Tax cuts and more police spending are in Mayor Jim Kenney and Council President Darrell Clarke’s final budget

Philadelphia’s business and wage tax rates will fall slightly, police funding will increase by $55 million, and the city will spend $45 million more on efforts to recruit and retain municipal employees as part of a $6.2 billion budget City Council approved Thursday.

The new budget will take effect July 1, and it will be the final one of Mayor Jim Kenney and Council President Darrell L. Clarke’s long City Hall careers, as both men are leaving office in January.

The spending proposal was approved in a 14-1 vote, with Councilmember Jamie Gauthier voting no. The tax cut proposals were approved in a pair of 13-2 votes, with Gauthier and fellow progressive Councilmember Kendra Brooks opposing.

This year’s budget negotiations were overshadowed by the Democratic primary for mayor, which former Council Majority Leader Cherelle Parker won last month. Thanks to Philadelphia’s overwhelmingly Democratic electorate, she is likely to win the November general election against Republican David Oh, also a former Council member, and would oversee the final six months of this budget upon taking office in January.

This year’s negotiations were for the most part a quiet affair due to Kenney’s largely status quo budget proposal, which he unveiled in March, and the city’s strong fiscal position, which has allowed lawmakers this year to simultaneously cut taxes, increase spending, and maintain a significant surplus.

The city will add $42 million to the budget stabilization reserve, or “rainy day fund,” bringing it to a total of $107.4 million. Government finance experts recommend cities maintain significant reserves to address emergencies or economic downturns.

The city’s strong financial position was underlined Thursday by the Kenney administration’s announcement that it had made the final payment on state-backed bonds that helped bail the city out of its early 1990s fiscal crisis, which threatened to make Philadelphia the first major city to declare bankruptcy.

The only major flare-up during negotiations was an 11th-hour dispute over the tax-cut proposals, which will cost the city $32.7 million in unrealized revenue next year.Kenney had proposed modest reductions to the wage and business taxes, and lawmakers ended up slightly increasing the scope of the cuts.

Councilmember Katherine Gilmore Richardson authored the wage tax cut, which will reduce the rate for city residents from 3.79% to 3.75%. The rate for people who work in the city but live outside of it will remain 3.44%.

Councilmember Isaiah Thomas championed the reduction of the net profits portion of the business income and receipts tax, which will go from 5.99% to 5.81%.

Real estate taxes will remain essentially frozen this year, with the Kenney administration saying it does not have the capacity to complete a new reassessment of property values and lawmakers leaving the tax rate unchanged at 1.3998%.

Gauthier and Brooks, who opposed similar tax cuts last year, said they voted no again this year because they believe the city should further increase spending, and not cut revenue, amid the Philadelphia’s ongoing gun violence crisis and its enduring status as the poorest of the nation’s 10 largest cities.

The cuts were backed by the Chamber of Commerce for Greater Philadelphia and the Inclusive Growth Coalition, a campaign the chamber organized along with groups representing businesses owned by underrepresented people. They have argued that the city needs to cut rates even further to attract businesses and increase economic opportunities.

Published June 22, 2023