What’s Next for Fiscal Oversight in Philadelphia?

This analysis was written by Larry Eichel and Garrett Hincken with the Pew Charitable Trust's Philadelphia Research and Policy Initiative.

The state agency that has overseen Philadelphia’s finances since 1992—the Pennsylvania Intergovernmental Cooperation Authority (PICA)—is slated to shut down in three years. But there is a sense among stakeholders that the policy conversation about what happens next should start now.

The authority’s fate will be decided by the state legislature, but many with a stake in Philadelphia’s future say local policymakers should seek to reach agreement among themselves before turning to Harrisburg.

Building a consensus could prove challenging for several reasons, however. One is that the city is not facing a dire fiscal crisis, as it was when PICA was created nearly 30 years ago. In addition, local officials are not all on the same page about whether the authority should continue to exist and, if so, in what form.

These and other insights emerged from a January gathering organized by The Pew Charitable Trusts that brought together people hoping to shape the decision-making process about what comes next—including those who have worked for PICA, served on its board, or dealt with the authority as city officials.

Participants agreed that the agency’s existence has been a plus for the city, helping it to establish and then maintain fiscal stability and credibility. Michael Nutter, who served as mayor from 2008 to 2016, described PICA as “the most significant fiscal disciplinary tool ever enacted in the city.” He added that he was hard-pressed “to even understand the argument” for letting it die.

Others who endorsed PICA’s value included Harvey Rice, the authority’s executive director, and Eric Kim of Fitch Ratings.

As detailed in a recent Pew brief, “The Future of Fiscal Oversight in Philadelphia,” the law that created PICA requires the city to create an annual five-year fiscal plan to submit to the authority for approval. It also mandates that labor arbitrators consider the city’s ability to pay when determining salaries and benefits for its uniformed workers. These provisions and others are set to expire in 2023, when the authority finishes paying off the borrowing it did in the early 1990s to help Philadelphia emerge from its fiscal crisis.

Senator Vincent Hughes, the only state lawmaker to speak at the event, advised a cautious approach: making as few changes as possible to PICA’s current structure if city leaders look to continue the arrangement. Hughes, who represents part of Philadelphia and adjoining Montgomery County, said the best course might be to take the existing law, write in a new expiration date, and leave it at that.

“Don’t fix what ain’t broke,” Hughes said, warning that expanding the conversation could entangle Philadelphia in the contentious partisan politics of the legislature.

Among the possible changes to PICA being discussed are:

• Expanding the authority’s purview to include the ability to conduct financial analyses of the cost of ordinances proposed by City Council or the mayor’s office. “When I look at PICA, I see an opportunity for it to have a new role in our city,” said City Council member Derek Green. “Building on its record of impartial fiscal oversight, PICA is well-positioned to inform city policy debates with neutral financial information.”
• Using PICA’s borrowing authority to fund the city’s capital program and/or help the school district deal with aging infrastructure. The appeal of this approach is that PICA can borrow money more cheaply than Philadelphia city government because it has a dedicated funding source: a 1.5 percent tax on wages earned by city residents. A small portion of that tax has been used to finance the borrowing done by PICA in the 1990s and pay the authority’s operating expenses, with the rest going to the city.
• Giving PICA enforcement tools beyond what it has now, a proposal voiced by former board chair Sam Katz and others. Currently, if the authority wants to disapprove a city five-year plan, its only option is to withhold hundreds of millions of dollars in revenue, which it has never done.

Mayor Jim Kenney and top members of his administration—represented at the event by Finance Director Rob Dubow—favor retaining PICA in some form.

Not everyone, though, thinks saving the authority is necessary or desirable. In the view of City Controller Rebecca Rhynhart, asking the state to extend PICA’s existence, after Philadelphia has experienced nearly three decades of fiscal stability, perpetuates the conception that the state’s largest city is a child in need of supervision.

“There has to be some sentiment that the people in charge have learned something … that we can manage ourselves the way cities across the country do,” she said.

Rhynhart noted that other cities that don’t have state oversight engage in some of the fiscal practices that came to Philadelphia through PICA, such as long-term financial planning, quarterly reporting of revenues and expenditures, and testing of revenue assumptions. Philadelphia could continue these practices on its own, she said, making them part of the city’s own processes through ordinances or amendments to the city charter.

Some PICA advocates, however, question how credible such practices would be if not conducted or reviewed by an independent group.

One aspect of the PICA law that can’t be replicated locally is the requirement that labor arbitrators consider the city’s financial position. David L. Cohen, who served as chief of staff under former Mayor Ed Rendell in the 1990s, emphasized the importance of this provision, saying that “somehow, someway, that element of PICA has to be preserved, and it’s worth whatever political battle we have to fight to make that happen.” To keep such a provision in place would require state legislation.

Since 1992, PICA has been a key player in Philadelphia’s fiscal governance, and its scheduled shutdown creates new challenges and opportunities. Even though the decisions will be difficult and the deadline for making them is still three years away, many of the people who care about the city’s fiscal stability think now is the time to get started.