A state board that oversees Philly’s finances ends in 2023. But the city is working to extend it.
Legislation extending PICA has advanced through committee, but its passage is far from assured amid opposition from municipal unions.
Since the early 1990s, when Philadelphia experienced a fiscal crisis so severe it nearly filed for bankruptcy, state law has required the city to get annual approval for its long-term financial plans from a Harrisburg-appointed board.
The law that established the Pennsylvania Intergovernmental Cooperation Authority expires next year, when state-backed bonds that helped Philly survive the emergency are paid off. But Mayor Jim Kenney’s administration is working on a bipartisan effort to extend the agency through at least 2047.
“We’re still confident that that legislation is going to pass and PICA will be extended and will be around for decades,” city Finance Director Rob Dubow said at a recent City Council hearing.
The bill, authored by State Rep. Martina White, a Northeast Philadelphia Republican, has advanced through committee, but its passage is not yet assured thanks to opposition from a constituency that also opposed PICA when it was created 30 years ago: Philadelphia’s municipal unions, which unsuccessfully sued to abolish the authority in 1992.
Mike Bresnan, president of the firefighters union, said he is lobbying to stop or amend White’s bill, calling PICA “a babysitter of the city finances” that allows mayors to shortchange unions in the name of balancing the city’s five-year financial plan.
“It was unfortunately used as a tactic against us, contract after contract,” said Bresnan, who leads Local 22 of the International Association of Fire Fighters.
White did not respond to a request for comment.
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Bresnan said the firefighters and police unions have a special interest in opposing the extension of PICA because — thanks to another state law known as Act 111 — their contracts are decided through binding arbitration decisions that the city can only appeal if it cites concerns about balancing the five-year plan under the PICA Act.
Fraternal Order of Lodge 5 president John McNesby did not respond to requests for comment.
During the tenure of Mayor Michael A. Nutter, the city unsuccessfully sued to appeal a firefighters union arbitration award, saying it was unable to pay for the contract terms over the course of the five-year plan as the city struggled to recover from the 2008 financial crisis.
While the firefighters prevailed in the end, the acrimonious showdown between the administration and the union lasted for years, and firefighters’ wages were frozen during the dispute.
Additionally, PICA has taken issue with overtime spending in the Police and Fire Departments that often beef up the paychecks of officers and firefighters, pointing to ways the city could save money by streamlining processes.
Others criticize boards like PICA
While Wall Street may see PICA’s role as an overseer of city finances as a reason to have confidence in the city, municipal unions are not alone in viewing the relationship less favorably. An emerging progressive-aligned movement questioning government dependence on debt financing has also criticized unelected financial oversight boards like PICA.
Jason Wozniak, a West Chester University professor and organizer of the activist group the Debt Collective, said boards like PICA exist to prioritize the interests of Wall Street over city residents.
“The creditor-debtor relation isn’t a symmetrical relationship, and the creditor has power to tell the debtor what to do with their lives,” Wozniak said. “The governing boards are there to really serve Wall Street’s interest. These boards are meant to discipline cities in this austerity mindset.”
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The Kenney administration says it supports extending PICA because the authority also saves taxpayer money by encouraging the city to plan for the long term and by improving its credibility on Wall Street. Philadelphia’s bonds are rated A- by FitchRatings, while PICA’s, which are backed by the credit of the state, are rated as AAA, meaning the cost of borrowing is higher for the city.
“Having an independent agency with authority to impose consequences is something that rating agencies consistently mention as a positive for the City,” Kenney spokesperson Kevin Lessard said in a statement. “It directly leads to higher ratings, which helps to reduce the costs of our borrowings.”
What PICA does
PICA’s five-member board includes one appointee of the governor, and one each of the Democratic and Republican leaders of the Pennsylvania House and Senate. Each summer, after City Council approves the city budget and five-year plan, the board votes on whether the plan’s assumptions are reasonable. If it rejects the plan, Philadelphia could lose all state funding, a devastating consequence that has never been fully triggered.
The authority issued more than $1 billion in bonds to keep the city afloat during the early ’90s fiscal crisis, and those bonds are paid back by a special 1% wage tax on city residents.
Any revenue in excess of the debt repayments and the cost of PICA’s roughly $1 million budget go into the city’s coffers. The extra wage tax revenue has become an important source of funding in the city’s $5.4 billion budget. Last year, the bond payments cost $37.2 million, and PICA sent the city $462.7 million.
“PICA has become an important part of the city budgeting process and one that, despite different iterations of mayors and governors and board members and staff people, everyone has been working to the betterment of the city,” said Kevin Vaughn, the chair of PICA’s board.