With the 11th hour passing of a state budget, Philadelphia will not have to implement Plan C.
The good news:
- Approximately 3,000 state workers, who would have been laid off today, will keep their jobs. This includes over 900 police officers and 200 fire fighters.
- Philadelphia’s court houses, public libraries, and recreation centers will remain open.
- Basic services, such as sanitation, police, and fire, will not suffer deep cuts.
The bad news:
- Pension plan contributions will be deferred for fiscal years 2010 and 2011, meaning that there will be no contributions paid into the pension plans for city workers for two years. Those deferred pension payments will have to be repaid by 2014 with 8.25% interest. Additionally, the city must adopt a plan to reduce the cost of pension benefits for new hires by at least 20 percent.
- Philadelphia sales tax will be raised by one percentage point from 7% to 8%. (6% of that amount goes to the state and remains unchanged. The other now 2% goes to the city.) The sales tax increase is scheduled to sunset after 5 years. The idea is that the sales tax hike will help the city with its pension plan repayment obligation.
The 1% sales tax hike is something that the city wanted, but needed the state’s permission. The state agreed to allow the city to raise the sales tax for 5 years, but only on the condition that the city comply with the pension plan requirements. Because pension plan benefits are determined through collective bargaining agreements between the city and the labor unions, theoretically the labor unions can refuse to agree to the pension plan deferments. However, if that happens, the city will lose the 1&% sales tax increase and all other benefits of the budget, which would likely result in thousands of workers (those same workers the unions would be seeking to protect) losing their jobs. It isn’t all bad news for city workers though: labor leaders were already successful in campaigning for the bill to not include provisions that would have capped or even cut back on pension benefits.
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