Philly budget plan OK’d despite concerns about next recession, OT spending

The state board that oversees Philadelphia’s budget on Tuesday approved the city’s five-year spending plan, but raised concerns about overtime costs and preparation for the next recession.

The board of the Pennsylvania Intergovernmental Cooperation Authority (PICA), which the legislature in 1991 tasked with reviewing the city’s long-term budget plans, voted by 5-0 to green-light the plan for fiscal years 2020 through 2024, noting that it expects the city to maintain positive balances for the next five years.

A humming economy and new revenue sources like the sweetened beverage tax have allowed the city to pay its bills despite a $1 billion increase in annual spending since Mayor Jim Kenney took office in 2016. This year’s $5 billion budget, for instance, leaves about $298 million unspent, allowing the city to make a contribution to its Rainy-Day Fund for the first time since the account was created in 2011.

“We are being good fiscal stewards, and making choices and investments that will benefit our community for decades to come,” Kenney said in a statement. “We are prioritizing our schools, the safety of our neighborhoods, and making sure Philadelphia’s economic growth is inclusive and equitable.”

The PICA staff, however, had less optimistic projections than Kenney’s administration about city revenue growth over the next half-decade, and one reason was their differing projections for when the next economic recession may strike. The city’s plan doesn’t account for an economic downturn to significantly affect revenue during the five-year period, while an economist hired by PICA predicted a recession may begin in the next two years.

Board member Alan Kessler noted that a recent Wall Street Journal survey found that more than 80 percent of economists believe a recession will occur in 2020 or 2021.

“You’ve had so many experts calling for a recession, yet this is a very positive plan indicating wage tax increases, revenue increases, all of which go out the window if there is a recession,” said Kessler, a partner at the Duane Morris law firm in Center City. “I don’t know if there is a Plan B. This is a pretty rosy five-year plan.”

Kessler also pressed city officials on why they have struggled to control overtime costs, particularly in the Fire Department, which is projected to spend $51.1 million on overtime this year. The department usually spends $25 million to $35 million on overtime, he said.

Across all departments, overtime spending is expected to be about $181.9 million this year — $27.1 million over budget.

“The Fire Department is accounting for 83.8 percent of that overspend. That’s inconceivable,” Kessler said. “When something jumps out like this, what type of oversight or accountability are they held to?”

City finance director Rob Dubow said one reason for higher overtime spending is that the department is expanding. This year’s budget included funding for the department to open seven new companies, some of which had been closed due to spending cuts in the last recession.

“As we hire up, we’re training people, so they’re not in the field … and then people have to train them," Dubow said after the meeting. “So that combination of things drives up overtime while you’re going through the hiring process.”

Dubow also noted that more recent spending data show that overtime spending this year will likely come in under the projections PICA was given.

Kessler suggested that PICA board members meet with Fire Department leaders to discuss the issue, and Dubow agreed.

Overtime impacts taxpayers beyond the immediate budget because it is used to calculate pensions for thousands of nonuniformed city employees.

An analysis by The Inquirer this year showed that two-thirds of 401 full-time municipal workers who started collecting a pension in 2017 saw their retirement checks boosted by overtime pay in their final years, costing the depleted pension fund an extra $17 million. Some retirees are getting a pension check higher than their salary when they were working.

The PICA board also voted Tuesday to keep its officers in place, with Kevin Vaughan continuing as chairman. Vaughan previously spent three decades in city government, serving as a City Council staffer, associate director of the Free Library, and executive director of the Commission on Human Relations. He also headed a political action committee that supported Kenney’s 2015 election and his 2019 primary victory.

Staff writer Claudia Vargas contributed to this article.