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Philly voters will have the option to change a critical aspect of the city’s ability to address financial emergencies.
A question on the May 16 primary ballot asks voter to approve a shift in the way Philadelphia puts money into what’s known as the Rainy Day Fund, making it easier to track and to fill up, if city coffers allow.
It’s not a theoretical question, city Finance Director Rob Dubow noted during a February Council hearing on the proposed change, which was sponsored by Councilmember Katherine Gilmore Richardson.
“The importance of having the type of Rainy Day Fund envisioned in this proposal was made clear during the pandemic,” Dubow said, “when the city drew on its BSR fund to help avoid even more devastating funding cuts.”
Read about the other May primary ballot questions
In early 2020, the $34.3 million in the fund — officially called the Budget Stabilization Reserve (BSR) — “went in the blink of an eye,” Pennsylvania Intergovernmental Cooperation Authority board member Alan Kessler told The Inquirer.
The new plan would look to ensure that more than $34 million is sitting in the BSR, as a result of more frequent deposits. In the short term, the main way it would do that is by increasing the amount of money tucked away when the city’s General Fund balance exceeds 5%.
Right now, the city is sitting on some extra cash from the American Rescue Plan Act, the initial COVID relief passed in the early days of the Biden administration, so changing the formula could have an immediate effect.
What you’ll see on the ballot
Should The Philadelphia Home Rule Charter be amended to expand the requirements for annual minimum appropriations to the Budget Stabilization Reserve, more commonly known as the “rainy day fund”?
What it means
The Budget Stabilization Reserve was created by Philadelphia voters in 2011 when they approved a charter change forwarded by then-Councilmember Jim Kenney, who first proposed such a move during the Street administration.
Most states and major cities have rainy day funds of this sort, “designed specifically to help … address fiscal stresses generated by recessions,” according to the Federal Reserve Bank of Philadelphia.
In the immediate wake of the Great Recession, Kenney was clear about the reason he resurfaced the idea: “It came back in my mind, because I realized that this would be an easier environment to pass it,” he said in 2010.
Voters agreed, and approved the creation of the fund in November 2011.
Acknowledging that the city didn’t have much money to save at the time, Kenney said that once more revenue came into the city, “we will have a steady socking away, so to speak, of money in the event that we run into something like this again.”
The event he alluded to came to be in 2020 — but a “steady” series of deposits into the BSR never happened in that decade-long interval because Philly only once reached the required 5% activation point.
OK, so how do contributions work now?
The original plan is pretty straightforward:
As part of a 5-year plan that’s revised annually, city finance officers project how much money they expect the city to have left over after spending what’s in that fiscal year’s budget.
If the projected fund balance is 3% or more of the projected spending for the coming fiscal year, then 0.75% of unrestricted general fund revenues (essentially, locally-generated funds like taxes) are supposed to be sent over to the Rainy Day Fund.
The mayor can also organize a midyear transfer of unrestricted revenues into the Rainy Day Fund, though it must be approved by Council.
There’s an issue: The city has consistently struggled to maintain fund balances that reach 3%, meaning the contribution scheme has only been activated once, in FY2020, when the $34.3 million used during COVID was deposited into the BSR — just in the nick of time.
Put plainly, the current method for replenishing the fund has been out of line with the amount of money the city has been able to collect yearly, making deposits rare.
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Cool, so what’s the new plan?
Making “regular deposits into the Rainy Day Fund” is the ultimate goal of the change, Councilmember Gilmore-Richardson said during the Council hearing on the possible charter amendment.
The new method would:
- Base the deposit on the current year’s projected year-end General Fund balance from the second quarter of the fiscal year — as recorded on the first business day after Valentine’s Day — instead of the projected year-end balance.
- Change the threshold for when a deposit is made
When the projected balance is between 3%-5%, the BSR would get the current standard deposit of 0.75% of unrestricted general fund revenue. A balance between 5%-8% would trigger an even bigger deposit, of 1%.
If the projected year-end balance were ever to exceed 8%, all the excess above that mark would go to the BSR. For reference, the Government Finance Officers Association recommends a 17% fund balance, which simply hasn’t been on the cards for Philly
Timing would also be different under the new plan. It would be calculated from a projection made in February looking ahead to the end of June, instead of using forecasting a whole year ahead. This “will really give us a clearer picture of our current fund balance,” Gilmore Richardson said.
If voters approve the change, the new method would be used starting in FY2025 — for the first budget under whoever becomes Philly’s new mayor.
This story was originally published March 27 and has been updated.