PICA – Opinion on Five Year Forecasted Statements


Audit Date: July 10, 2015
Audit Categories
  • Financial
Controller: Alan Butkovitz
Audit Tags
  • Budget,
  • Finance,
  • Five year plan,
  • Revenue,
  • Treasurer

Executive Summary


For Immediate Release
July 10, 2015

Contact: Brian Dries
215-686-8869

Controller Butkovitz Rejects City’s Five-Year Budget Plan
City Controller says tax revenue estimates are overly optimistic, could lead to deficits

Forecasted General Fund Statements of Operations FY2016-FY2020

Five-Year Plan Transmittal Letter to PICA

PHILADELPHIA – In releasing the Opinion on the City’s Five-Year Budget Plan for FY2016-FY2020, City Controller Alan Butkovitz today urges the Pennsylvania Intergovernmental Cooperation Authority (PICA) to reject the Plan due to the City over-estimating tax revenues, creating potential deficits.

According to Butkovitz, the Plan assumes overly optimistic revenues from the City’s Business Income and Receipts Tax, Sales Tax, Realty Transfer Tax and Parking Tax, especially in the first two years. In FY2016 and FY2017, general economic conditions are predicted to be less favorable compared to what the City is projecting. This would result in less tax revenues to the City’s General Fund which would decrease the overall fund balance.

“These overly optimistic estimates significantly inflate fund balances each year of the Plan,” said Butkovitz. “In reality, it could lead the city to experience annual deficits in FY2017 and forward.”

Additionally, there is approximately $5.4 billion in market value of property that still must be adjudicated by the Board of Revision of Taxes because of appeals by property owners. The current success rate of appeals has been about 50 percent, with the average reduction near 30 percent of the property’s value.

“If this trend continues, the remaining appeals could cost the City nearly $12 million in Real Estate Tax revenue annually,” said Butkovitz. “This would unfavorably impact fund balances over the life of the Plan.”

The Controller also indicates that the Plan assumes the collection of $20 million over its life through a Data Warehouse Project. However, this project has yet to be fully implemented and there is no historical data on its ability to achieve such collections.

“Revenues are very speculative in nature and the forecasted fund balances over the five-year life of the Plan may again be artificially elevated,” said Butkovitz.

Controller Butkovitz has repeatedly cautioned PICA in past years to be aware of unforeseen circumstances, such as litigation, severe weather, or future unexpected commitments to the School District of Philadelphia that could impact the Plan. Two years ago, the Controller’s Opinion cautioned PICA that the revenue amounts were expected to create a declining fund balance in FY2017.

“Any of these variables could drastically impact city operations, and further erode the fund balance available for future appropriations,” said Butkovitz. “There is a real possibility that projected funds may not materialize, as we advised two years ago.”

The City’s Five-Year Plan for FY2016-2020 was prepared by the City’s Finance Office and then submitted to PICA.

To view a copy of the City Controller’s Opinion on the FY2016-FY2020 Plan, please visit the Controller’s website at www.philadelphiacontroller.org

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