Sales Tax Split Harms Students and Hardly Helps Pensions

Everyone agrees that the School District of Philadelphia is in dire financial straits.  What they cannot agree on, however, is what they are willing to do to get out of them.  The District says it needs $216 million to avoid an additional 1,000 layoffs.  City Council has bills in front of it that would result in $195 million of funding that the District could count on every year and avoid its annual dance with fiscal disaster.  The most important of those bills would direct at least $120 million a year from an extension of the sales tax, guaranteeing the District would not again find itself in the hole it’s been in for the last few years.  Problem solved, right?  Not so fast.

According to the Inquirer, there is “no consensus [in City Council] on whether the district should receive the full $120 million from extending the sales-tax increase,” as “Council wants to split the take between schools and the city pension fund.”  Well, that makes sense; there are a number of financial issues Council wants to address and only so much money to go around.  It makes sense, at least, until you look at the numbers.  Under current legislation, the state will provide enough pension help that we hit an 80% funding target in 2030.  PCCY’s review of the city’s 2014 Actuary Value Report found that if the District splits the funding 50/50 with pension relief, we’ll be able to hit that 80% funding target in…2028.  But what about the other proposal, an incremental split?  2028 or 2029.  Here’s the kicker: to hit the pension goal a year or so earlier, it will cost the District half a billion dollars.  And it will also require the state to pass new legislation allowing it, and we all know how quickly they move on funding for Philadelphia.

Council President Darrell Clarke, in a letter to PCCY, refuted these projections and wrote, “even if City Council were to accept that these assumptions are correct, the benefits of a more responsible and balanced 50-50 split in Sales Tax revenue between SDP and the pension fund are clear based on scenarios provided by the City pension actuary.”  He then points out that under his plan, the pension fund would be considered fully funded (80%) in 2028, while it would only be at 73% at that point in the current plan.  But since he assumes a 3% (and growing) yearly jump, the pension plan would be at least at 79% funding in 2030, coming within a fraction of a percent of the funding goal without a diversion of the sales tax.  Of course projections can change, no one can fully see what the tax base will look like fourteen, fifteen, sixteen years from now; that’s why they are called projections.  But the loss of $500 million will lead to certain, immediate consequences for the School District.

There are questions as to whether Clarke’s plan is even feasible.  “The problem, however, is that making any changes to what the legislature approved would require Harrisburg to act again,” the Notebook wrote.  “State leaders have been showing impatience with Philadelphia’s failure to enact the sales tax, which is hindering efforts to get the state to free up more money for the schools.”  City Council has an opportunity in front of it to go a long way to solving the District’s financial woes.  The question remains whether they will take it.