. It's still a great story. I love how you're keeping it relevant to the people. Good job!
Posted by Picky Person | November 3, 2007 12:00 AM
Good story Dan, and a nice analogy to go along with it. I hope Nutter and the Council will be on the same page. I too am glad that the city is getting aggressive on the delinquent taxes. It does make a huge difference in the neighborhoods when these stressed properties are flipped and put back to work.
Posted by Mark Chalupa | November 3, 2007 10:01 AM
Let's save money by getting rid of the fat, self serving, management at Licenses & Inspections. Let them get real jobs. They can convert their side jobs into real jobs...know what I mean?
Posted by A clean Sweep in 2008 | November 3, 2007 9:14 PM
Awesome use of the household budget analogy to explain the city's fiscal situation! I love PGW as the drunk uncle.
Posted by Marisa | November 5, 2007 10:31 AM