May 1, 2014
Council President Darrell L. Clarke
City Hall, Room 494
Philadelphia, Pa. 19107
Dear Council President Clarke,
We are writing today to urge you to work with your colleagues to begin the process of passing the ordinances necessary to ensure that the School District of Philadelphia’s budget request for FY 2014-15 is in place before the end of June.
The School District’s recent budget presentation indicates that $216 million is needed to avoid an additional 1,000 layoffs of both teachers and other critical school personnel. To avoid these devastating cuts, we ask that Council pass the bills that will result in $195 million in recurring, predictable and certain funds for the District. Chief among the options for these funds is an ordinance that would extend the current sales tax rate and shift to the District at least $120 million annually.
The crisis in the School District’s budget is due, in large part, to draconian 2011 state budget cuts. While the District is suffering from the loss of hundreds of millions of dollars in state aid, it must still meet mandated and rapidly rising payments for special education, charter enrollment and teacher retirement. As a result, our schools are in crisis and our students face untenable risks to their personal safety and life-long chances for success.
It’s crucial that our elected officials in Harrisburg recommit themselves to public education. Doing so would require them to restore the nearly one billion dollars in school funding cuts and enact a formula, backed by state funds, to ensure that every school district has the resources needed to support and prepare every child for post-secondary success. It sounds like a lot to ask, but it’s the minimum required by the Commonwealth’s constitution.
We are mounting a statewide campaign to build the public consensus needed to persuade the Governor and legislature to fund our schools. We hope our efforts will result in an increase in the amount of state funding available for the District next year. However, on April 30th, the Governor’s office announced that the budget he proposed may be cut by $800 million due to weak state revenues and resistance to any revenue increases. As a result, the modest new funding promised to the school district may not materialize.
The best solution for Philadelphia is one that is within our control; to provide the necessary funds locally even as we work for additional state funding.
Other proposals of how to use sales tax revenues have been advanced by you and the Mayor. In considering those proposals, we urge our elected officials to consider the following facts:
- At the 8% sales tax rate, approximately $137 million is
projected in collections from the 1/8th of the total sales tax revenues
collected in FY 2015, of which about $3 million is factored into the
City’s Budget for pension payments and $120 million is factored into the
School District’s budget. These
funds reduce the District’s structural
deficit to $320 million.
- The City and District allocation of the sales tax funds
is based on state legislation passed last July (2013) that permits the
City to continue the 8% sales tax rate with the provision that the first
$120 million in taxes collected be transferred to the School District for
its operating budget. If Council does not act by June 30, the 1% tax will
- The state legislation ALSO requires that any sales tax collections, over the sum of the $120 million and debt service for the $50 million loan to the district, must be used by the City to pay off its pension debt. The City’s actuary projects that sales tax revenues available after the $120 million annual transfer to the schools will be approximately $800 million for pension debt relief through 2030. With these funds, the City’s pension funding ratio will hit the 80% mark by 2030. That means that the current legislation will help offset over 17% of the City’s pension debt.
We believe that it is essential to recognize that the current sales tax legislation passed by the state last July already provides significant pension debt relief for the City of Philadelphia.
If Council were to vote to shift 50% of the $137 million in FY 2015 sales tax revenue in order to pay down more of the pension debt, new state legislation would be required to enable this change. Further, based on the latest actuarial projections released by the City Finance Director the cumulative impact on the District from the diversion of 50% of the funds to the City’s pension system would mean the loss in education funding of $51.5 million next year and more than a half a billion dollars through 2030.
Given that the current law provides $800 million and reaches an 80% pension debt funding level in 2030, the diversion of hundreds of millions of dollars from the District to hit the same 80% pension fund target only two years sooner does not make fiscal sense.
In the last few months, you and the Mayor have suggested an alternative plan that shields the District from the full impact of the 50% split by incrementally increasing the City’s share of the sales tax revenue used for pension relief from 15% in FY 2015 to 25% in FY 2016 and then 50% each year thereafter.
To support the rationale of this plan, Council members and other elected officials have been told that the impact on the District will be minimal because the District can offset the lost sales tax revenue with the projected natural revenue growth expected in other local taxes. The problem is that the District builds it budget assuming natural revenue growth. The attached document shows the District’s revenue assumptions factor in that natural growth in local revenues in its five-year plan.
The City of Philadelphia Finance Director’s summary of the updated 2014 Actuary Valuation Report (see attached) indicates that incrementally increasing the share of sales tax revenues to the pension fund will increase the pace of reaching the 80% pension funding target by only two years compared to the current legislation.
To fully understand the implications of the proposals before you, please review the following data:
· Current legislation: District Share = $1.92 billion through 2030, 80% pension funding target met in 2030
· 50/50 split: District Share = approx. $1.4 billion through 2030, 80% pension funding target met in 2028
· Incremental split plan: District Share = approx. $1.5 billion though 2030, 80% pension funding target met in 2028 or 2029
We strongly believe that City’s pension obligations must be met. We are pleased that the existing state law helps close some of the pension gap. Clearly more must be done to ensure our retiree obligations are met and there are many ways that Council can make that happen. We urge Council to look for options that don’t require that members of the General Assembly step back from the commitments they made to our School District last year.
We abhor any public debate that pits the needs of our children against the needs of retirees. We urge members of Council to recognize that this is a false choice. We can and must find a way to meet the compelling moral and fiscal obligations we have to our students and to our public retirees. Our City can do both and we want to work with you to ensure that we do so.
Education Law Center
Education Voters of Pennsylvania
Pennsylvania Budget and Policy Center
Philadelphia Education Fund
Public Citizens for Children and Youth