Tax cuts and more police spending are in Mayor Jim Kenney and Council President Darrell Clarke’s final budget

Philadelphia’s business and wage tax rates will fall slightly, police funding will increase by $55 million, and the city will spend $45 million more on efforts to recruit and retain municipal employees as part of a $6.2 billion budget that City Council approved Thursday.

The new budget will take effect July 1, and it will be the final one of Mayor Jim Kenney’s and Council President Darrell L. Clarke’s long City Hall careers as both men are leaving office in January. Kenney and lawmakers were able to cut taxes, increase spending, and build up reserves thanks to $1.4 in federal pandemic aid and stronger-than-expected revenues over the last two years.

“With this final budget, we will build on our success and strengthen our city’s foundation for its next chapter,” Kenney said in a statement. “I am confident that Philadelphia has a bright future ahead, with a healthy financial outlook, and I am more optimistic than ever about Philadelphia’s growth and the opportunities we can create for our residents and future generations.”

After Thursday’s vote for final passage of the budget, Clarke reflected on the various budget shortfalls and fiscal emergencies that have taken place during his career and said he was proud to leave office with city coffers in good shape.

“Coming out of the pandemic and during the pandemic, I’m really proud of what we did,” he said. “We were able to have, at most, minimal layoffs, minimal service reduction because we were truly concerned with having a rainy day fund and having a recession fund where we were able to get through the pandemic. A lot of cities almost went under.”

» READ MORE: Philly’s wage and business taxes will be cut amid a big cash surplus for the city

The spending proposal was approved in a 14-1 vote, with Councilmember Jamie Gauthier voting no. The tax cut proposals were approved in a pair of 13-2 votes, with Gauthier and fellow progressive Councilmember Kendra Brooks opposing.

This year’s budget negotiations were overshadowed by the Democratic primary for mayor, which former Council Majority Leader Cherelle Parker won last month. Thanks to Philadelphia’s overwhelmingly Democratic electorate, she is likely to win the November general election against Republican David Oh, also a former Council member, and would oversee the final six months of this budget upon taking office in January.

This year’s negotiations were for the most part a quiet affair due to Kenney’s largely status quo budget proposal, which he unveiled in March, and the city’s strong fiscal position, which has allowed lawmakers this year to simultaneously cut taxes, increase spending, and maintain a significant surplus.

The city will add $42 million to the budget stabilization reserve, or “rainy day fund,” bringing it to a total of $107.4 million. Government finance experts recommend cities maintain significant reserves to address emergencies or economic downturns.

The budget also includes spending increases in a handful of programs related to quality of life, safety, and jobs. It allocates $5.5 million to improve code enforcement and address illegal dumping sites, $5 million to fund a workforce development program in the Streets Department, and $3 million to clean neighborhood commercial corridors. It also includes $3 million to expand the number of mobile crisis units, which are staffed with health providers who respond to some 911 calls instead of police.

The city’s strong financial position was underlined Thursday by the Kenney administration’s announcement that it had made the final payment on state-backed bonds that helped bail the city out of its early 1990s fiscal crisis, which threatened to make Philadelphia the first major city to declare bankruptcy.

The only major flare-up during negotiations was an eleventh-hour dispute over the tax-cut proposals, which will cost the city $32.7 million in unrealized revenue next year.

Kenney had proposed modest reductions to the wage and business taxes, and lawmakers ended up slightly increasing the scope of the cuts.

Councilmember Katherine Gilmore Richardson authored the wage tax cut, which will reduce the rate for city residents from 3.79% to 3.75%. The rate for people who work in the city but live outside of it will remain 3.44%.

Councilmember Isaiah Thomas championed the reduction of the net profits portion of the business income and receipts tax, which will go from 5.99% to 5.81%.

» READ MORE: How Philly lawmakers are trying to solve the city’s workforce problem

Real estate taxes will remain essentially frozen, with the Kenney administration saying it does not have the capacity to complete a new reassessment of property values and lawmakers leaving the tax rate unchanged at 1.3998%.

Gauthier and Brooks, who opposed similar tax cuts last year, said they voted no again this year because they believe the city should further increase spending, and not cut revenue, amid Philadelphia’s ongoing gun violence crisis and its enduring status as the poorest of the nation’s 10 largest cities.

“We frequently acknowledge that the budget is a moral document. I could not vote for this budget because the message I think it sends to our residents is that we value the bottom line of corporations and affluent residents more than investing in the municipal services our neighbors need to thrive and survive,” Gauthier said in a speech on the Council floor after the vote.

Thomas followed with a pointed speech of his own, saying “those who do not understand economics” don’t realize that the tax cuts won’t come at the expense of city services this year due to the city’s surplus.

“It’s really disingenuous and not fair to the members of City Council to give the public the perception that we had to choose between tax cuts and city services,” Thomas said.

The cuts were backed by the Chamber of Commerce for Greater Philadelphia and the Inclusive Growth Coalition, a campaign the chamber organized along with groups representing businesses owned by underrepresented people. They have argued that the city needs to cut rates even further to attract businesses and increase economic opportunities.

Brooks noted that even though the tax cuts won’t directly diminish city services in the next budget, they will limit the city’s resources in the long run.

“With no plan to replace that revenue,” she said, “these cuts will inevitably lead to service cuts — maybe not immediately, but inevitably down the line.”

Despite the dust-up between Gauthier and Thomas, this year’s budget process largely went down without drama or significant conflict, a hallmark of Clarke’s conflict-averse leadership style.

“I’m not into the legacy thing, but I just like that this Council during my tenure has operated with a level of professionalism, [with a] thoughtful process as it relates to the legislative and also the fiscal process,” he said. “That’s what I feel really good about. It’s primarily based on the members understanding why they’re here: for the citizens of the city of Philadelphia and not for themselves.”