Economy & Budget

Rendell’s High-Tax Philadelphia Has Reality Problem

"At the end of the Rendell era, Philadelphia is a city that has solved its age-old image problem but has hardly begun to address its reality problem," wrote Fred Siegel and Kay S. Hymowitz in the Manhattan Institute’s City Journal in 1999.

In terms of "image," there was new glitz in downtown Philly — i.e., "futuristic office towers and classy new hotels and restaurants," plus a reinvigorated Center City with more arts attractions and an expanded selection of upscale watering holes.

But the "reality" of the city after Ed Rendell’s eight years as mayor, reported Siegel and Hymowitz, wasn’t as stylish or flourishing as the trendy new French bistros: "Philadelphia remains a crime- and tax-ridden city of collapsing schools and continued middle-class flight, still suffering from economic decline. Much of the last decade’s new urban thinking that has put the bloom back on cities from coast to coast has yet to reach the City of Brotherly Love."

Rendell proved to be "an old-style big-city mayor who has fought welfare reform, despite its successes in so many other cities, and he has looked to Washington subsidies to solve local problems instead of fixing his own faltering economy," concluded Siegel and Hymowitz. "Philadelphia has lost almost 150,000 people since 1990 — more than any other city."

On the plus side, Rendell didn’t start the population outflow from Philadelphia. He just failed to stem the outgoing tide. In the 30 years before Rendell became mayor, the population of Philadelphia had declined by an average of 130,000 people per decade.

Also on the plus side, Rendell is credited with inheriting a city budget that was $250 million in the red and, without raising taxes, turning it into a surplus by cutting thousands of jobs from a bloated city work force, eliminating work rules that lessened productivity, reducing the number of paid holidays, limiting wage hikes, and instituting a competitive contracting system.

"Work rules required — no joke — three workers to change a light bulb at the city-owned airport," reported Siegel and Hymowitz. "City custodians had to clean only shoulder high — when they showed up. When you added up holidays, vacation and sick leave, the average first-year worker could take 47 days off, or one working day in five."

Still, during Rendell’s entire tenure as mayor, city expenditures rose faster than inflation. In addition, the total number of jobs in Philadelphia, despite the many millions of tax dollars spent in public-subsidy deals to expand employment, was smaller after Rendell’s eight years as mayor than when he took office in 1992.

Last month, Philadelphia Inquirer staff writer Larry Eichel brought things up to date in a front-page analysis, reporting that Philadelphia is still losing people and jobs.

In "Taxed to the Max," Eichel summarized the root cause of Philly’s continued decline: "With the possible exception of New York, Philadelphia remains the highest-taxed major city in the land. In 2006, the city still has (a) the nation’s highest wage-tax rate, (b) one of the heaviest overall state and local tax loads for residents, (c) the steepest combination of state and local business taxes, and (d) the highest overall tax burden for commuters in the country, largely because of the city’s nonresident wage tax for Pennsylvania suburbanites who work in Philadelphia."

All told, Philadelphia currently has about 16,000 fewer jobs than in 1995, according to the Bureau of Labor Statistics. The reason? Eichel cites a California-based Kosmont-Rose Institute "Cost of Doing Business" survey that evaluates the business climate in 368 cities. Philadelphia is ranked as the most expensive place in the United States for a business to operate in terms of taxes and fees.

Similarly, Philadelphia ranks at the top in terms of the tax burden it places on households. The latest annual report issued by the Finance Office of the District of Columbia compares the combined burden of state, local and school taxes on families in the largest city in every state. For families of four with a total annual income of $50,000, Philadelphia had the highest tax load in the survey.

The economic principle is pretty straightforward. Price makes a difference. A hike in price generally reduces demand. That’s why we have high taxes on cigarettes, to raise the price and cut sales. In Philly’s case, businesses and households are both overtaxed and, not unexpectedly, the city has fewer of both.

Note: Rendell, Pennsylvania’s Democratic governor, is currently running for re-election.

Sign Up