Let’s explain. Kenney inherited a budget from his predecessor of $3.8 billion; despite running as a fiscal steward — remember, he was going to adopt zero-based budgeting, an accounting strategy that roots out waste — he’s turned out to be much more of an undisciplined practitioner of tax and spend politics. Even before Covid, Kenney presided over the greatest surge in spending in city history — $5 billion in his fiscal year 2020 budget. His recent proposal is for $5.6 billion — that’s a whopping 50 percent hike over Mayor Michael Nutter’s last budget.
That spending spree wouldn’t be so bad, if we were seeing some return on that investment. But with an exploding murder rate, rampant disorder, worst-in-the-nation poverty, filthy streets, schools that are still leaving too many children behind, trash that has not been picked up, and the biggest one-year population decline since 1975, are you getting what you paid for? On all those metrics, you’d be hard-pressed to argue we weren’t getting better value pre-Kenney, no?
“The bottom line is that growth, properly channeled, can have an enormous inclusion effect,” says Bruce Katz. “But you’ve got to be pro-growth to begin with.”
But here’s the thing. Now it’s 2022, and we can see our way to the other side of a pandemic that revealed so much — our rampant inequality, as well as our resilience. Does this budget lay out a vision for how Philadelphia can smartly address its post-pandemic future? Does it do what other cities are doing — lay out bold plans for rebuilding a vibrant middle class? Or is it just a high-priced caretaker blueprint?
I’d argue it’s the latter.
Keep in mind, Kenney’s budget doesn’t even touch $800 million of the $1.4 billion allocated to Philly by the federal American Rescue Plan (ARP). Predictably, at the start of Council’s budget hearings, Council President Darrell Clarke and others fixated on why the mayor wasn’t spending the federal windfall — Councilmember Kendra Brooks chided the administration for its lack of “urgency.” City Finance Director Rob Dubow explained that, in order to maintain a balanced budget throughout the city’s five-year budget plan, the ARP money is needed to mitigate against deficits in later years.
“One of the reasons we can’t do what other cities are doing is because we took a much bigger hit than almost every other city in terms of revenue loss,” Dubow said. “That’s because of our reliance on taxes that are really sensitive to the economy like the wage tax.”
Dubow is right in one sense: As many of us have argued, cities that tax what can up and move (like workers and the wealthy) are cities that ultimately fail to thrive. But like his inquisitors, Dubow is approaching the question from just one side of the ledger. The question isn’t whether to spend or not to spend. It’s whether to invest or not. Other cities are making a concerted effort to grow their local economies such that they don’t have to account for slow growth in the out years of their five-year plans.
There’s a historic opportunity here, folks
For the first time in recent memory, Philadelphia can approach budgeting from an abundance, rather than a scarcity, mindset. And the stakes are high.
As this Center City District report makes clear, Philadelphia is losing the working and middle class from neighborhoods outside Center City to the suburbs, where the taxes are lower: “IRS data shows that out-movers have higher average incomes than in-movers.” Job one for a recovery plan must be to stop the exodus of middle class residents — and those who aspire to it — and to provide a pathway to a comfortable middle class life for those who remain. That means family-sustaining jobs (the jobs Philadelphia has created over the last decade average around $35,000 per year, compared to Boston’s $80,000) with benefits, good schools and safe streets.
While federal officials fumble — was there anything more dispiriting than watching the Democrats argue among themselves over Build Back Better for six months, to no avail? — cities across the country have had their eyes on that ball. In Philly? Eh, not so much. But, remember, Dubow brought up other cities in his testimony. So let’s see what they’ve been up to.
Does this budget lay out a vision for how Philadelphia can smartly address its post-pandemic future? Or is it just a high-priced caretaker blueprint? I’d argue it’s the latter.
In Newark, where they’ve virtually eliminated shootings, Mayor Ras Baraka has pretty much been trying everything. He’s partnered with the private sector on a $100 million philanthropic fund to invest in Black and Brown businesses that have long been starved for capital. It’s called the “NWK FAM” fund, short for “Newark, 40 Acres and a Mule.” He’s cajoled seven other New Jersey mayors to join in on the action, so they’re all investing in Black and Latino business owners and real estate developers in their cities. And he’s launched a universal basic income pilot program, delivering $6,000 per year for two years to 400 families facing housing insecurity.
In Charlotte, North Carolina, as I’ve mentioned before, Mayor Vi Lyles, in the aftermath of George Floyd, put together “The Mayor’s Racial Equity Initiative,” a $250 million public/private partnership to advance racial equity, complete with goals and timetables. Admittedly, it’s gotten off to a rocky start, after it came to light that the woman hired to run the initiative faced serious charges of mismanagement at her last gig and was forced to resign. Regardless of how Lyles implemented her plan, though, the fact remains: It is a plan.
In Chicago, Mayor Lori Lightfoot has also jumped on the guaranteed income bandwagon in her $2.5 billion recovery plan, which uses some $1.9 billion of federal pandemic-related stimulus funds to bring her city’s economy back to life. She doubles-down on public safety spending and neighborhood revitalization.
As in New Jersey, other mayors have banded together — seeing strength in numbers. Seven — including Dayton, Ohio Mayor Nan Whaley — formed the “Marshall Plan for Middle America,” lobbying for federal funds to help reimagine opportunity in declining Rust Belt cities and towns.
In Detroit, rather than approach private sector involvement with suspicion, the city has partnered with transformative leaders like entrepreneur Dan Gilbert and Ford Motor Company to rebuild landmarks of inner-city ruin into growing, vibrant economic hubs for all of its citizens.
I could go on — cities are leading the way in charting inclusive economic comebacks. But what do all of these examples have in common? Mayors who practice the art of “horizontal leadership,” as defined by Bruce Katz and the late, great Jeremy Nowak in their book The New Localism. Cities are really networks, not governments — so the ones that thrive practice cross-sector collaboration, just as in Newark, Charlotte, Chicago and the Rust Belt. In those cities, the convening of stakeholders and partnerships between public, private and nonprofit sectors lead to “we’re all in this together” growth.
“You’ve got to be pro-growth to begin with”
“These are crazy times,” says the aforementioned Katz, the Citizen contributor who leads Drexel’s Nowak Metro Finance Lab, and who, as the former chief of staff of HUD under President Clinton, has forgotten more about economic development in cities than any of us will ever know. “There’s a ton of money flying around. The bottom line is that growth, properly channeled, can have an enormous inclusion effect. But you’ve got to be pro-growth to begin with. We’re at a point of enormous federal investment. It would seem that what you want to talk about is how do you invest with a purpose so that, after this, Philly seems like it’s having a leapfrog effect?”
That’s why my reaction to Mayor Kenney’s budget was — for me, a critic of his spending — so counterintuitive: After all this spending over the last six years, now you’ve caught the religion of fiscal restraint? To be clear, this isn’t to advocate for spending for the sake of spending. Rather, it’s an argument to seize the moment and invest in middle class growth.
Earlier this week, we convened a stellar panel on just this topic, entitled “Jobs, Jobs, Jobs.” “There was once a skinny guy with big ears who liked to tell us that the best anti-poverty program is a job,” I reminded the audience, referencing a certain former president many still pine for. The ideas from panelists Jerry Sweeney, Brandywine Realty CEO, Sharmain Matlock-Turner, Urban Affairs Coalition CEO, and Jasmine Sessoms, Hilco Redevelopment senior vice-president, were so smart and so thoughtful that I wished they were our government. [Full disclosure: Brandywine and Hilco sponsor Citizen events.]
Matlock-Turner made the point that the city could take a page from Baraka’s playbook and partner with some of the funds that are already investing in neighborhood entrepreneurship, like Della Clark’s $50 million private equity fund or the GRIT fund, which I’m particularly fond of, because it represents the coming together of a consortium of banks funneling capital to Black and Brown entrepreneurs through small, local CDFIs.
Sweeney talked about the inclusive economic stimulus effects of local tax cuts, particularly as it applies to the wage and BIRT taxes. While there is understandable skepticism whenever a wealthy dude in a suit talks about tax-cutting, Sweeney should have earned his bona fides by now, given that he was, at one time, the lone developer to stand up and say, in effect, tax me more so we can get away from taxing what can’t up and move. And he’s right on the facts — cutting wage and BIRT taxes is actually a middle class lifeline.
“If the City devotes just 1 percent of budgeted spending annually to tax reduction, or about $50 million out of a $5 billion budget in each of the next five years, allocating 70 percent to wage tax reduction and 30 percent to reduce the net income portion of BIRT, it can ignite a new, broader cycle of growth,” the aforementioned Center City District report reads, authored by the visionary Paul Levy. “Wage tax reduction is the most direct, broad based stimulus since it puts money directly in pockets of more than 670,000 resident wage earners … It frees money up to spend on housing, food and consumer purchases that radiate throughout the local economy. BIRT reductions benefit about 30,000 businesses. Cuts can encourage new businesses to start, Black and Brown businesses to expand and major firms to stay here and grow.”
If you combine that 1 percent in cuts with, say, 1.5 percent in investment in funds like Clark’s and GRIT — roughly $150 million in spending — you’d still have $650 million of the ARP money left in the unlikely event that growth doesn’t materialize in the five-year plan’s later years. Now that sounds like a strategy, no?
So what’s standing in the way? Why is Philly an outlier?
Based on his Council testimony, Dubow would say such a job growth strategy is fiscally irresponsible. But do you buy that? What do you think is more likely: That we’re constrained fiscally, or imaginatively?
Moreover, there’s some ideological revulsion at play. Progressives hear phrases like “tax cutting” and “investing in growth” and they think — not without cause — that poor folk are about to get the short end once again. But Ras Baraka ain’t Ronald Reagan. Progressives have to stop prosecuting yesterday’s wars.
“The fact of the matter is there’s a large piece of the private sector — which includes the philanthropic and university sectors — that is completely committed to place and has bought into inclusive growth wholeheartedly,” Katz says. “That’s different from talking about private equity firms coming into New York and buying up all the rental housing.”
As Katz and our panelists this week were quick to remind us, there are tremendous green shoots of opportunity in Philadelphia — but they’ve arisen despite local government, rather than in partnership with it. There’s the tremendous life sciences revolution in West Philly, seeded primarily by Penn and Drexel and risk-taking entrepreneurs — something that, Katz says, can remake the tax base of all of Philadelphia.
And there’s Hilco’s audacious Bellwether District, the literal building of a city within a city, a projected windfall of some 30,000 jobs over the next 15 years. These, and other exciting private sector projects, bode well for the future of inclusive growth. But how much more could be done with city leadership that’s an actual partner in building pathways to middle class living?
Kenney's late to the budget party. Header photo by Albert Yee / City of Philadelphia / Flickr