Cities in shortfall

Thousands of Pennsylvania state employees are opening paycheck envelopes that contain a fraction of their usual pay-or no pay at all-while the governor and legislature wrangle over closing a $3.2 billion budget deficit. Vendors are still supplying food and medical care to prisoners but until the budget passes, the city of Philadelphia has to stop paying them.

The state deficit comes after several years of higher spending for health care and education, along with a tax hike in 2004. Democratic Gov. Ed Rendell is calling for another tax hike and $26.4 billion in spending. The House budget upped that amount by $300 million, while the Senate slashed spending to 2005-2006 levels.

Pennsylvania will receive $16 billion in federal stimulus money, but it comes with strings attached. Michael Wood, research director for the Pennsylvania Budget and Policy Center, said once Rendell learned the conditions he had to change his original budget, diverting funds from the Department of Corrections to fund education.

The city of Philadelphia is suffering its own $1.4 billion budget gap over five years. So far, the federal stimulus package has handed Philadelphia $557.5 million, with most of the money going to transportation and infrastructure, and an additional $328 million going to education pending the state budget's passage. Most of the money is targeted, so the city is also applying for 29 federal stimulus grants, including $58.8 million to revitalize the housing market. To close the rest of the gap, Mayor Michael Nutter plans to reduce city staff, raise fees, and halt pay increases. In a city with a 24 percent poverty rate, Nutter is also proposing what just a few other struggling cities have advocated-raising the sales tax from 7 percent to 8 percent.

The shortfall is falling hard on faith-based groups. The Archdiocese of Philadelphia contracts with the city of Philadelphia to serve delinquent youth, mentally disabled people, and the homeless. James Amato, deputy secretary of Catholic Social Services for the archdiocese, said the city now owes his agencies several million dollars. They are borrowing money to pay their workers and keep services going without expecting reimbursement on the loans. "We're not closing any services. We're not diminishing services," said Amato. "The only thing that isn't flowing is reimbursement from the city."

Meanwhile, the Democratic-led city government in Washington, D.C., is operating like fiscal conservatives: cutting government spending and services instead of raising taxes in order to achieve a balanced budget. With city revenues plummeting (a recent adjustment showed another $150 million dip in revenues) Mayor Adrian Fenty plans to close the budget gap by firing about 1,300 city employees, slashing earmarks from $21 million to $8 million, and cutting $110 million in city services. According to The Washington Post, the Corrections Department has gotten rid of its landlines and opted for cell phones to save money.

"When you have to make changes, you don't cry over it," Fenty said at a news conference after announcing his plan in mid-July.

Fenty's scalebacks still face the approval of the council and Congress: The capital city since 1998 is required by law to have a balanced budget. Ironically, the legislative body operating on Capitol Hill, with the biggest budget deficit in U.S. history, requires the local D.C. government to present a balanced budget-though federal dollars help Washington achieve that balance. The stimulus proposal directly contributed $188 million to the city.