TIME: Almanac 1993/TIME Almanac 1993.iso/time/010791/0107102.000

Text File | 1992-08-28 | 6.2 KB | 137 lines

                                                                                NATION, Page 58

City on the Brink


Squeezed by budgetary woes and urban ailments, Philadelphia
teeters on the edge of bankruptcy

By THOMAS MCCARROLL


    At the intersection of 13th and Filbert in downtown
Philadelphia lies a crater at least 25 ft. deep and two blocks
wide. Located directly across the street from city hall, the big
hole in the ground was supposed to be the site of a $170 million
Justice Center that would house courtrooms, a 500-cell jail and
offices for law-enforcement agencies. But the project was
shelved two years ago because of political bickering and
financial difficulties. The hole has become a symbol of the
fiscal abyss that threatens the City of Brotherly Love.

    Beset by a double whammy of rising expenses and vanishing
federal and state aid, Philadelphia is going broke. Unable to
borrow money by issuing bonds and prohibited by state law from
imposing new taxes, the city is running out of cash. This week a
crucial deadline looms: unless it can raise $150 million by Jan.
4, Philadelphia will become the first major city to become
insolvent since Cleveland in 1978. If the bell does toll for
Philadelphia, the reverberations will be heard across the
nation. They will be loudest in other cities caught in a similar
fiscal bind.

    So far, Philadelphia has stayed afloat by ruthlessly
cutting costs. Fire stations, libraries, homeless shelters and
historic sites have been closed, local tax refunds and
pension-fund contributions have been delayed, and a hiring
freeze has been in effect since this summer. Even so,
bond-rating agencies have lowered the city's bonds to CCC. That
is just one notch above the "default" category.

    The prospect of bankruptcy became more likely three weeks
ago, when a proposed rescue plan fell through. Under the plan,
the state treasurer in Harrisburg would have bought part of a
$325 million bond offering  with borrowed funds. But state law
bars the treasurer from taking out loans to finance other debts.
The state did manage to expedite $20 million in payroll funds
to help the city buy time. But faced with the state's own $1
billion budget deficit, the general assembly  is in no mood to
provide more direct assistance. Says Republican state senator
Richard Tilghman, head of the appropriations committee:

Philadelphia."

    Pressures on the city's budget have been mounting since the
mid-1980s. As spending on crime, homelessness and other costly
social problems soared, revenues to pay for those services
declined steadily. To make up for cuts in aid from Washington
and Harrisburg, Philadelphia has had to assume an additional $60
million a year in outlays for  mental health, AIDS treatment and
youth-services agencies. At the same time, the city's tax base
has eroded, as droves of businesses and middle-class workers
have fled to the suburbs. While other cities managed to cope by
imposing new taxes, Philadelphia's efforts to follow suit have
been thwarted. In August the city's plan to hike sales taxes by
$45 million was rejected by the legislature. Philadelphia, which
has piled up deficits of $190 million since 1988, is facing a
gap of $200 million this year.

    With local primary elections five months away, the city's
political leaders have poured more energy into finger pointing
than into finding a way out of the crisis. Mayor Wilson Goode,
who in 1983 was elected the city's first black chief executive,
is limited by law to only two terms. Goode paints himself as a
"victim of circumstance," who just happened to be in City Hall
when soaring crime, an influx of drugs and the AIDS epidemic
placed an unbearable burden on his city.

    The threat of fiscal collapse has added racial overtones to
the battle to succeed Goode. The Democratic contest will pit one
of two African Americans -- City Council member Lucien Blackwell
and former councilman George Burrell -- against a white, former
district attorney Edward Rendell. Another white, current D.A.
Ronald Castille, is expected to be the Republican candidate in
the November general election. About 40% of the city's residents
are black. Blacks fear, says one politician, "that whites want
to take back City Hall, and they're going to play on this crisis
to make us look bad."

    In the view of some local leaders, the only solution to the
mess is for the state to bail out Philadelphia. In return, the
city would have to turn over control of its finances to a state
oversight committee. But Goode has rejected the proposal as an
unwarranted and unconstitutional grab of the city's powers.

    As this week's deadline neared, Goode seemed to be counting
on a last-minute reprieve that had yet to materialize. His
harried attempts to persuade local banks and pension funds to
purchase city bonds have so far found no takers. Meanwhile, the
city is drawing up contingency plans that would go into effect
if it declares bankruptcy. Wages of city workers could be
slashed by as much as 60%, and all payments to suppliers could
be canceled -- bitter medicine, to be sure, but possibly
unavoidable.


____________________________________________________________
Philly Is Not Alone


    Though Philadelphia is the most extreme case, many other
major cities are faced with severe financial hardship.
Twenty-nine of the nation's 50 largest cities, mainly in the
hard-hit Northeast and Midwest, will be forced to prune
services, raise taxes or do both to close budget deficits this
year. Among them:


    NEW YORK CITY. Confronting a $1.3 billion shortfall in the
1992 budget, Mayor David Dinkins is planning painful spending
cuts. Up to 35,000 jobs may be eliminated.

    WASHINGTON. Departing Mayor Marion Barry has bequeathed a
$200  million deficit to his successor, Sharon Pratt Dixon. To
cover a gap that could reach $700 million within five years, she
has been urged to fire at least 6,000 municipal employees.

    DETROIT. The Motor City's unemployment rate is 10.9%,
almost double the national average. Fifth-term Mayor Coleman
Young is considering massive layoffs of city workers that will
be needed to close a $35 million budget gap.