The Debts of the Spenders: Cash Crunch Hits Philadelphia

Pennsylvania is not commonly thought of as an indebted state, nor Philadelphia prone to fiscal excess - at least, not to the extent of sister cities in California, Nevada, Florida, and Michigan.

Only a few weeks after Independece Day celebrations, the nation's first capitol announced it would be unable to meet future fiscal obligations.

Philadelphia Mayor Michael Nutter on Friday blamed the drastic move on the failure of the Pennsylvania legislature to act on his request for authorization to raise the city sales tax and change the formula for the city's contribution to its employee pension plan. Mr. Nutter said these items are necessary to help close a projected city budget deficit of $1.4 billion over the next five years.

The city will delay spending on anything other than payroll, debt service and emergencies, until passage in Harrisburg of a state budget and laws related to the sales-tax and pension proposals. Philadelphia's sales tax would increase by one percentage point to 8% for five years under the proposal.

"These steps come amid a growing cash crisis which must be addressed immediately," Mr. Nutter said at a news conference. He has attributed the city's budget shortfall to broader economic weakness, which has eroded tax revenue, coupled with rising city pension obligations. Similar forces have pinched state and local governments throughout the country.

There were signs Friday afternoon that state lawmakers were moving on the budget and the city's tax and pension proposals.

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