Economics 101: If you don’t have the money, then you don’t have the money!

Philadelphia is a union town, no doubt about that. The various labor unions control most construction in the city, and virtually all of the city government is unionized. But the unions aren’t very happy right now. At the annual Labor Day parade yesterday, held in the rain, the unions expressed their dissatisfaction with Mayor Michael Nutter, a Democrat:1

Mayor Nutter, who had spoken at past parades, wasn’t invited to this one, so he missed the blistering attack from Pete Matthews, president of District Council 33, the blue-collar union. “He hates labor, he hates teachers, he hates city workers, he hates all union labor,” Matthews yelled to the crowd.

Many of the municipal workers have been working without a contract for years, and the Philadelphia Federation of Teachers has been asked to take both a pay cut and start paying part of their own benefits package:

With the city’s schools set to open Monday amid a financial crisis, no one could ignore the red-shirted teachers, members of the Philadelphia Federation of Teachers.

They rallied in the rain as their president, Jerry Jordan, continued negotiations in advance of a huge membership meeting set for later in the day at Temple University. Their contract expired Saturday.

“I won’t take a pay cut,” said Alex Humes, a social studies teacher at Central High School. “I’d rather go out on strike.” Humes objects to critics who point out that teachers in other districts contribute to their health benefits.

“Why should we pay for our benefits when we make less money?” he asked. “It’ll drive talented teachers out of the city.”

Let’s get real here. Mayor Nutter does not hate labor or labor unions or city workers or teachers. Mr Nutter would be perfectly happy to give them all raises and improve their benefits packages, because that would make his life a lot easier. But he can’t do that because Philadelphia simply does not have the money. The city is scrambling to find more money for the public schools even with a budget which calls for significant concessions from the teachers:

The 15,000-member Philadelphia Federation of Teachers and the school district have not been able to reach agreement on a new contract to replace the pact the expired on Saturday. The district is seeking pay cuts of five to 13 percent, cutbacks in health care, a longer school day and flexibility to assign teachers to schools without regard for seniority.

Right now, the teachers have offered to forego raises for one year.

But it doesn’t matter: they can strike if they want to, but the city simply does not have the money. It doesn’t matter what the teachers, or other city workers, believe they should be paid; the city simply does not have the money.

The teachers believe that Philadelphia should get more money from the state government, but the state doesn’t have the money, either. The state could raise taxes, but the Republicans control both the gubernatorial chair and both houses of the legislature for the very simple reason that the voters — your Editor among them — chose the candidates who ran against raising taxes.

If I happen to want something, but I don’t have enough money for it, I have two choices: I can borrow the money for it, or I can simply do without it. If I borrow the money, I know that I have to do something really radical like pay it back, but if the city borrows the money, they’ll have to keep borrowing the money, every year, because they will be staying on a spending track which is simply not something the city can support.

Philadelphia could try to raise taxes, but the city already has a huge tax delinquency problem. Some tax delinquents are simply deadbeats who believe that they can get away with not paying their taxes, but many others aren’t paying their taxes because they just don’t have the money. Raising taxes on a population already struggling with its current tax rates is not likely to raise much more revenue, and might well decrease it, as people who have been just barely able to pay their taxes, and did, simply say, “Fornicate it!” and stop paying anything. And it’s kind of difficult to ask people making $15.00 an hour to pony up more so that the city can pay teachers a whole lot more than the taxpayers make.

There is speculation that Philadelphia could become the next Detroit, and if most people think that’s unlikely, it will happen if serious spending reforms are not made . . . and granting the unionized workers and teachers the money they want is not going in the direction of the reforms needed.

If you don’t have the money, you just don’t have the money. It really is just that simple.

  1. The Philadelphia Inquirer, Tuesday, 3 September 2013, p. B-1, B-3. Inquirer links do not always remain up for very long.


  1. Philadelphia has few opportunities to avoid becoming Detroit on the Delaware, however, smacking down the Teacher’s Union would be a very strong indication city leaders had taken the first important step on the long journey back to solvency.

    So, what are the chances Philadelphia’s mayor, Michael Nutter, is the man for the job? Can an old-line big city Democrat Machine politician buck the system of raiding the taxpayer’s piggy bank in exchange for union votes, the system that put Nutter in the mayor’s office?

    Can a leopard change his spots?

  2. Mayor Nutter doesn’t need to change his spots: he’s in his second term, and the city charter prohibits a third consecutive term for the mayor.

    But it doesn’t matter: the next mayor of Philadelphia will be whomever the Democrats nominate for the 2015 general election. The last Republican mayor of the City of Brotherly Love left office in January of 1952.

    Rope asked:

    Can an old-line big city Democrat Machine politician buck the system of raiding the taxpayer’s piggy bank in exchange for union votes, the system that put Nutter in the mayor’s office?

    That’s the problem: the taxpayers’ piggy bank is empty, having been smashed years ago. The Democrats will still win all of the elections, because there’s no serious Republican competition, but they still can’t print money. Standard & Poors actually raised Philly’s bond rating from BBB+ to A- a couple of months ago, after the city raised taxes, but even after that tax hike the city and the public schools are simply broke. Mayor Nutter has been more fiscally conservative than his borrow-and-spend predecessors, but the city is still struggling with the debt blown up by Ed Rendell and John Street. Under Mr Nutter, the city (supposedly) has an operating budget balance — meaning: that revenues completely cover operating expenses — but the burden of past borrowing is pushing the city under, and the city continues to borrow just to pay the debt service. Yet it’s the conservative spending policies which have produced at least the operating balance which the unions hate.

  3. It could be that Philly and Detroit are suffering from problems other than politics and bad fiscal policy, perhaps the real problem is simply geography. Namely, who the hell would want to live in either place? Thanks to air conditioning, living in the South or Southwest suddenly became a lot more attractive, and, in the case of Detroit, they thought they had a monopoly on the car industry until foreign companies like Honda, Toyota, and BMW found other parts of the country to build cars. And Philly doesn’t even have that much, no centralized big industry that, for decades, kept the city employed.

    Or, to put it another way – if they were both blown up with hydrogen bombs, would anyone care?

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