Mayor Jim Kenney’s no-surprises budget leaves Council with decisions on taxes, police spending, and federal aid

Mayor Jim Kenney on Thursday proposed a no-surprises budget, calling for modest new spending on education and anti-violence programs while punting on difficult questions about the city’s tax structure until new property assessments are released in April.

“This budget plan will move Philadelphia forward by enhancing core services that residents depend on, accelerating inclusive economic growth across the city, maintaining the City’s long-term fiscal health, and continuing to reduce racial disparities so that race is not a determinant of success,” Kenney said.

Kenney’s $5.6 billion budget proposal, outlined in a prerecorded speech at a virtual meeting of City Council, increases spending 5.5% and includes no tax rate changes for the fiscal year that begins July 1.

The proposed budget leaves unspent only $152.8 million, or 2.8% of revenue, in a financial cushion known as the fund balance that can be tapped to cover unexpected fiscal strains. That’s below the city’s goal of maintaining a 6% fund balance, and well below the Government Finance Officers Association’s recommendation of leaving 17% unspent.

But the city is not on the brink of financial peril. The administration wants to leave unspent more than $800 million in federal pandemic relief from the American Rescue Plan, which will deliver a total of $1.4 billion to city coffers. The administration this year spent only $250 million of the aid, despite Council’s authorizing a $575 million drawdown, and Kenney’s budget proposal would use up to $335 million next year.

“Philadelphia must build back toward fiscal resilience to be able to support and serve our residents through the next disruption, whatever that may be,” Kenney said in his speech.

The mayor’s budget proposal, first made public Wednesday, kicks off a three-month process in which Council will hold hearings on department spending plans and negotiate with the administration over budget amendments that must be approved by the end of June.

In the past, the budget address was a high-profile event, with Council chambers packed with City Hall insiders — and sometimes hecklers — watching the mayor lay out his priorities. But for the last two years, with lawmakers meeting remotely, Kenney has delivered the speech in subdued video messages recorded from the mayor’s office.

The content of the mayor’s recent budget proposals has matched the no-frills delivery, with Kenney putting forth spending plans that largely maintain the city’s status quo.

But the administration’s steady-as-she-goes approach will likely be challenged this year from several angles, including by Councilmembers looking to make their mark as they consider running to replace the term-limited mayor in next year’s election.

Councilmember Derek S. Green, a potential mayoral aspirant, gave a brief speech in Council’s virtual meeting after Kenney spoke, saying that the mayor’s address fell short of what was needed to address the city’s gun violence crisis.

“I don’t get that sense of urgency in reference to addressing that public safety crisis in our city,” he said. “I really hope that, as we continue to move forward in this budget process, that we will have that sense of urgency.”

Additionally, Philadelphia’s political environment in recent years has become more ideologically stark, and Kenney’s down-the-middle proposal will invite progressives and centrists to face off over issues including police spending and taxation.

Mirroring the partisan response to the president’s State of the Union address, a coalition of left-wing groups scheduled a “people’s budget response” to Kenney’s proposal outside of City Hall on Thursday afternoon.

Holding signs that read “care, not cops,” about two dozen of the activists with the progressive Alliance for a Just Philadelphia slammed the proposed budget as one that maintains the status quo and prioritizes police spending over healthcare, homeless services, libraries, and recreation centers. And they backed a wealth tax proposed by Councilmember Kendra Brooks that would capture 0.4% of Philadelphians’ direct holdings in stocks and bonds.

”Instead what we get is, once again, another budget that prioritizes the police and the rich,” said Jazmyn Henderson, an organizer with ACT-UP Philadelphia. “This is not moral. This is not wise. And this has to stop.”

Leaders of several Philadelphia-area chambers of commerce, meanwhile, are calling for the city to encourage job growth by reducing wage and business taxes and criticizing Brooks’ wealth tax proposal, saying it will drive wealthy Philadelphians out of the city.

Kenney’s budget leaves the wage and business tax rates unchanged. But administration officials told Councilmembers and staff on Wednesday that they will revisit the issue upon the release of the new property valuations, which Finance Director Rob Dubow said have been delayed due to problems with the city’s implementation of its new assessment system.

Although the administration is not proposing a real estate tax rate increase, it assumes property tax revenue will grow by 4.5%, more than $33 million, based on increased valuations, to about $760 million. If the reassessments increase projected tax receipts beyond that, the administration will work with Council to either lower the rate or increase tax breaks to keep the spike below that amount, officials said.

The release of the assessment data will tee up a major debate over the city’s tax structure. Kenney and Council last year convened a Tax Reform Working Group that was supposed to release recommendations in early 2022, ahead of the budget address. But that group, which includes Councilmembers, administration officials, and business and labor leaders, has so far failed to produce a report, leaving the administration and lawmakers without a starting point.

Councilmember Isaiah Thomas on Thursday praised parts of the budget, such as continued investments in antiviolence programs, but said, “We need to do more,” in part by improving the city’s business climate.

“Our budget and our policies must send the message that Philly is open for business,” Thomas said. “This budget reflects a pandemic recovery mindset but we need to move forward, we need to invest in the sector that creates jobs and drives the economy.”

The debate over police spending that began after the murder of George Floyd in Minneapolis will also take on a new dimension this spring. Majority Leader Cherelle Parker and others are pushing for increased spending on the Police Department, countering Brooks and other progressives who have pushed for the last two years to reinvest money from the police budget into social services.

Kenney has proposed a $23.7 million increase to the Police Department’s budget, which is the largest of all city agencies and would be $782 million under his plan.

He also has proposed spending $184 million on antiviolence strategies, such as funding neighborhood groups that seek to intervene in potentially dangerous situations. That would be $29 million more than the city allocated for those programs in the current budget.

The plan includes a $14 million increase in the city’s contribution to the School District of Philadelphia, bringing the total to $269.9 million, and a $2 million boost in city support to the the Community College of Philadelphia, for a total subsidy to $50.1 million.

Most departments would receive small increases in the budget proposal. But Keisha Hudson, who leads the Defender Association of Philadelphia, said she is “extremely dismayed” that the mayor’s plan did not include funding to increase salaries for public defenders and the administrative staff at the office, which is seeing significant turnover.

“The low wages and increasing workload are driving staff and attorney attrition in our office, and are an impediment to hiring replacements when they leave us to work at other agencies or companies,” Hudson said. “The economic injustice for our staff is compounded by the impact on our justice system. A Defender office that can’t adequately keep pace with the increasing court cases will bog down our courts. It leads to more people languishing in jail waiting for their trials.”

Council President Darrell L. Clarke said Thursday that lawmakers will go through the budget with an eye toward reducing poverty.

“These are our priorities as Council begins budget hearings: What does every line in this budget do to lift people out of poverty, make communities safe, prevent gun violence, develop affordable housing, and ensure job opportunities for our citizens?” Clarke asked in a statement.

Clarke’s statement also appeared to indicate that he may prefer the city use its federal aid more aggressively than the administration has proposed.

“We also must look carefully at this budget to ensure we’re spending wisely the federal funds made available by the Biden administration due to the pandemic,” he said. “People need hope and opportunity as we recover; that’s what these funds are for. Let’s get to work.”

Staff writer Anna Orso contributed to this report.