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The Joyless Recovery



    The Joyless Recovery

    Welcome to the joyless recovery.

    Though economists say the Great Recession officially ended, believe it or not, in June 2009, we have a recovery where the wheels are spinning without showing much forward movement.

    It shows in a number of different ways. Take tax collections, please.

    In making its budget proposal for this year, the Nutter administration had to erase its estimate for wage tax revenue and pencil in a lower number. The administration’s economists had predicted wage-tax growth in the 3.5 percent range. Instead, it is coming in at 1.75 percent.

    What that means is that about $60 million in anticipated revenue suddenly went poof!

    On the state level, revenue from virtually every major tax is coming in lower than estimates. We’re talking both personal and business taxes, not to mention the sales tax (due probably to the bad winter weather).

    The state, which was projecting a two percent overall growth in revenue this year, is currently looking at a growth rate of 6/10ths of a percent.

    These numbers are temporal and could change as we advance to the beginning of the new fiscal year in July. But, the economists I talked to doubt it.

    “For Philly’s economy, it’s been a long slog,” said Ryan Sweet of Moody’s Analytics. “It’s taking a little longer for Philly to find its rhythm.

    One of the ironies is that while wage tax revenue is down, the number of jobs in the city has gone up. How can the number of people working increase but the wage taxes paid decrease?

    That one has some scratching their heads, but as Sweet and fellow Moody’s economist Dan White point out it’s likely a function of the fact that the jobs being created are in low-paying industries—mostly service—and not in high-paying sectors such as finance, meds and eds. Another possibility: “You may still be employed, but you are working fewer hours.”

    In the state, the rate of job creation also has slowed considerably. As Stephen Herzenberg of the Keystone Research Center pointed out, Pennsylvania was doing well coming out of the recession—in 2010, there were 88,600 private sector jobs created in the state.

    Since then, the story has been different: 71,700 jobs created in 2011; 43,900 in 2012 and just 28,200 created last year. Put that on a chart, and it looks like a flight of stairs moving in the downward direction.

    In 2013, Pennsylvania ranked 48 out of the 50 states in terms of job growth, compared to seventh in 2010.

    This slo-mo job recovery obviously has a ripple effect. For instance, in the mayor’s budget the city is scheduled to spend $4.4 billion this year. However, even with most city departments in the zero increase mode, the amount of “new” money available for new programs and hiring, etc. totals only $18 million.

    (Had revenue come in as projected, the city would have had $80 million-plus to spend on programs and initiatives.)

    If the lower-than-expected revenues remain the same at the state level, it could cause all sorts of problems for Gov. Corbett who, in this re-election year, is in a spend mode.

    Due to a tight budget, Mayor Nutter had to cherry pick on initiatives: $2 million to hire additional inspectors for Licenses and Inspections, mostly to beef up demolition inspections; $2.5 million for the Free Library so that all branches can stay open 6-days a week; $500,000 for the Recreation Department to hire (mostly part time) help for programs; $500,000 for Community College top help offset tuition increases. You get the idea. Most are tweaks to existing programs.

    What Nutter did not do is deliver more money to the public schools. Superintendent William Hite had a $195 million “ask” from the city. As of now, most of that money will not be forthcoming. When asked about that, Nutter figuratively showed his empty pockets and said the city could not give more.

    One thing the city will do is give the district the right to take most of the one percentage point on the sale tax added during the recession. It was due to expire this year, but will be extended—probably in perpetuity—to help the district.

    The city also is asking the legislature to pass a Philadelphia-only $2-a-pack increase in the cigarette tax, which will bring in $83 million if enacted. But the chances of that passing are slim to none.

    If it is any consolation, most economists—including Sweet and White—expect an uptick in jobs and the economy beginning the end of this year. There are already signs of quickening. Job creation has been steady, if unspectacular; residential and commercial construction have revived; companies are likely to begin hiring high-end employees as the year advances.

    But, those happy days won’t be coming until months from now, not soon enough to help cash-strapped elected officials making their budgets this year.

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