FUMO CITES REVENUE SURPLUS IN CALL FOR PHILADELPHIA WAGE TAX CUT
PHILADELPHIA, July 17, 2002 –– State Senator Vincent J. Fumo today called upon Philadelphia Mayor John Street to support efforts to reduce the city’s excessively high wage tax, in light of new information that the city had a revenue surplus last year and will probably post one again in 2002-03.
News media reports today, based on examination of the city’s budget, indicated that Philadelphia finished the past fiscal year on June 30 with a surplus of $36 million in tax collections. The city has also probably underestimated its tax revenue for the new fiscal year, meaning that more money will actually be available for city services than the Street Administration budget shows.
Fumo, who chairs the Democratic Appropriations Committee in the state Senate, discovered through his own analysis in April that the city’s financial picture was stronger than the administration claimed. In a letter to city Finance Director Janice Davis on April 24, Fumo noted that city tax collections for the first nine months of the fiscal year were higher than anticipated, and he predicted a year-end surplus. (Copy of letter attached.)
The revenue projections were at issue because Davis had testified before the Senate Urban Affairs and Housing Committee in mid-April against Fumo’s wage tax cut legislation, claiming that the city budget could not afford the loss in revenue without hurting city services.
Fumo conservatively predicted a surplus of around $14.5 million in the midst of a weak national economy, less than half of what the surplus eventually turned out to be.
Fumo is the prime sponsor of a measure (SB 1372) mandating a 23-percent reduction in the city wage tax. Introduced in March, the bill passed the Senate on June 26 by a 45-4 vote and was sent to the House of Representatives, which could consider it in September following the General Assembly’s summer recess.
"While the Street administration has so far lobbied against my legislation, I hope the Mayor would now have a change of heart and urge the House to adopt wage tax cuts," Fumo said. "The wage tax rates in Philadelphia scare jobs out of the city and they damage the economy of the entire region. It is now clear that we can afford to reduce them," he added.
Fumo had already suggested a list of 12 ways the city could compensate for the revenue it would lose from cutting the wage tax without painful impact on city services.
Fumo observed that a similar revenue surplus in excess of $30 million for the 2002-03 fiscal year would fully fund the first year of his more ambitious wage tax plan, while continued surpluses in excess of $25 million annually would provide more than $150 million during the five year phase-in of his proposed tax cuts.
"The city has suggested selling the Philadelphia Gas Works is not feasible, but the higher revenue collections suggest that the PGW piece of my proposed plan wouldn't even be necessary," he said, noting that the PGW sale was only expected to contribute an additional $112.5 million to the city budget.
Fumo also said he was gratified that the Pennsylvania Intergovernmental Cooperation Authority (PICA), which oversees city finances, agreed that the recent revenue surplus indicates there is room to lower the wage tax. According to a news report, Joe Vignola, the executive director of PICA said the revenue data proved the tax-cut proponents were correct in saying that the city could afford to lower the wage tax.
ATTACHMENT OF APRIL 24 LETTER TO JANICE DAVIS:
(On Fumo Senate Stationary)
The Honorable Janice D. Davis
April 24, 2002
Dear Ms. Davis:
Attached please find the spreadsheet I promised to provide to you detailing city revenue collections for the first nine months of the current fiscal year. As you may recall, during your testimony last week you appeared unaware of the current status of revenue collections by the city and the implications for a projected end of year surplus.
All of the year to date collections are based upon the City Revenue Department’s Comparative Report of Revenue for March 2002 and 2001, dated April 12, 2002, which I assume you would have received prior to last week. As the spreadsheet reveals, nearly all major tax sources are providing revenue substantially in excess of last year’s collections. Total Tax Revenue collections are currently 2.35 percent ahead of last year’s total collections. If this trend continues through the final three months of this fiscal year, the final budget surplus would be nearly $14.5 million higher than forecast in the City’s proposed five year plan released in January.
As noted during the hearing, while city wage tax collections are currently below estimate, total collections year to date remain ahead of last year by about one percent, and the modest projected end of year shortfall is more than compensated for by other tax sources to produce an anticipated end of year surplus.
The March Revised Estimate column details final estimates based upon conservative adjustments for assumed 4th quarter receipts. The foot notes on the spreadsheet indicate these adjustments. Business Privilege receipts are projected to increase only 1 percent above prior year collections, although initial collections are substantially higher. Estimated 4th quarter Amusement Tax collections are modest assuming no significant revenue from 76ers or Flyers playoffs. No adjustment is made to assume Wage Tax or Sales Tax revenue will increase during the final quarter of the fiscal year and Hotel Tax revenue is included, although this revenue is not technically accounted for in the General Fund budget.
Given all of these conservative adjustments, projected collections, as stated at the hearing last week, remain more than $10 million above the city’s revised estimates
for the current fiscal year. If you have further questions or clarifications regarding this information please contact Randy Albright or John Raymond of my staff. They can both be reached in my Harrisburg office at (717) 787-5662.
VINCENT J. FUMO