Philadelphia running out of money, hope

October 01, 1990|By David Conn | David Conn,Sun Staff Correspondent

PHILADELPHIA -- If there is an angel of bad luck, surely it has found a home in Philadelphia.

Consider:

* The major New York bond-rating houses last month declared the nation's fifth-largest city an issuer of "junk" bonds. As a result, Philadelphia was unable to float a short-term loan to keep the city solvent until tax revenues arrive in February. If no solutions appear, the city will be bankrupt by December.

* Two weeks ago, a brand-new police trailer was repossessed by the dealer for delinquent payment.

* The next day, a downtown building fell on three tourists, killing them.

* The day after that, the Chamber of Commerce held a summit conference to start a dialogue on the city's financial problems. Two elected officials showed up.

"One thing the city is lacking -- and I wouldn't attribute this solely to the fiscal crisis -- is hope," said Ernest Jones, director of the Philadelphia Urban Coalition, a community aid and social advocacy group.

"I've never seen the city quite as hopeless," he added. "And they don't even talk about solving the problems anymore. It's almost like dreaming."

The pessimism is one symptom of a moral and fiscal crisis that has this city in its grip. Philadelphia is suffering from a host of problems -- homelessness, drugs, AIDS, declining federal funds and a stagnant economy -- that are known to almost every major city in America.

But it's also handicapped by election-year squabbling, weak leadership and state lawmakers' historic hatred of the city. Unless state and local leaders can cooperate to restructure the city's tax system and share more of its burdens, Philadelphia's Christmas present to its citizens will be bankruptcy.

The bad feelings predated the fiscal crunch that has left the city at the brink of insolvency. The $2.1 billion "balanced budget" that the City Council wrote and enacted over the objections of Mayor W. Wilson Goode in the spring will end up $206 million in the red, according to his administration. Even taking into account a citywide hiring freeze announced Sept. 21 -- reversing a promise to expand the police force -- Philadelphia's bank accounts will be empty by Dec. 1, the mayor said.

A week earlier, Mayor Goode and his finance director, Elizabeth C. Reveal, were forced to cancel a regular annual public offering of short-term notes. The $375 million loan was needed to bridge the gap until tax revenues start to arrive in February.

The note issue was canceled when it became clear that investor interest was minimal. The three major bond-rating houses had given Philadelphia's debt the lowest rating of any U.S. city or state.

And it certainly didn't boost investor confidence when Jonathan Saidel, the elected city controller, refused to sign on to the debt issue. Or when all the local banks refused to back any of the notes. Or when Swiss Bank Corp. backed out of its promise three weeks ago to guarantee $50 million of the debt.

"I don't believe in borrowing money without a plan, just to forestall an inevitable decline," Mr. Saidel said.

He and others have blamed Mayor Goode's lack of leadership for the city's problems. But Ms. Reveal said there are more fundamental reasons. Indeed, Philadelphia is suffering from a poisonous mix of problems that pose a longer-term threat to this city of 1.5 million people.

"What we have seen is essentially a political problem that is making our financial problems more and more difficult to solve. We need a political solution," Ms. Reveal said.

From 1981 to 1988, federal aid to the city fell to $164 million from $255 million.

At the same time, the city's spending on local mental health programs rose 1,600 percent, and city matching funds for state-sponsored programs rose to $3.8 million from $2.6 million. The cases of child abuse and neglect increased 79 percent from 1978 to 1988, while state reimbursements for those cases rose only 21 percent.

Tax revenues have dropped as Philadelphia joins much of the rest of the East Coast in an economic slowdown. In fiscal 1990, which ended in July, the city collected $22 million less in taxes than expected; fiscal 1991's coffers should end up $32 million short of expectations.

The City Council has passed a sales tax increase that would raise $45 million, but it must be approved by the state, which so far has been unwilling to act. Raising the city income tax is not a viable alternative, according to many, because Philadelphia's citizens already pay the highest rate in the nation.

Part of Philadelphia's problem is geography. It is the biggest urban area in a predominantly agricultural state, and many state legislators view the city as a cesspool of crime and disease that swallows up their constituents' tax dollars.

That animosity has festered during the election season, and it has kept Harrisburg from providing relief. No one expects Gov. Robert P. Casey, or the General Assembly, to raise a finger to help soon.

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