A strike threat that has clouded Philadelphia finances throughout the summer loomed suddenly larger this week, darkening prospects for a fiscal recovery plan heavily dependent on union cooperation.

The city unions' rank and file, working since July 1 under an expired contract, this week voted to authorize a strike if an agreement on a new pact is not reached soon. Despite the vote, union leaders are not expected to actually call a strike at least until the state Supreme Court rules on a pending lawsuit related to the negotiations.

A prolonged strike would cut deeply into the savings that Mayor Edward G. Rendell promised in June, when the city sold $475 million of bonds and approved a five-year fiscal recovery plan as part of the process.

The five-year plan counted on new, leaner contracts taking effect July 1, and the absence of an agreement is already diluting the hoped-for savings. For every week the city operates under its old contracts, about $2 million of the savings detailed in the plan slips away, or about $18 million so far, according to the administration.

The city is hoping to save almost $99 million from contract changes in fiscal 1993, mostly by consolidating health insurance plans into a single, less expensive version.

"The continued delay in resolving the labor question puts additional pressure on the city's ability to meet the goals in the plan," said Ronald G. Henry, executive director of the Pennsylvania Intergovernmental Cooperation Authority, the oversight board that sold Philadelphia's bonds in June.

But Mr. Henry added that the missed opportunities for savings from a new contract are partially offset by the city's decision to continue a hiring freeze. And he noted that the five-year plan also counts on just 75% of its savings initiatives actually materializing, so even if a new contract does not take effect for a few more weeks, the city could still attain many of its goals.

Administration officials say Mayor Rendell is also considering testing a legal theory that might allow him to declare an "impasse" in the bargaining, after which he could unilaterally impose the city's "last best offer" on the unions.

But city officials say that would place the administration on uncharted legal ground, and probably provoke either a lawsuit or an immediate strike.

Mayor Rendell's chief of staff, David Cohen, said the savings goals of the five-year plan will be met either through a better contract or through layoffs. He called union leaders "reckless" for threatening to strike, because prolonging an agreement will only force more layoffs.

Michael Johnston, a vice president and manager at Moody's Investors Service, said the longer it takes to resolve the labor problems, the more likely it is the city will have to turn to contingency plans to balance its budget.

"We're concerned about it," Mr. Johnston said. "The city has not been able to make progress in complying with its five-year plan, and unless they can restructure, the long-term outlook remains dim."

The Moody's B rating for Philadelphia reflects the fact that a large portion of the recovery plan depends on success at the bargaining table that has so far proven elusive, Mr. Johnston added. He said, "A strike would suggest that they have not made as much progress as you would hope."

Colleen Woodell, a senior vice president at Fitch Investors Service, said, "Something's got to happen soon because they need so much money from the unions. The question is, when will they run out of time to generate the kind of savings they need to generate this year?" Fitch upgraded Philadelphia to BB from B in May.

Richard P. Larkin, a managing director at Standard & Poor's Corp., said it has been clear for months that union negotiations would be the trickiest part of achieving the goals of the five-year plan.

Adding another layer of uncertainty to the labor mess is a city lawsuit contesting the use of "fact finders" named in June by the Pennsylvania Labor Relations Board to study disputed contract issues. The administration has said the process is an unnecessary delay, and has asked the Pennsylvania Supreme Court to disband the team.

The case is still pending, and union leaders who support the fact-finding process say they will wait until the court renders an opinion before calling a strike.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.