Mayor to Council: Your budget is not enough for schools

Council leaders, however, reiterate opposition to increasing property taxes. Agreement must be reached by June 30.

This article was originally published in The Notebook. In August 2020, The Notebook became Chalkbeat Philadelphia.

Mayor Kenney has sent a letter to City Council saying that its budget plan – which avoids a property tax increase – does not solve the School District’s longstanding structural budget problems and won’t allow the acceleration or expansion of efforts to improve sometimes dangerous building conditions.

In a morning briefing, his aides thanked Council for supporting measures that will send more money to the District, most prominently a halt in planned reductions to the wage tax, while reiterating that it falls short of what is needed.

“The long-term fiscal stability of the School District, that issue really hasn’t been resolved,” said City Finance Director Rob Dubow. “At some point, we are going to have to come back to that issue.”

Kenney’s budget includes a 4.1 percent property tax rate hike and an overall increase in revenue to the District of $770 million over five years, a sum that would balance its books and eliminate through 2023 the threat of cuts that cause instability in schools. In the recent past, largely due to steep reductions in state subsidies, the District was forced to temporarily eliminate counselors, nurses, and other personnel, while struggling to keep up with increasingly dire maintenance and facilities issues.

Without additional revenue, the District was projecting a $630 million shortfall over the next five years. Kenney was determined to eliminate that shortfall and then some, coinciding with an initiative to reclaim control of the city’s schools from the state after 17 years.

“We are … very concerned that while Council supplied over $530 million in funds to the District, the gap in funding between Council’s and the Administration’s proposal for the District is roughly $240 million,” Kenney’s letter said.

The additional funds will allow for “a portion of needed investments in early literacy, classroom supports, and [Career and Technical Education] and other high school programming,” Kenney said. But it will also prevent quicker building improvements and result in “budget shortfalls within several years.”

Of Council’s $530 million, $340 million comes from the wage tax freeze. But some of the other funds in the plan are based on shaky assumptions, said Dubow and other top city officials, particularly $69 million earmarked from so-called “sequestration,” or enhanced collection of delinquent property taxes.

“We just don’t think the amount of revenue generated is supportable enough to put in the budget for that,” Dubow said.

Council also plans to divert savings to the schools from reductions in the allocation for prisons. But the mayor’s staff said that would cut into the administration’s plans to upgrade services for prisoners and those transitioning out, including behavioral health services and other programs designed to better manage inmate care and reduce recidivism.

“Our proposal was to reinvest a portion of that savings into the criminal justice system to permit the continuation of reforms,” said City Budget Director Anna Adams. “Unfortunately, the bill that moved out of committee will not allow us to make all those investments we were planning to do.”

Previewing Kenney’s letter, the School District issued a statement on Wednesday night saying that Council’s budget would not allow the District to borrow $150 million next year that it needs for facilities improvements, including immediate lead abatement, site renovations, and upgrades to playgrounds, mechanical and electrical systems.

“We will not be able to expand or accelerate lead paint abatement efforts, start planned building improvements sooner, or add projects to [the] five-year capital plan,” the District’s statement said.

Recent media coverage has highlighted deteriorating and sometimes dangerous conditions in many school buildings. Last year, the District itself did a comprehensive Facilities Assessment, which scored every building based on the urgency of its needs. According to that assessment, it would cost $5 billion to repair, renovate, and upgrade its more than 300 sites.

Right after the briefing by the mayor’s staff, City Council leaders released a letter that they sent to Superintendent William Hite last month asking for detailed information on the District’s capital program, including how it prioritizes projects and “why the District believes it is prudent or necessary to initiate an additional $150 million in borrowing in the next fiscal year, in addition to borrowing $275 million this fiscal year.” It also wants to know “the amount of funds that will not be dedicated to urgent health-related improvements and explain how they will be spent.”

According to that letter, Council recently authorized the establishment of a School Building and Facilities Task Force “to review and assess the capital needs and priorities of the District.”

Council President Darrell Clarke said he’s not sure the District’s Facilities Assessment is accurate.

At their press conference, City Council leaders doubled down in their opposition to any increase in the property tax rate, saying that homeowners are already staggering under too-high taxes. They have hired a firm to audit the Office of Property Assessments, saying that they’ve heard too many stories this year about huge jumps in homeowners’ tax bills due to increases in their assessments.

There’s been a “long history of inaccuracies at OPA,” Clarke said.

“The process is so inconsistent,” he said. “We don’t want to move forward with a process that’s flawed.” The audit will cost $160,000 and Council will get a report in September.

The assessments are “flawed, clearly,” said Councilman Allan Domb.

Councilman Kenyatta Johnson said that in his district, soaring property tax bills caused more than sticker shock. It was like “an atomic bomb,” he said. Some homeowners saw bills “double, triple, quadruple.”

In 2014, the city completed an Actual Value Initiative, which reassessed all 540,000 properties in the city and taxed them at 100 percent of their value while reducing the tax rate to keep the overall amount collected relatively the same. Before that, assessments had been all over the place, and most properties were taxed on only a fraction of their real value. Some neighborhoods had not seen reassessments in years.

The intent of AVI was to usher in annual reassessments to keep up – and this year, Council members say, they’ve heard stories that some of these assessments have shot up to the point where homeowners may lose their homes. That’s why they authorized the audit.

Since 2014, “what we’ve been doing is looking at areas where we think the first assessment may have been off a little,” Dubow said later in an interview, places that may have been “out of whack.”

Although taxes have fluctuated since 2014, “This is the first year we really sent out changes and notices to all properties.”

Dubow said that of the 540,000 properties, 20,000 had no change, 130,000 saw decreases, and 400,000 – about 75 percent – had increases. Overall, the increases were 11 percent.

“Because a lot of concern has been raised by Council and property owners, we are fully supportive of the idea of an audit done by a reputable firm, and if they find any places we can improve the process, we’ll implement the improvements,” he said.

Of the total property taxes collected, 55 percent goes to the District and 45 percent to the city. Local property taxes make up 19.3 percent of the city’s budget and close to a quarter of the District’s.

While declining to say whether the mayor would veto the budget if that is what Council ultimately sends to him, Deputy Mayor Jim Engler said: “The School District just wouldn’t be able to move forward if there isn’t a change in the funding package.”

While the mayor’s proposal would leave the District with fund balances through 2023, Council’s would result in a shortfall – assuming all its revenue projections, including sequestration, hold up – of about $26 million in that year.

Clarke reiterated at the press conference his belief – which puts him at odds with Kenney – that the state has the primary responsibility for funding the schools.

“We have voted over billion dollars for schools over the last decade. People are always asking for more,” Clarke said. “At the end of the day, the taxpayers cannot endure a significant increase in their taxes. At some point, you have to say no.”

Councilwoman Cindy Bass agreed. She said that she admired Mayor Kenney for “stepping up and taking responsibility” for education in the city, but that even his proposal “will only put a Band-Aid on a gunshot.” A bigger state commitment to Philadelphia is needed, she said.

“The state has a responsibility to fund schools,” she said. “This is something we should not let them off the hook on. City Council, our residents, we have done what we need to do time and time again and will continue to do so, but that doesn’t mean we should allow the Commonwealth to shirk their obligation.”

Bass has proposed more cuts to the city budget, something that Clarke indicated he is open to. Council’s final budget was actually $27 million larger than the one proposed by Kenney. Council’s last meeting is June 21, and the deadline for finalizing a budget is June 30.

Councilwoman Helen Gym, so far, has been the only member willing to go on record in favor of a property tax rate increase. Gym has also proposed reducing the 10-year tax abatement for new construction and other measures as a way to raise more revenue for schools.

“We’ve seen what drastic budget cuts and financial uncertainty have meant for our schools and for our children: schools with skeleton staff, outdated textbooks, and crumbling facilities,” she said in a statement. “We’ve worked hard for years to bring our public schools to the turning point we’re at today. Now, we have the opportunity to guarantee a stable, long term financial future for our schools for the next five years — something we haven’t seen in over a generation,” she said in a statement. “Our schools have urgent needs, and the young people of our city cannot wait.”