In July of 2022, Pennsylvania House Bill 1935 arrived at Governor Tom Wolf’s desk after passing unanimously through both the State House and Senate. With Governor Wolf’s signature, PICA’s oversight authority was officially extended through at least January of 2047.

With a track record of helping the City improve its fiscal condition over more than three decades, City leadership and the State legislators worked together to extend PICA’s existence and amended the original statute to authorize new functions as well.

 

What’s New?

  • New Borrowing Authority – The original statute only allowed bonds to be issued for emergency purposes and deficit elimination. The amended act gives PICA the authority to borrow for capital projects and general financial assistance, but only once every 10 years. PICA currently has a higher bond rating than the City, so funds borrowed through PICA would cost less, but this new borrowing authority is intended to supplement – not replace – the City’s regular borrowing for capital budget purposes.
  • New Intergovernmental Cooperation Agreement (ICA) - The ICA formalizes the relationship contemplated by the PICA legislation, outlining the powers and duties of the City and PICA. The 2023 ICA reflects changes in how the City budget is structured since the 1992 version. For example, the City has established new funds to accomplish specific tasks like building affordable housing and maintaining and repairing city streets. The new ICA specifies that these new funds, and any that are associated with the City’s consolidated cash account, are covered by the PICA Act and included in PICA’s duties to review the City’s finances.

 

What’s the Same?

  • The PICA Tax – A 1.5% Wage Tax on residents remains in place. Debt service on any outstanding PICA bond issues would come from the PICA Tax revenues, with any revenue not needed for debt service passed along to the City. In FY23, the last outstanding debt service was paid and $674M went back to the City.
  • Five-Year Plan Approval – The PICA Board, drawing on analysis by the PICA Staff, will determine annually whether the City’s Five-Year Financial Plan meets the criteria laid out in the PICA Act, including whether the Plan is balanced and is based on reasonable assumptions. Without PICA Board approval, state funds destined for Philadelphia, including nearly $700 million from the PICA Tax, are withheld.
  • Monitoring of the City’s Finances – Throughout the year, PICA will continue to monitor the City’s finances, by reviewing mandated quarterly reports and other sources of information. This monitoring is designed to detect variances from and non-compliance with the PICA-approved Plan. In the event of a variance, PICA will work with the City to restore compliance.

 

Why did City leadership work with State legislators to extend PICA’s authority?

PICA was initially created to pull the City of Philadelphia out of a severe fiscal crisis. The City was facing a massive fund balance deficit, perennial cash flow shortfalls, and an inability to access capital markets for new borrowing.

But that was in the early 1990s, and with PICA’s help the City’s finances stabilized significantly in the ensuing 30 plus years. The balanced Five-Year Financial and Strategic Plan that the PICA Act requires the City to develop annually has helped the City plan for the long term and avoid extended fiscal crises as experienced in the early 1990s. The Five-Year Plan process helps the City prioritize long-term solutions to long-term problems, rather than a year-to-year process where short-term solutions may patch holes in the budget but fail to address underlying issues.

In addition to supporting long-term budgeting and planning, PICA has also been instrumental in improving the City’s relationship with capital market investments the City uses to fund essential infrastructure projects. In each of the ratings upgrades the City has received since being classified as ‘speculative’ in the early 1990s, ratings agencies have cited PICA’s oversight and approval of the City’s budget and revenue estimates in their evaluations of the City’s creditworthiness.

In the depths of the fiscal crisis of the 1990s, the City was paying an effective interest rate above 24 percent on its borrowings. Today, the City’s cost of capital is under 5 percent.

 

Here's to another three decades of improving fiscal stability and financial planning for the City of Philadelphia!