Last week, the Pennsylvania Intergovernmental Cooperation Authority (PICA) approved Philadelphia’s Five-Year Plan, the final step in the city budget process.
Established in 1991 when the city was in dire fiscal straits and could not meet its obligations nor borrow money due to its poor credit rating, PICA was created as an oversight mechanism so the commonwealth could borrow money on the city’s behalf while maintaining a degree of control over the city’s fiscal health.
Should the PICA Board reject the plan, state funding to Philadelphia would be withheld.
While its board accepted and approved the proposed five-year plan, PICA still expressed concern over certain aspects, particularly around long-term obligations, fund balances, the pension system, and overall city revenue reserves.
According to PICA’s Staff Report, the city’s long-term debt obligations are projected to be between 6 and 10 percent of overall spending, which raises “moderate concern” among the PICA Board. However, the City has been able to manage its debt portfolio well, including refinancing debt when the opportunity arises.
PICA is particularly concerned about the City’s Pension System, which is not projected to be fully funded by 2033. To make up the yearly shortfalls, the City routinely issues bonds, which adds to the City’s long-term debt. While progress has been made in securing the fund, the management of the system and its road to solvency remain challenging.
Fund balances (the remaining funds after the City meets its obligations) and budget reserves are also key concerns for PICA, as fund balances continually reduce over the course of th Five-Year Plan, while reserves see minimal increase. By the end of the plan, budget reserves will only account for 6.4% of the budget, which is well below the recommended 17%. However, PICA does see the potential for revenue growth over the next half-decade, which could negate some of these concerns.
As we heard throughout the budget process, the wildcard in this assessment is the uncertainty regarding policy changes on the federal level. While the city does not receive much from the federal government in direct operating funds, many individual programs and departments require such funding to continue operations. Even announced policies are speculative, as the Trump Administration has consistently shifted proposals, delayed deadlines, or abandoned plans almost immediately after implementation, leaving local governments to decipher meaning and make projections in a fog of half-truths and empty promises.
Regardless, Philadelphia’s fiscal picture is at least sound for the time being. Serious issues must be monitored over the course of the Five-Year Plan, particularly those beyond the control of the City, which reinforces PICA’s concerns regarding the fund balance and financial reserves.
This article is a part of Every Voice, Every Vote, a collaborative project managed by The Lenfest Institute for Journalism. The William Penn Foundation provides lead support for Every Voice, Every Vote in 2024 and 2025 with additional funding from The Lenfest Institute for Journalism, Comcast NBC Universal, The John S. and James L. Knight Foundation, Henry L. Kimelman Family Foundation, Judy and Peter Leone, Arctos Foundation, Wyncote Foundation, 25th Century Foundation, Dolfinger-McMahon Foundation, and Philadelphia Health Partnership. To learn more about the project and view a full list of supporters, visit www.everyvoice-everyvote.org. Editorial content is created independently of the project’s donors.
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