By Kennedy Rose | Digital Producer, Philadelphia Business Journal | Mar 24, 2021, 2:55pm EDT
Read the original post here: https://www.bizjournals.com/philadelphia/news/2021/03/24/philadelphia-controller-projects-city-economy-rebo.html
A report from Philadelphia’s Office of the Controller estimates that the city’s economy, from its tax revenues to its unemployment, will rebound by the end of 2023.
The latest report from Controller Rebecca Rhynhart’s office anticipates that most of the city’s tax revenue streams will return to pre-pandemic levels during fiscal year 2022, but some unknown factors like the future of remote work and unemployment could hamper further recovery.
The city’s revenue has been hammered by the Covid-19 pandemic after restrictions forced business closures and commuters largely worked from home. Mayor Jim Kenney’s administration projects a budget gap around $450 million for fiscal year 2022, which starts July 1, thanks to depressed tax revenues coupled with higher costs from the pandemic.
Even with a mostly recovered tax revenue situation expected for fiscal 2022, the major losses in fiscal 2021 could put revenues between $32 million and $284 million below budget projections, Rhynhart said.
“I don’t think that’s honestly surprising, because we all see in the city every day the impact this pandemic has had on our economy,” Rhynhart said.
The biggest threats to Philadelphia’s tax revenues are the industries and practices most greatly impacted by the pandemic: virtual work and continued restrictions.
The city’s reliance on the wage tax as its largest source of tax revenue — collecting about $2 billion annually — is sensitive and based on Philadelphia's employment situation, Rhynhart said. Several of the city’s largest employers have already begun withholding the city’s nonresident wage tax for remote workers’ paychecks, and Rhynhart’s office is projecting that the city could lose as much as $220 million this fiscal year.
“Depending on the degree to which telecommuting continues after the pandemic is over, that is a significant risk to the city’s finances,” she said.
The city needs to prepare for a portion of workers to continue remote work and the impact it could have on the tax base, even if the majority of workers return, when planning its budget, she added.
Philadelphia is expecting to receive $1.4 billion from the American Rescue Plan, President Joe Biden’s $1.9 trillion economic stimulus package that allots $350 billion to state, city and tribal governments. The funds given to municipal governments can be used to replace revenue lost as a result of the pandemic. The city can use the recovery money to fill its budget holes, but the city needs to look at trends in telecommuting, commercial leasing and more when building its future budget, Rhynhart said.
In an optimistic scenario, Philadelphia will have experienced sustained and substantial recovery across sectors, and employment will have increased close to pre-pandemic levels by the middle of calendar year 2023. A pessimistic scenario is continued business restrictions and social distancing measures, with employment rising but not at levels projected by the optimistic scenario. Both scenarios factor in the growing vaccination rate and an increase in economic activity as a result.
Rhynhart estimates the city’s unemployment rate — which was at 11.2% as of January, according to the Bureau of Labor Statistics — won’t recover until the middle or end of calendar year 2023.
“That doesn’t mean that we won’t see a return to most normal activity,” Rhynhart said. “It means that economic recovery takes some time.”
The Controller’s office also expects the real estate tax, amusement tax and Business Income and Receipts tax, or BIRT, to fall below budgeted projections.
Kenney’s administration opted to skip citywide property tax reassessments until 2023, which will in turn not let tax revenues increase while real estate values increase, Rhynhart said. The BIRT is difficult to project, she added, because it’s often paid in a lump sum in April.
The amusement tax’s rebound will depend on the reopening of the city, Rhynhart said. It will likely be one of the slowest taxes to return, she said.
“That recovery is going to be very slow before we have the Wells Fargo [Center] and other venues fully booked for concerts and other events,” she said.
You can read the full report from the Controller’s Office here.