City Struggles to Stay Afloat

Critics, state officials blame poor leadership, management for Philadelphia's financial mess. PHILADELPHIA BUDGET CRUNCH

PHILADELPHIA officials are spending the Christmas season trying to keep the City of Brotherly Love from going broke. It is not an easy task.

City officials are negotiating almost daily with local banks, the municipal pension fund, the state teachers' retirement system, and others. They hope these groups will lend them some $300 million in emergency money.

So far, though, these groups have acted more like Scrooge than Santa Claus. They are demanding special loan guarantees. Some unions have even gone to court to keep the city from dipping into their pension funds.

``Willy [a reference to Mayor W. Wilson Goode] knows everyone is going to blink,'' says a local bank official. ``It's a question of when.''

No one is certain these groups will agree to an emergency bailout before Philadelphia runs out of cash. This summer, reports circulated the city would be bankrupt by fall. John Street, a powerful city councilman, says the city can make it to about Jan. 15.

Whenever it comes, crunch time in Philadelphia might be echoed around the United States.

``My feeling is that various cities will be facing problems in the coming year or two,'' says Sandra Featherman, director of the Center for Public Policy at Temple University.

In the first nine months of the year, Standard & Poor's Corporation downgraded 285 municipal bonds - 2-1/2 times the number of bonds the rating agency upgraded. The slowdown in the national economy plays a role in this. So does the soaring welfare, police, and court costs related to increased drug use. Meanwhile, the federal government cut back funds to cities during the 1980s.

Most Philadelphia officials blame much of their problem on the failure of the state and federal governments to support cities adequately. Critics blame city for mess

``Now the chickens have come home to roost,'' said Lucien Blackwell in a speech to his city council colleagues Thursday. ``We did not create these problems in this city. ... We had better start looking at the state and federal government.''

According to many skeptics outside Philadelphia, however, the city created much of its own financial mess. That is one reason state officials from Pennsylvania Gov. Robert Casey to key legislative leaders have not stepped in with state aid.

There is some truth to the charges. The city is saddled with a no-layoff clause for non-uniformed city employees. It negotiated a raise for policemen and firefighters but included no new money to pay for it.

Critics blame the wayward City Council, which ignored the warning signs and passed a budget this summer that included neither dramatic savings nor a tax increase. Critics also blame Mayor Goode for not exerting strong leadership. ``You have a mayor who's not willing to play hardball with these guys,'' says Robert Inman, a finance and economics professor at the Wharton School who has served as financial adviser to Philadelphia.

When the financial crisis deepened this fall, city and City Council officials moved in different directions. The mayor's finance director feuded with the city's independently elected controller. The City Council proposed its own rescue package.

The mayor was unavailable for comment. His press secretary claims he had agreed to an interview. But after four weeks of repeated requests from the Monitor, Goode had not scheduled it.

The $300 million emergency loan package is the first test of whether Philadelphia can pull itself together.

The money would be used to bridge a temporary gap. Many city bills come due before Philadelphia begins collecting most of its business and property taxes in late winter. In the past, the city had little trouble selling short-term notes to bridge the gap. But on June 29, Moody's Investors Service downgraded Philadelphia's debt to junk-bond status. When the city tried to sell $375 million worth of notes this September, it failed embarrassingly.

The failed bond sale exposed Philadelphia's bugaboo: a widening gap between city revenue and spending. During the robust '80s, the city could paper over the problem with over-optimistic growth scenarios. When the East Coast economy slowed down this year, those projections began running far short.

Bigger problems ahead

Even if the emergency loan comes through, the city will face even bigger problems next June when it tries to hammer out a new budget. For the fiscal year ending June 30, Philadelphia's deficit will reach an estimated $229 million - a record.

Last month, Mayor Goode, along with the city controller and several key state Democrats, proposed a long-term recovery plan that included large spending cuts, increased taxes, and more state and federal aid. Several analysts called the plan vague and wondered how the city expects to get more state and federal money at a time when Pennsylvania and US budgets are running big deficits.

Still, it represents the most serious attempt yet to deal with Philadelphia's long-term budget problems, Professor Inman says.

Actually, the city is not quite the money sinkhole many state legislators believe, says Dianne Reed, executive director of the eastern division of the Pennsylvania Economy League. Philadelphia provides basic services - an area over which the city has total control - at an average rate of other cities with similar demographic trends (See chart).

The city's budget has ballooned in the courts, in corrections, and in welfare and health services, where state and judicial mandates control spending.

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