Billy Penn is Broke


Philadelphia. SKIRTING BANKRUPTCY, its credit rating pegged at junk-bond level by Moody's Investor Service, this great, historic city's plight presents a frightening omen for urban America in the Philadelphia desperately needs a $400-million loan to pay its bills. Its social fabric and solvency are imperiled by homelessness, AIDS, crime and shattered families. Thirty-five percent of its residents live in poverty. Since 1960, 400,000 residents and 200,000 jobs have left.

After severe hemorrhaging of its industrial economy in the '70s, Philadelphia seemed to rebound in the '80s, enjoying a surge of new skyscrapers and service-sector jobs.

But downtown's prosperity radiated to very few neighborhoods. Now, with recession mounting, vital infrastructure unrepaired and untended social bills of the '80s coming due, the outlook is grim.

New York is trying desperately to keep racial peace while its bills mount. Washington, impaled by a regional recession and Mayor Marion Barry's distracted non-management, faces a deficit of $93 million. Hartford, Conn., is suffering a sharp decline of downtown hotel and retailing business.

Are the cities facing a repeat of the late '70s, when such cities as Cleveland and New York faced a fiscal abyss? The answer may be yes, but for different reasons.

Back then, profligate city spending and gross mismanagement were at fault. Even today, a city like Philadelphia exhibits patronage-based favoritism. It probably has a few hundred more employees than it truly needs. Insiders say Philadelphia's employee benefits are excessive, sick-leave abuse rampant.

But overall, Philadelphia is not a heavy spender. It ranks seventh among 11 similar cities in per-capita spending on such services as fire, police, sanitation and recreation, says the Pennsylvania Economy League. Even if its government practiced exemplary management, even if Mayor Wilson Goode were the strong leader he isn't, the city would likely be in serious shape.

Why? Blame Ronald Reagan and his erstwhile vice president, George Bush. Blame Pennsylvania Gov. Robert P. Casey, a Democrat, and indifferent suburban legislators who harbor aversion to the big city. Blame the mounting social chaos in impoverished neighborhoods. You'll be right on all counts.

Mr. Reagan's cuts to aid to cities -- a policy he proclaimed in advance and the public seemed to endorse in two electoral landslides -- is re-enshrined in Bush budget strategy. Before Mr. Reagan, federal aid was 25.8 percent of what cities raised from their own sources. By 1988, it was down to 7.5 percent.

For Philadelphia, that meant an inflation-adjusted decline of $200 million a year in federal assistance. City Finance Director Betsy Reveal says the federal-aid cut lies at the heart of the city's predicament.

Pennsylvania's government can't escape blame either. It has denied Philadelphia the basic support such cities as Baltimore and Boston get from their states. And Harrisburg is especially deficient in supporting the kinds of services -- courts, human services, corrections -- that are inevitably high in cities with lots of poor people.

"Local governments simply can't afford to address these broad social problems adequately -- higher levels of government need to do so," says the Pennsylvania Economy League's Diane Reed. Who's to say she's wrong?

With an indifferent state government, Philadelphia has felt obliged to pay its own money for children's programs, criminal justice and the like. No other city spends as much per capita on these services. Philadelphia finances more of its operations from local taxes -- some 61 percent -- than any other big city.

The result: Philadelphia has a higher tax burden for families making $25,000 a year or less than any other large town. That means the city has been losing economic vitality, its ability to compete.

The alarming bottom line is that fiscal default -- bankruptcy -- is now a real possibility for the city where America's Declaration of Independence and Constitution were written. It is not a pretty picture. And as Ms. Reed notes, it can't be "fixed" by fiscal reforms as New York and Cleveland did in the '70s. "Back then," she notes, "you didn't have AIDS. You didn't have crack. Cities didn't have all these open-ended service responsibilities."

There's a new, twin problem: Philadelphia's banks have lost the resources to save their own town. In 1969, a broad consortium of local banks came to the Philadelphia School Board's rescue in a fiscal squeeze, producing $130 million in short-term notes. But today Philadelphia has only two locally owned banks of any size or stature. The buyout of locally controlled banks is reflected across 50 states.

Mayor Goode says other major cities will soon be in the same predicament. That may be alarmist. But unless we want our cities to turn into embittered Third World-like enclaves, we'd better start thinking about federal and state intervention -- soon.

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