Mayor Cherelle Parker’s long-term budget plans get green light, despite fears over federal funding cuts

A state-appointed board that oversees Philadelphia’s city budget on Monday approved Mayor Cherelle L. Parker’s five-year financial plan after its staff expressed concerns about the city’s increasing reliance on debt-financing and about President Donald Trump’s threats to cut federal funds for cities.

The Pennsylvania Intergovernmental Cooperation Authority, which must approve Philadelphia’s financial blueprint each year for the city to continue receiving about $1 billion in state-controlled funds, voted 4-0 to green-light the plan. Board member Patrick Burns was absent.

The PICA vote is the final step in the city’s annual budgeting process, which began in March when Parker unveiled her taxing and spending proposals. After making limited amendments, City Council in June largely approved Parker’s plan for the fiscal year that began July 1.

“This Plan reflects the City’s continued commitment to fiscal stability and responsible budgeting, even in the face of complex economic challenges,” PICA chair Kevin Vaughan said in a statement. “We commend the City’s leadership for making strategic investments in core services while also building toward long-term pension stability and reserving resources to weather future uncertainty.”

Before voting to approve the plan, PICA vice chair Alan C. Kessler applauded the Parker administration for its handling of labor contracts following an eight-day strike by the largest city worker union that ended with a new deal largely in line with Parker’s goals.

» READ MORE: ‘They are my people’: Mayor Cherelle Parker on why she stood firm in the DC 33 city worker strike

Rosalind W. Sutch, the board’s treasurer, pressed the city to be more transparent about spending projections for major initiatives. Her comments echoed concerns from some Council members who previously complained about Parker asking them to approve funds for major programs with limited information. Those include Parker’s “wellness ecosystem“ for people struggling with drug addiction and her Housing Opportunities Made Easy, or H.O.M.E., program, for which Council in June authorized the issuance of $800 million in city debt.

Board member Michael A. Karp asked city Finance Director Rob Dubow about city aid to SEPTA, which is facing a major shortfall and is planning to dramatically limit service in the coming months if it does not secure more funding from Harrisburg.

» READ MORE: As Philly residents and schools brace for SEPTA cuts and late state funds, there’s no rush for a budget in Harrisburg

Dubow said the city has significantly increased its subsidy for SEPTA in recent years. In the new budget year, Philadelphia will send the transit agency $134 million, he said.

“I want to thank PICA for its thorough and comprehensive review of the Plan,” Parker said in a statement, “and for the Board’s acknowledgement of the Parker Administration’s unwavering commitment to fiscal stability.”

The state legislation that created PICA charges the agency with evaluating whether the city’s financial plans are based on “reasonable” assumptions about revenue, spending, and the economy.

As it almost always does, PICA’s staff this year determined the city used reasonable assumptions in its plan. But it also laid out potential pitfalls that could derail the plan.

“Approval of this Plan reflects confidence in the City’s leadership and fiscal planning — but that confidence must be matched by continued discipline,” Marisa Waxman, PICA’s executive director, said in a statement. “Philadelphia will have to navigate known challenges — from labor costs to economic uncertainty — while remaining prepared for shifting federal policies and funding landscapes."

Philadelphia’s General Fund, which is commonly referred to simply as the city budget and is largely responsible for operating expenses, uses very little federal funding. The $6.8 billion city budget that took effect July 1, for instance, anticipates only $61 million in federal aid to the General Fund.

But federal aid is critical to other city funds. The HealthChoices Behavioral Health Revenue Fund, for instance, is projected to bring in about $1.5 billion from Medicaid this year for a program that provides mental health and substance abuse treatment to Philadelphians.

» READ MORE: How much could Philly lose if Trump cuts funding to cities? Here’s what you need to know.

The HealthChoices fund is not one of the municipal coffers that PICA is tasked with overseeing. But Waxman warned that cuts to federal aid in one part of the city budget could put pressure on Council and the administration to make up the difference by drawing from elsewhere.

“Federal funds, direct and passed through the Commonwealth, are a significant revenue source for many of the City’s funds that are not covered by the PICA Act,” the PICA staff’s analysis of Parker’s five-year plan said.

Trump has not yet moved to cut major funding streams earmarked for Philadelphia, as he has sought to do in New York City, Los Angeles, and other cities. But Philly was included in a Trump administration list of so-called “sanctuary cities” that decline to assist federal immigration enforcement and could be targeted for funding cuts. (The administration quickly rescinded the list after apparent mistakes were discovered, but the White House has vowed to revisit the issue.)

» READ MORE: Philly Mayor Cherelle L. Parker is among the Democrats trying to coexist with Trump

Parker set aside $95 million in this year’s budget to cover potential cuts in federal aid. The city, however, takes in around $2 billion in federal support across all funds.

Even before Parker got Council to approve her plan to issue $800 million in city bonds starting this fall, Philadelphia was becoming increasingly reliant on debt.

PICA staff noted that the capital budget, which includes debt-financed projects like infrastructure improvements, had grown from $3 billion in 2016 to nearly $5.5 billion last year and that it has become increasingly reliant on aid from Washington, a trend the report said “should be monitored closely in light of changing federal funding priorities.”

“The increasing size of the Capital Program, deemed ‘hefty’ by Moody’s rating agency, should be monitored to ensure it doesn’t create unsustainable pressure on the General Fund over time,” the report said.

A decade ago, only $264 million, or 10%, of capital budget funding came from federal sources, compared to last year’s $1.1 billion, or 18%, according to PICA’s analysis.

The Pennsylvania General Assembly created PICA in the early 1990s as part of a rescue package for the city, which was in the midst of a deep financial crisis. Wall Street credit rating agencies had given Philadelphia’s debt “junk bond” status, leaving the city unable to navigate massive shortfalls and putting it on the verge of insolvency.

Using the state’s credit, PICA issued bonds that provided needed funds for the city budget and that would be paid back by the nonresident portion of the Philadelphia wage tax. To ensure the city was improving its financial practices, the PICA Act required the city to write a five-year financial plan that would be updated annually and approved by the bipartisan PICA board, which includes four legislative and one gubernatorial appointee.

The city finished paying off those bonds in 2023, and the PICA Act originally called for the agency to be dissolved at that point. But city and state leaders had come to value PICA’s impact on City Hall’s financial practices, and the General Assembly in 2022 voted to reauthorize it through 2047.

Not everyone is a fan of PICA. Fiscal hawks have, at times, contended the board isn’t an aggressive enough watchdog over the city budget because it almost always approves the five-year plans without controversy.

On the other end of the spectrum, municipal unions including the American Federation of State, County and Municipal Employees District Council 33 — which went on strike earlier this month in a bid for higher raises — have criticized PICA since its inception, arguing that the board allows the city to shortchange its workers in the name of fiscal prudence.

Parker’s five-year plan sets aside $550 million for added costs from labor contracts. The new three-year DC 33 contract will add $115 million in costs during that period, and a recently approved three-year contract for AFSCME DC 47, a different union for city workers, will add $92 million.

The administration is currently engaged in binding interest arbitration to determine new contracts for the unions for police officers and firefighters.