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IN THIS ISSUE . . Is There a Future For Economic Man? . . . Economic Man's position 25 years hence will be determined largely by how well he has met the challenges of the exhaustion of resources, the deterioration of environment, and the pressures for equality. The Cost of Buying: It Takes More Dollars But Less Work . . . Prices have risen considerably since '60, however, one consolation is that consumers don't have to work as long to buy items even though they cost more than they did 15 years ago. Philadelphia City and School District Budgets: A Year of Austerity . . . The squeeze of rising costs and slowly growing revenues, along with the current recession, has complicated the budgetary problems of the City and School District: In fiscal '74 real expenditures for the City de clined while School expenditures posted a slight increase in real terms. On our cover: Eleutherian Mills, the home built by E.l. du Pont in 1803 overlooking his powder mills on the Brandywine River, is part of the Hagley Museum at Greenville, Wilmington, Dela ware. The stuccoed stone residence was occupied by the du Ponts for five generations, and its furnishings reflect their varied tastes. (Photograph courtesy of The Hagley Museum.) BUSINESS REVIEW is produced in the Department of Research. Editorial assistance is pro vided by Robert Ritchie, Associate Editor. Ronald B. Williams is Art Director and Manager, Graphic Services. The authors will be glad to receive comments on their articles. Requests for additional copies should be addressed to Public Information, Federal Reserve http://fraser.stlouisfed.org/ Bank of Philadelphia, Philadelphia, Pennsylvania 19105. Phone: (215) 574-6115. Federal Reserve Bank of St. Louis Is There a Future for Economic Man?* By David P. Eastburn, President Federal Reserve Bank of Philadelphia Economic Man has had things pretty much his way for most of this century. But, what are his prospects for the rest of the century? First, let's examine Economic Man for a mo ment. His claim to fame in economic discussion is secure. Economists long ago described him well. He is, above all, a calculating individual. He approaches problems rationally, balancing advantages and disadvantages of alternative courses of action. In the time-honored tradition of Adam Smith's “ invisible hand,” he considers these advantages and disadvantages in terms of his self-interest. By serving his own interests he is also serving society's interests. In the business world, Economic Man's self-interest drives him to use the resources at his disposal to generate thehighestpossibleprofitorincome. In doingso, he is governed by the market system which har nesses the pursuit of self-interest into social good. The market registers the desires of con sumers, passing them along to producers who, disciplined by the marketplace, allocate re sources in the most efficient way to meet those desires. The market distributes incomes in ac cordance with each person's contribution to the total product. Although this may not be equality, Economic Man believes it is not only fair but necessary for progress. This is a broad-brush por trait of Economic Man as you might come upon him in a textbook. More recently, however, Economic Man has come to convey another kind of image. This is the image of a person to whom consumption is the most important goal of life. He is typified by the affluent American with two cars, a power boat, two homes, three or four color TVs, all the *An address given before a Conference on Futurism held at Eastern College, St. Davids, Pennsylvania, February 5, 1975. 3 BUSINESS REVIEW APRIL 1975 kitchen appliances, an electric toothbrush, and all the other "necessities" of life. His desire for more gadgets is insatiable. Therefore, his major goal for the economic system is growth. Only by a constantly and rapidly rising GNP is he able to satisfy his craving for greater material comfort. This growth is made possible by a frenetic pace of discovery and invention turned out by modern technology. If this growth uses up natural re sources at a dangerous rate, this is a problem others will have to deal with in the future. If it fouls the air and water, clogs the highways, and spoils places of scenic beauty, this is a price of progress. Here is an image of Economic Man that is becoming increasingly prevalent. Although I think it is more a caricature than a portrait, it is one we must deal with in assessing Economic Man's future. Much of what I read and hear about his future is pessimistic. Robert Heilbroner, for example, has recently explored the human prospect and arrives at a most dismal conclusion. Rationalize as we w ill, stretch the figures as favorably as honesty will permit, we cannot reconcile the requirements for a lengthy continuation of the present rate of indus trialization of the globe with the capacity of existing resources or the fragile biosphere to permit or to tolerate the effects of that indus trialization. Nor is it easy to foresee a willing acquiescence of humankind, individually or through its existing social organizations, in the alterations of lifeways that foresight would dictate. If then, by the question "Is there hope for man?" we ask whether it is possible to meet the challenges of the future without the payment of a fearful price, the answer must be: No, there is nosuch hope.1 If this kind of thinking isaccurate, itsuggests that the next quarter century would be very different from the past quarter century. Perhaps most striking, it would be a sharp shift from what has generally been a prevailing optimism of Ameri can attitude. In view of all the gloom, it seems to me that somebody should look at the other side, and examine the possibility that our society will be better able to meet the challenges ahead than many currently are forecasting. In essence, my point is that Economic Man is most adaptable. He is not the same person now as 50 or 75 years ago. The rough edges of his philosophy and practice have been smoothed by social action—especially in the 1930s. He will not be the same person in 25 years as now. But he will still have an important role to play in our society. How accurate this prediction turns out to be will depend heavily on how Economic Man meets three major challenges: the exhaustion of resources, the deterioration of environment, and the clamor for equality. RESOURCES One point of view is that Economic Man is doomed because we are certain to run out of vital natural resources. It will not be possible to continue the economic growth we have enjoyed in the past quarter century. It will not be possible to consume on the same lavish scale. A fascinating aspect of this forecast is how rapidly it has come about. In 1958 John Kenneth Galbraith wrote The Affluent Society. This was hailed at the time not only as an accurate evalua tion of the cu rrent state of affai rs, but a perceptive appraisal of the problems ahead. Whatever they were, they were not problems of production; we had solved the production problem and now had to deal with the problems of affluence. Gal braith's analysis had a profound effect on thought at that time. It was only a few years later that The Limits to Growth appeared. This book, which purported to show by scientific econometric techniques that the economy could not continue growing at its recent pace, came as a shock to many who had just come to believe that Economic Man was firmly in the saddle. Some disagreed with the analysis, but it was hard to dispel the idea that, after all, we do live on a finite planet and at sometime resources will be gone. And we all have had first-hand confronta xRobert L. Heilbroner, An Inquiry into the Human Prospect (New York: W. W. Norton and Company, 1974), pp. 135-36. 4 FEDERAL RESERVE BANK OF PHILADELPHIA tion with the problems at the gas station. Still more recently I ran across a paperback called The End of Affluence which, among other things, instructs Americans in how to adjust their life styles to new realities of slower economic growth. So, within the space of relatively few years the prospects of Economic Man, in the minds of many people, have suffered a complete about-face because of new concern about re sources. What are we to make of this? Obviously, resources are finite. Economic growth uses them up— quickly if growth is rapid, less quickly if growth is slower. The difficult question is whether Economic Man is capable of dealing with the problem before it becomes catastrophic. I believe he is, by relying on two of his trusted tools— the market system and technology. The market system, if it is permitted to work, can slow down use of increasingly scarce resources and encourage development of new resources. This is the best approach to the energy problem we face right now, for example. If the price of gasoline is permitted to rise, this will cut down demand and at the same time encourage exploration of new sources of energy. A higher price for fuels will encourage technol ogy to develop new techniques of recovery, bet ter methods of producing nuclear energy, and even feasible processes for harnessing energy from the sun. It is true that the market system does not work perfectly in protecting resources. Forone thing, it sometimes takes the short view, overly em phasizing the present to the detriment of the future. Economic Man does look ahead, but the market does not always cause him to be suffi ciently concerned with problems he may create for future generations. The market will need help, therefore, from Government. If certain re sources are being used too fast and others not being developed, Government can assist by re moving controls and other impediments to re source conservation as well as by legislating taxes and subsidies that nudge Economic Man in the desired direction. For example, a tax on im ported oil, or on gas at the pump, or on large cars can help to conserve gasoline and stimulate de velopment of other energy sources. The trick is for Government to work as much as possible through the market system and to capitalize on Economic Man's desires for profits and his tal ents in allocating resources. ENVIRONMENT Economic Man has neglected the environ ment, and his prospects are not good if he con tinues to do so. Economists as far back as Adam Smith recognized that the production of goods often involved costs that the producer didn't have to bear but others did. When a paper pro ducer dumps waste into a stream and this pol lutes the water supply of neighboring com munities, for example, the practice entails a cost for the people in those communities, but the cost doesn't enter into the price of the paper. (In fact, the effort of cleaning up the water is actually counted as an increase in GNP rather than a subtraction from it!) These external costs of pro duction, or externalities as economists have come to call them, while long recognized in concept, have only recently been given the at tention in economics which they deserve. And it is only in the past decade or so that the environ ment has deteriorated so drastically that the gen eral populace has become restive about the problem. What can Economic Man do? The challenge is immense. It will takedecades to undo past damage. But here again, the market and technology can help. The market can't do it alone, however. The fact that externalities are not included in the price of products is a defect of the price system that must be corrected. The idea is to have as much of these external costs as possible borne by those who produce them rather than by others. Economists have explored many ways of doing this, but taxation is probably the most important. The paper producer can be taxed so that he, not the community downstream, bears the cost of pollution. The result would be cleaner water. This, of course, is easier said than done. Many external costs are hard to measure. There is polit ical resistance to allocating costs to thei r sources. But the problem has been recognized and Gov ernment is increasingly aware of the role it must 5 APRIL 1975 BUSINESS REVIEW own reproduction. As we see what has hap pened in developed countries in recent years, however, there is cause for hope. In many areas, births are rapidly moving toward a rate which is materially slowing population growth. With education and governmental pressure— and, I predict, eventually a changed policy of the Catholic Church—the same can happen in de veloping countries. A second factor determining the future of dis advantaged people will be the rate of economic growth, and this is something Economic Man can do a lot about. A main reason for past im provement in living standards all around has been Economic Man's talent in producing more efficiently. He has enlarged the total size of the output pie so successfully that everyone can have more even with the same relative slices. Despite implications for our resources in the longer run, I believe it is essential to continue to press for rapid economic growth. As I explore the arguments for moving toward a stable state economy, I conclude (in addition to the feeling that life might be pretty dull) that their major defect is a lack of realism about implications for disadvantaged people. It simply does not seem in the cards to be able to redistribute the existing product in a way that would significantly help the disadvantaged. The haves would not stand for it, the have-nots would not benefit all that much. Growth strikes me as a much more realis tic solution. I recognize that there are two sides to the problem—the size of the pie and the size of the slice— absolute well-being and relative well being. Growth, if the past is any guide, can go a long way in solving the absolute problem, but probably won'tdo much toward solvingthe rela tive problem. And, if so, the clamor for equality will continue. I suspect this will always be the case. It is too deeply ingrained in human nature to be otherwise. play. Again, the trick will be to take advantage of the market system and to harness Economic Man's sharpness in calculating profit oppor tunities. Technology can help by devising im proved methods of production without pollu tion. EQUALITY Economic Man's prospects will not be good unless there is progress in dealing with the human inequalities which now exist. Here again, the outlook need not be one of unrelieved gloom. I think it is undoubtedly a fact that disad vantaged people throughout the world will be clamoring for a better shake. But it is also a fact that our economic system has done a great deal to upgrade living standards of lower-income groups, and I believe it can do a great deal more. As often pointed out, Marx was wrong in his prediction. The market-oriented countries of Europe and North America have not turned into places with a few very rich and masses of very poor. We have not had a revolution of the pro letariat. The reason is that our economic system has generated a large and stable middle class. But what of the future? Two questions are vital— population growth and economic growth. The predictions of an economist of a century and a half ago— Thomas Malthus— are now en joying a new vogue. Malthus predicted that there was a natural tendency for population to outrun the means of subsistence. Unless population were held in check by birth control, it would be held in check by starvation. Certainly, as we look around the world, there is ample reason for pes simism. In the less-developed world of Africa, Asia, and Latin America, birth rates are enorm ous and population growth soars. At the same time, sources of food supply are becoming hard-pressed and unreliable. People are starv ing. Economic Man is limited in what he can do about this food gap. Food supplies can be en larged through improvements in technology, changes in Government policies which limit farm output, as well as changes in social and religious customs which restrict diets. But of crit ical importance also is that people limit their ECONOMIC MAN IN 2000 A.D. So it seems to me that the outlook for Economic Man is not as bleak as it is being painted these days. Nevertheless, just as his lot is 6 FEDERAL RESERVE BANK OF PHILADELPHIA not the same now as 25 years ago, it will not be the same 25 years hence. What will it be like in 2000 A.D.? As I see it, his world will be different in at least three respects: the degree of freedom which he can exercise, relationships with others, and the degree of conservatism that exists. or planting organic gardens in backyards is likely to catch on with most people. But on a larger scale it does seem likely that the desire to go it alone or to form closely knit groups will have a major impact in the world economy. Witness our own Project Independence. Witness banding to gether of countries to form cartels to control natural resources as the OPEC nations have done. Given this tendency, plus the clamor for equality from disadvantaged people the world over, Economic Man seems likely to be living in a world of considerable conflict. Since he thrives best in a climate of trust, specialization, and in terdependence, he may find life difficult. Freedom. I suspect there will be a trend to ward less freedom in the next quarter century — at least freedom as Economic Man has known it. Much of the history of this century has been a decline of laissez-faire philosophy and practice. A continuation of the trend seems inevitable. Government has played an increasing role in the economy and will continue to do so. Although Economic Man may not realize it, this can work to his benefit. As I have tried to show, he needs the help of Government in pro tecting resources, improving the environment, and bettering the lot of the disadvantaged; and unless there is substantial progress toward these goals, Economic Man does not face a happy future. However, much will depend on how Government goes about intervening in economic affairs. In the past, Government efforts in these directions have often hampered the functioning of the market system rather than im proving it. Hopefully, Government will not clog it with selfrdefeating regulations and will see the advantage of working with Economic Man by utilizing the market system which is so important to them both. All things considered, however, Economic Man will become more and more a partner of Government rather than a free agent. He will not occupy the dominating role he has grown accus tomed to over most of this century. Conservatism. I am not thinking here in usual terms of liberal versus conservative, but in the more general sense that society is likely to be come increasingly concerned with conserving what it has. It will necessarily become more conservative in the use of resources. And al though I believe the economy must continue to grow to solve the problems of the disadvantaged, the idea of the stable state will gain increasing acceptance. This suggests that the dynamic economy which Economic Man is used to will become less dynamic, less growth-oriented. It is probably also true that there wil I be some change in life-styles. A return to the simple rural life is impossible, but there will probably be less of a drive to achieve satisfaction through consump tion, less of a drive to lose oneself in work, and more interest in making productive use of lei sure, more satisfaction from family and friends. It could be a less exciting but perhaps a more rewarding world. CONCLUSION Relationships. As the economy grows increas ingly complex there will be a need for greater interdependence of the units within it. Unfortu nately, there may be strong pressures for parts of it to go it alone. I don't have in mind the kind of self-sufficiency prescribed in The End of Afflu ence which I mentioned earlier. It seems unlikely that the idea of storing up food for emergencies In short, I believe the gloomy prognosis for Economic Man has been overdone. He is too adaptable not to be able to go a long way in meeting the challenges before him. But by 2000 A.D. he is likely to be living and working in a world that has values differing from those he has traditionally held. He is likely to need all the adaptability he can muster. X 7 The Cost of Buying: It Takes More Dollars But Less Work By John Bell CHART 1 PRICES HAVE BEEN RISING CONTINUOUSLY SINCE 1960. CPI (1967 = 100) 170 160 150 1960 SOURCE: 1962 1964 1966 1968 1970 1972 1974 November U. S. Department of Labor, Bureau of Labor Statistics. CHART 2 BUT UNTIL LAST YEAR WAGE INCREASES HAVE OUTPACED PRICE INCREASES . . . Annual Percent Change 12 1960 1962 1964 1966 1968 1970 1972 1974 November * All Employees, Private, Nonfarm Economy. SOURCE: U. S. Department of Labor, Bureau of Labor Statistics. CHART 3 . . . SO REAL COMPENSATION INCREASED STEADILY UNTIL 1974. Real Average Hourly Compensation** (1967 = 100) 120 1960 1962 1964 1966 1968 1970 1972 1974 September * All Employees, Private, Nonfarm Economy. SOURCE: U. S. Department of Labor, Bureau of Labor Statistics. CHART 4 THE RESULT: WHILE MOST COMMODITIES COST MORE THAN THEY DID IN 1960 . . . Price (D o llars) Price (Dollars) Sirloin Coal Wheat Milk Washers Elec100 lbs. 10 tons 10 bu. 100 gal. tricity 10 Autos FEDERAL RESERVE BANK OF PHILADELPH CHART 5 , . . WE DON’T HAVE TO WORK AS LONG TO BUY THEM TODAY. Days/Weeks/Months Worked to Buy a Product I— 11960-61 1973-74 Sirloin 100 lbs. SOURCES: Coal Wheat 10 tons 10 bu. v (imported) Milk Washers ElecAutos 100 gal. tricity 6000 k/w Consumer Reports. Automotive News Almanac. Statistical Abstract of the U. S. 11 Philadelphia City and School District Budgets: A Year of Austerity By William A. Cozzens In the Philadelphia area, as in the nation, rapidly rising prices and spreading unemploy ment have been disrupting the economy. These disruptions can spell "hard times” not only for individuals and firms, but also for the City and School District of Philadelphia. Already, the fiscal 1974 (fiscal years run from July 1 to June 30) budgets of the City and the School District show strains from the worsening economic situa tion. For the City in 1974, costs rose faster than revenues, leading to a small budget deficit and to declines in real expenditures in several departments— most clearly in Streets, Recrea tion,and Health—and stableor slightly climbing expenditures in others. The School District fared a little better, showing a slight surplus. When its 1974 budget is compared to the 1973 pre strike budget estimates, per capita real expendi tures grew slowly. In per capita real terms, ele mentary education, for example, grew 5 percent, while secondary education fell 3.8 percent. Both the City and the School District were caught in the tightening squeeze of rising costs and limited and inflexible revenue sources. The softening economy, already at work in the last two quarters of fiscal 1974, heightened the squeeze by slowing the growth in revenue from the wage tax, the most flexible source which depends on the level of economic activity in the City. In short, fiscal 1974 was a year of austerity for the City and School District. BUDGETARY CHANGES THROUGH FISCAL '74 From fiscal 1973 to fiscal 1974, revenues and 12 FEDERAL RESERVE BANK OF PHILADELPHIA TABLE 1 CITY AND SCHOOL DISTRICT REVENUES AND EXPENDITURES Fiscal 1973 ($ Millions) $730.0 City Summary* Revenue Expenditures (Current Dollars) Surplus (Deficit) School District Summary** Revenue Expenditures Cancellation of Prior Year's Deficit Surplus (Deficit) -7 2 9 .3 $ 0.7 Actual $377.7 -340.1 - 36.2 $ 1.5 Fiscal 1974 ($ Millions) $725.4 -7 3 3 .8 $ (8.4) Pre-Strike Estimate $380.3 -3 8 0 .6 $392.5 -3 9 3 .0 -36.2 1.2 .7 ($ 36.5) $ *The City revenue and expenditure totals do not correspond to the balance sheet totals in the Financial Report because certain budget items, primarily Model Cities and the Economic Opportunity Program, were excluded to ensure comparability across years. Also the totals listed here include revenue and expenditures from Other Operating Funds as well as the General Fund. These various funds are reported separately in the Financial Report. For the General Fund the Financial Report shows 1974 revenue of $676.0 million and expenditures of $677.4 as compared to 1973 revenue of $683.5 million and expenditures of $677.8 million. See Appendices 1 and 3 for backup data on the City budgets. **Even without the school strike the pre-strike budget could not have been realized. The District would have had to close early to eliminate the deficit or find additional revenue sources. See Appendices 2 and 4 for backup on the School District budgets. expenditures in current dollars for the City re mained virtually constant. Expenditures inched upward; revenues dropped very slightly, producinga small netdeficit. On the School Districtside of the ledger, both revenues and expenditures grew more substantially. (Table 1 summarizes the School District and City revenues and ex penditures for 1973 and 1974.) This growth in the School District budgets can, however, be deceptive. In 1973, the District saved money from the long teachers strike. But the excess rev enues of that year were absorbed by the large 1972 deficit. Much of the growth in the budget from 1973 to 1974 was a recovery to the level of expenditures in previous years. Thus, when the School District's comparative budget posi tion is adjusted for the strike, it becomes appar ent that for both the City and the School District, the 1974 budgets represent no more than holdthe-line expenditure levels (Appendix 4 shows School District expenditures both with the strike and the estimated expenditures prior to the strike). This contrasts sharply with the pattern of large increases in expenditures for the City and School District between fiscal 1970 and 1973.1 ’ William A. Cozzens, "Philadelphia's Budgets: Past, Pres ent, and Future," Business Review of the Federal Reserve Bank of Philadelphia, April 1974, pp. 3 -19. 13 FEDERAL RESERVE BANK OF PHILADELPHIA Just looking at these current dollar aggregates (dollars unadjusted for the effects of inflation on their purchasing power) tells us very little. On the revenue side, the important question is, what happened to the different sources of funds during the year? On the expenditure side, the important questions are, what impact did rising costs have on expenditures and how did City and School District administrators distribute the available funds? other Federal aid also showed declines. Fiscal '74, then, temporarily halted the trend which had prevailed between 1970 and 1973 toward larger packages on intergovernmental aid. As with the City, School District revenues in 1974 stabilized neartheir 1973 levels. Both local revenue and intergovernmental aid climbed slightly, generating a net revenue increase of just under 4 percent (see Chart 2 and Appendix 2 for the details). Again the only major revenue change came with the transfer of property tax revenue from City to School District. The transfer of some property tax assessments from the City to the School District obscures the behavior of this tax as a revenue source. When the total City and School District property tax revenue in 1973 is compared to the total in 1974, the growth rate is only 2.9 percent. This rela tively slow growth for the property tax reflects its dependence on the periodic reassessment of real property for any increases. In summary, on the revenue side then, gains in intergovernmental aid, for the moment at least, have slowed. The real property tax is at best providing only small increments to revenue, while the recession may have hampered the revenue-generating capacity of the wage tax. Revenues: No New Sources of Funds. Com pared to 1970 through 1973, which showed rapid growth in the City's revenues, fiscal 1974 proved to be sluggish. Local revenues climbed 5 percent, but this growth was more than offset by a 16-percent decline in revenue from Harrisburg and Washington. The City showed a six-tenths of 1-percent decline in net revenues (Appendix 1 shows these revenue totals). More instructive than these totals, however, was the behavior of some individual revenue sources (see Chart 1 and Appendix 1). As in previous years, the wage tax kept pace with inflation, showing a growth of over 11 per cent. The current recession could, however, lead to an erosion of revenue from this source since wage tax revenue is responsive to changes in the area economy (see Box 1). Local nontax rev enues also jumped substantially, reflecting in creased earnings from the Port, Civic Center, and Airport. In addition, higher charges for certain services (for example, billing for some public health services) and increased collections from fines and licenses bolstered local revenue. These improvements in the revenue picture were par tially offset by a drop in real estate tax collections because of a transfer of four mills of taxing power from the City to the School District. The City registered across-the-board declines in intergovernmental aid. One item, Federal Rev enue Sharing, dropped $17 million. The City, however, had anticipated this loss. In 1973, Philadelphia received a larger-than-normal allo cation, including a delayed payment for several months of the previous fiscal year. But even without this loss the picture was pretty gloomy. Assistance from the Commonwealth as well as Expenditures: Some Real Cuts. The revenue side of the budget is only half the story. What the City and School District were able to provide in the way of services is the other half. In current dollars—that is, without correcting for any inflationary impact— City expenditures climbed about half of 1 percent. School District expendi tures grew more— $53 million, 15 percent above actual expenditures in 1973; $12 million, 3 percent above the estimates of expenditures for 1973 prior to the strike. But identifying changes in municipal and school service levels from one year to the next requires examining the expenditure side of the ledger in constant dollars. As everybody knows, personally as well as statistically, inflation has been a big factor over the last 18 months, reduc ing the purchasing power of all our dollars. The City and the School District are no exceptions. They must purchase labor and materials to pro14 APRIL 1975 BUSINESS REVIEW CHART 1 FOR THE CITY OVERALL REVENUE REMAINED STABLE AS GAINS FROM SOME SOURCES BALANCED LOSSES IN OTHERS. Millions of Dollars Sources of City Revenue Real Property Taxes* Personal Income Taxes Business Activity Taxes Local Nontax Revenues Intergovern mental Revenue 0 SOURCE: 50 100 150 200 250 300 Appendix 1. *The decline in real property taxes is directly attributable to a transfer of 4 mills assessment from the City to the School District. 15 BUSINESS REVIEW APRIL 1975 BOX 1 THE RECESSION MAY CUT WAGE TAX GROWTH With a recession looming large in the present picture, it is worth a moment's pause to consider the potential effect of the recession on local tax revenues. The City's wage and salary tax will feel the brunt of the recession. As production falls and economic activity declines, there will be higher unemployment, fewer people working, and cuts in overtime. Because revenue from the wage tax is tied directly to the total payments in salary and wages, all of these declines would lead to drops in revenue. Pay increases among other workers would tend, of course, to counteract these declines. From 1970 through 1973 employment in the City dropped by 8 percent (see Table). Yet wage tax revenue continued to climb. Even in the present recession that pattern could continue. As employees in the more stable, recession-resistant sectors of the economy receive cost-of-living pay boosts, their increased wage tax payments may more than balance out the losses of workers who have been laid off or who have lost overtime. In this case, the effects of the recession would show up as a slower rate of growth in wage tax revenue rather than in an absolute decline. EMPLOYMENT TRENDS IN PHILADELPHIA COUNTY 1969 1970 1971 1972 1973 1974 000s 938.0 919.3 881.7 881.0 863.0 844.9 Percent Change -2 .0 % -4 .1 0 - 2 .0 -2 .1 SOURCE: U. S. Bureau of Labor Statistics, Employment and Earnings, Employees on Nonagricultural Payrolls. ally been lower than the run-up of costs and prices in the economy as a whole. In both the City and School District budgets, wages and salaries consume a lion's share of total expen ditures— in some departments, as much as 93 percent. Between 1973 and 1974 the City and School District experienced wage and salary hikes between 3.5 and 5 percent. But, in the School District at least, a cut in teacher class room hours has necessitated hiring additional staff, pushing costs up more than this 3.5- duce the services citizens demand. If these costs grow faster than revenue, then there are just two choices: cut the level of services or squeeze more services out of each dollar. How have rising costs affected the City and School District budgets? For the City, the best estimate suggests that costs rose approximately 6.5 percent between fiscal 1973 and fiscal 1974. For the School District, the increases averaged 5.9 percent. (Box 2 details how these estimates were derived.) These cost increases have gener 16 FEDERAL RESERVE BANK OF PHILADELPHIA CHART 2 WHILE FOR THE SCHOOL DISTRICT, PROPERTY TAXES SHOWED THE ONLY SUBSTANTIAL GAINS.* Millions of Dollars SOURCE: Appendix 2. *Real property taxes gained substantially because of a transfer of 4 mills assessment from the City to the School District. 17 APRIL 1975 BUSINESS REVIEW BOX 2 THE CITY AND SCHOOL DISTRICT FACED HIGHER COSTS FOR LABOR AND SUPPLIES The real or constant dollar budget is less than the current dollar budget by the amount absorbed in increasing costs. Between fiscal 1973 and fiscal 1974, these cost increases grew more slowly for the City and School District of Philadelphia than in the economy as a whole. The following Tables show the different major expenditure categories in the City and School District budgets, the rate of increase in costs for each category, the source of the estimate of the cost increase, and the weight each category occupies in the total budget. In Appendices 3 and 4 deflators are shown for individual departments and expenditure items. For more information on the construction of these cost estimates, consult William A. Cozzens, “ Philadelphia's Budgets: Past, Present, Future," Business Review of the Federal Reserve Bank of Philadelphia, April 1974, Appendix 3, p. 15. CITY COST INCREASES Category Source Percent Change Fiscal 1973 to 1974 Weight Wages Policemen and Firemen (Actual Wage Settlements Nonuniformed Employees 5.0% 4.3 53.0% Purchase of Services 5.6 17.6 19.7 3.2 5.1 0.6 9.7 25.0 9.7 0.6 Materials and Supplies Equipment i' Estimated from Deflators for ^ Government Purchases of Services, Nondurables, and Durables | Philadelphia Consumer I Price Index Debt Service and Employee Benefits Social Security Payments TOTAL 6.5% 100.0% 3.5% 69.3% SCHOOL DISTRICT COST INCREASES Wages Purchase of Services Materials and Supplies Debt Service and Employee Benefits [Actual Wage Settlements Estimated from Deflators for Government Purchases of Services and Nondurables. (Philadelphia Consumer [Price Index 2.9 19.7 5.8 9.7 22.0 5.9% TOTAL 5.6 18 100.0% FEDERAL RESERVE BANK OF PHILADELPHIA dollars, a 5.4-percent drop in real expenditures. The decline for departments involved in the de livery of services was 2.9 percent (see Chart 3). How was this budget cut distributed across de partments and City activities? Every major ex penditure category except the courts and "other” administrative activities registered de- percent figure suggests. Other costs rose more rapidly, but proportionately these represent a much smaller share of City and School District expenses. When 1974 City expenditures are reduced by the percentage increase in costs, the 1974 budget shrinks to $689 million in terms of 1973 INFLATION LED TO A REAL BUDGETARY DECLINE FOR THE CITY. Millions of Dollars 300 EH Impact of Rising Costs 700 Decline in Real Expenditures from Fiscal 1973 to Fiscal 1974 600 500 400 300 200 100 Fiscal 1972-73 SOURCE: Fiscal 1973-74 Appendix 3. 19 APRIL 1975 BUSINESS REVIEW dines in real expenditures. Among the expendi ture categories involved in the provision of services (that is, excluding Debt Service and Pensions and Employee Benefits), the declines ranged from a low of 1.8 percent for the Fire Department to a high of 9.9 percent for Streets and Sanitation. The remainder fell somewhere in between. (Table 2 and Appendix 3 show these budget changes in greater detail.) With these declines in real expenditures in many departments of the City, the really impor tant question for the quality of life in Philadel phia is what happened to the output of services. The output of any organization, whether private or governmental, is a function of not only the inputs purchased— the real expenditures— but also the output per unit of input— the productiv ity of those real expenditures. Measuring and achieving productivity gains are not easy tasks, even in the private sector. But in government agencies, without the incentives provided by the marketplace, it can be even harder. Moreover, except for some activities where there is an easy measure of output (tons of rubbish collected as a measure of output for sanitation, for example), it is hard to identify, define, and measure the product or output of a government agency. In Philadelphiathereis little TABLE 2 MOST CITY EXPENDITURE CATEGORIES SHOWED REAL DECLINES Percent Change 1973 to 1974 -21 .8% - 9.9 - 8.8 City Department Pensions and Employee Benefits Streets Department Recreation Health Department, Philadelphia General Hospital Debt Service Welfare Police Fire Other Courts Total Real Expenditure Change Total Real Expenditure Change (excluding Pensions and Employee Benefits and Debt Service) SOURCE: Appendix 3. 20 - 6.5 5.0 3.7 2.4 1.8 2.7 3.5 - 5.4% - 2.9% FEDERAL RESERVE BANK OF PHILADELPHIA information available on the relationship be tween inputs and outputs, so it is hard to make precise statements about what has happened to productivity. Of course, everybody has a subjec tive impression of what is happening. To some people the streets may seem cleaner than last year, but then to others the streets may also seem to have more potholes. But it is hard to general ize from these individual impressions about what may be happening on a city-wide basis to the many activities that City agencies per form. Unfortunately, therefore, there is not much evidence on which to base a firm estimate of the City's possible increases in productivity. Some rough approximations, however, can be made. The one comprehensive study of produc tivity in government agencies focused on the Federal Government. It found productivity in creases on the order of 1.7 to 1.8 percent annu ally.2 Service industries in the private sector have managed annual increases in productivity of about 2.5 percent.3 With average real expendi tures dropping 2.9 percent in the City depart ments involved in the delivery of services, an average productivity increase of, say, 2 percent would leave average service levels dropping just under 1 percent. In some departments (Streets, Recreation, and Health, for example) the large declines in real expenditures, therefore, make it difficult to see how service levels could have been maintained. In other departments (Courts, Fire, and Police, for example) basically stable real expenditures may have led to slight gains in the level of services provided. Overall, then, the City appears to have weathered a difficult economic period in fairly good shape, although some citizens might disagree with the distribution of these real budget cuts. For the School District, with costs up 5.9 per cent, real expenditures in 1974 were $371 mil lion. If this is compared with the actual 1973 budget (with an 11-week strike depressing ex penditures), then real expenditures increased 9 percent. Compared to the estimates of 1973 ex penditures made before the strike, 1974 expen ditures dropped 2.5 percent (see Chart 4). Be cause school attendance dropped (from 279,400 to 272,900) between 1973 and 1974, real ex penditures per pupil provide a better indication of service levels. With declining attendance (concentrated in the elementary schools), aver age real expenditures per pupil increased slightly. Elementary education and special edu cation climbed, junior high and senior high/ technical schools declined moderately, while early childhood education remained stable in per capita terms. (See Appendix 4, Table B.) Thus, the School District overall was able to maintain real expenditures per pupil during fiscal 1974, thanks mainly to a boost in revenue and a small drop in enrollment. Revenues and Expenditures: A Tight Squeeze. In summary, both the City and the School District faced steeply rising costs and sharply limited revenues. In combination these spelled double trouble. For the City the average level of real expenditures fell. In several departments these drops probably meantsome reduction in particu lar services. For the School District real expendi ture levels barely edged back up to the levels attained before the strike. In one important respect 1974 seems to have been significantly different from the preceding years. In the early 1970s the substantial gains in both compensation and services were largely funded by revenue increases from state and Fed eral sources. Everybody benefited. The citizenry enjoyed higher real expenditures (and presum ably increases in services), while teachers and municipal employees showed real wage gains. Philadelphians, of course, paid for these in creases indirectly through state and Federal tax es, but because footing the bill took place indi rectly, it was less burdensome than it otherwise could have been. For the moment at least, these increases in state and Federal aid have slowed. Fiscal '74 2Thomas D. Morris, William H. Corbett, and Brian L. Usilaner, "Productivity Measures in the Federal Govern ment,'' Public Administration Review, November/December 1972. 3National Commission on Productivity, Third Annual Re port, Washington, D. C ., March 1974, p. 6. 21 CHART 4 REAL SCHOOL DISTRICT EXPENDITURES RECOVERED TO NEAR PRE-STRIKE LEVELS. Millions of Dollars Impact of Rising Costs With Strike SOURCE: Pre-Strike Estimate Appendix 4, Table A. 22 FEDERAL RESERVE BANK OF PHILADELPHIA down suggests that the recession's impact on revenues is deepening. On the expenditure side, wage costs and the prices of other purchases continue climbing, restricting any growth in real expenditures. (See Box 3 for information on recent wage settlements.) Early indications are that the City will close the current year with a deficit close to $20 million. Fiscal '76 promises even more difficulties. The School District has provided an early look at its new budget. The numbers suggest rapidly climb ing costs and consequently a large deficit unless new money is found. The City is also in difficult straits. Between the recession-generated demand for services (Welfare, for example), the large influxof Bicentennial visitors, and the continuing cost squeeze, whatever revenues are available will be desperately needed. But new revenues will be hard to find. Pro jecting costs and revenues from existing sources, the proposed operating budget for fiscal 1976 comes up with a $45 million deficit. To close this gap, the City is suggesting expanded coverage for the personal property tax, collection of pastdue railroad taxes, increased court filing fees, a tax on premiums of life insurance policies from out-of-state firms, and accelerated property reassessments. The City is also banking on some increases in intergovernmental .transfers. Realizing these revenue gains will probably be difficult. Moreover, with elections coming up, it could bedifficultforCityCouncil to increase taxes. The Commonwealth will have its own fiscal woes as revenues from the sales tax and the income tax slump with the recession. So it will probably not approve any big new packages of aid. If anything is clear as Philadelphia approaches 1976, it is that municipal officials, the city's business, civic and community leaders, and labor face a series of difficult choices in the months ahead. One clear alternative— and the most attractive one from the perspective of both maintaining or im proving services and holding taxes down — would be a clear commitment from City and School District leaders and employees to boost productivity in the provision of municipal and school services. showed a net drop in intergovernmental aid. Un less there is some new surge of state or Federal support for local government, the City and School District are faced with the prospect of funding wage hikes and other cost increases from local revenues. Such funding can take the form of local tax increases or cuts in real expen ditures. And if real expenditures are cut, service levels will drop unless the cuts are offset by pro ductivity gains. In '74, with local revenues grow ing slowly and no tax hikes, the City cut real ex penditures to meet increasing costs. Resolving this three-sided dilemma— demand for services, limited revenues, and rising costs — provides the biggest challenge to policymakers in the periods ahead. Philadelphia, however, is not the only city with these problems. Virtually all large cities are facing similar budget difficulties. THE OUTLOOK What are the budget prospects as the City and the School District near the end of fiscal 1975? Although the complete picture is not yet in for the current fiscal year, the revenue/cost pinch appears to be as tight as ever. To help School District revenues, City Council raised the prop erty tax by 3 mills, and the Commonwealth came across with $19 million to cover increased ex penditures during fiscal 1975. Even with these revenue increases, the District anticipates a deficit of between $7.5 and $10 million in the current year, attributable to increases in program costs and to some very small expansions in programs.4 Preliminary indications for the City are that the same pinch applies there also. Wage tax reve nues in the first six months of the fiscal year climbed only 4.3 percent over the same period in 1974.5 When compared to the 11-percent growth from fiscal '73 to fiscal '74, this slow prelim inary budget figures released in a February 27, 1975 meeting between School District administrators and the Board of Education. 5City of Philadelphia, Financial Report, December 31, 1974, p. 2. 23 BUSINESS REVIEW APRIL 1975 BOX 3 WAGE SETTLEMENTS ARE BUILDING IN BIG COST INCREASES FOR THE CITY AND SCHOOL DISTRICT Wages and salaries constitute as much as 90 percent of some City and School District department budgets. Knowing the pattern of wage settlements provides, therefore, a pretty good indication of the size of overall cost increases. In Philadelphia several different organizations represent municipal and school employees. The Philadelphia Federation of Teachers is the main bargaining unit for School District employees. City employees are represented by several different organizations. The Fraternal Order of Police and the International Association of Firefighters represent uniformed employees. District Council 33, American Federation of State, County, and Municipal Employees, AFL-CIO, represents blue-collar and clerical employees, while District Council 47, AFSCME, AFL-CIO, represents administrative and technical employees. Contracts between the workers these organizations represent and the City and School District are negotiated separately, so the timing and percentage rates of wage increases will vary. The accompanying Table shows recent settlements for the major bargaining groups. The actual increase in the wage bill will depend on such factors as turnover and hiring practices. For example, with low turnover and little new hiring, average salaries will climb faster as employees are promoted and receive pay increases for experience. Effective Date of Settlement; Percentage Increase* Bargaining Group (Number of Employees Represented) 1972 CITY Uniformed Employees (10,000) 7/1: 5.5% Blue-collar and Clerical 7/1: 4.2 (17,000) Administrative and Technical (4,000) 7/1: 4.2 SCHOOL DISTRICT Teachers (13,500)** ft 1973 1974 1975 7/1: 5.0% 7/1: 8.3% 7/1: 7.9% 7/1: 4.2 7/1: 4.2 + 7/1: 5.0 7/1: 5.0 t 4/1: 4 10/1: 2 4/ 1: 4; 12/1: 4 *Some wage settlements are negotiated in terms of dollars instead of percent increases. These have been converted to average percent increases. To translate wage increases into cost increases, changes in the salary structure must be taken into account. **The wage settlements for the teachers also apply to counselors, paraprofessionals, assistants, and secretaries. tA s this was written, settlements had not yet been negotiated for nonuniformed City employees. ttFailure to arrive at a settlement in September 1972 led to the teachers strike, culminating in the April 1973 settlement. 24 APPENDIX 1 CITY REVENUES (1) (2) 1969-70 1972-73 1973-74 ($ Millions) ($ Millions) ($ Millions) Real Property T a x e s 2 Personal In c o m e T a x e s 3 B u sin ess A c t iv it y T a x e s 4 L oc al N o n t a x R e v e n u e s 5 $ 1 1 1.3 2 0 1 .9 4 0 .8 7 1 .0 $ 1 2 4 .7 2 5 7 .2 5 1 .0 9 9 .2 $ 1 0 8 .6 2 8 6 .2 5 2 .7 TO TAL LOCAL $ 4 2 5 .0 C o m m o n w e a lth Federal R e v e n u e S h a rin g O t h e r Feder al O ther $ 3 6 .7 T O T A L IN T E R G O V E R N M E N T A L Revenue Source1 (4) (5) Percent Growth in Revenue 1969-70 to 1973-74 (3) - (1) x 100 Percent Growth in Revenue 1972-73 to 1973-74 (3) + (2) x 100 (3) LO C A L REVENUES 111.0 + + + 2 .4 % 4 1 .8 2 9 .2 5 6 .3 + 3 .3 + 1 1 .9 $ 5 3 2.1 $ 5 5 8 .5 + 3 1 .4 % + $ 9 4 .0 $ 8 3 .9 + 1 2 8 .6 % 5 .7 2 .0 6 7 .9 3 3 .2 2 .8 51.1 3 0 .4 1.5 $ 4 4 .4 $ 197.9 $ 4 6 9 .4 $ 7 3 0.0 - 1 2 .9 % + 11.1 5 .0 % IN TER G O V ER N M EN TA L R EV EN U ES6 + 4 3 3 .3 - 2 5 .0 - 2 4 .7 - 8 .4 - 4 6 .4 $ 1 6 6 .9 + 1 7 5 .9 % - 1 5 .7 % $ 7 2 5 .4 + - — 5 4 .5 % 0 .6 % 11969-70 data from David W. Lyon, "The Financial Future of City and School Government in Philadelphia,” Business Review of the Federal Reserve Bank of Philadelphia, March 1971, pp. 3 -7 1 ; 1972-73 from Table 3, City of Philadelphia, Financial Report Fiscal Year 1973, Office of Director of Finance, October 1973, pp. 5, 105; 1973-74 from City of Philadelphia, Financial Report Fiscal Year 1974, Office of Director of Finance, October 1974, pp. 10-11, 67, 72, 78, 98-99. includes real estate tax and personal property tax. includes wage tax and earnings tax. “Includes net profit tax, mercantile license tax, and other taxes. includes (1) Licenses, fines, service charges, and other revenues; (2) Revenue from City-owned leased utilities; (3) Reimbursement for Debt Service; (4) Port, Civic Center, Sports Stadium; and (5) Aviation Fund revenues. 6ln 1972-73 and 1973-74 intergovernmental revenue includes General Fund and Anticipated Grants Revenue Fund receipts. To maintain comparability with 1969-70 data, the Economic Opportunity Program and the Model Cities Program have been deducted from the 1972-73 and 1973-74 Federal revenues. Commonwealth revenues include receipts for the County Liquid Fuel Tax Fund and the Special Gasoline Tax Fund. Commonwealth revenues also include U.S. and Commonwealth combined grants. FEDERAL RESERVE BANK OF PHILADELPHIA G RAN D TOTAL — - 1 0 .7 % BUSINESS REVIEW APPENDIX 2 SCHOOL DISTRICT REVENUES STABILIZED IN 1974 AFTER A PERIOD OF RAPID GROWTH (D (2) Revenue in Current Dollars Average Annual Percent Growth in Revenue 1969-70 to 1973-74 [(3 )-(1 ) x 1 0 0 ]-1 0 0 1969-70 ($ Millions) 1972-73 ($ Millions) 1973-74 ($ Millions) Real Pro perty T a x e s 2 Perso n al I n c o m e ta x e s 3 B u s in es s A c t iv it y T a x e s 4 Local N ontax R evenues5 C it y G r a n t $ 9 5 .2 7 .5 2 8 .8 2 .9 — $ 1 0 5 .1 8 .3 2 9 .2 7 .4 1 2 .0 $ 1 2 7 .8 8 .4 2 8 .7 8.1 — + + + TOTAL LOCAL $ 1 3 4 .4 $ 1 6 2 .0 $ 1 7 3 .0 + C o m m o n w e a lth 6 Feder al $ 1 4 0 .0 6 .0 $ 2 1 0 .7 5 .0 T O T A L IN T E R G O V E R N M E N T A L $ 1 4 6 .0 $ 2 8 0 .4 Revenue Source1 (5) (4) (3) Percent Growth in Revenue 1972-73 to 1973-74 [ ( 3 ) - h ( 2 ) x 100] —100 LO C A L REVENUES K3 O'' — + 2 1 .6 % + 1.2 1.7 + 9 .5 - 1 0 0 .0 9 .6 % + 6 .8 % $ 2 1 4 .5 5 .0 + 1 7 .7 % - 5 .6 % + 1 .8 % 0 $ 2 1 5 .7 $ 2 1 9 .5 + 1 6 .8 % + 1 .8 % $ 3 7 7.7 $ 3 9 2 .5 + 1 3 .3 % + 3 .9 % 1 1 .4 % 4 .0 0.1 5 9 .8 IN T E R G O V E R N M E N T A L REVEN U ES GRAN D TOTAL 11969-70 data from David W. Lyon, op. cit.; 1972-73 data from the School District of Philadelphia, Annual Financial Report, Fiscal Year ending June 30, 1973, p. 3; 1973-74 data from “ Financial Statements for the Year Ended June 30, 1974," School District of Philadelphia. 2Real estate and delinquent real estate taxes. 3Nonbusiness tax and pari-mutuel taxes. “General business tax, corporate net income tax, and rental occupancy tax. APRIL 1975 5Payments in lieu of taxes, public utilities tax, interest on temporary investm ents, personal property tax, and miscellaneous revenues. 6ln 1973-74 the District listed Special Education funds separately in the revenue category “ Intermediate U nit." For comparative purposes they are included in Commonwealth aid here. APPENDIX 3 REAL CITY EXPENDITURES IN FISCAL 1974 DECLINED SLIGHTLY FROM FISCAL 1973 LEVELS City Department4 $ 23 59 30 45 43 8 5 .3 2 6 .7 4 6 .8 39 72 — — (5) Price Deflators (6) (7) 1973-74 Expenditures in Constant Dollars (Millions) 1972-73 = 100 Base 69-70 = 100 (3) -s- (4) Base 72-73 - 100 (3) - 5 - (5) From 69-70 (6) + (1) + 5 0 .4 % + 1 3 .6 - 4 .7 + 3 5 .7 + - + 3 6 .0 + 6.1 - 2 .6 - 0 .6 + 1 3 .8 + 2 6 .9 - 2 1 .8 - 2 .4 - 8 .8 - 9 .9 - 3 .7 + 2 .7 1972-732 1973-742 1969-70 = 100 $ 4 2 .3 7 9 .9 3 9 .9 7 8 .9 $ 4 5 .9 8 3 .3 4 1 .4 78.1 1 3 2 .7 1 2 4 .3 1 4 4 .6 1 2 7 .9 1 0 4 .7 1 0 9 .7 1 0 5 .6 1 0 5 .8 $ 3 4 .6 6 7 .0 2 8 .6 61.1 $ 4 3 .8 7 5 .9 3 9 .2 7 3 .8 8 4 .8 1 2 7 .0 3 6 .3 6 4 .8 5 4 .4 108.1 7 2 .7 1 3 0 .7 3 5 .0 6 1 .6 5 5 .4 1 1 7 .2 1 2 4 .3 1 4 4 .4 1 3 4 .7 1 3 2 .5 1 2 4 .9 1 2 8 .2 1 0 9 .7 1 0 5 .5 1 0 5 .6 1 0 5 .5 1 0 5 .8 1 0 5 .6 5 8 .5 9 0 .5 2 6 .0 4 6 .5 4 4 .4 9 1 .4 6 6 .3 1 2 3 .9 33.1 5 8 .4 5 2 .4 1 1 1 .0 1 2 .0 — 0 12 .5 1 2 4 .3 TOTALS $ 4 6 9 .8 $ 7 2 8 .4 $ 7 3 3 .8 S E R V IC ES SU BTO TALS5 $ 3 6 7 .8 $ 5 5 1 .7 $ 563.3 — 1 3 3 .6 (9) (8) Fiscal 1974 Percent Real Expenditure Charge — 1 0 9 .7 1 0 5 .5 — From 72-73 3 .5 % 5 .0 1.8 6 .5 — — — — ; 10.1 — 1 1 .4 $ 5 5 8.5 $ 6 8 9.2 + 1 8 .9 % - 5 .4 % $ 4 2 3 .1 $ 5 3 5 .6 + 1 5 .0 % - 2 .9 % ’City of Philadelphia, Financial Reports for Fiscal Years 1970, 1973, 1974. 2Each department's expenditures for 1972-73 and 1973-74 are the sums of obligations incurred in the General Fund, the Anticipated Grants Revenue Fund, and other minor operating funds such as the Aviation Fund, the Special Gasoline Tax Fund, and the County Liquid Fuel Tax Fund. 3See Appendices 3 and 4, W illiam A. Cozzens, "Philadelphia's Budgets: Past, Present, Future," Business Review of the Federal Reserve Bank of Philadelphia," April 1974, pp. 15-19, for detailed information on the derivation of a municipal price deflator for the City of Philadelphia. Box 2 in text details the price and wage changes from fiscal 1972-73 to fiscal 1973-74. “Appendix 4, Cozzens, op. cit., contains specific notes on adjustments made in the 1969-70 and 1972-73 budget figures toensurecomparability across years. 5The services subtotals represent expenditures in City departments directly involved in the delivery of services. The adjusted totals subtract Debt Service, Pensions and Employee Benefits, Payment to School District, and Social Security from the totals. FEDERAL RESERVE BANK OF PHILADELPHIA C o u rts D e b t S e r v ic e Fire H e a lth , P . G . H . P e n sio n s and E m p l o y e e Benefits P o li c e R e c r e a tio n Streets W e lfare O ther P a y m e n t to S ch o o l D istric t S o c ia l S ecu rity 1969-70 (4) ■F (3) Actual Expenditures In Current Dollars1 (Millions) NJ (2) (1) BUSINESS REVIEW APPENDIX 4 TABLE A DETAIL ON SCHOOL EXPENDITURE CHANGES (2) (1) (4) (3) Current Dollar Expenditure ($ Millions) Program Elements 1969-70 Education Elements Early Childhood Ed. $ Elementary Ed. Junior High and Middle Schools Sr. High and Technical Schools Special Education TOTAL EDUCATION ELEMENTS Plant Operations and Maintenance Administration And Support Areas1 Debt Service Employee Benefits Undistributed items GRAND TOTAL 5.5 66.6 1972-73 1972-73 Pre-Strike Post-Strike Estimates Actuals3 $ 7.7 75.4 $ 7.5 69.2 (5) (6) Price Deflators (8) (7) 1973-74 Constant Dollar Expenditures Base Base 1969-70 1972-73 1969-70 1972-73 1974-74“ = 100 = 100 (4) - (6) (4) - (6) $ 7.8 78.4 130.2 127.5 104.4 104.2 $ 6.0 61.5 $ (10) (9) Average Annual % Change 1960-70 to 1973-74 [(7H (1)]-4 (11) Percent Change 1972-73 to 1973-74 Based on Based Pre-Strike Actual on Estimates Expenditures (8) - (3) (8) - (2) 7.5 75.2 + 2.3% - 1.9 - 2.6% 0.3 0 % + 8.7 37.4 51.4 38.8 49.6 130.1 104.2 38.1 47.6 + 0.5 - 7.4 + 22.7 47.7 14.6 56.7 17.2 45.3 15.0 59.2 20.6 130.3 128.7 104.2 104.2 45.4 16.0 56.8 19.8 - 1.2 + 2.4 + 0.2 + 15.1 + 25.4 + 32.0 $171.8 $208.4 $175.8 $215.8 129.2 104.3 $167.0 $206.9 - - + 17.7% 28.1 40.2 39.9 45.6 142.1 107.6 32.1 42.4 + 3.6 + 5.6 + 6.3 33.5 29.5 19.3 40.3 56.7 29.7 5.5 37.1 56.0 26.8 4.6 42.6 56.4 32.6 135.3 124.3 138.9 104.8 109.7 109.7 31.5 45.4 23.5 40.6 51.4 29.7 - 1.5 + 13.5 + 5.5 + 0.7 - 9.3 0 + 9.4 - 8.2 + 10.8 $282.3 $380.6 $340.2 $393.0 131.2 105.9 $299.5 $371.0 + 1.5% - + 9.1% 0.7% 0.7% 2.5% 'Includes field operations, school services, curriculum and insturction, career education, municipal services, superintendent, administrative services, refund of prior years' revenues, and services for other funds. 5From the "Summary of the ProposedOperating Budget for the Fiscal Year Beginning July 1, 1973," School District of Philadelphia. "Proposed Revised 1972-73 Budget." 5For the calculation of these price deflators see Box 2 in text and Appendix 3, Cozzens, op. cit., pp. 15-16. APRIL 1975 3Annual Financial Report, Fiscal Year ending June 30, 1973, School District of Philadelphia, pp. 5-8. ““ Financial Statements for the Year Ended June 30, 1974," School District of Philadelphia, pp. 6-10. APPENDIX 4 TABLE B REAL EXPENDITURES PER CAPITA Attendance1 000's TOTAL Percentage Change 1972-73 to 1973-74 1973-1974 Attendance1 000's Expenditures Per Pupil2 2 3 .3 121.1 $ 330 623 $ 322 571 2 2 .6 1 1 4 .2 $ 332 658 6 2 .9 6 1 .7 1 0.5 817 917 1638 617 734 1429 6 0 .8 6 4 .4 1 1 .0 783 882 1800 2 7 9 .4 $ 746 $ 629 2 7 2 .9 $ 758 Pre-Strike 72-73 to 73-74 + 0 .6 % + 5 .6 + 3 .1 % + 1 5.2 - 4 .2 - 3 .8 + 9 .9 + 2 6 .9 + 2 0 .2 + 2 6 .0 + 1 .6 % + 2 0 .5 % 'Average daily attendance during the month of November. Budget Office, School District of Philadelphia. Calculated by dividing the real expenditures in each direct educational unit (from Table A) by the attendance in that unit. Actual 72-73 to 73 FEDERAL RESERVE BANK OF PHILADELPHIA Early C h i l d h o o d E d u c a tio n E le m e n ta ry E d u c a tio n Jun io r H igh a n d M id d le S ch o o l E d u c a tio n S en io r H ig h E d u c a tio n S p ec ial E d u c a tio n 1972-1973 Expenditures Per Pupil2 Pre-Strike Estimates Actual NOW AVAILABLE BROCHURE AND FILM STRIP ON TRUTH IN LENDING Truth in Lending became the law of the land in 1969. Since then the law, requiring uniform and meaningful disclosure of the cost of consumer credit, has been hailed as a major breakthrough in consumer protection. But despite considerable publicity, the general public is not very familiar with the law. A brochure, "W hat Truth in Lending Means to You," cogently spells out the essentials of the law. Copies in both English and Spanish are available upon request from the Department of Bank and Public Relations, Federal Reserve Bank of Philadelphia, Phila delphia, Pennsylvania 19101. Available in English is a film strip on Regulation Z, Truth in Lending, for showing to consumer groups. This 20-minute presen tation, developed by the Board of Governors of the Federal Reserve System, is designed for use with a Dukane projector that uses 35mm film and plays a 33 RPM record synchronized with the film. Copies of the film strip can be purchased from the Board of Governors of the Federal Reserve System, Washington, D. C. 20551, for $10. It is available to groups in the Third Federal Reserve District without charge except for return postage. Persons in the Third District may direct requests for loan of the film to Truth in Lending, Federal Reserve Bank of Philadelphia, Philadelphia, Pennsylvania 19101. Such requests should provide for several alternate presentation dates. On December 31, 1974, Americans were permitted to buy and sell gold for the first time in some 40 years. Since then questions have been raised about the once-hallowed, almighty metal's worth and importance. For example, has its status in the United States and in the international monetary system changed? If so, in what manner? A pamphlet recently produced by the Philadelphia Fed's Department of Public Information con siders the role of gold— past, present, future. Copies are available free of charge. Please address all requests to Public Services, Federal Reserve Bank of Philadelphia, Philadelphia, PA 19105. 8 rKDIRAL. R K SRVI ItAM K F E D E R A L R E S E R V E B A N K o f PH ILA D ELPH IA PH ILA D ELPH IA , PEIVINSYLVAINflA 19105 business review FEDERAL RESERVE BANK OF PHILADELPHIA PHILADELPHIA, PA. 19105
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