Pew Report Examines Budget Decisions in Philadelphia and Other Major Cities

As cities across the nation struggle to cope with revenue shortfalls in a time of recession, a new study from The Pew Charitable Trusts' Philadelphia Research Initiative finds a common theme: big-city mayors have aggressively pursued reductions in labor costs to balance their budgets.

The outcome of the hard bargaining between city administrations and municipal labor unions has been a key element in determining exactly how those cost-savings have been achieved.

The report, Layoffs, Furloughs and Union Concessions: The Prolonged and Painful Process of Balancing City Budgets, examines budget decisions made—and yet to be made—in Philadelphia, Atlanta, Baltimore, Boston, Chicago, Columbus (OH), Detroit, Los Angeles, New York, Phoenix, Pittsburgh and Seattle.

According to the report, leaders of municipal workers' unions often have been forced to choose between job losses for some of their members or reduced compensation for all. They've been put in such difficult situations because city administrations, in their efforts to make the books balance, are opting for spending cuts more than tax increases—and personnel costs are far and away the biggest item on the spending side.

Another key finding of the new report is that the budget process, which was supposed to have ended by June 30 in a number of major cities, has continued well past that deadline in several places, including Philadelphia, Los Angeles, Detroit and Baltimore. Among the reasons, beyond the ongoing labor-management dialogue, are revenue estimates that continue to deteriorate; declines in state aid; a tendency to put off hard decisions as long as possible; and, in the case of Philadelphia, the reliance on action by a state legislature that was grappling with budget problems of its own.

“The budget process in many cities has seemed virtually endless, with constant adjustments needed as the bad news keeps coming,” says Larry Eichel, project director of Pew's Philadelphia Research Initiative. “Many hard choices remain—both for city governments trying to balance budgets or keep them balanced, and for unions faced with the possibility of reductions in compensation or jobs.”

A common pattern across the country has been for big-city mayors to talk initially about massive layoffs—and then tell the unions that those job losses can be averted only through across-the-board concessions, often characterized as temporary, usually including unpaid furlough days. That has happened, with varying outcomes, in Chicago, Boston, New York and Seattle, among other places.

A previous Philadelphia Research Initiative report on big cities and their budgets, Tough Decisions and Limited Options, published last May, noted that only four of 13 cities studied—Atlanta, Columbus (OH), New York and Philadelphia—were considering major tax increases as part of their budget-balancing plans for fiscal years beginning July 1. All four of those cities ultimately enacted those tax increases. But even for some of them, raising taxes did not eliminate the need to reduce spending and look to labor costs as a prime source.

In several of the cities studied, difficult decisions remain for city governments and for labor, months after budgets were to have been in place. Among such cities are Detroit, where the situation is as dire as anywhere and where massive layoffs are in the works; Baltimore, which is dealing with a new revenue shortfall; and Los Angeles, which avoided layoffs through a new, incentive-laden, early-retirement plan but still faces a substantial shortfall.

Philadelphia's budget process has had its own special set of complications. Throughout the summer, Mayor Michael Nutter warned of dire consequences, including layoffs of 3,000 city employees and the shuttering of the court system, should the state legislature not authorize the city to raise its sales tax and defer contributions to its pension funds. In the end, the legislature acted on September 17, less than 24 hours before the layoff notices were to have gone out.

To balance the budget, the Nutter administration has said it will not be able to increase wages and must cut benefit costs by $25 million per year. “If the administration holds to that position, the non-uniformed unions may be faced with the same choices as unions in other cities—make concessions or face job losses—unless savings can be achieved some other way,” says Eichel. The unions representing police officers and firefighters will not face such a choice, at least not directly, since their contracts are worked out through binding arbitration.

Philadelphia is one of several cities that are trying to address their recession-related budget problems in a long-term way. It has no choice in the matter; it must submit a five-year budget plan to a state board created solely to keep watch on the city's finances. But most of the cities studied expect another round of tough budget choices next year, if not at mid-year, since revenues show little sign of bouncing back. None has undertaken anything approaching a fundamental review of how its government functions or what services it might be able to stop providing—although the size of Detroit's fiscal problems may force that city to do so.

About the Report
The cities covered in this study were selected in order to provide a broad demographic and geographic mix. There also was an emphasis on cities that are on the same budget cycle as Philadelphia—with fiscal years beginning July 1. Updates are provided for each of the cities studied for the first report, released in May, with the exception of Kansas City, which already had adopted its budget prior to the initial report and has not had to revisit it.

To prepare this report, researchers at the Philadelphia Research Initiative studied city budget documents from the selected cities, read mayoral speeches, interviewed budget officials and talked to journalists. It was written by research associate Laura Horwitz and edited by project director Larry Eichel.

About The Philadelphia Research Initiative
The Philadelphia Research Initiative (www.pewtrusts.org/philaresearch) was created by Pew in fall 2008 to study critical issues facing Philadelphia and provide impartial research and analysis for the benefit of decision makers, the news media and the public. The initiative conducts public opinion polling, produces in-depth reports, and publishes briefs that illuminate front-and-center issues.