Does Philly still need Harrisburg to oversee its budget?

Every summer, a five-member, Harrisburg-appointed board meets in a conference room in a Center City office building to review Philadelphia’s five-year budget plan. And almost every year, the board approves it without controversy.

The ritual has become a routine checkpoint in the city’s budget process, but last week’s meeting of the Pennsylvania Intergovernmental Cooperation Authority (PICA) marked a first for the board. The five-year plan it approved included one year, 2024, when the board may no longer exist.

That fact wasn’t discussed at length as the board members analyzed the city’s fiscal plans. But it has become the subject of debate among local leaders concerned about the future of the agency, which despite its dull name and tedious task was born under extraordinary circumstances and plays a key role in the city’s budgeting process.

“The disappearance of PICA is absurd,” said Sam Katz, the former mayoral candidate who chaired the agency from 2011 to 2014. “It’s legal, it’s scheduled, it’s long been expected, but this is a city with enormous unfunded pension liabilities that has raised taxes to an extraordinary level in recent years, and is poorly situated for a financial course correction.”

The 1991 state law that created PICA was part of a financial rescue package that helped keep Philadelphia from becoming the first major U.S. city to file for bankruptcy. Under the deal, the state issued $1.1 billion in bonds for the city, which in turn had to annually submit a five-year fiscal plan to the newly created board. The agency is scheduled to dissolve in 2023 when the bonds, which Philly residents pay back through a 1.5% addition to the wage tax, are fulfilled.

Proponents of having the legislature extend PICA’s mandate, including Mayor Jim Kenney, point to the credibility it gives the city with credit agencies and its requirement that the city use a long-term budgeting process.

“PICA has played a crucial role in ensuring responsible budgeting across four mayoral administrations, and this administration believes the city will benefit from continued oversight,” Kenney spokesperson Mike Dunn said in an email.

But former Gov. Ed Rendell, who was elected mayor as the city stared down the possibility of bankruptcy and is credited with turning the budget around, said it’s time for PICA to end.

“We’ve demonstrated our ability as a city to manage ourselves and to make sure that we don’t spend more money than we have coming in,” Rendell said. “Those days are over.”

Other skeptics of continuing PICA frame the issue as a matter of local control akin to the 2018 decision to dissolve the state-run School Reform Commission and reestablish a local board of education for city schools.

“Normally, local governments don’t ask to be supervised. Normally, local governments say that they can manage themselves,” City Controller Rebecca Rhynhart said. “Usually the sentiment is to self-govern.”

Rhynhart said she wants city leaders to explore options that would capture the benefits of PICA through a different structure, such as a city-level requirement that the budget include a five-year plan.

PICA Chair Kevin Vaughan, however, said continuing the agency is in city taxpayers’ interest.

“PICA’s very existence and mandate provides incentives for efficient use of limited tax dollars, while also encouraging if not forcing the city to be mindful and vigilant stewards of taxpayers’ hard-earned money,” Vaughan said.

City Councilman Derek Green has introduced a resolution to hold hearings on the future of PICA. Council President Darrell L. Clarke praised the agency’s role in city finances, but stopped short of calling for it to be extended.

Oversight isn’t the only concern about PICA’s dissolution. The city receives hundreds of millions of dollars per year from the PICA portion of the wage tax beyond what it costs to pay down the bonds. One possible post-PICA scenario would be letting the agency expire and having Council raise the traditional city portion of the wage tax to make up the difference.

The Kenney administration’s five-year plan assumes the PICA tax will be collected in 2024, despite no current legal authorization for it. Rhynhart pointed to that as a risky assumption in her analysis of the plan, noting that failing to extend it would open up a $628 million budget hole.

Katz said state lawmakers should not only renew PICA, but reform it. He recommended changing the way board members are selected to insulate them from conflicts of interest.

“People on the board need to be independent of the city. Their firms can’t be doing business with the city,” he said. “Who is going to call shots as they see them when you need the city?”

Katz declined to discuss whether specific board members have had conflicts of interest, but said the potential is always there.

The PICA board has one gubernatorial appointee and one appointee each from the four leaders of the Republican and Democratic caucuses in the House and Senate. Most board members have been notable figures in local politics or business.

Vaughan, who worked in city government for nearly three decades, in 2015 led a super PAC that supported Kenney’s initial run for mayor. The other members are:

Katz also recommended giving PICA more options in how it can punish the city for poor management. Currently, its only weapon is to reject the five-year plan, which would cut off state support for the city and create a catastrophic budget hole. Because PICA members are unlikely to employ that “nuclear option,” Katz said, the city doesn’t always take the board’s criticisms seriously.

Kessler said he agrees with Katz’s concerns and hopes that lawmakers will improve the agency as they renew it.

“You will now have had how many years of a learning experience to reauthorize based on a careful study of what’s gone well,” Kessler said. “Even though the city is much, much, much better off than it was when PICA was formed, there’s still a good reason to keep it there.”