PHILADELPHIA -- The government of the nation's sixth most-populous city has stopped paying its vendors and suppliers, citing a cash crisis.
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.
The city still plans to sell $329 million of general-obligation bonds on July 30, which are rated Baa1 with a negative outlook by Moody's. Such a rating is low in the investment-grade category
Philadelphia's bond rating is low.
California has the lowest bond rating of any state.
The "Check Engine Light" is on in so many other places around America. STILL some seek for us to load up the government with more, permanent entitlement spending. What about these places that have already adopted such a strategy and failed miserably don't prove to be vital lessons regarding a national strategy?
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