Council Weighs Oversight Plan For Philadelphia; Deficit May Rise

Philadelphia officials have submitted to the city council a power-sharing agreement with the city's oversight authority that would give the board extensive review over city contracts and labor negotiations.

The council is considering the proposal - a key aspect to the city's overall plan to avert insolvency - amid new reports that the fiscal 1992 budget gap could be as much as three times worse than previous estimates. A larger budget gap could force the authority to increase the size of a deficit bond sale planned for next month.

City officials and members of the oversight board, known as the Pennsylvania Intergovernmental Cooperation Authority, have been negotiating for weeks on the terms of the board's control over city finances. The oversight plan, as well as a five-year fiscal recovery strategy, must be finalized before the authority can sell deficit bonds on the city's behalf.

Agreement on the power-sharing plan was reached late last week, and the city council - which must approve the deal as well - called a special session over the weekend to introduce the necessary legislation. City officials and board members are slated to support the deal during city council sessions this Friday and Saturday.

Under the terms of the proposal, the board would be given the power to preview all city contracts involving $1 million or more in city funds in a given fiscal year and any deal affecting $5 million or more of city funds over its life, according to Ronald G. Henry, executive director of the board.

Another power that board members demanded and ultimately secured is a role in the city's labor negotiation process. Philadelphia has been criticized by independent fiscal watchdog groups and various public officials in recent years for being overly generous with its unions.

During the negotiation process for the power-sharing plan, representatives of Mayor W. Wilson Goode argued in favor of supplying the board with extensive information on labor negotiations only if they severely deviated from approved fiscal recovery plans, according to sources familiar with the negotiations.

But under the deal arranged last week, the board will get to see the information regardless of its expected impact on the city's finances.

Budget-busting contracts would not automatically be void, according to the agreement. But the city is required to show the board within 15 days of signing such a contract or collective-bargaining agreement how it intends to remain in compliance with approved fiscal plans.

City Finance Director David Brenner said yesterday that the agreement would create "a greater level of discipline on the city's operating departments than they have ever had to deal with before, and I think that's good."

He said the negotiations resulted in "a lot of compromise between the city's point of view and what the board would have liked." The end result is a large administrative burden on the city to report its activities to the board. But he said that is more appropriate than ceding actual control over the city's affairs.

"The authority is in a position to wield influence, but it doesn't find itself making [spending] decisions," Mr. Brenner said.

A third major provision of the agreement makes clear that the oversight board is not required to issue deficit bonds to cover the city's budget gap for fiscal 1992, which began July 1.

That provision took on increased significance when city Controller Jonathan A. Saidel announced on Monday that the fiscal year 1992 budget gap might be as high as $126 million - three times the $42 million gap city officials have been citing in recent months.

Mr. Saidel said, however, that the gap might be as low as $78.5 million, still well above the city's recent estimates.

According to the controller, the increased deficit reflects overly optimistic expectations of tax receipts and reliance on aid from the state and federal government that he says will not be forthcoming.

Tax receipts could miss the mark by $20 million to $50 million, and aid from the state and federal government will be $28 million shy of projections, Mr. Saidel said.

Mr. Brenner said the controller's numbers reflected "undo pessimism," and that many of his criticisms will be addressed by the upcoming five-year plan. He stood by the administration's estimate that the gap will be $42 million.

Mr. Henry said the authority has not yet completed its analysis of the size of the city's 1992 gap. And he stressed that no decision has been made whether the authority will agree to cover the gap with deficit bonds.

"The authority is not saying that it won't," Mr. Henry said. "We just have not made a final decision yet."

Assuming the 1992 shortfall is excluded from the bond deal, Mr. Henry said the size of the issue will be about $200 million. That would cover the fiscal 1991 deficit of $170 million, plus costs associated with establishing a debt service reserve fund and other issuance expenses.

Mr. Brenner suggested yesterday that the 1992 budget gap might be covered with a separate deficit bond deal in the spring.

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