The city's $206 million budget deficit this fiscal year has left Philadelphia officials scrambling to line up investors, in hopes that they will loan the city enough money for it to avoid running out of cash by Christmas. The current cash crunch is no surprise to city officials. A December 1990 shortfall has been expected for several months, after the city failed in September to sell $375 million in short-term notes. The failure was attributed to investors' fear of the large budget deficit. Mayor Wilson Goode, along with other major Democratic state legislators, announced a plan last month which would leave the city with a $140 million deficit for this fiscal year and balanced budgets starting next fiscal year, which will end June 1991. In their plan, Goode and the legislators called for the city to sell off $90 million in assets and cut a total of $37 million in spending with a job freeze and court reforms. For fiscal 1992, the plan includes a one-percent sales tax which is expected to raise $100 million. Philadelphia is no stranger to budget deficits. In the past several years, the city has borrowed money by selling short-term notes in the fall and winter. The cash carries the city through to the spring when many tax revenues flow in. But this year, the numbers exploded. Last year's $73 million budget shorfall ballooned to over $200 million. Philadelphia's financial condition has led to a downgrading of its long-term bonds, to below junk-bond level. Although Moody's Investor Service was not asked to rate the notes offered in September, Moody's assistant vice president Michael Johnston said at the time that institutions would "think carefully" before buying notes from Philadelphia. He also said that the city would need to pay higher interest rates on its notes because of the rating on its long-term bonds. In an additional blow, the state Treasurer's Office denied a request by the city that the state invest in the notes, saying that the way the deal would be structured would not be "legally permissible." Large cash flows don't start until next year, when property owners receive their tax bills, Revenue Commissioner Cheryl Weiss said in October. She said that the bills must be paid by the end of March. She said that the city receives $600 million in the first five months of the year -- a "significant portion" of revenue. City Council member George Burrell, who will announce tomorrow night his candidacy for mayor, developed a "financial rescue plan" in September, including a proposal that non-profit institutions give money to the city "in lieu of property taxes." Burrell's plan was not implemented, but the University in October joined several other institutions in prepaying a total of $30 million in wage and property taxes to the city. The prepayment pushed back a few weeks the day that the city would run out of money. The University prepaid $10 million, an amount reflecting the wage taxes that it would owe through next June. Other institutions, including the Philadelphia Electric Company and Drexel University, also participated in the prepayment. University professors said in October that sweeping changes in the city's government structure and the city charter were crucial for the city to weather the financial crisis. One of the suggestions was to establish an outside board of public finance experts, state and local government officials and top executives from the city's business community. Another suggestion was to change the city charter to release department heads from "straitjacket" provisions that restricted them from building effective managment teams.Comments powered by Disqus
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