In hopes of an upgrade, Philadelphia officials spent last Friday trying to show credit rating agencies that the city has institutionalized its fiscal reforms.
Last month, bond raters said they were impressed with the efforts by the administration of Mayor Edward Rendell to streamline the city's budget, cut labor costs, and improve management.
However, the raters said, the city needs to show that Rendell's policies will hold even if he is not reelected. Philadelphia is rated Ba by Moody's Investors Service, BB by Standard & Poor's Corp., and BB by Fitch Investors Service, all one notch below investment grade.
Speaking before the Municipal Forum of New York, Rendell on Friday outlined his fiscal reform measures, which he said have reduced the size of Philadelphia's government and improved the city's finances.
Rendell, whose fiscal reforms have earned the mayor praise from bond analysts but criticism from groups targeted by his budget cuts, said that for Philadelphia to achieve lasting fiscal stability, it must cut costs while pursuing new business and reduce both wage and business taxes.
Rendell added that he has made good on his promises to manage government more effectively by implementing nearly "two-thirds" of spending cuts suggested by city officials and outside fiscal consultants.
The city, for example, now permits government departments to invest in computer systems, a move that has yielded long-term savings of "hundreds of millions of dollars," he said.
The city has also privatized at least 20 city departments, enacted new union agreements that cut health insurance costs, and increased the city's power to implement more efficient labor policies, Rendell said.
Even so, Philadelphia must aggressively seek to expand its tax base and bring in new business without cutting taxes, Rendell said.
Rendell said he plans to introduce either a wage or business tax in the next year.
"The cuts won't be enormous from an individual standpoint, but they will send a clear signal," Rendell said. "We must stop being a city that solves its problems by raising taxes."
After the speech, rating agency executives said Philadelphia has made progress in bringing its finances under control, but that problems remain.
"There are still questions that we need answered," said Ruth Levine, a director at Fitch.
"The mayor himself said it," added Claire Cohen, vice chairwoman at Fitch. "They have a long way to go."