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OF PHILADELPHIA
THE FINANCIAL FUTURE OF
CITY AND SCH O O L
GOVERNMENT IN
PHILADELPHIA
THE FED IN PRINT

MARCH 1971

IN THIS ISSUE
This issue of the Business Review reports
exclusively on the fiscal difficulties of the
City and School District of Philadelphia. It
describes projections of expenditures and
receipts and the mounting deficits implied
by these projections. The outlook is not a
promising one. Expenditures may exceed re
ceipts by about a half-of-a-bi Ilion dollars by
1975, with smaller but growing deficits in
years leading up to 1975. Higher taxes, some
budget trimming, and sharply increased aid
from Federal and Commonwealth Govern
ments may be required to close the deficit.
Inflation may account for over half the
increase in spending between 1970 and 1975.
But it will not produce an equivalent increase
in revenues. Wages paid by businesses in
Philadelphia— the base for the City's wage
tax— have grown less rapidly than those paid
by government. In addition, the taxable value
of real property, which forms the basis for
City and School District property taxes, has
shown little responsiveness to inflation.
But inflation may not be the only reason
for large spending. Very sharp increases in
the amount of health and welfare services
provided by the City are likely. Moreover,
continued expansion in staff of the School
District seems probable. When inflation and
growth in services are combined, expansion
of about 120 per cent in the total budgets
of the City and School District seems likely.
The fiscal outlook of the City and School
District is far from definite, of course, and
several different projections have been made
to point out alternative outlooks. Specific
ally, three projections have been made: a
high projection, corresponding to strong
economic conditions and aggressive spend

B U S IN E S S R E V IE W

ing; a medium projection, assuming some
strengthening in the economy and slower
paced public spending; and a low projection,
corresponding to weak recovery and little
attempt to increase the amount of services
provided by government in Philadelphia. It
is the middle projection that produces the
deficit of $.5 billion. If the low projection
holds, the deficit would be $.3 billion. And,
it would be $.7 billion according to the high
projection.
The article summarizes the projections, and
emphasizes particularly the medium estimate.
The Appendix includes a more detailed de
scription of all projections.
Staff members of the Fels Institute of State
and Local Government, under the direction
of Dr. Julius Margolis and Mr. Morton Lustig,
carried out most of the work on projection
of expenditures. David Lyon of the Federal
Reserve Bank carried out the projection of
revenues and the final analysis of expendi
tures with the help of Alice Coblentz,
Kathryn Kindi, and Richard Epps. Catherine
Defina was principally responsible for edit
ing this report.
The Federal Reserve Bank would like to
thank the many people who provided help
and advice. Though it is hard to single out
any individuals, we would like to offer spe
cial thanks to Romanus Buckley, Director of
Finance, City of Philadelphia, Richard Gil
more, Deputy Superintendent for Adminis
tration, School District of Philadelphia, and
their respective staffs who proved invaluable
in providing information. Also, we would
like to thank Lennox Moak, Director, Penn
sylvania Economy League, for his helpful
criticism.

is p roduced in the D epartm ent of R e se arch . Ronald B. W illiam s is Art D irector. Th e au th o rs will
be g lad to receive co m m e n ts on th e ir article s.
R e q u e sts fo r ad d itio nal co p ie s sh o uld be a d d resse d to P u b lic S e rv ice s , Federal R e serve B a n k of Ph ilad elp h ia, P h ilad elp h ia,
P e n n sylvan ia 19101.

FEDERAL RESERVE BANK OF PHILADELPHIA

The Financial Future
of City and
School Government
in Philadelphia
by David W. Lyon*

have witnessed a larger chunk of their earn
ings eaten away by new taxes and increased
tax rates. But most of the new taxes have
produced less revenue than expected, have
been expensive to collect, and one has been
rescinded by the courts. More important,
new tax structures and rate increases have, at
best, filled only one year's deficit.
The crush of new spending has left little
time for developing more reliable and
longer term solutions. With the hope of pro
viding citizens some insight into the future,
we have examined the outlook for expendi
tures and revenues of the City and School
District of Philadelphia. Projections were
made of both the growth in government
services and the impact of inflation on gov
ernment costs and revenues. The outlook
described by these projections is for greatly

Philadelphia taxpayers will face red again
this Spring— the red ink of impending fiscal
deficits for the City and School District of
Philadelphia. Certainly they have faced defi
cits before, but never have the deficits been
so large as recently. Causes of this growing
fiscal gap are clear. While spending has
mushroomed, the local tax base from which
the City and School District must draw a
large share of their new funds has inched
upward slowly.
The taxpayer views this higher govern
ment spending as a burden, but sees no out.
A large low-income population and dilapi
dated physical plant have made Philadel
phia's role in the war on poverty, slums, and
crime especially large. Costs of bearing these
expanded responsibilities have been boosted
by accelerating inflation in the private sec
tor—and by substantial increments in paychecks of public employees.
So, as spending has intensified, taxpayers

* With the assistance of Richard W. Epps.
3

MARCH 1971

BUSINESS REVIEW

must be relied upon to close these deficits.
Such efforts will be made by local leaders
and will alter the projections included here.
Thus, the projections are not forecasts of
what will occur in future years, but a descrip
tion of problems that must be faced.

increased fiscal deficits for City and School
government in Philadelphia— reaching a half
billion dollars for the year 1975, even if pay
ments from the Commonwealth and Federal
governments continue increasing as they have
recently.’ This deficit may be preceded by
smaller but growing shortages. Without early
fiscal action, the deficits of all the years
between now and 1975 could cumulate
to over one-and-a-quarter-billion dollars.
Higher tax rates, new intergovernmental aid,
and some budget cutting are the options that

THE BILLOWING BUDGET
Spending by the City and School District
of Philadelphia has shifted into high gear in
recent years. As shown in Chart 1, recent
yearly increases in combined school and

CHART 1
T H E P A C E O F G R O W T H O F S P E N D IN G BY T H E C IT Y A N D S C H O O L
D I S T R I C T O F P H I L A D E L P H I A H A S D O U B L E D IN R E C E N T Y E A R S ,
M O S T L Y B E C A U S E O F IN F L A TIO N .

Annual Rate of Increase
18%
ACTUAL EXPENDITURES
15

on EXPENDITURES NET OF INFLATION

1955-1959

1960-1965

1966

1967

1968

1969-1970*

*The years 1955 through 1965 correspond to calendar years for both the City and School District. The years
1966 through 1968 correspond to calendar years for the City and fiscal years for the School District, with
1966 representing fiscal 1967, 1967 representing fiscal 1968, and 1968 representing fiscal 1969. Finally,
1969-70 corresponds to the 1970 fiscal year for both the City and School District. All later years are
fiscal years.

municipal expenditures have doubled over
the rate of previous years. Although deci
sions by local government leaders to expand

’ The projections are for operating expenditures of
the City and School District plus payments for debt
service.

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART 2
T H E R E M A Y B E L I T T L E R E L I E F IN I N F L A T I O N F O R T H E C I T Y A N D
S C H O O L D IS T R IC T D U R IN G T H E N E X T F E W Y E A R S .

Annual Rate of Increase for Wages and Prices Paid by the City and
School District

1970*
*See note to Chart 1.

School District also purchase materials and
services. These nonlabor items, which com
pose about a third of the local government
budget, have shown less-marked price in
creases than has labor. However, their prices
began to escalate at ever-greater rates near
the end of the 1960's as local and national
economies heated up.
As inflationary pressures ease, expansion
in costs of the materials and services will
slow. But this relief may not find its way to
the labor bill, at least not in the near term.
Government workers in other large cities
have set an example of greater militancy
with "job actions" and outright strikes. If
these actions spread to Philadelphia, a quick
softening of wage gains seems unlikely.
Should this be the case, inflation in wages
and materials would raise prices paid by
Philadelphia government by 60 per cent from
the 1970 fiscal year to the 1975 fiscal year.
This inflation is only a little less than that of
recent years.

services have added to the public bill, the
principal spending thrust has been from
inflation.
THE HEAVY HAND OF INFLATION
While present in earlier years, inflation
did not become an important problem for
Philadelphia government until the late
1960's. (See Chart 2.) Small but tolerable
increases in governmental costs began to
snowball in 1966 as workers in local govern
ment here began to demand higher wages.
In that year, the average wage paid by the
School District jumped 16 per cent and that
paid by the City climbed 10 per cent. In the
next two years, wage gains subsided a little,
and then jumped by 12 per cent in 1969.
Justifiable or not, these increases were far
above the rate of expansion of wages in the
rest of the economy.
While labor is the largest item on local
government's shopping list, the City and

MARCH 1971

BUSINESS REVIEW

In Education. Philadelphians are relying
heavily on the education system to combat
urban problems, and their hopes run high. To
many residents, the schools seem the best
way of mitigating the impact of deprivation
upon the city's young and of communicating
marketable skills to young and old. But hopes
exceed actuality by a discouraging margin.
While the School Board is working hard to
educate its charges, the typical student in

EXPANSION OF SERVICES
Inflation, which has had a staggering im
pact on the local public budget, is not the
sole source of fiscal pressure. As shown in
Chart 3, real expenditures (net of inflation)
of the City and particularly of the School
District increased during the late sixties, re
flecting improvement and expansion in pub
lic services.
CHART 3

E V E N A B S T R A C T I N G F R O M IN F L A T IO N T H E R E H A S B E E N R A P ID ,
A L T H O U G H I R R E G U L A R , G R O W T H IN ( R E A L ) E X P E N D I T U R E S .
Annual Rate of Increase

Annual Rate of Increase

*See note to Chart 1.

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART 4
A S ID E FR O M IN F L A T IO N , O U T L A Y S FO R D E B T S E R V IC E , G E N E R A L
A D M IN IS TR A TIO N , A N D E X TE N S IO N P R O G R A M S H A V E S P E A R
H E A D E D T H E G R O W T H IN S C H O O L S P E N D I N G . A L T H O U G H A D M I N
I S T R A T I V E A N D E X T E N S I O N C O S T S W I L L S L O W IN T H E F U T U R E ,
T H E S L A C K W IL L BE M ORE TH A N TA K E N UP BY C O S T S O F S E C
O N D A R Y A N D V O C A T I O N A L -T E C H N I C A L E D U C A T IO N .*

Annual Rate of Increase

D EBT
S ER V IC E

G EN ERAL
VOCATIONAL
ADM INISTRATION,
AND
EXTEN SION
TECH N IC A L
PROGRAMS,
EDUCATION
AND OTHER

SECO N D ARY
EDUCATION

ELEM EN TARY
EDUCATION

TOTAL

*The lighter bars correspond to our medium projection. Lower and higher projections are presented in the
appendix.

Officials of urban schools are experi
menting to find the most effective combina
tion of efforts to educate city youth. This
process of experimentation makes the future
form and cost of the School system particu
larly uncertain. Our projection for School
spending is conservative, since we have as
sumed little change in the way the School
District attempts to educate the young. Dras
tic new methods of education eventually
may lower the cost of running the schools,
but will more likely increase the cost, at least
in the short run. Thus, our projection of
costs, shown in Chart 4, is probably some
what low and is best interpreted as basic

Philadelphia schools is still severely behind
national averages in basic skills, such as
reading.
Commendable efforts to bring perfor
mance of Philadelphia schools in line with
expectations have been made in recent years
— but they have cost money. Special schools
for pre-school children, specialized teachers
for basic skills, teachers' aids, and enlarged
and modernized school buildings all have
been added to the system in recent years.
These improvements and some new ones
will probably be extended in the future.
But the full character of urban education is
still unfolding.

MARCH 1971

BUSINESS REVIEW

3. New Schools. Debt service has
been, and will continue to be, the most rap
idly growing element in the education bud
get. Expansion in enrollment has begun to
burst the seams of the aged education plant
in Philadelphia. Double shifts and temporary
classrooms have been necessary. So, the
School Board has begun a long-range pro
gram of building which stretches out beyond
1975. Thus far, most construction has been
of elementary schools, but current efforts
are focusing on secondary facilities.
Tight conditions in monetary markets and
a ceiling on the rate of interest that the
School District can pay in its borrowing com
bined to slow the building program during
1969 and 1970. However, as monetary con
ditions ease, the District will attempt to catch
up on lost time as well as carry out pre
viously scheduled construction. Easing in in
terest rates also will lower the cost of money
for the District, but expansion in borrowing
will more than offset this small gain. And,
increases in debt service to support the
accelerated building program will be com
pounded by payments for bonds sold to bal
ance the 1970 operating budget of the School
District.

expenditures to which will be added the cost
of any new, trial methods of education.
1. New Staff. The principal tool that
the School District has used in recent years to
improve education has been that of provid
ing more attention to each child. This intensi
fied effort has meant sharp increases in staff
of the District. While student enrollment has
increased by only 5 per cent, school employ
ment has jumped by one-fourth. Half of the
new staff are teachers, and half are nonteach
ing assistants. More teachers mean smaller
classes, and assistants free teachers of clerical
and other chores.
What staff increases have meant in terms
of improvement in education is not yet clear.
While greater educational resources have
been expended, the composition of enroll
ment in city schools also has shifted towards
students with different learning problems.
Moreover, the search, supported by the ex
panded staff, for more successful methods
of education is a long-term effort.
The most likely expectation for the future
is that the recent gradual increase in educa
tional staff will continue. The middle projec
tion, presented in Chart 4, is based on an
extension of the staff expansion that oc
curred in the last four years. Higher and
lower projections, included in the Appendix,
are based, respectively, on the staff trend
of the last two years and last six years.

4. Total School Spending. According
to our middle projection, shown in Chart 4,
total expansion in the School budget may
be about 50 per cent more rapid in the
coming years than recently, not including
the effects of inflation. Greater debt service
cost and the enrollment shift would cause
this more rapid upsurge. Overall staff expan
sion would continue at the rate established
in the last four years, with some emphasis
on new personnel to support rising secon
dary enrollment.

2. Enrollment Shift. Recent increases
in total enrollment have been concentrated
in elementary grades. But a drop in the birth
rate and slowing of in-migration into the
city in recent years will ease the pressure on
elementary enrollments. As current elemen
tary students work their way to the upper
grades, secondary students will become a
larger share of total enrollment. Since a
larger complement of both teachers and as
sistants is used in upper grades than in pri
mary grades, more students in secondary
schools will spell higher total costs for the
schools.

Municipal Services. Spending by the City
has grown more regularly through the years
than has spending by the School District.
(See Chart 3.) In large part, this is a reflec
tion of the variety of functions the City per
forms and the latitude it has to balance its
8

FEDERAL RESERVE BANK OF PHILADELPHIA

debt service to support construction receiv
ing emphasis. Spending on pensions prob
ably will continue to grow as the required
City contribution is escalated by wage
increases.

spending among them. During the early
sixties, for example, when police expendi
tures were rising rapidly, expenditures for
other categories, principally street mainte
nance, were cut. Recent growth in pension
payments may have caused government offi
cials to restrict growth of health, welfare,
and capital spending. The School District, in
contrast, produces just one product—educa
tion— and has less range within which to
balance priorities.
Over the long term, the City has had some
of the same goals as has the School District
— social and economic development of the
city, for example. And, these goals will prob
ably affect the composition of future spend
ing by the City, with health, welfare, and

1.
Pensions. Three distinct factors have
caused a rapid run-up in pension costs. First,
during the middle sixties, City contributions
to the pension fund were abnormally low,
and the previous balance in the pension fund
was drawn down to support the monthly
checks to beneficiaries. As the City resumed
a higher and more adequate level of payment
into the pension fund, the expenditure nat
urally grew. Second, pension benefits were
substantially liberalized in the late sixties,

CHART 5
A L T H O U G H A L L C IT Y F U N C T IO N S H A V E S H O W N S O M E IN C R E A S E ,
T H E H IG H E S T R A T E S H A V E B E E N F O R P E N S IO N S , H E A L T H , A N D
P O L IC E . O U R P R O J E C T IO N S A R E T H A T F U T U R E G R O W T H W IL L BE
C O M P A R A B L E , B U T W I T H S O M E C H A N G E S IN E M P H A S I S . *

Annual Rate of Increase

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*The lighter bars correspond to our medium projection. Lower and higher projections are presented in the
appendix.

MARCH 1971

BUSINESS REVIEW

patrol and administrative staff of the Depart
ment jumped. Continued steady expansion is
expected in the future.

calling for increased contributions by the
City. And, finally, the rapid increase in wages
paid to City employees took its toll in
terms of increased pensions to newly retired
workers.
During the early 1970's, the City's rate of
contribution to the pension fund will be
reevaluated, and probably increased. The
City is required to regularly examine the ade
quacy of its current contribution to the
fund, to determine whether the level is suf
ficient to cover pension liabilities being in
curred. The present rate of contribution,
determined by an evaluation in 1967, is
based upon the assumption of a very low
increase in wage rates paid by the City. The
next evaluation probably will assume a some
what higher rate of wage increase and thus
lead to a higher rate of contribution by the
City. This alteration may cause a growth in
pensions for the next few years comparable
with that experienced recently.

4. Other Expenditures. Most remain
ing elements in the City budget— streets,
welfare, recreation, courts, fire, debt service,
and miscellaneous— have grown, and are
expected to grow, at moderate rates. We
expect, however, rates of growth for expen
ditures on fire protection, debt service, and
the miscellaneous category to change sig
nificantly. Real expenditures on fire protec
tion will grow less rapidly in the future, since
staff expansion to support only two new fire
stations is scheduled during the next five
years. On the other hand, costs of debt
service will jump dramatically, predomi
nantly to support investment in Philadelphia
International Airport. (This increase, how
ever, will be offset by an equal increase in
revenues from the airport.) Finally, growth
in the miscellaneous category, which has
been below its historic levels in recent years,
will expand at a rate close to that of total
City expenditures.

2. Health. Rising expenditures for both
health and police reflect fundamental pres
sures upon the city. Major health outlays
support the Philadelphia General Hospital
and community health care of various forms.
Growth of these outlays reflects intensified
efforts to aid the low-income population of
the city. Only a part of the motivation for
expansion in the health area lies with the
City, however. All real growth in health ser
vices has been supported by Commonwealth
and Federal aid to Philadelphia. As more
intergovernmental aid is pumped into the
City, and as the low-income population of
the City continues to expand, we may expect
health care to grow at even more rapid rates
than it has up to now.

5. City Total. Combining all City cate
gories, we project an annual rate of expan
sion of 6.5 per cent for the City budget. This
is about one-half higher than the 4.0 per cent
growth posted in the late sixties. The in
creased expansion reflects, chiefly, increased
debt service and health and welfare services.1
TOTAL BILL
Including inflation, growth in public ser
vices could mean a thumping 120 per cent
increase in expenditures for the City and
School District combined between 1970 and
1975. (See Chart 6.) The middle currentdollar projection continues the trend estab
lished in the late 1960's, with high and low

3. Police. Wages are the main reason
that the police budget has grown. Also, the
size of the police force has expanded steadily
in all years except 1966, as a public con
cerned with crime has forced continuing ex
pansion in police services. The steady growth
was broken in 1966 as the capacity of the

1This is our most probable or middle expectation.
As explained in the Appendix, a very tight economy
may push this rate of growth up by a point, and a weak
economy may lower it by a point.
10

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART 6
W H E N P R IC E A N D R E A L G R O W T H P R O J E C T IO N S A R E P U T T O
G E T H E R , E X P L O S I V E G R O W T H IN C I T Y A N D S C H O O L S P E N D I N G
R ESULTS.

Millions of Dollars (Ratio Scale)

PAYING THE BILL

estimates deviating only slightly from the
past trend. The projection includes more real
growth and less inflation than in the past
few years. Thus, while taxpayers again may
have to face a doubling in the public bill, as
they did during the late sixties, they may
expect the gain in services to make up a
larger part of the growth.

While public spending in Philadelphia has
been on the upsurge, the tax base has not
kept pace. Were it not for hefty tax hikes,
additional taxes, and massive intergovern
mental aid, Philadelphia's public sector now
would be hopelessly mired in debt. And the

BUSINESS REVIEW

MARCH 1971

financial road in the 1970's promises to be
even more rocky. The City and School Dis
trict may face a combined deficit of $500
million in the fiscal year 1975, even if tax
receipts continue a normal growth and
nonlocal aid increases sizably. If intergov
ernmental aid does not grow, the deficit
could reach $700 million.
Support for Philadelphia's public spending
comes from several different sources— local
taxes, Commonwealth aid, Federal aid, and
a host of smaller local fees, fines, and service
charges. Local sources have been shoulder
ing less of the burden in recent years. As
shown in Chart 7, the share supported by

local revenues has dropped from about 93
per cent of total government receipts in
Philadelphia to about 77 per cent between
1952 and 1970.
Part of the relative decline was planned.
Both states and the Federal Government have
gradually accepted the idea that services to
the large low-income population in old cities
like Philadelphia are a responsibility of more
fiscally fortunate taxpayers across the state
and nation. Perhaps necessity has been more
forceful, however, in lowering the relative
share of revenues raised locally. The increas
ing low-income population and static econ
omy of the city, which have led to increasing

CHART 7
LO C A L TA X E S H A V E B EC O M E A SM A LLER P A R T O F C IT Y A N D
S C H O O L D IS T R IC T R E V E N U E S A S IN T E R G O V E R N M E N T A L A ID H A S
M U S H R O O M E D A N D R E A L E S T A T E R E C E IP TS H A V E LA G G E D .
Per Cent

FEDERAL RESERVE BANK OF PHILADELPHIA

from 6 per cent in the late 1950's.3The prob
lem is aggravated further, because the base
upon which local taxes are levied— income,
real property, and business receipts— has not
kept up with growth in personal income.
Slow growth in the value of taxable real
property is the main cause of this lag.

demand for public services, have also slowed
growth of the local tax base. Local support,
therefore, has become more difficult to
generate as demands for service have surged.
THE LOCAL YOKE
Personal income earned by residents of
Philadelphia is the principal source from
which local taxes must be paid. This resource
base has not grown nearly so fast as has
spending for education and municipal ser
vices. (See Chart 8.) Still, leaders of the City
and School District have tried to keep local
tax receipts up with spending. So, they have
levied sharp tax hikes which have taken a
bigger bite out of Philadelphians' budgets.

1. Real Estate. While personal income has
increased by 43 per cent since 1960, the
value of taxable real property has advanced
a paltry 15 per cent. Lagging demand, par
ticularly by high- and middle-income fami
lies, for housing in the city, low investment in
industrial properties, and a significant expan
sion of tax-exempt properties all contribute
to this sluggish growth.

CHART 8
G R O W T H IN C I T Y A N D S C H O O L S P E N D I N G H A S O U T S T R I P P E D
G A I N S IN P E R S O N A L I N C O M E O F T H E C I T Y ’S T A X P A Y E R S .

Annual Rate of Increase
20 %
15
10

0
1961

1963

1965

1967

3This measure of tax burden includes collections from
business and industry. However, personal income is
closely related to the changing value of production in
the city. Comparison of personal tax collections with
income yields similar results.

As shown in Chart 9, because of advances in
tax rates and creation of new taxes, tax
receipts now equal nearly 8 per cent of total
income earned by residents of the city— up

1969

MARCH 1971

BUSINESS REVIEW

CHART 9
S L O W G R O W T H IN T H E T A X B A S E O F T H E C I T Y H A S R E Q U I R E D
F R E Q U E N T I N C R E A S E S IN T A X R A T E S , A N D A N I N C R E A S I N G B U R
DEN ON TA XPAYER S.

Per Cent of Personal Income

and earnings taxes. From a rate of 1.25 per
cent on earned income in 1952, the City
gradually jacked up the rate to 3 per cent in
1969— a 140 per cent leap. This increase
compares with an expansion of only 39 per
cent in the real estate levy from $1.70 per
$100 of taxable value in 1952 to today's rate
of $2,375.
Intergovernmental aid provided another
means of relief. The School District turned to
the Commonwealth when spending began
to outpace sluggish real estate revenues in

Because of this lag, the real estate tax has
declined in importance as a source of reve
nue. In 1952, the City and School District
relied upon the real property tax for half of
their revenues. Today, real estate tax receipts
have slipped to only 27 per cent of the com
bined City and School District revenues
(Chart 7).2
2. Real Estate Substitutes. To relieve pres
sure on the sagging real property base, the
City of Philadelphia has increased its wage

FEDERAL RESERVE BANK OF PHILADELPHIA

tion and real growth will contribute to tax
coffers. The local tax base, net of inflation,
will probably expand as it has in the last five
years. Tax returns from personal income—
the wage, earnings, and personal property
taxes— may show a slight increase as total
employment grows and wages continue to
rise. (See Chart 10.) Returns from the real

the early 1960's. Commonwealth aid to the
School District jumped from 20 per cent of
all revenues in 1952 to just over 50 per cent
in fiscal year 1970. During the same period,
real estate tax receipts plunged from 65 per
cent to 34 per cent of total School revenues.
3. The Prospects for Local Revenue. Infla
C H A R T lO

IN T H E P A S T N E W B U S I N E S S T A X E S A N D N O N T A X R E V E N U E S
P U S H E D UP L O C A L R E C E IP T S . W IT H L E S S H E L P FR O M T H O S E
S O U R C E S IN T H E F U T U R E , T A X R E C E I P T S M A Y G R O W M O R E
S L O W L Y .*

Annual Rate of Increase
10 %

-2

B U SIN E SS
TA XES

NONTAX LOCAL
REVEN UES

PERSO N AL INCOME
TAXES

REA L ESTATE
TA XES

TOTAL LOCAL
REVEN UES

*The lighter bars correspond to our medium projection. Lower and higher projections are presented in the
appendix.

BUSINESS REVIEW

MARCH 1971

C H A R T 11
G R O W T H O F L O C A L R E V E N U E S W IL L S L O W S O M E
W I T H O U T N E W H I K E S IN T A X R A T E S .

Millions of Dollars (Ratio Scale)

estate tax, net of inflation, will probably
decline, as they have in recent years, because
of slow expansion in the assessed value of
real property. Business tax revenues probably
will shift to a lower course, even with the
addition of the School District's new com

mercial occupancy tax. Business tax receipts
jumped sharply in the late 1960's with the
addition of the School District's corporate
net income tax. The new occupancy tax
likely will produce less of a proportionate
expansion because the business tax category
16

FEDERAL RESERVE BANK OF PHILADELPHIA

1975 and School District revenues up to $460
million. (See Chart 11.)
These tax receipts will not be enough to
cover expenditures. Assuming intergovern
mental revenues remain at 1970 levels and
tax rates are not increased, a combined CitySchool District deficit of three-quarters-of-abillion dollars would remain— $325 million
for the School District, and $400 million for
the City. (See Table 1.)

is larger now. Growth in local nontax reve
nues may taper off as rents from Interna
tional Airport slow from their recent spurt.
Added up, total tax and nontax local reve
nues probably will continue to have weak
growth (net of inflation) into the 1970's—
down to a 1.7 per cent annual rate from the
2.0 per cent rate of the late 1960's.
Inflation will raise tax receipts as personal
income and business profits respond to
higher prices in the economy. Real estate
revenues, however, will show little response
to changes in the rate of inflation and thus
will grow at about the same pace, regard
less of economic conditions. Our expecta
tion is that the average rate of inflation in
consumer prices may be about 4.5 per cent
during the early 1970's. Real growth in tax
receipts and inflation, when combined, may
push City revenues up to $670 million in

INTERGOVERNMENTAL AID
During the '50's and '60's, urban centers
in the nation, particularly large central cities,
became the homes of millions of low-income
families. Lacking adequate skills for long
term employment, most families leaned on
the local public sector for education, health,
welfare, and recreation services. However,
there were severe inequities in the ability of

TABLE 1
A P R O J E C T E D I N C O M E S T A T E M E N T F O R F I S C A L 1975

(millions of dollars)

City
Med
ium
1,200 1,000
High

Expenditures
minus
Local Revenues and
existing levels of inter
governmental Aid . . .
Results in a deficit
without new intergov
ernmental funds . . . .
If new Commonwealth
and Federal Govern
ment aid is subtracted
The gap would be . . .

787

School District
High Med Low
ium
747 643 552

Low

Combined
City and
School District
High
Med
Low
ium
1,947 1,643 1,339

616

594

572

327

319

313

943

913

885

584

406

215

420

324

239

1,004

730

454

72
334

56
159

210
210

142

88
151

301

214

144

703

516

310

493

182

MARCH 1971

BUSINESS REVIEW

C H A R T 12
P A Y M E N TS T O P H IL A D E L P H IA B Y T H E F E D E R A L A N D C O M M O N
W E A L T H G O V E R N M E N T S H A V E IN C R E A S E D S H A R P L Y , T H O U G H
IR R E G U L A R L Y .
C O N TIN U A TIO N O F R E C E N T TR E N D S W O U LD
C A U S E I N T E R G O V E R N M E N T A L A ID T O M O R E T H A N D O U B L E B Y
19 7 5 .

Millions of Dollars

(Ratio Scale)

1965

1969-70

1975
18

1965

1969-70

1975

FEDERAL RESERVE BANK OF PHILADELPHIA

Commonwealth is able to get its fiscal house
in order.
2. To the City. Intergovernmental aid to
the City, while only a fraction of its revenues,
has increased sharply— from $12 to $38 mil
lion between 1965 and 1970 (Chart 12). The
largest portion of this aid supports health
and welfare services. Even in light of the
Commonwealth's fiscal problems, these so
cial services are likely to continue to receive
high priority into the 1970's. Consequently,
it seems reasonable to assume that the City
can anticipate continuation in the recent
rate of growth of its intergovernmental re
ceipts— 24 per cent annually to a level of
$110 million in 1975. But, of course, prob
lems faced by Commonwealth and Federal
governments could make a shambles of this
projection.

local governments to support essential ser
vices, and increasing numbers of municipali
ties faced erosion of their tax bases. So, it
was imperative that Federal and state reve
nues be used to tackle the job of improving
public services.
Most of the intergovernmental aid pro
grams that proliferated during the 1960's
emphasized assistance for local services
whose benefits may "spillover" into other
communities— particularly health, educa
tion, and welfare services. Nearly 95 per cent
of aid received by Philadelphia in 1970 was
for these purposes. Education probably will
continue to glean the lion's share of inter
governmental assistance in the 1970's.
1. To the School District. Since 1965, inter
governmental revenues to the School District
have grown from $54 to $146 million— a 160
per cent increase. (See Chart 12.) The bulk
of this aid comes from the Commonwealth
of Pennsylvania. The future of Common
wealth aid to the School District is fraught
with uncertainties. Recent increases in sub
sidy payments have been erratic and explo
sive. The Commonwealth upped its subsidy
payments by 2 per cent between 1965 and
1966, but in the fiscal year 1970 raised them
by nearly 60 per cent. Uncertainty also is
compounded by the budget battles that per
iodically rage in Harrisburg.
Large jumps in aid during the late 1960's
resulted, in part, from hard campaigning by
leaders of Philadelphia, and also from some
special factors, such as the revision in the
Commonwealth formula for providing aid.
Further large jumps seem improbable. A
likely expectation is that aid to Philadelphia
schools will grow at about the rate posted
for all schools in the Commonwealth. Our
projection would place Commonwealth aid
to Philadelphia schools at $280 million in
1975— a 15 per cent annual rate of increase
(Chart 12).4Of course, all of this assumes the

IN THE RED
Even if these rather hefty increases in
intergovernmental aid materialize, the City
and School District would still face a com
bined deficit of approximately $520 million
in 1975. (See Table 1.)5 Without action be
tween now and 1975, deficits will pile up
each year, cumulating to nearly $1.4 billion.
According to our middle projection, the
combined City and School District deficit
might look like this:
1971
$ 60 million
1972
140 million
1973
235 million
1974
370 million
1975
516 million
Cumulative total $1,321 million
Of course, these projections assume that
intergovernmental aid comes through as it
has in the past— a fairly shaky assumption.
Even if it should, however, immediate and
continuing action on tax increases or econ
omy measures or both will be needed.

4 The high projection, 348 million dollars assumes a
20 per cent annual rate, and the low projection, 226
million dollars assumes a 10 per cent annual rate.

5 This is not a cumulative deficit, but outstanding
bills for just the fiscal year 1975.
19

MARCH 1971

BUSINESS REVIEW

PLUGGING THE GAP

4 per cent, for example, would account for
$92 million of new revenue; a 5 per cent
increase in the real estate tax would yield
$7 million; and a one-point increase in the
unincorporated business net profits tax to 4
per cent would produce $7 million. If reve
nue-sharing funds were forthcoming and the
City of Philadelphia instituted these tax in
creases, its deficit would still be $180 million.
For the School District, tax increases would
be less fruitful. None of the large taxes which
make up its local revenue— the real estate
tax and corporate net income tax, for exam
ple— keeps up with the economic growth of
the city as does the wage tax. Consequently,
even substantial increases in tax rates would
not generate enough revenue to plug the
deficit. Increases consistent with past jumps
in the School District's two big taxes would
generate only $30 million in new funds. This
amount, combined with $10 million in
revenue-sharing funds, would still leave the
School District with an $140 million deficit
in 1975 (Table 2).
New Nuisances. Possibly, sharp-eyed offi
cials can find new local sources of funds.
The principal sources of revenue— personal
income, real property, and business receipts
—are already being tapped. Thus, new taxes
must be on narrower bases, and collections
would be smaller. A further problem with
new taxes is that unless they are planned
ahead, local officials may be forced, as they
have been in the past, to push the measures
through with little time allowed for attention
to details.
Two recent taxes of the School District
illustrate. One, a tax on sale of liquor at bars
and restaurants, was declared illegal a few
months after enactment, but after the School
District had begun to count on it. The other,
a tax on payments by business for rented
space, is being collected, but the proceeds
are expected to be small, and collection costs
may be high.
With $140 million in outstanding bills to
be met in 1975, School leaders may be

Even assuming growth in tax revenues and
rapid expansion of nonlocal aid, new mea
sures must be implemented to head off fiscal
chaos in the 1970's. One alternative, Presi
dent Nixon's revenue-sharing proposal, holds
promise of easing the burden on local gov
ernments. But higher tax rates and some new
taxes very likely will have to be added to the
existing package of local collections. Also,
public pressure will continue to mount for
budget cutting.
NEW DOUGH: REVENUE SHARING
By 1975, Federal revenue sharing could
help relieve Philadelphia's financial head
aches. The current Presidential proposal
would give $5 billion of "new money" to the
states and cities of the nation. Under the
proposed formula of distribution, the City
would receive $44 million, and the School
District would garner the more modest sum
of $10 million.4 Of course, passage of the
measure is far from assured. And, some of
the principal bills that may supplant revenue
sharing would provide little direct help to
Philadelphia. A Federal take-over of respon
sibility for supporting monthly welfare
payments, for example, would ease the Com
monwealth's problems. However, since Phil
adelphia's welfare responsibility does not
extend to financial aid to the needy, the pro
posal would be of little direct aid to the City.
UPPING THE LOCAL ANTE
On the local front, pushing up tax levies
is often the first tack taken when deficits
appear. One strategy for the future would be
to jack up rates at a pace similar to recent
trends. How much would this strategy pro
duce? A one-point jump in the wage tax to
‘ This estimate derived from Federal Revenue Shar
ing with State and Local Governments, U.S. Depart
ment of the Treasury, July 1970.

FEDERAL RESERVE BANK OF PHILADELPHIA

TABLE 2
F IL L IN G T H E D E F IC IT : IL L U S T R A T IV E P R O S P E C TS
City of
Philadelphia

(millions of
dollars)
($330)
44

Total Deficit in 1975
Federal Revenue Sharing

School Dis
trict of
Philadelphia

(millions of
dollars)
($180)
10

Local Tax Rate Increases

7
92
7

Real Estate Tax— Increase 5
per cent, from $2,375 to $2.50
per $100 assessed value.
Wage and Earnings Tax— In
crease 33 per cent, from 3 per
cent to 4 per cent.
Business Net Profits Tax— In
crease 33 per cent, from 3 per
cent to 4 per cent.

($180)

Real Estate Tax— Increase 19
per cent, from $2.10 to $2.50
per $100 assessed value.
Corporate Net Income Tax—
Increase 33 per cent, from 3
per cent to 4 per cent.

Remaining Deficit for Fiscal Year 1975

(middle projection)

($140)

all agencies and firms. However, the amount
that could practicably be eliminated is prob
ably small and would go only a short way
towards plugging the gap.
The other line of budget trimming is by
way of reducing the services performed by
City and School government. Certainly a
large part of the impending deficit could be
eliminated in this way. Voters constantly de
cide on what they want government to pro
vide, and they may cut back their demands
as new, higher prices for government ser
vices are established. However, the appeal
of service-cutting, strong in the abstract, is
less appealing when translated into specific
cuts like fewer police, less hospital care,
or fewer teachers— each of which provides
an important service in the eyes of some seg
ment of the community.

tempted to invent four or five new small
taxes. An early start on these taxes may help.
But the pay-off is bound to be small, expen
sive, and uncertain.
TRIMMING THE FAT
Cost-cutting is the other side of the fiscal
coin, and beleaguered taxpayers have been
outspoken in their demands for budget cut
backs. Unfortunately, savings from budget
trimming may be less lucrative than many
critics expect.
Budget trimming may be done in two
ways— improving the efficiency of govern
ment or cutting the services provided by
government. Undoubtedly, some inefficiency
is present in Philadelphia schools and gov
ernment. Inefficiency can be found in almost

MARCH 1971

BUSINESS REVIEW

NO PANACEAS

amounts due state or Federal governments,
and transfer of responsibility for some ser
vices to state government, for example. But
none of the solutions will be easy or cost
less. Moreover, if they are to be effective,
they must be planned and appropriately
timed to meet deficits as they arise.
The deficit projected for the 1975 fiscal
year is large, but not nearly so large as the
cumulative total of deficits that could occur
between now and 1975. Budgets for the
coming year probably will have a moderate
amount of red ink, with the shade deepening
for later years. Next year's problems allow
little time for planning. But, hopefully, an
early start on the fiscal problems of later
years will help head off increasing deficits.

Philadelphia's financial crisis will continue
into the 1970's. Spiraling costs of labor, a
sagging local tax base, and highly uncertain
assistance from other levels of government
will complicate the yearly task of balancing
the City and School District's budgets.
Several alternatives are available for clos
ing the prospective gap in the public budget
— new or higher local taxes, greater aid from
the Commonwealth and Federal govern
ments, and reductions in the local public
budget. Also, a number of new measures
which would directly or indirectly aid the
ailing public sector are waiting in the wings:
revenue sharing by the Federal Government,
provision for crediting local taxes against

FEDERAL RESERVE BANK OF PHILADELPHIA

APPENDIX
TABLE OF CONTENTS

INTRODUCTION

INFLATION IN PUBLIC SERVICES

CITY EXPENDITURES

Courts and Legal Services
Debt Service
Fire Department
Pensions and Employee Welfare
Police Department
Public Health Department and
Philadelphia General Hospital
Public Welfare
Recreation and Cultural Services
Streets Department
Other Operating and Miscellaneous
Expenditures
SCHOOL EXPENDITURES
Structure of School Finance
Grade-Level Costs

SCHOOL EXPENDITURES (Con'd)
Inflation
Employment
Cost Per Student
Enrollment
Debt Service

26
29
31
33
36

51
52
52
52
54

CITY AND SCHOOL DISTRICT REVENUES 56

38
41
44
46

Fiscal Administration: City
Fiscal Administration: School District
Overview of Revenue Problems
Summary of Projections
Methods of Projection
Real Property Taxes
Personal Income Taxes
Business Activity Taxes
Local Nontax Revenue
Intergovernmental Revenue

48
50
51
51
23

56
56
57
59
60
62
62
65
65
68

BUSINESS REVIEW

MARCH 1971

INTRODUCTION
This Appendix contains a more detailed
discussion than that given in the text of pro
jections made for the different spending and
revenue categories of the City and School
District. For each element, three different
projections relating to possible economic
and social conditions in the future are de
scribed. Generally, the high projection in
volves strong economic conditions, rapid
inflation, and high social tensions. These
conditions would cause the most marked
run-up in public spending and revenues. The
medium projection, corresponding to a
strengthening in economic conditions from
their current level, with slowing in inflation,
and unchanged social conditions is most
likely. Finally, the low projection assumes a
weak economy, a substantially reduced rate
of inflation, and some easing in social ten
sions. These conditions would slow growth
in spending but have a smaller impact on
growth of revenues.
Together, these projections describe a
range of revenue and expenditure levels
within which actual spending and receipts
are likely to fall. It is our conclusion that the
middle projection is most probable, while
the high and low projections are, indeed,
extreme.
The projections are not predictions. Ac
cording to its Charter, government in Phila
delphia cannot run up an operating deficit.
Thus, deficits projected here will obviously
be wrong. The projections are not intended
to be right, but to be a description of the
size of the problems that the City and School
District may have to face in future years.

FEDERAL RESERVE BANK OF PHILADELPHIA

INFLATION IN COSTS
OF PUBLIC SERVICES

exceeds the increase in price of outputs by
some amount, averaging about 2 per cent
annually. This difference is caused by tech
nological change, learning by workers, and
other improvements that raise the produc
tivity of inputs. Since neither prices nor
amounts of output by government can be
measured and compared to amounts of in
put, improvement in productivity in govern
ment cannot be measured. Thus, to the
extent that some improvement in produc
tivity occurs in government, the input-based
index of inflation overstates inflation in gov
ernment. The amount of error is probably
small, however, and causes an overstatement
in the rate of public inflation of no more
than two percentage points annually.
Several different input-based indices, re
flecting different rates of inflation in the
various sections of City and School District
government, have been used in this study.
The four major indices are shown in Table 1.
Each was projected by combining wage gains
already specified in contracts between local
government and its workers with projected
national price increases in the public sector.
The national projections were a product of
the Wharton Econometric Model and are
consistent with the three levels of inflation
of consumer prices shown in Table 1.

Inflation is measured in a different manner
in the public sector than in the private sector
of the economy. Inflation is, by definition,
the rise in price of a given product or service
— the increase in the price of shoes or of a
haircut, for example. In the private sector, all
products or services have a price, and al
though quality changes in products compli
cate the problem, price changes can be
observed and recorded. The products and
services produced by government, in con
trast, generally have no established price. No
price is quoted for the service of having a
fire extinguished, for example. Inflation,
therefore, must be measured in different
ways than it is in the private sector. The
established method is to keep track of the
cost of things government buys from the
private sector and to assume that an expan
sion in their prices causes a proportionate
rise in costs of output of the public sector.
All government costs may be traced back
to purchases from the private sector— back
to purchases of labor, materials, and services.
These items compose the inputs to govern
ment. Thus, government inflation is mea
sured by the movement in prices of its in
puts, or purchases, while inflation in the
private sector is measured by the movement
of prices of its outputs or sales. One compli
cation that results from this approach is that
improvements in productivity are not taken
into account in the public sector. In most
private firms, the increase in cost of inputs

CITY EXPENDITURES
The financial structure of the City includes
a large number of separate funds from which
appropriations to support each department
are drawn. The largest fund, the General

TABLE 1
P R IC E IN D IC E S

1965 to 1970
ACTUAL
Nonuniformed Departments ...........
8
Uniformed Departments .................
9
School D istric t..........................
10
Philadelphia Consumer Price Index .
4.3

Average Annual Rate of Change
1970 to 1975
HIGH
MEDIUM
12
10
13
11
12
10
5.5
4.5

LOW
8
9
8
3.5

MARCH 1971

BUSINESS REVIEW

months for completion, while the larger civil
cases took more than four years for decision.
Long delays are costly for parties involved
in disputes. But perhaps more important, the
delays discouraged proper exercise of re
sponsibility by the courts. Many prosecutors
watched their cases dissolve during the long
wait as witnesses became forgetful or inac
cessible. And the hopeless wait for a civil
hearing discouraged a number of litigants
from ever entering their cases in court.
Philadelphia courts are under the direct
authority of the Commonwealth. The Com
monwealth amended the Constitution in
1968 to reorganize the Philadelphia courts.
Qualifications of judges in the lower courts
were raised, and the whole structure was
streamlined. These alterations, combined
with a sharply increased staff of prosecutors
in the District Attorney's office, cut delays in
criminal proceedings by half. Long waits in
major civil cases remain, however.
These and other changes have meant
sharply increased expenditures for Courts
and Legal Services in the last three years— up
33 per cent since 1967. The next few years
will see further changes in the court system.
These alterations, combined with increasing
rates of crime, spell continued expansion in
spending.
Changes in the way the court system pro
cesses cases may lower the system's load
below what it otherwise might have been.
But improvement in the quality of treatment
given cases that do remain in the courts will
probably pick up any slack that develops.
Consequently, the most reasonable expecta
tion may be that future growth, net of infla
tion, in the City's expenditures on the Courts
and Legal Services will increase at about the
rate it has over the last four years—3.5 per
cent per year. Any significant attempt to
reduce the backlog of cases will increase this
expenditure and raise the rate of increase
of expenditures on the legal system to per
haps 5 per cent. Finally, if the method of
handling defendants is altered and ways of

Fund, includes the receipts and disburse
ments of all local taxes and miscellaneous
revenues, plus the principal quantity of inter
governmental revenues received by the City.
This fund, together with the Capital Fund,
contains essentially all the money over which
City Council can exercise discretion. Other
major accounts— Sewer Fund, Water Fund,
Liquid Fuel Tax Fund, Gasoline Tax Fund, and
Port Facilities Fund— are for specialized pur
poses and are only indirectly affected by
decisions of the City's governing bodies.
The projections here correspond to expen
ditures from the General Fund and the inter
est cost paid from the General Fund to the
Capital Fund. Contributions to operating
departments from funds over which the
City's governing bodies have little direct au
thority have been subtracted. For example,
contributions from the fuel tax and parking
funds to the Streets Department have been
eliminated. In addition, other units, such as
the Model Cities Agency, that are completely
supported by special nontax revenues or by
intergovernmental aid not included in the
General Fund have been omitted. In sum,
the projections are restricted to those City
expenditures that may impinge upon the
local tax base.
The departments for which expenditures
have been projected, the revenues they re
ceived from the General Fund in the 1970
fiscal year, and their projected appropria
tions from the General Fund in fiscal 1975
are listed in Table 2. Expenses of nine indi
vidual departments which account for 82 per
cent of City expenditures, have been pro
jected separately. The 34 smaller City agen
cies, which spend the remaining 19 per cent
are projected in one miscellaneous grouping.
COURTS AND LEGAL SERVICES
The court system in Philadelphia came
under heavy criticism in the early 1960's as
its backlog of cases grew and standards of
performance slipped. In 1965, for example,
the average criminal case took nearly ten

FEDERAL RESERVE BANK OF PHILADELPHIA

per cent per year. These projections, includ
ing the impact of general government infla
tion, are shown in Chart 1.

treating cases that do reach the Courts stay
the same, increases in expenditures on Legal
Services would be lower— approximately 2.3

TABLE 2
C IT Y E X P E N D ITU R E S

(millions of dollars)

1970
Expenditure
Constant (1968) Dollars
Courts and Legal Services.............
Debt Service...................................
Fire ................................................
Health and Philadelphia General
Hospital .....................................
Pension and Employee Welfare . . .
Police ..............................................
Recreation .....................................
Streets ...........................................
W elfare...........................................
Other .............................................
T o tal* .........................................
Current Dollars
Courts and Legal Services.............
Debt Se rvice ...................................
Fire ................................................
Health and Philadelphia General
Hospital .....................................
Pension and Employee Welfare . . .
P o lice ..............................................
Recreation .....................................
Streets ...........................................
W elfare...........................................
Other ..............................................
T o ta l* .........................................

1975 Projections
MEDIUM

LOW

21
52
26

28
76
27

26
76
27

24
71
27

40
38
66
29
35
35
64
406

71
97
98
36
44
48
93
618

65
70
89
33
44
46
86
562

53
41
84
31
39
39
74
485

23
59
30

58
102
61

48
102
54

40
95
48

45
43
80
32
40
39
72
465

148
152
218
74
91
101
194
1200

121
111
175
62
81
85
160
1000

88
66
148
52
64
64
122
787

* Totals may differ from addition of columns because of rounding.

HIGH

BUSINESS REVIEW

MARCH 1971

CHART 1
C O U R T S A N D L E G A L S E R V IC E S
Total City (Millions) (Ratio Scale)

Courts and Legal (Millions)
$70

$1000
900
700
500
400
300

DOLLARS

200

150

1954 DOLLARS

1955

5
1960

1965

1970

1975

This category includes expenditures by courts (71 per cent of total group expenditures),
District Attorney, Sheriff, Register of Wills, Prothonotary, and fees for witnesses and jurors.
Statistical analysis was made of the relation between real growth in expenditures of this
category and several other variables, such as crime indices, population, and income of city
residents. Results were poor, probably because the appropriation of the unit is determined
administratively without the aid of obvious measures of the demand for its services. The final
projections, listed in Table 3, were made by extending the trend in spending of the group,
with small alterations to represent the effect of changes in methods of handling cases in the
courts.
TABLE 3
C O U R T S A N D L E G A L S E R V IC E S
(millions of dollars)
1970
Expenditure

Constant (1968) D o llars.....................................
Current D ollars....................................................

21
23

1975 Projections

HIGH
28
58

MEDIUM
26
48

LOW
24
40

FEDERAL RESERVE BANK OF PHILADELPHIA

DEBT SERVICE
Construction administered by agencies of
the City of Philadelphia is supported, in part,
by debt service payments from the General
Fund, including interest and principal on
bonds plus down payments on new projects.
But General Fund payments for debt service,
based on local tax and nontax receipts, are
only a part of the money that flows into
public construction in Philadelphia. Over the
last five years, City agencies have adminis
tered $1.5 billion worth of construction.
Three-fifths of this amount was supported
by aid from other governments. Of the ap
proximately $500 million of locally sup
ported construction, $200 million was
supported by payments of debt service from
the Sewer and Water Funds. The remaining
amount, about $300 million, was supported
by payments of debt service from the Gen
eral Fund.
Because other funds played a large role,
construction administered by the City during
the late 60's caused only a small increase in
debt service payments financed out of gen
eral revenues in Philadelphia. The increase,
20 per cent, was barely more than the growth
of inflation over the period. Consequently,
when the impact of inflation is removed
from the City's payments of debt service,
costs to the City are shown to have edged up
only slightly.
The slow growth in the cost of debt service
to the City will be increased in the next five
vears, but largely without pressure on the
City's tax base. Planned new projects that
must be supported by General Fund pay
ments will add up to an 8.3 per cent rate of
increase in debt service. (See Chart 2 and
Table 4.) However, the projects are concen
trated among self-supporting facilities—
major new improvements at Philadelphia
International Airport and improvements to
the City's transit facilities. Rising contribu
tions out of the General Fund, therefore, will
be offset by increasing revenues resulting
from the new capital facilities.
29

BUSINESS REVIEW

MARCH 1971

CHART 2
D E B T S E R V IC E

Two estimates were made of future debt service payments. The low estimate was based
upon the 1970-75 Capital Program of the City. The higher estimate is based on an extension,
in constant dollars, of the 1970 level of the City's capital budget to future years. Examination
of past Capital Programs showed a slight tendency for the City to underestimate construction
in the final years of the Program. Assumption of a constant level of capital spending was used
to correct for this.
The constant dollar estimates of construction were translated into current dollar estimates
by applying an inflation index for public buildings. Interest costs for supporting the con
struction were held at a level of 7 per cent. The resulting estimates are shown in Table 4.

TABLE 4
D E B T S E R V IC E
(millions of dollars)
1970
Expenditure

Constant (1968) D o llars................. .................
Current D o llars................................ .................

52
59

1975 Projections

HIGH
76
102

MEDIUM
76
102

LOW
71
95

FEDERAL RESERVE BANK OF PHILADELPHIA

FIRE DEPARTMENT
Largely because the physical size of the
City has not changed, Fire Department ex
penditures have expanded only slightly, after
the effects of inflation are removed. One
fiscal consequence of this has been a steady
decline in the share of General Fund expen
ditures taken up by the Fire Department—
from a little over 10 per cent in 1954 down
to 6.5 per cent in 1969.
About 97 per cent of the Department's
budget goes for putting out fires. The re
mainder is used for inspection and public
education. Fire fighting is carried out by men
from 99 fire houses throughout the city.
Generally constructed near the turn of the
century, many of the fire houses are them
selves only marginally above the standards
of construction the Department's inspectors
require for residences and offices of the city.
Ten houses were overhauled in the last five
years, and seven more will be revamped dur
ing the next five years. Expansion in the num
ber of houses, however, which is the main
way new capacity is added to the Fire De
partment, has been limited. During the next
five years, only two houses are scheduled
for construction. The new staffs of these fire
houses, numbering 48 firemen of various
grades, is expected to comprise the majority
of expansion in the Fire Department. Also,
small expansion in the central administration
of the Fire Department may be required to
coordinate these new facilities. Projections
for the Fire Department, combined with ex
pected inflation, are shown in Chart 3.
31

MARCH 1971

BUSINESS REVIEW

CHART 3
F IR E D E P A R T M E N T
Total City (Millions)

(Ratio Scale)

Fire Department (Millions)

Real expenditures of the Fire Department were projected by adding to current staff of the
Department the expected number of employees of two new fire stations. Each new firehouse,
it was assumed, would be staffed with one fire captain, two fire attendants, and 21 firemen,
about the average for current houses. It was further assumed that ten more civilian employ
ees would be hired for central administration. Expenditures on items other than personal ser
vice are small— 8.5 per cent of the Fire Department budget. These other expenditures, it was
assumed, would not increase in the next five years.
Two different indices of inflation were combined to project current dollar expenditures of
the Fire Department. The first measure, for members of the Fire Fighters Union who comprise
97 per cent of employment in the Department, was the wage index computed for the police.
Over the years, the Fire Fighters Union has kept salary levels proportional to those of the Po
lice Department. The second, for the small number of civil service employees of the Depart
ment, was the index for nonuniformed employees of the City.

TABLE 5
F IR E D E P A R T M E N T
(millions of dollars)

1970
Expenditure
Constant (1968) D ollars.....................................
26
Current D ollars....................................................
30

_
_

1975 Projections
HIGH MEDIUM
LOW
27
27
27
61
54
48

J j H H H H H H _ _H _ H_ _L_H __ _H_ _ HI__ __ _

FEDERAL RESERVE BANK OF PHILADELPHIA

PENSIONS AND EMPLOYEE WELFARE*
This category is composed, principally, of
City contributions towards pension and So
cial Security plans for its employees. The
smaller, nonpension, part of the budget sup
ports insurance and other benefits.
Pension payments have shown dramatic
growth in recent years for three reasons.
First, the City has, with Court motivation,
begun a systematic program of paying off its
unfunded actuarial debt (explained below).
Second, the pension benefits provided by
the City have been substantially liberalized.
Finally, recent rapid growth in wages has led
to proportional growth in the City's pension
contributions.
The pension fund is supported largely on
a pay-as-you-go basis by contributions from
the City, and by smaller contributions by the
Commonwealth and by City employees. In
recent years, there has been an effort to in
crease the balance in the fund to pre-pay
pension liabilities and to add a sizable
interest income to the sources of pension
support.
If the pension system were run as an
insurance company would run it, the fund
would show a balance at all times that would
be sufficient, with its interest income, to pay
pensions for which the City were currently
liable. The current liability is the sum of pen
sion payments that, given normal lengths of
life, must be paid to those currently retired
or disabled, plus the pension amounts to
which current employees would be entitled.
The sum of money required to cover this
"actuarial liability" is quite large—about
$550 million in 1967, the last time of evalua
tion. With a fund balance of less than $50
million, the amount of money set aside by
the City has fallen far short of the actuarial
liability. The difference, about $500 million,
is the unfunded actuarial liability. The City
* We would like to thank Lennox Moak for pointing
out the importance of this budget element. Any errors
in its projection are, of course, our own.
33

BUSINESS REVIEW

MARCH 1971

Pensions and Employee Welfare (cont'd)
has begun a process of paying off this lia
bility, and this program will add to future
pension payments. The amount paid in the
1975 fiscal year will be about $12 million, up
from just $7 million presently.
More expensive, however, may be the
results of the next actuarial evaluation. The
City is required to have an actuary compute
its liability, and necessary rate of payments
at frequent intervals. The next such evalua
tion will come before 1975 and may sub
stantially increase payments required for
new pension liabilities.
The City takes on new liability each work
ing day as more employees are added, aver
age wages are increased, and employees put
in more service for the City. As well as pay
ing off the past unfunded liability (the $500
million), the City attempts to set aside an
amount that will cover new liabilities it as
sumes. The amount that must be set aside is
affected by several factors, the most impor
tant of which is the expected future rate of
growth of average wages. The last evalua
tion showed that the City must set aside an
amount equal to 10 per cent, including
payments for Social Security, of its wage
payments. This proportion was based on an
expected rate of growth of wages of 3 per
cent. An increase in this expected rate of
wage growth, say to 6 per cent, would about

double the percentage contribution required
by the City. When the next evaluation is
made, a larger rate of wage expansion will
be assumed, thus increasing the City's con
tribution. The exact consequence of this
evaluation cannot be known in advance. In
these projections, we have assumed three
alternative possibilities. On the low side, we
held the rate of contribution by the City
unchanged. For a medium, and more prob
able, estimate, we assume that the rate of
contribution is increased to 17 per cent.
Finally, as a high estimate, we assume a con
tribution rate of 22 per cent.
Some increase in payments for insurance
and other services that make up Employee
Welfare will occur. Increase in this element,
averaging 16 per cent annually since 1955,
has been erratic. We have assumed a con
servative growth in this element of 2.4 per
cent annually.
Since pensions are a payment by govern
ment instead of a purchase of a good or
service, the input-based price indices used
throughout this study do not apply. All pro
jections were made in current dollars. The
constant dollar projections shown in Table
6 are based upon the average price inflation
for all of Philadelphia government and are
for purposes of comparison with other pro
jections only.
34

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART 4
P E N S IO N S A N D E M P L O Y E E W E L F A R E
Total City (Millions) (Ratio Scale)

Pensions and Employee Welfare (Millions)

$1000

900
700
500
400
300

200

150

100

24
1955

1960

1965

1970

1975

TA BLE 6
P E N S IO N S A N D E M P L O Y E E W E L F A R E

(millions of dollars)

1970
Expenditure
38
Constant (1968) D o lla rs................. .................
Current D o lla rs................................ .................
«

1975 Projections
HIGH MEDIUM
LOW
97
70
41
152
111
66

MARCH 1971

BUSINESS REVIEW

force in the private sector.
Public concern over crime has been trans
lated into higher wages more than into
expansion in the size of the police force. The
number of policemen per capita has grown
at a regular pace over all of the last fifteen
years, except for a small jump in 1965.
While the size of the force has increased
only slowly, rates of reported crime have
jumped sharply. But crime rates are an un
reliable measure of the demand for police
services. Published crime rates include only
crimes reported to and validated by the
police. Subtle changes in behavior of the
public or in the administrative treatment of
crimes may lower or raise the number of
crimes reported and validated. For example,
a drop in minor crimes in Philadelphia in the
last few years was caused, in part, by a
change in the method of treating drunks and
vagrants. Instead of being arrested as com
mitters of crime, as in the past, drunks and
vagrants have increasingly been held in cus
tody with no arrest.
Future years probably will entail growing
crime rates. However, the increase in crime
need not lead to a proportionate expansion
in the number of police personnel and size of
expenditures. Expansion in line with that of
recent years may be more likely. (See Chart
5.) Our middle projection is an extension of
growth in the last four years. The higher pro
jection assumes a significant acceleration in
crime combined with an increase in the reve
nues available to the city for crime fighting.
Finally, the lower projection assumes very
low growth in crime and budget stringency.

POLICE DEPARTMENT
As crime on the streets has risen, the effec
tiveness of the Police Department has be
come a predominant interest of residents of
the city. Expenditures reflect this concern.
Not only has the proportion of the City bud
get devoted to police expenditures increased
in every year over the last decade, but also
it has increased more rapidly than any other
component, except pension payments. While
inflation in wage levels of police employees
has contributed most of the increase, the
City has also supported a regular increase
in the size of the force.
In the period from 1954 to 1969, the aver
age salary of a policeman in Philadelphia
doubled. And, if the trend established in
negotiations for the years 1968 through 1971
continues, the average wage level of person
nel in the Police Department will double
again by 1977.
Salaries of policemen grew more slowly
than those in the rest of the economy during
the middle 1950's. Moreover, police salaries
in Philadelphia fell substantially below those
in other large cities during the same period.
Ground lost in the 1950's has been amply re
covered, yet the determination of police
for salary improvements may continue to be
strong. At the extreme, salary increases con
sistent with those in the last three years may
continue to 1975. This would mean a twothirds jump in wage levels by the 1975 fiscal
year. More likely, the budget stringency of
the City will cause some retrenchment to a
rate more consistent with that of the labor

FEDERAL RESERVE BANK OF PHILADELPHIA

CH A R T 5
P O L IC E D EPA R TM EN T
Total City (Millions) (Ratio Scale)

Police Department (Millions)

$200

100

90
80
70
60
50
40
30

Extended statistical analysis was made of police expenditures, relating the size of the bud
get to crime rates, population, personal income, and the total City budget. The final equa
tion used relied upon just one variable, personal income of Philadelphia residents. The
equation may be thought of as representing the propensity of Philadelphia residents to con
sume police services. The results of the statistical analysis were augmented by a projection
of crime, traffic duties, and community liaison work. These projections, based upon assump
tions about social conditions in the city, were used to increase and decrease projections
based upon personal income of residents of the city. The resulting projections are shown in
Table 7.
TABLE 7
P O L IC E E X P E N D IT U R E S

(millions of dollars)

Constant (1968) D o llars.................
Current D o llars................................

...............
...............

1970
Expenditure
66
80

HIGH
98
218

1975 Projections
MEDIUM
LOW
89
84
175
148

MARCH 1971

BUSINESS REVIEW

PUBLIC HEALTH DEPARTMENT AND
PHILADELPHIA GENERAL HOSPITAL
Changing attitudes towards medical care
combined with shifting composition of the
city population have increased the responsi
bility of City government for health services.
Medical care has long been considered a
necessity—a service that should be provided
regardless of ability to pay. But recent legis
lation, such as Medicare, has helped make
this notion fact. Also, multiplication of the
city's low-income population has upped
demand for local health care. Partially be
cause of these factors, City expenditures for
health services, net of inflation, have grown
about 6 per cent annually over the last five
years. Increased attention to the special
medical problems of the population of lowincome areas will probably lift this rate of
growth to about 10 per cent in the future.
Of course, City health agencies do more
than prescribe pills and take heart beats.
Dense development of the city requires
maintenance of strict standards of sanitation,
a livable environment, and a careful watch
for communicable disease. But traditional
health care at Philadelphia General Hospital
and in the many clinics of the Community
Health care division of the Department still
commands more than 90 per cent of City
health resources.
State and Federal governments have in
creased their aid to Philadelphia for health
services. In the 1950's, support for the Health
Department and Philadelphia General Hos
pital derived exclusively from local sources.
In contrast, State and Federal governments
now provide about 40 per cent of the funds
38

FEDERAL RESERVE BANK OF PHILADELPHIA

to support these agencies. In fact, no growth
would have occurred, after allowing for in
flation, had it not been for State and Federal
grants. In other words, the real contribution
of the City has been essentially constant for
ten years. Indeed, more recently, the City's
real contribution to these agencies has even
declined.
As other governments evidence a willing
ness to shoulder more of the burden, the
City may decide to reduce its load. Our pro
jections reflect two different rates of increase
of intergovernmental aid for health and three
different responses by the City. The com
bination yielding the highest growth assumes
intergovernmental aid for health will grow
by 21 per cent annually, as it has in the last
five years, and real City contributions to
health care will remain constant. A middle
alternative includes the same rate of growth
of intergovernmental aid, but a substitution
of intergovernmental money for City money

—each dollar of new intergovernmental aid
causing a 17 cent reduction in City payments,
net of inflation, as it has for the last four
years. Finally, the lowest growth would result
from a reduction in the trend of intergovern
mental aid for health to 15 per cent annual
growth, and an increased substitution by the
City, to a 25 cent reduction in City contribu
tion for each new intergovernmental dollar.
Other elements in the health category—
Medical Examiners Office, Air Pollution and
Environmental Hazards Control, and general
administration— comprise only 7 per cent of
health expenditures and have erratic growth.
Real spending for the Examiner's Office is
expected to keep up the trend established
during the 1960's of 2.7 per cent annual
growth; Pollution and Flazards Control
spending is expected to remain constant in
real terms; general administration expendi
tures are expected to grow in proportion to
total health spending.
39

MARCH 1971

BUSINESS REVIEW

CHART 6
P U B L IC H E A L T H D E P A R T M E N T A N D P H IL A D E L P H IA G E N E R A L H O S P IT A L
Total City (Millions) (Ratio Scale)
Public Health (Millions)
$200

100

90
80
70
60

50
40

TABLE 8
P U B L IC H E A L T H A N D P H IL A D E L P H A G E N E R A L H O S P IT A L

(millions of dollars)

1970
Expenditure
40
45

Constant (1968) Dollars
Current D o llars.............

1975 Projections
HIGH MEDIUM
LOW
71
65
53
148
121
88

FEDERAL RESERVE BANK OF PHILADELPHIA

PUBLIC WELFARE
Higher crime rates and an increase in lowincome households in Philadelphia both put
pressure on the Department of Public Wel
fare. As well as carrying out the City's re
sponsibility to the physically and fiscally
indigent, the Department watches over the
care and rehabilitation of persons impris
oned through arrest or through conviction
in Philadelphia courts. Reflecting increasing
importance of these concerns in the city, the
share of the total City budget going to the
Department has constantly increased.
Child Care. Responsibility for administer
ing welfare services in Pennsylvania is split
between the Commonwealth and local gov
ernments: the Commonwealth shoulders the
heavy burden of payments to needy families;
Philadelphia's responsibility is for institu
tional care of neglected, dependent, or de
linquent children, and aged or infirm adults.
Care of children, consuming about 60 per
cent of welfare money, is the largest welfare
function of the City and accounts for an
overwhelming share of past and future ex
pansion in welfare costs.
Two factors account for the increasing
importance of child care. First, while num
bers of City recipients in other categories
have been declining, the number of children
under care has risen sharply. The sharp rise
in children under care reflects the change in
composition of the city's population—to
wards more low-income families.
A second cause of the increasing impor
tance of child care is expansion in cost of
treating each child. In the early 1960's, pri
vate voluntary agencies provided substantial
savings to the City by administering much of
the child care. However, as the number of
children under care mushroomed beyond
the capacity of private agencies, the public
role expanded. Since taxpayers must bear the
full cost of treatment when it is provided
publicly, the average cost per child to the
City naturally grew.
41

MARCH 1971

BUSINESS REVIEW

changes in the bail system have made bail
more accessible to low-income persons,
growth in the numbers temporarily held in
custody before trial has slowed.
The most substantial change in the future
probably will be in the number of persons
held awaiting trial. Programs tried or dis
cussed at present, including substitution of
cash bail for the current bail-bond system, or
pre-indictment probation, may ultimately re
duce the number of detentionees by as much
as 50 per cent.
Adding up these possibilities, the lowest
expenditure projection is that current pro
grams would be successful in emptying City
jails of as many as half of their detentionees
by 1975, that the courts would continue their
practice of dealing non-jail sentences, and
that the increase in crimes would be low.
This combination would yield a small reduc
tion in prisoners in State institutions— of
about 15 per cent— and a larger reduction
in the City prison population— 30 per cent.
More likely, courts will deal out somewhat
stiffer sentences as pre-indictment probation
reduces the caseload of the courts, and as
they try an increasing number of cases. This
may yield an approximately stable population
in State prisons and a slight decline in the
City prison population— 5 percent. Finally, a
rapid increase in crime within the city, com
bined with stiffer treatment in the courts,
would increase the population in both the
State and City prisons— by approximately 20
per cent and 10 per cent respectively.
Expenditures per prisoner have risen
rapidly in recent years. This increase reflects
an upgrading of care and the tendency for
many prison costs to be unaffected by
decline in the number of inmates. The fluc
tuation in total costs is not completely pro
portionate to the number of prisoners in
institutions. Indeed, total real expenditures
for Philadelphia prisons have been almost
constant up to the last couple of years, while
the number of inmates has varied widely.
The lower estimate of prison population may

As the low-income population of the City
continues to grow, the number of children
under care probably will continue to grow—
perhaps by about 13 per cent to fiscal 1975.
With much of the change in responsibility
for administering child care now completed,
the growth of cost per child may slow. We
have taken that as a minimum projection.
More likely, there will continue to be in
creases, between 4 and 7 per cent annually,
to support improved quality of care.
Care of the Aged. The Department of Pub
lic Welfare provides care for the aged
principally through the Riverview Home.
Riverview, once regarded as essentially a
rest home, has in recent years been upgraded
to provide full nursing home facilities. The
increased medical care implicit in this
change, of course, has meant a sharp in
crease in cost per patient, as well as reduc
tion in the number of patients served by the
facility. Between 1966 and 1968, the real
expenditure per patient more than doubled,
while the total number of persons served
within the facility decreased by 15 per cent.
The resident population of the home has
now stabilized at a level of 850, with a num
ber of outpatients. Costs, however, may be
expected to continue to rise as further im
provements in medical services are made in
future years. The exact jump in costs will
largely depend upon budget stringency of
the City. As a minimum, we have projected a
standstill in expenditures per patient, with
future growth of from 3 to 6 per cent an
nually more likely.
Custody of Prisoners. Despite rapid in
creases in crime, the prison population for
which Philadelphia provides support has de
clined continuously over recent years. Two
forces underlie change in the number of
inmates. First, the courts have lowered the
relative number of prison sentences they
deal out. They have substituted parole and
probation for time behind bars. Second, as

FEDERAL RESERVE BANK OF PHILADELPHIA

as the quality of the correctional system is
upgraded.
Total expenditures and projections for
prisons, the Riverview Home, child care and
other duties of the Department of Public
Welfare are shown in Table 9.

lead to a rise of about 25 per cent in expen
ditures per prisoner— reflecting fixed costs
and maintenance of current standards of
services. The medium and high estimates of
prison population are consistent with con
tinued small increases in costs per prisoner

CH A R T 7
P U B L IC W E LFA R E
Total City (Millions) (Ratio Scale)

1955

Public Welfare (Millions)

1960

1965

1970

1975

TABLE 9
D E P A R T M E N T O F P U B L IC W E L F A R E

(millions of dollars)

1970
Expenditure
35
39

Constant (1968) Dollars
Current D o llars.............

1975 Projections
HIGH MEDIUM
LOW
48
46
39
101
85
64

MARCH 1971

BUSINESS REVIEW

to the Art Museum, the street beautification
campaign, and upkeep of over 8,000 acres
of open space. Of the numerous programs
under FPC jurisdiction, park patrol is largest
in expenditure terms. Yet the patrol has
shown little change in the 1960's, and the
number of park guards hovers around 525. As
traffic and crime become a more important
consideration for the Park Commission, some
increase in the number of guards may be
expected. We have projected a 5 per cent
rise in the numbers of guards.
Other programs of the Fairmount Park
Commission include maintaining park areas
and conducting various recreation pro
grams in cooperation with the Department
of Recreation. The maintenance expendi
tures, which have been essentially constant,
net of inflation, in recent years, were pro
jected to remain constant. Expenditures on
recreation programs were projected to grow
at the rate established for expenditures by
the Department of Recreation.

RECREATION AND CULTURAL SERVICES
This group of activities augments the ef
forts of other parts of local government in
Philadelphia. Expenditures of this group
have grown at about the same rate as has the
total City budget in recent years.
Department of Recreation. This unit spe
cializes in the operation and maintenance of
recreation centers, playgrounds, swimming
pools, skating rinks, golf courses, and other
recreation facilities scattered throughout the
city. In the last four years, the number of
such facilities has increased by about 5 per
cent, and the average amount of expendi
ture, net of inflation, on service at each
facility has expanded by about 10 per cent,
yielding a total increase of 15 per cent in
real expenditures. Plans for future expansion
in facilities, listed in the Capital Program of
the City, indicate a much more energetic
development of recreation spots in the
area. If completed, the plans alone would
increase recreation services by 30 per cent,
and increase in staff at facilities throughout
the city would chalk up another 15 per cent
of expansion. This rate of growth is taken as
the high rate in these projections; the me
dium rate is an extension of past rates of
building; and the low is that projection im
plied by no increase in the number of recrea
tion facilities in the City.
Remaining responsibilities of the Depart
ment include contributions to private agen
cies, such as Robin Hood Dell, Incorporated,
and the Philadelphia Grand Opera Company;
operation of the Veterans Stadium Complex;
and general administration. The new stadium
will push these costs up to a higher rate of
growth than they have shown in the past—
with total spending moving up $2 million
to $3.5 million in the 1975 fiscal year.

Free Library System. The system maintains
collections and provides library materials and
professional services at the main library at
Logan Circle, the Mercantile Library, several
special facilities, and 44 branch libraries.
Expenditures for these services were pro
jected in two parts. First, the number of new
facilities and expansion in personnel required
by these facilities were projected. Second, in
crease in expenditures per facility was pro
jected. Three different levels of expansion of
facilities were projected— a high projection,
consistent with the Capital Program of the
City; a medium projection, equal to an exten
sion of the past trend in the number of facili
ties; and a low estimate, assuming no new
facilities. Expenditures per facility were extra
polated by extension of the past trend.
Combined projections for the Department
of Recreation, the Fairmount Park Commis
sion, and the Free Library System are shown
in Table 10.

Fairmount Park Commission. The Com
mission is concerned with City appropriations

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART 8
R E C R E A T IO N A N D C U L T U R A L S E R V IC E S
Total City (Millions) (Ratio Scale)

1955

1960

Recreation and Cultural Services (Millions)

1965

1970

1975

T A B L E lO
R E C R E A T IO N A N D C U L T U R A L S E R V IC E S

(millions of dollars)

1970
Expenditure
Constant (1968) D o lla rs................. .................
29
32
Current D o lla rs................................ .................

1975 Projections
HIGH MEDIUM
LOW
36
33
31
74
62
52

MARCH 1971

BUSINESS REVIEW

tures in the future. The timing of the increase
in maintenance, however, is uncertain. Two
assumptions were made. The low projection
is based on the assumption that maintenance
stays at its current level during the next five
years. The middle and high projections as
sume a resumption of the level of mainte
nance that was carried out in the early 1960's
— about 35 per cent above the current level.
About two-thirds of current street main
tenance expenditures are supported by gaso
line and other fuel taxes not included in the
General Fund of the City. Revenue from
these taxes was substracted from the mainte
nance expenditure for these projections.
Since these taxes grow slowly, much of the
projected increase in maintenance spending
must come from the General Fund.
Street lighting and traffic engineering ex
penditures were both projected to remain
approximately constant in the next few
years. A slight increase in electricity used for
lighting was assumed for medium and high
projections. For the high projection of engi
neering, a resumption of spending at the
1963 level was assumed. Combined expen
ditures for the complete budget of the
Department of Streets are listed in Table 11.

STREETS DEPARTMENT
The Streets Department does the City's
housekeeping— trash collection, street main
tenance, street lighting, and traffic engineer
ing. As a whole, the function has received
decreasing attention in recent years, as
expenditures, net of inflation, have shrunk
by almost 2 per cent per year.
The largest part of this Department's bud
get is earmarked for sanitation—collection of
trash throughout the City. Contrary to expen
ditures for the whole Department, spending
for sanitation has shown a gradual and con
tinuing increase over the years. The main
source of the increase has been growth in
tonnage collected— a trend that probably
will continue. Cost per ton of trash collec
tion, however, has increased only slightly.
Sanitation expenditures were projected by
assuming a 5 per cent annual rate of growth
in tonnage collected and continuation in the
slow upward trend in cost of collection per
ton.
Maintenance and construction of streets
has received very sharp cutbacks in recent
years. Worsening conditions of streets will
probably cause some expansion in expendi

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART 9
S TR E E TS D EP A R TM EN T
Total City (Millions) (Ratio Scale)

Streets Department (Millions)

$1000
900
700
500

$100

90
80
70
60

400
300

50
200

150

100

1955

1960

1965

1970

1975

T A B L E 11
STR EETS DEPARTM ENT

(millions of dollars)

1970
Expenditure
Constant (1968) D o lla rs............. .....................
35
Current D o llars............................

1975 Projections
HIGH MEDIUM
LOW
44
44
39
91
81
64

MARCH 1971

BUSINESS REVIEW

of City Representative and the Philadelphia
Civic Center.
The Office of Information and Com
plaints, the Fair Housing Commission, the
Commission on Human Relations, and the
Office of Civil Defense all fall into the Public
Service category (1.6 per cent). The sixth
category includes the Department of Public
Property (31.0 per cent), the Department of
Licenses and Inspections, the Zoning Board
of Adjustment, the Licenses and Inspections
Review Board, and the Board of Building
Standards (9.8 per cent). The last category,
Education Support (5.3 per cent), takes in
expenses for the Philadelphia Historical
Commission, the Art Commission, the
Youth Study Center, and contributions to
Community College.
Other Operating and Miscellaneous Ex
penditures has remained a rather constant
proportion of the total budget of the City.
Therefore, it was projected as a multiple of
the projections made for other City depart
ments—equal to .15 times the total.

OTHER OPERATING AND
MISCELLANEOUS EXPENDITURES
This category may be broken into seven
divisions: (1) Offices of Elected Officials;
(2) Supporting Offices; (3) Tax Collection;
(4) Commerce; (5) Public Services; (6) Li
censes, Inspections and Public Property; and
(7) Education Support.
The first, Offices of Elected Officials, in
cludes the Offices of Mayor, of City Councilmen and of City Commissioners—8.0 per
cent of "other." Supporting Offices (22.9
per cent) are the following: City Planning
Department, Economic Development Unit,
Development Coordinator, Redevelopment
Authority, Finance Department (excluding
Capital Budget Financing), the Managing Di
rector's Office, Auditing, Department of Rec
ords, City Treasurer, Procurement, and the
Law Department. Tax Collection (11.9 per
cent) includes the Department of Collections,
the Board of Revision of Taxes, and the Tax
Review Board. Commerce (9.4 per cent) takes
in the Department of Commerce, the Office

FEDERAL RESERVE BANK OF PHILADELPHIA

C H A R T tO
O T H E R O P E R A T IN G A N D M IS C E L L A N E O U S E X P E N D IT U R E S
Total City (Millions) (Ratio Scale)
Other Operating and Miscellaneous (Millions)

$100

90
80
70
60
50
40

T A B L E 12
O T H E R O P E R A T IN G A N D M IS C E L L A N E O U S
(millions of dollars)

1970
Expenditure
Constant (1968) D o llars.....................................
64
Current D o llars....................................................
72

1975 Projections
HIGH MEDIUM
LOW
93
86
74
194
160
122

MARCH 1971

BUSINESS REVIEW

SCHOOL EXPENDITURES
In his introductory message accompany
ing the 1971 budget, Dr. Mark Shedd,
Superintendent of Schools of Philadelphia,
described the budget in the following
words: "It is a standstill budget from which
we have already pared more than $8 million
of vitally necessary services to children and
adults. It is a budget that provides very little
at a time when much is needed. It is a budget
of frustration." In the document, he went on
to call for a $314 million budget, better than
10 per cent higher than the previous year.
The discouraging tone used to characterize
this sizable increase is indicative of the
forces which currently impinge upon
the School District. While population in the
city has remained nearly constant for the
last twenty years, the student body served
by the public schools of Philadelphia has
grown constantly. Moreover, the composi
tion of the student body served by Philadel
phia schools has changed. So the kinds of
learning problems with which the School
District must deal have changed. The grow
ing student body and changing educational
needs have put substantial pressure on the
School District to increase quantity and
quality of its services. But the schools also
have faced successful pressure from their
employees for large salary increases. And the
static tax base upon which the School Dis
trict must rely has forced it to increasingly
depend for financial aid upon the Common
wealth of Pennsylvania, a government which
has had its own share of financial problems.
Despite the fiscal pressures, the School
District has continually increased the amount
of attention it provides to each of its stu
dents. Also, it has developed some new
programs to serve special segments of the
student body— programs such as Head Start
and Follow Through.
The vast majority of School District
money, however, has gone to pay for greater
amounts of traditional classroom education
and the services and facilities that support
50

FEDERAL RESERVE BANK OF PHILADELPHIA

While some of the programs supported by
this Fund may be transferred to the General
Fund and thus to the fiscal resources of the
School District, most exist only so long as
the Federal Government is willing to sup
port them. Consistent with the projections
made for the City, we have projected only
those spending elements that depend di
rectly upon the tax base of the city—those
elements supported by the General Fund.
The categories of spending projected, and
their projections, are shown in Table 13.

it. In this projection, we have assumed that
classroom education will continue to domi
nate school spending as fiscal pressures
restrict the extent the District can diversify.
STRUCTURE OF SCHOOL FINANCE
School spending is supported by three
main accounts— a General Fund, a Capital
Fund, and a Federal and Other Grants Fund.
The General Fund, the largest account, in
cludes all local tax receipts, all aid from the
Commonwealth of Pennsylvania, and a small
amount of Federal aid. The Capital Fund
supports the building program and, itself, is
supported by payments from the General
Fund. Finally, the Federal and Other Grants
Fund includes special revenues to support
particular programs of the School District,
such as retraining of unemployed workers,
Head Start, and computer-assisted education.

GRADE-LEVEL COSTS
Inflation. The largest part of recent expan
sion in the School budget has been caused by
pay hikes for District personnel. Starting in
the mid-1960's, a series of negotiated con
tracts between the School Board and the Phil
adelphia Federation of Teachers established

T A B L E 13
S C H O O L D IS T R IC T E X P E N D ITU R E S
^millions of dollars)

1970
Expenditure
Constant (1968) Dollars
Administration and
Miscellaneous ................. ........... 16
Debt Service ........................ ........... 26
Elementary Education........... ...........103
Secondary Education ........... ...........102
Vocational and Technical . . .
Education .......................... ...........
6
Total* ............................ ...........253
Current Dollars
Administration and
Miscellaneous................. ........... 18
Debt Service ...................... ........... 29
Elementary Education........... ...........115
Secondary Education ........... ...........113
Vocational and Technical
Education .......................... ...........
7
Total*
........ 282

1975 Projections
MEDIUM

LOW

24
75
127
174

22
75
117
156

11
395

10
379

47
92
247
339

40
83
213
288

34
75
182
245

22
747

23
75
122
165

11
411

* Totals may differ from addition of columns because of rounding.

HIGH

19
643

17
552

MARCH 1971

BUSINESS REVIEW

number of students and thus has added sig
nificantly to cost of education per student.
About 85 per cent of School expenditures,
excluding debt service, go for personnel
salaries. The remaining amount, which
has remained a stable multiple of the per
sonnel cost, includes purchased services,
books, and other supplies. Personnel and
other nondebt service costs ranged, in 1970,
from $688 per student for elementary grades
to $1,000 for vocational-technical students.
Spending for elementary students was up
$78 from the 1965 level of $610, net of infla
tion. A more dramatic increase occurred in
spending for secondary students— up $150
from the 1965 level of $770, or 20 per cent.
(See Chart 11.) The cost of teaching
vocational-technical students has ranged
between $1,000 and $1,100 since 1964.
Expenditure per student in 1975— net of
inflation—will be a function of ongoing
changes in the School Board's goals and
policies. Continued decline in number of
students per teacher, more support person
nel, and increased instructional equipment
purchases probably will all add up to higher
per student expenditures. As public pressure
continues for improved performance in the
teaching of basic skills, real expenditure per
student very likely will continue to rise.
Increase in expenditures per student was
projected by extending the trend in past
spending, net of inflation. The high projec
tion is based upon the trend in spending
established since 1968. (See Chart 11.) The
lower projection is based on the more con
servative trend of the years 1964 through
1970. Per student expenditures in vocationaltechnical schools (not shown on Chart 11)
have traced an erratic course in recent years.
Since the category is small, it was simply
assumed that vocational-technical costs
would grow at the rate projected for secon
dary schools.

benchmarks for individual wage increases in
all job categories. The reference points led
to an increase of 27 per cent in the average
salary of all personnel in the system during
the last three years, with nonteaching per
sonnel receiving somewhat bigger gains than
teachers.
The exact path that wages take in the
future will be decided in negotiations among
workers and the School Board. We have
assumed that wage gains for personnel of
the District will reflect gains made by other
government employees in Philadelphia—
continued large increases for a short time,
and then some tapering off.
Employment. Increase in salaries accounts
for about half of recent expansion in the
budget of Philadelphia schools. The re
mainder is taken up by more personnel,
materials to support the personnel, and by
an expanded program of building. Both the
staff expansion and the building program
have had the objective of reducing over
crowding in Philadelphia schools. But staff
expansion has gone beyond this objective
as new types of personnel have been added.
In the last four years, a total of 3,049 new
employees, amounting to a staff increase of
16.5 per cent, have been hired by the District.
Not quite half of the new staff, 1,300, are
teachers. This increase has lowered the
average number of students per teacher in
the public schools by about 7 per cent. Most
of the new teachers work in elementary and
junior high schools, where new enrollment
has been largest and most new classrooms
were added. But a larger part of the staff
expansion was in nonteaching positions.
These workers, including counselors, super
visors, and teachers' assistants, have been
relied upon to help teachers by relieving
them of some of their nonteaching duties
and by providing curriculum and disciplinary
support.

Enrollment. Over the last ten years, the
population of the city of Philadelphia has

Cost Per Student. The increase in per
sonnel has far surpassed growth in the

FEDERAL RESERVE BANK OF PHILADELPHIA

C H A R T 11
C O S T PER S T U D E N T
1968 Dollars (Ratio Scale)

declined by a small amount. The number of
children attending public schools in the city,
however, has expanded by nearly 20 per
cent. The cause is a change in the composi
tion of the population of the city. While
many of the white children of the city attend
private or parochial schools, most black stu
dents attend the public schools. Thus, as the
white population of the city has declined,
and as the black population has grown, the
number of students attending public schools
has increased. Witness the shift in composi
tion of enrollment— from 47 per cent black
in 1960 to 60 per cent black in 1970.
This increase in enrollment was aug
mented in the late 1960's by a sizable expan
sion in the kindergarten program of the
District. Of the 14,000 increase in number
of students between 1965 and 1970, onethird was in new kindergarten classes. With
the kindergarten program now largely filled
out, this source of growth will have less
impact in the future. In addition, slow in

migration and low birthrates that reduced
growth in total enrollment over the last few
years may be expected to have a dampening
effect during the early 1970's as well. As a
maximum, we project an enrollment expan
sion of 15,000 between 1970 and 1975.
Continued slow growth, however, would
result in a student expansion of only about
5,000, which we have used as a low projec
tion. (See Chart 12.)
Increase in enrollment may add from 2 to
6 per cent to School expenditures by 1975.
Change in the relative number of students
in secondary schools may add another 4
per cent to School costs. Expenditures per
student are higher in secondary than in ele
mentary schools, principally because of the
wider curriculum of the upper grades. The
relatively large expansion in numbers of
students in elementary grades that occurred
in the late 1960's will mean a bulge in the
upper grades in the early 1970's. So, expen
ditures for secondary schools will be ex53

MARCH 1971

BUSINESS REVIEW

C H A R T 12
TO TA L S TU D E N T EN R O LLM EN T
Thousands

panded, and the total School budget will be
increased.1 Combined projections, reflecting
growth in enrollment and increase in spend
ing per student are shown in Table 13. The
miscellaneous category, administration, ex
tension, and other, included in the Table,
has been projected as a multiple of the
grade-level costs.
DEBT SERVICE
Expansion of staff and enrollment of the
District has been facilitated by the construc

1 Impact of the change in grade-level composition
of enrollment is determined by calculating the per
centage difference between average cost per student,
given the current balance among elementary and sec
ondary students, and the average cost with the expected
1975 grade-level composition.

tion of new school buildings. And, although
rates of construction over the last five years
have been high, even greater building efforts
are planned for future years. The building
program is directly supported by bonds sold
by the School District. The annual costs to
the School District are payments from the
General Fund for interest and principal to
retire the bonds.
Annual payment on the outstanding debt
has jumped from $9 million in 1962 to over
$28 million in 1970— an increase of 300 per
cent. However, the most significant increases
are yet to appear, as principal and interest
charges come due on proposed general ob
ligation bonds for the expanded Capital
Program. By 1975, debt service may reach
$83 million and absorb 14 per cent of the
School District's general fund expenditures,
up from the current level of 10 per cent.

FEDERAL RESERVE BANK OF PHILADELPHIA

of the May bond proposal for $65 million
was presented to the voters in November
and approved. At the same time, the na
tional economy was going through a period
of tight money, and tax-free School District
bonds which yield a 7 per cent return were
not attractive to investors. Now that market
conditions have eased and School District
bonds are once again attracting buyers, the
1971 fiscal year will involve catching up on
delayed projects. The original capital bud
get for 1971 scheduled $25.5 million of new

This estimate of future debt service is
based upon two forms of outstanding debt
in 1975— debt from the activity of new
school construction and debt resulting from
long-term bonds floated during 1970 to
bring the operating budget into balance.
Plans for the construction of new schools
have been greatly curtailed in the last two
fiscal years. The first setback took place in
May 1969, when voters defeated a $90 mil
lion bond referendum. Proposed spending
was cutback, and a stripped-down version

T A B L E 14
C O M P O N E N T S O F D E B T S E R V IC E , 1970 A N D A
P R O J E C T I O N T O 1975, T H E S C H O O L D I S T R I C T O F P H I L A D E L P H I A

Fiscal Y e a r .....................

.
1970 . . . . . . 1975
(millions of 1968 dollars)(millions of 1968 dollars)

1. Debt Service Resulting From:
a. Outstanding School
Construction Bond
Issues as of June, 1970 ........ ___
b. Outstanding Operating
Budget Bond Issues as
of June, 1970 ........................
2. Total Debt Service on
Outstanding Bonded Debt
as of June, 1970 ........................ ___
3. New Debt Service
Resulting from Scheduled
Appropriations in the
1971-1976 Capital
Program .......................................
4. Lease-Purchase Payments
to the Pennsylvania
State Building Authority.............
5. Total Debt Service on
Outstanding and
Programmed Debt ......................

Sources:
I. Director of Finance, Treasury Office.
II. School District of Philadelphia, Annual Financial Report, 1969-70, p. 23.
III. School District of Philadelphia, Proposed Capital Budget and Program, 1971-1976, Schedule II, p. 4.
To obtain the $25,852,000 figure, $31.7 million (line 1) was subtracted from the total existing and pro
posed capital debt service level in 1974-75 (Schedule II) of $57.6 million. All of the School District’s pro
grammed expenditures and debt service are in 1968 constant dollars.

MARCH 1971

BUSINESS REVIEW

through new bond issues are shown in
Table 14 (lines 3 and 4). Service on current
debt— both for construction and operating
purposes— plus rent and debt service for
new construction may cause growth of al
most 180 per cent in total payments.

spending for school construction. However,
$63.5 million in unused appropriations from
the 1970 fiscal year were added to the orig
inal 1971 capital budget— bringing the total
level of budgeted capital spending in 1971
to $89 million. Debt service on the bonds
issued to finance this spending and all prior
capital outlay will be $32 million in 1975.
(See Table 14.)
On top of the debt service for School
construction, the Board of Education used
its long-term borrowing capacity to balance
the 1970 operating budget. The first pay
ment on this $28 million worth of long-term
debt is due in May of 1971. The fifth and
final payment will come due in fiscal year
1975. Total principal and interest payment
on this operating fund debt in 1975 is $6
million (Table 14).
Finally, additional capital fund appropria
tions are planned to complete the School
District's long-range school construction
program. Initial plans were to finance all
school projects through the use of the
School District's borrowing capacity and
voter referendum. However, with some un
certainty in the bond market remaining, the
Board of Education turned to the State
School Building Authority as a new source
of financial aid for the Capital Program.
Since it is not subject to a 7 per cent limita
tion, the State Authority is in a better posi
tion than are local School Districts to
generate funds in the bond market.
The State Public School Building Authority
as a source of financing is introduced for the
first time in the 1971-1976 Capital Program.2
Over $122 million in capital expenditures
are planned by the Authority between 1970
and 1974. Rental payments on these Stateowned projects in 1975, and debt service
stemming from construction financed

CITY AND SCHOOL DISTRICT
REVENUES
FISCAL ADMINISTRATION: CITY
Each year, the Mayor submits a budget pro
posal to City Council for review and ap
proval. Included in the document is an esti
mate of revenues avaible to pay the bills—
revenues that mainly come from either local
taxes or from intergovernmental aid. The
City Council has the power to trim down
the Mayor's budget if it thinks spending is
too high, or it can hike tax rates and levy
new taxes to produce enough revenue to
meet expenditures. Often, both procedures
are used to balance the budget.
FISCAL ADMINISTRATION:
SCHOOL DISTRICT

2 The Authority will issue its own 38 to 40 year bonds,
solicit bids, award contracts for, and supervise con
struction. The School District will lease the buildings
for the life of the bonds before assuming title to the
properties.

The School District, on the other hand,
has a more complex fiscal structure. Man
agement of the School District is in the
hands of the Board of Education, while
authorization to levy taxes in support of
education is the responsibility of City Coun
cil. Each year, the Board of Education sub
mits a lump sum statement of anticipated
revenues and expenditures for the next fiscal
year to the Mayor and City Council of
Philadelphia, and requests authorization to
levy taxes that may balance its budget for
the year. Thus, responsibility for the way
public education revenues are to be spent
(the function of the Board of Education) and
responsibility for taxes in support of the
spending (the job of City Council) are di
vided between two different authorities.
Consequently, the School District is neither
fiscally independent and able to levy its own

FEDERAL RESERVE BANK OF PHILADELPHIA

taxes, nor fully dependent upon the City
Council in the allocation of the public edu
cation dollar.3
OVERVIEW OF REVENUE PROBLEMS
Historically, Philadelphia depended upon
its real property tax for the bulk of revenues
to pay the bill for public services. In 1952,
the City culled over 40 per cent of its
revenues from the real estate tax, while the
School District relied on the same tax for
65 per cent of its funds (Charts 13 and 14).
However, the connection between revenue
from the real property tax and spending for
3 The effect of this division of responsibility is essen
tially a political matter, and was not examined. How
ever, the division may have made the search for a
rational solution to the deepening revenue problem
even tougher for government leaders.

local public services became rocky in the
early 1960's. While national and Delaware
Valley economies were signaling strong
growth, Philadelphia was faced with contin
ued out-migration of firms and of middleand high-income families. As the demand for
residential, commercial, and industrial prop
erties softened, growth in the value of real
property began to fall behind expansion in
spending on education and municipal
services.
The response of City and School District
administrators to this eroding tax base re
flects two different strategies. Financial
planners for the City of Philadelphia turned
to a local tax base showing much healthier
signs of growth— personal income. While
growth of taxable real property had come to
a near standstill, wages and salaries of Phila
delphia residents have expanded at a pace

C H A R T 13
T H E C I T Y O F P H IL A D E L P H IA H A S IN C R E A S E D IT S
R E L IA N C E U P O N P E R S O N A L IN C O M E T A X E S .
Per Cent

FEDERAL RESERVE BANK OF PHILADELPHIA

C H A R T 14
A N D T H E S C H O O L D IS T R IC T H A S T U R N E D T O
TH E C O M M O N W EA LTH .
Per Cent
100 %

REAL PROPERTY TAXES
PERSONAL INCOME
TAXES
BUSINESS TAXES
NON TAX
LOCAL REVENUE

INTERGOVERNMENTAL
AID

Jc-

1952

1969-70

1962

C H A R T 15
T H E P E R S O N A L IN C O M E O F P H IL A D E L P H IA
R E S ID E N T S IS C L IM B IN G F A S T E R T H A N T H E
ASSESSED V A LU E O F R EAL E STA TE.
Billions of Dollars

FEDERAL RESERVE BANK OF PHILADELPHIA

support during the 1970's, even more diffi
cult budget planning problems may arise.
The Struggle Continues. Even with a mas
sive infusion of Commonwealth aid, the
School District has had to rely upon the
local tax base for new sources of revenue.
Hoping to collect $30 million, the Board of
Education began levying a corporate net in
come tax in 1969. When the returns came
in, they found they had missed this mark by
nearly one-half— netting only $15 million.
Two new taxes were levied in the 1971 fiscal
year: one on the retail sale of liquor and
another on commercial occupancy of real
estate. But the former was rescinded by the
Commonwealth Supreme Court. And cur
rent expectations are that the commercial
occupancy tax will generate no more than
$15 million in new revenues. As for the
City, after hiking the wage tax by 1 per cent
in 1969, municipal administrators are now
taking a look at the real property tax as a
relief from new fiscal headaches.
SUMMARY OF PROJECTIONS
Individual projections were made for 21
different revenue sources of the City and
School District. Five major sources of
revenue have been chosen to summarize
our results: Real Property Taxes, Personal
Income Taxes, Business Activity Taxes, Non
tax Local Revenue, and Intergovernmental
Revenue. With no tax rate increases, total
revenue could increase by $400 million if
our medium projection for 1975 holds.
Nearly half of this increase ($170 million)
would come from local revenue collections,
while the remainder is expected to be new
intergovernmental aid. (See Table 15.) New
local revenues would give the City $130
million. The School District would take in
$140 million of the intergovernmental
increase.
On the local front, the City's personal
income taxes— primarily the wage and earn
ings taxes— will grow the most heartily. With
out rate increases, total personal income tax

close to those in the nation. (See Chart 15.)
The City's wage and earnings taxes— sources
of revenue since 1930's— tap the expanding
income of Philadelphia residents and non
residents working within the city limits. By
emphasizing tax hikes in wages and salaries,
City administrators were able to relieve the
burden on the sagging real property base.
In 1969, real property taxes comprised only
24 per cent of total revenues, compared to
42 per cent in 1952. During the same period,
revenues from personal income taxes grew
from 30 per cent to 45 per cent of total
municipal revenues (Chart 13).
The School District, in contrast, had few
alternative taxes to turn to when real prop
erty receipts began to lag. Since over 50 per
cent of the revenues came from the real
estate tax in the early 1960's and the public
resisted upping the levy, School District
finance administrators turned to the Com
monwealth. Active lobbying in Harrisburg
for recognition of the crisis facing public
education bore fruit. Commonwealth aid for
local public education has expanded sharply
largely because a new formula for distribut
ing aid reflects some recognition of the
higher costs of teaching students in crowded
urban centers. From 30 per cent in the early
1960's, Commonwealth aid to the School Dis
trict of Philadelphia grew to over 50 per cent
of total receipts in 1969 (Chart 14).
A Mixed Blessing. While intergovernmen
tal aid is a welcome relief, anticipating new
levels of aid is often a task full of uncer
tainty. State governments are facing the
same fiscal crunch local governments face,
and the task of balancing the books in state
capitals is getting tougher each year. Threat
ened cutbacks, pending legislation, new
administrations, and delayed payments—
whether at the state or Federal level—all
make the job of fiscal management at the
local level especially difficult and costly. As
the financing of local public services moves
fully into the arena of state and national

MARCH 1971

BUSINESS REVIEW

T A B L E 15
REVENUES

(milMons of current dollars)
Real Property T a x e s ........................
City ..........................
School D istrict........
Personal Income T a x e s ...................
City ..........................
School D istrict.........
Business Activity T a x e s...................
City ..........................
School D istrict.........
Local Nontax Revenue......................
City ..........................
School D istrict.........
Total Local Revenue........................
City ..........................
School D istrict.........

206.5
111.3
95.2
209.4
201.9
7.5
69.6
40.8
28.8
73.1
71.0
2.1
558.5
425.0
133.5

1975 PROJECTIONS
LOW
MEDIUM
HIGH
214.4
225.0
235.6
120.7
114.1
127.3
100.3
104.3
108.3
274.8
302.4
288.1
267.6
280.7
294.8
7.2
7.4
7.6
106.7
111.8
117.3
50.1
52.5
55.1
56.6
62.2
59.3
105.3
109.7
107.5
102.8
107.2
105.0
2.5
2.5
2.5
700.5
730.7
762.3
533.9
557.2
581.6
166.6
180.7
173.5

Intergovernmental Revenue ...........
City ..........................
School D istrict.........

183.5
37.5
146.0

484.6
128.5
356.1

397.9
109.9
288.0

327.1
93.5
233.6

VII

Total Revenue...................................
City ..........................
School D istrict.........

742.1
462.5
279.6

1246.8
710.1
536.7

1128.6
667.1
461.5

1027.6
627.4
400.2

1970
I
II
III
IV
V

receipts would move up $80 million, accord
ing to our medium projection. The School
District's business activity taxes— corporate
net income, and general business, and the
new commercial occupancy tax— will prob
ably show the next strongest growth. At
current rates, the School District stands to
gain an additional $30 million by 1975.
Equal gains may be registered from the City's
nontax revenue sources; however, the bulk
of the new collections will be earmarked for
debt service.
Overall, our projections for revenue are
consistent with the pattern that has emerged
since the early 1960's— heavy reliance on
the local tax base for municipal services and
a healthy support of public education with

Commonwealth aid. The strategies that un
fold for meeting rising expenditures in the
1970's will continue to include a delicate
balance of tax hikes, new taxes on the local
scene, and fiscal support from the Common
wealth and Federal governments.
METHODS OF PROJECTION
Most revenues were projected to fiscal
1975 in constant dollars (net of inflation),
and then increased in accord with projec
tions of inflation.4 This method was used in
order to take account of the close relation
between growth in many parts of the tax
4 Except for intergovernmental aid and real property
receipts which were projected in 1975 dollars.
60

FEDERAL RESERVE BANK OF PHILADELPHIA

to 1975. Collections in 1975 were projected
for tax rates existing in 1970.
Nontax local revenue— the-bulk of which
accrues to the City—was projected individu
ally for each of several components: munici
pal licenses, fines, and service charges;
rental and debt service payments to the City
by public utilities, the Philadelphia port,
and International Airport; and miscellaneous
revenue going to the School District. In each
case, our projection of 1975 collections was
founded on past growth of revenues and,
where appropriate, on construction plans
that may significantly increase rental or debt
service receipts.5
Intergovernmental aid proved to be the
most difficult revenue source to project
because its growth has been volatile in
recent years and future levels of aid will
depend upon the strength of Common
wealth and Federal support. Our medium
estimate of total intergovernmental aid to
the City assumed recent growth rates will
continue. For the School District, on the
other hand, we have assumed a slight slow
ing in the growth rate of subsidies from the
Commonwealth. Recent increases have been
sizable, but the Commonwealth, itself, faces
financial problems. So, continued strength
ening of support is uncertain. Consequently,
our highest projection—an annual average
increase of 20 per cent to 1975— is some
what lower than the average increase since
1965. A small Federal payment to the School
District— used to administer its Federal anti
poverty fund— has been projected to fiscal
1975 on the basis of estimates from School
officials.
A detailed summary of the method for pro
jecting each revenue source follows, and in
Tables 16 to 20 we present individual
projections.

base and changes in price levels. Wages, for
example, typically increase by a small
amount, roughly equal to the gain in pro
ductivity, plus whatever change there is in
the average price of goods purchased by
workers. The relation is not exact. In some
years, wages do not go up so much as do
general prices, and in other years, they
exceed price increases. But over a longer
period of time, the efforts of workers to see
the benefit of their improved productivity put
into wage gains cause wage levels to grow at
a rate about equal to the sum of percentage
improvements in productivity and expansion
in general price levels. Similar kinds of ef
fects are present in other tax bases, with the
exception of the base for the real estate tax.
In part because the value of the real estate
base is determined administratively, and in
part because real estate is a form of wealth,
it has not tended to be responsive to
changes in the general rate of inflation.
Our constant dollar projections of reve
nues were translated into current dollar
(1975) collections using three alternative
rates of inflation for the local economy— a
high projection of revenues, assuming the
price level for consumer products would
rise, on the average, 5.5 per cent annually to
1975; a medium projection, assuming a 4.5
per cent rise; and a low projection, assum
ing a 3.5 per cent average annual increase.
Where possible, we compared tax reve
nues directly with their tax base. For exam
ple, collections from the wage and earnings
taxes since 1952 were found to grow at the
same rate as did the personal income of
Philadelphia residents. Real property tax
revenues grew only as fast as taxable as
sessed value of real estate. In these cases,
independent projections were made of the
1975 tax base, from which revenue levels
were estimated. Most often, collections—
after adjusting for tax rate increases and
inflation— showed a slow, regular growth
over the years. Where this growth was suffi
ciently stable, we assumed it would continue

5 Nearly half of the City's nontax local revenue is ear
marked for debt service to pay off revenue bonds.
Rental receipts from City-owned facilities like the port,
International Airport, and Civic Center are typical
examples.
61

MARCH 1971

BUSINESS REVIEW

on earned income. The wage tax is collected
from businesses in the City that withhold
the tax from employees' paychecks. Earnings
tax collections are from individuals who file
separate returns because their employer
does not withhold. Many of the payers of
the earnings tax are Philadelphia residents
working in surrounding counties.
Available data on personal income earned
in Philadelphia are incomplete. While both
Philadelphia residents and nonresidents who
work in the City pay taxes, data on personal
income cover Philadelphia residents only.6
However, actual collections of wage and
earnings tax revenues proved to change at
much the same rate as did the personal
income of Philadelphia residents. Local per
sonal income was projected to fiscal 1975
as a function of U.S. personal income. From
this projection, probable revenue collec
tions for 1975 were derived.7
Revenues from both the wage and earn
ings taxes were projected in constant (1968)
dollars. As in the case of other revenue
projections, an average annual rate of infla
tion of 5.5 per cent was applied to derive
the high revenue projection; 4.5 per cent,
for the medium projection; and 3.5 per cent,
for the low projection. (See Table 17.)8

REAL PROPERTY TAXES
Real Estate Tax (City and School District).
Collections from this tax were projected as
a function of the assessed value of taxable
real property in Philadelphia. The assessed
value of real property has registered an
average annual rate of increase of 1.6 per
cent since the late 1950's. In real dollars, this
represents a total decline of nearly 3 per
cent in the value of the base since 1958.
Because a number of factors in addition to
the general price level in the local economy
determine the level of assessed value (for
example, frequency of assessments and
amount of tax-exempt property), we pro
jected assessed value of real property in
current dollars.
From a level of $4.6 billion in 1969, ac
cording to our medium projection, taxable
assessed value of real property in fiscal 1975
will grow to $5 billion— a continuation of
the 1.5 per cent annual rate of growth of the
past. High and low estimates were derived
from the statistical model used to project
assessed value. (See note to Table 16.)
City and School District collections from
the real estate tax, adjusted for rate
increases, were derived from the high,
medium, and low projections of taxable
assessed value of real property. Separate
projections, assuming 1970 tax rates for the
City and School District, are shown in Table
16.

Personal Property Tax (City) and Net
Income Tax (School District). The personal
property tax of the City is on the value of
securities owned by individuals. The School

Real Property Transfer Tax (City). Reve
nues from this tax, levied on the sale price
of real estate transfers, were projected as a
time trend. Collections have been irregular,
but small in amount. From a level of $4 mil
lion in 1970, the receipts are projected to
reach $4.3 million in fiscal 1975 (Table 16).

6The Fels Center of Government of the University of
Pennsylvania developed a time series on disposable
personal income of Philadelphia residents for this study.
It is based upon data published by Sales Management
Magazine.
7 U.S. personal income projections for 1975 were pro
vided by the Economic Forecasting Unit, Wharton
School, University of Pennsylvania.
8 Factors other than inflation may also influence these
tax receipts into the 1970's. Most importantly would be
a shift in the number of workers commuting into the
city. It was assumed that for a five-year period, in
commuters would remain a constant proportion of total
employment in the city.

PERSONAL INCOME TAXES
Wage and Earnings Taxes (City). A resident
of Philadelphia or a nonresident who works
in Philadelphia pays one of these two taxes

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART
REAL

P R O P ER TY TA X

REVENUES

Millions of Dollars (Ratio Scale)
$300

200

.■ a lia s
100
i

90
1953

1965

1961

1957

1969-’70

1974-75

T A B L E 16
REAL PR O PER TY TA X ES

(millions of current dollars)

1970
Real Estate (C it y ).................
Real Property Transfer (City)
Real Estate (School District) .
Total .................................
City ..............................
School District .............

107.2
4.2
95.2
206.6
111.3
95.2

1975 PROJECTIONS
HIGH
MEDIUM
LOW
123.0
116.4
109.8
4.3
4.3
4.3
100.3
104.3
108.3
214.4
235.6
225.0
120.7
114.1
127.3
100.3
108.3
104.3

METHODS OF PROJECTION
CITY: Real Estate Tax receipts (rate adjusted) were projected as a function of assessed value*
of taxable real property for the years 1960 to 1969.
Regression statistics: r2= .9 8 , t= 2 3 .
The confidence interval of the 1975 estimate at 90 per cent level is $113 to $120 million.
CITY: Real Property Transfer Tax receipts were projected as a time trend for the years 1953
to 1969.
Regression statistics: r2= .4 9 , t = 3.7.
The confidence interval of the 1975 estimate at 90 per cent level is $3.5 to $4.9 million.
SCH O O L D ISTR ICT: Real Estate Tax receipts (rate adjusted) were projected as a function of the assessed
value* of taxable real property for the years 1960 to 1969.
Regression statistics: r2= .9 9 , t = 29.
The confidence interval of the 1975 estimate at 90 per cent level is $102 to $106 million.
*Assessed value was projected as a time trend for the years 1952 to 1969.
Regression statistics: r2= .9 8 , t= 2 7 .
1975 Projection: $4,961 million. The confidence interval of this estimate at the 90
per cent level is $4.8 to $5.0 billion.

BUSINESS REVIEW

MARCH 1971

C H A R T 17
P E R S O N A L IN C O M E T A X

REVENUES

Millions of Dollars (Ratio Scale)

1952

1956

1960

1965

1974-'75

tax of the City, all growth in receipts is likely
to come from inflation. (See Table 17.)9

District dropped its personal property tax in
1968 and placed a tax on dividends from
securities and other income-producing hold
ings. The change in the tax base of the
School District was essentially one from
"assets held" to "income from assets."
There has been no real growth in collec
tions from the City's personal property tax
since 1960. Our projections for 1975, in con
stant (1968) dollars, show no increase over
fiscal 1970 collections. Inflation could boost
receipts to a level of $7 million. (See Table
17.)
The School District's shift from a tax on
the value of personal property to a tax on
net income from personal property has had
no appreciable impact on revenue collec
tions. As in the case of the personal property

1969-’70

Pari-mutuel Tax (School District). This tax
was instituted in 1963 with the opening of
the Liberty Bell Race Track. Presently, there
is a 2 per cent tax on betting for harness and
flat racing. Revenues are likely to drop by
nearly 50 per cent when flat racing moves
from Liberty Bell in 1972. From a level of
$4.4 million in 1970, this tax will garner only
$2.5 million in 1975. (See Table 17.)
9 Unlike the wage and earnings taxes, both of these
income taxes are small producers of revenue, and
collection is costly to enforce, given the size of the
proceeds.
64

FEDERAL RESERVE BANK OF PHILADELPHIA

T A B L E 17
P E R S O N A L IN C O M E T A X E S

(million of dollars)

Wage (City) ................................
Earnings (City) ..........................
Personal Property (C ity ).............
Net Income (School District) . . .
Pari-Mutuel (School District) . . .
Total ...................................
City ................................
School D istrict...............

1975 PROJECTIONS
1970
Current Dollars
Actual Constant Dollars
LOW
HIGH MEDIUM
228.7
252.0
239.9
178.5
183.0
32.2
35.5
33.8
18.3
25.8
6.7
7.4
7.0
5.4
5.1
4.7
3.7
5.1
4.9
3.0
2.5
4.4
2.5
2.5
1.9
302.4
288.1
274.8
209.4
219.7
267.6
280.7
214.1
294.8
201.9
7.4
7.2
7.6
5.6
7.5

METHODS OF PROJECTION
CITY: Wage Tax receipts (rate adjusted) were projected as a function of Philadelphia personal income* for
the years 1954 to 1969.
Regression statistic: rJ= .9 6 , t= 1 9 .
The confidence interval of the 1975 medium estimate at a 90 per cent level is $232 to $248 million.
CITY: Earnings Tax receipts (rate adjusted) were projected as a function of Philadelphia personal income*
for the years 1960 to 1969.
Regression statistics: rJ = .9 3 , t = l l .
The confidence interval of the 1975 medium estimate at a 90 per cent level is $32 to $36 million.
The Personal Property Tax (City) and Net Income Tax (School District) were projected in real dol
lars as an average of recent collections.
* Philadelphia personal income was projected as a function of United States personal income for the
years 1954 to 1969.
Regression Statistics: r2= .9 8 , t= 2 5 .
Medium projection in 1975 dollars is $8,300 million. The confidence interval of the 1975 estimate
at 90 per cent level is $8,061 to $8,539 million.

tax, levied by the School District, probably
will be the only cause of real increase in
business tax collections.

BUSINESS ACTIVITY TAXES
The four major business taxes levied by
the City and School District— Mercantile Li
cense Tax, Unincorporated Business Net
Profits Tax, General Business Tax, and Cor
porate Net Income Tax— have shown no real
growth since the late 1950's. Inflation and
tax rate hikes have accounted for nearly all
collection increases. The leveling off of the
City's economy in the 1950's and 1960's had
its impact on these business tax receipts.
We have projected no real increase in busi
ness tax collections to fiscal 1975. The high,
medium, and low projections shown in
Table 18 are based upon inflation in the
local economy. The commercial occupancy

LOCAL NONTAX REVENUE
Licenses, Fines, and Service Charges (City).
Collections from more than 150 municipal
licenses and permits; charges for health,
welfare, and miscellaneous services; contri
butions; and transfers from other funds
comprise this source of revenue. Total col
lections have shown an irregular growth at
an average rate of 4.8 per cent a year since
1960. The base for this revenue source is
heterogeneous, so a time trend projection
was made for 1975 collections. Assuming no
65

BUSINESS REVIEW

MARCH 1971

C H A R T 18
B U SIN ESS A C T IV IT Y T A X R E V E N U E S
Millions of Dollars (Ratio Scale)

at current levels until 1975.
SEPTA and PGW each use the City as a
means to float bond issues and attract buyers.
Financing of the South Broad Street Subway
will increase SEPTA indebtedness to the City
by approximately $35 million. Principal and
interest payments on this amount in 1975 are
estimated to be $3 million. Past City bond
issues for PGW plus the recent voter approval
of a $40 million issue will result in $10.4 mil
lion worth of debt service payments by 1975.
Our projection of revenues from these two
utilities for 1975 is $35 million. (See Table 19.)

significant changes in the rate for service
charges, fines, or fees, collections may range
between $32 and $34 million in 1975. (See
Table 19.)
Utilities (City). Philadelphia Gas Works
(PGW) and the Southeastern Pennsylvania
Transportation Authority (SEPTA) pay the
City rent and annually make payments on
bond issues floated by the City for the utili
ties. The current rent payment for pub
licly owned PGW property is $15.5 million.
SEPTA pays $6.2 million into the City's cof
fers annually for the leasing of subway and
elevated tracks. The City and the utilities
periodically renegotiate the rent payments,
but both utilities expect to continue rentals

Debt Service (City). In addition to receiv
ing payment for debt service from SEPTA and
PGW, the City is reimbursed for debt service
66

FEDERAL RESERVE BANK OF PHILADELPHIA

T A B L E 18
B U S IN E S S A C T IV IT Y TAXES*

(millions of dollars)

1970
Actual
Business Net Profits (City) .
Mercantile License (City) . .
Miscellaneous ( C it y )...........
General Business
(School D istrict).............
Corporate Net Income
(School D istrict).............
Commercial Occupancy
(School D istrict).............
Total ..........................
City ........................
School District . . . .

___
___
___

1975 PROJECTIONS
Constant Dollars
Current Dollars
HIGH MEDIUM
LOW
16.0
22.0
21.0
20.0
15.3
23.4
22.7
28.4
31.3
29.8
2.0
1.4
1.8
1.8
1.8

___

12.7

13.4

18.4

17.6

16.9

___

16.1

16.8

23.1

22.0

21.0

___
___
....
___

0.0
69.6
40.8
28.8

15.0
80.0
40.0
40.0

20.6
117.3
55.1
62.2

19.7
111.8
52.5
59.3

18.7
106.7
50.1
56.6

* See text for assum ptions used in projections.

from commuter cars and port facilities.
Scheduled payments for these capital invest
ments, including recent bonds floated by
the Philadelphia Port Corporation, are likely
to reach $6.8 million by fiscal 1975. (See
Table 19.)

Airport from 7 to 12 million passengers a
year. The City's contribution to Airport ex
pansion— a $100 million bond issue—was
approved by voters in the fall of 1970. Our
discussions indicated that rentals from the
larger Airport facilities, along with Civic
Center and port facilities, probably will
reach $30 million by 1975. (See Table 19.)
All revenue so gained will be used to pay
debt service on outstanding bonds.

Civic Center, Port, and Airport Rentals
(City). The convention and exhibition halls
in the Civic Center, piers on the riverfront,
and International Airport facilities earn rent
for the City. Discussions were held with
managers of each of these facilities regard
ing long-range plans for utilizing existing
facilities and the construction of new facili
ties. The most significant change is the
expansion in the capacity of International

Miscellaneous (School District). The School
District collects revenues from a number of
miscellaneous sources— interest on invest
ments, rental of buildings, special grants,
collections in lieu of real estate tax, and
many more. According to the School Dis67

MARCH 1971

BUSINESS REVIEW

C H A R T 19
LO CAL NO NTAX REVENUES
Millions of Dollars (Ratio Scale)

1953

1955

1957

1959

1961

1963

trict's official estimate, these revenues will
increase only slightly into the 1970's. Our
projection is $2.5 million for fiscal 1975.
(See Table 19.)
INTERGOVERNMENTAL REVENUE
City of Philadelphia. Federal and Com
monwealth revenues to the City include
both direct grants and reimbursements for
services rendered. Payments are scattered
among 20 to 30 operating functions, but the
bulk of the funds flow to health and welfare
programs.1 Programs which currently receive
0
1 Not included in our projections are intergovern
0
mental grants to the City's Capital Fund. Most of these
grants must be matched by contributions from the
Capital Budget, which is mainly supported with revenue
from the sale of bonds.

1965

1967

1969-'71

1974-'75

a large chunk of intergovernmental aid—
maternity and infant care for low-income
families, general medical assistance, care and
housing of children and the aged, for exam
ple— are likely to receive further Common
wealth and Federal assistance in the 1970's.
(See discussion on welfare and health expen
ditures, Appendix.) However, aid to the par
ticular program components is likely to be
highly variable. Therefore, intergovernmental
aid from both the Commonwealth and Fed
eral government is projected as one revenue
source, without designation of program
categories.
Three rates of growth for new aid are
assumed. A medium projection of a 24 per
cent average annual rate of growth— some
what slower than growth since 1965— results
in a level of $110 million in 1975. (See Table

FEDERAL RESERVE BANK OF PHILADELPHIA

T A B L E 19
LO CAL N O N TAX REVENUE

(millions of dollars)

1975 PROJECTIONS
Current Dollars
Constant Dollars
HIGH MEDIUM
LOW

970
tual
Licenses, Fines, and
Service Charges (C ity ).........
Utilities (City) ........................
Debt Service (C it y ).................
Airport, Port, Civic
Center (City) ......................
Miscellaneous (School District)
Total
City .
School District

31.1
24.5
2.7

23.9
26.7
5.2

34.0
35.1
6.8

33.0
35.1
6.8

32.0
35.1
6.8

12.6
2.1
73.1
71.0
2.1

23.0
1.9
80.5
78.6
1.9

31.3
2.5
109.7
107.2
2.5

30.1
2.5
107.5
105.0
2.5

28.9
2.5
105.3
102.8
2.5

METHOD OF PROJECTION
CITY: Revenues from Licenses, Fines, and Service Charges were projected as a time trend for the years
1952 to 1969.
Regression Statistics: r2= .9 5 , t= 1 6 .
The confidence interval of the 1975 estimate at a 90 per cent level is $30 to $36 million.
See discussion in text for methods used to project remaining revenues.

1965, Commonwealth subsidies reached $88
million in 1969, and then jumped to $140 mil
lion in just one year. Including the most
recent increment of over $50 million, the
average annual increase has been 28 per cent
since 1965.
While public pressure will continue to
mount in Harrisburg for special considera
tion of the higher education costs facing
school districts in large cities, the State's
coffers may yield somewhat smaller in
creases than in the recent past. Our highest
projection assumes that the yearly rate of
growth will slow somewhat from the 28 per
cent rate of the 1965-70 period. Assuming a
growth rate of 20 per cent annually, State
subsidies would reach nearly $350 million
in 1975— a $210 million increase over 1970
aid (Table 20). Our medium projection— an

20.) A 20 per cent annual rate of increase
will generate $94 million, our low estimate;
and a 28 per cent rate will yield $129 mil
lion, our high estimate. In light of the highly
uncertain future regarding new levels of
support from Commonwealth and Federal
agencies, these projections are likely to be
conservative, especially if additional Federal
programs materialize in the early 1970's.
(See Chart 12 in the article for past levels of
intergovernmental aid and our projection.)
School District of Philadelphia. Common
wealth support of public education in Phila
delphia is crucial to the financial future of
the School District. Projecting future rates
of growth in aid on the basis of recent his
tory, however, might prove to be overly
optimistic. From a base of $50 million in

MARCH 1971

BUSINESS REVIEW

C H A R T 20
IN TE R G O V E R N M E N TA L R EVEN UE
Millions of Dollars (Ratio Scale)

TA B L E 20
IN TE R G O V E R N M E N TA L R E V E N U E S *

(millions of current dollars)

City ................................................
School D istrict..............................
Commonwealth ..........................
Federal.......................................
Total .....................................

1970
Actual
37.5
146.0
140.0
6.0
183.5

* See text for assum ptions used in projections.

HIGH
128.5
356.1
348.1
8.0
484.6

1975 PROJECTIONS
MEDIUM
109.9
288.0
280.0
8.0
397.9

LOW
93.5
233.6
225.6
8.0
327.1

FEDERAL RESERVE BANK OF PHILADELPHIA

annual rate of 15 per cent— places subsidies
at $280 million in 1975; with our low pro
jection— 10 per cent annually— subsidies
would be $225 million.
As in the case of intergovernmental aid to
the City, these projections may prove to be
conservative. But, since we have assumed
hefty rates of increase, the dimensions of

new aid necessary to fill the projected gap
come fully into focus. If the School District
were to fill our projected deficit of $324
million for the 1975 fiscal year entirely with
Commonwealth aid, the annual rate of in
crease in subsidy payments would have to
be 27 per cent. (This deficit is shown in arti
cle, Table 1.)
■

BUSINESS REVIEW

MARCH 1971

The Fed in Print
Business Review Topics
Selected by
Doris Zimmermann

BANKING STRUCTURE
Regulations affecting banking structure in
the Fifth District— Rich Dec 70 p 7

NOTE:
You may send for copies of these Reviews
published from October through December
1970 by Federal Reserve Banks. Write to the
issuing bank whose address is listed on page
75.
ALASKA
. . . and Alaskan timber— San Fran Dec 70
p 230
AUTOMOBILE INDUSTRY
Foreign automobile sales in the United
States— Rich Nov 70 p 8
BANK EARNINGS
Selected operating ratios— 1969—Atlanta
Oct 70 p 149
BANK LIQUIDITY
Bank liabilities and credit . . . N.Y. Nov 70
p 248
BANK MARKETS
Banking market determination—The case
of central Nassau County— N.Y. Nov 70
p 258
BANK PORTFOLIO
Bank holdings of municipal securities—
Kansas City Dec 70 p 3

BUDGET
Monetary and financial developments—
St. Louis Nov 70 p 2
Patterns of Federal Government outlays
and revenues, 1960-1970— Cleve Nov
70 p 3
BUSINESS FORECASTS
Predictions for 1971 available— Phila Dec
70 p 11
CAPITAL EXPENDITURES
Capital spending in major metropolitan
areas of the Fourth District— Cleve Dec
70 p 13
Relationship between capital appropria
tions and expenditures— Cleve Oct 70
P3
CHEMICAL INDUSTRY
Chemicals bring changes to the Southeast
—Atlanta Nov 70 p 161
COMMERCIAL PAPER
Recent developments in the commercial
paper market— N.Y. Dec 70 p 280
72

FEDERAL RESERVE BANK OF PHILADELPHIA

FARM PRICE SUPPORT
Parity, support prices, direct payments,
and all that— Rich Oct 70 p 12
New farm law— A step toward the market
place— Chic Dec 70 p 2

COPPER
Cut in copper prices— San Fran Oct 70
p 207
CORPORATE LIQUIDITY
Corporate liquidity and creditworthiness:
A problem for '71?— Phila Dec 70 p 3

FEDERAL FUNDS MARKET
Fed funds—Western style— San Fran Oct
70 p 198

CORPORATE PROFITS
Recovery in corporate profits— Chic Nov
70 p 2

FEDERAL RESERVE— CREDIT CONTROL
Federal Reserve System actions during
1970— St. Louis Dec 70 p 19
Federal Reserve policy and social priorities
(Eastburn)— Phila Nov 70 p 2

CORRESPONDENT BANKS
Part I: Balances and Services— Kansas City
Nov 70 p 3
Part II: Loan participations and fund flows
— Kansas City Dec 70 p 12
Bankers liberation— equal opportunity in
the money markets (Mayo)— Chic Oct
70 p 2
CRIME
The geography of crime— Phila Oct 70 p 7

FEDERAL RESERVE SYSTEM
Vital and viable in the Seventies (Mayo)—
Chic Dec 70 p 9
FEDERAL RESERVE SYSTEM PUBLICATIONS
The Fed in print— Phila Dec 70 p 19

DEBT MANAGEMENT
The public debt: Changes in its maturity
structure— Dallas Nov 70 p 3
DISCOUNT OPERATIONS
Banking notes— Atlanta Dec 70 p 189

FISCAL POLICY
The "crowding out" of private expendi
tures by fiscal policy actions— St. Louis
Oct 70 p 12
Fiscal policy for a period of transition—
St. Louis Nov 70 p 14

ECONOMETRICS
A noneconomist's nonmathematical guide
to econometric forecasts— Phila Oct 70
p 10

FOOD PRICES
Food prices level off— Chic Oct 70 p 7
FOOD STAMP PLAN
Food stamps and the banks— San Fran
Oct 70 p 191
FOREIGN BANKING
Banking in a developing economy: Latin
American patterns— Atlanta Nov 70 p
154
GOVERNMENT SECURITIES
A ceiling that should be razed— Phila Dec
70 p 12

ECONOMIC STABILIZATION
Economic man vs. social man (Eastburn)—
Phila Oct 70 p 3
Observations on stabilization manage
ment— St. Louis Dec 70 p 14
Stabilization policy and inflation—St.
Louis Oct 70 p 2
FARM EXPORTS
The international payments system and
farm exports (Francis)— St. Louis Nov 70
P8
FARM INCOME
Crops rebound in 1970— Dallas Dec 70
P9

HOUSING
Operation breakthrough— Phila Nov 70
P 17
Housing the poor: A frontal attack— Phila
Nov 70 p 9
73

BUSINESS REVIEW

MARCH 1971

POLLUTION
Paying for pollution control— Chic Oct 70
P 12
POPULATION
Western census— San Fran Nov 70 p 216

INCOME, PERSONAL
Personal income in the Fifth District— A
decade of growth— Rich Nov 70 p 10
INCOMES POLICY
Incomes policies: A quick critique—
Atlanta Dec 70 p 174

PRICE INDICES
Measuring price changes— part 2— Rich
Oct 70 p 2
Measuring price changes— part 3— Rich
Nov 70 p 2

INFLATION
Some lessons to be learned from the
present inflation (Francis)— St. Louis
Oct 70 p 6
Getting inflation under control— Atlanta
Oct 70 p 142

PRICES
Aggregate price changes and price expec
tations—St. Louis Nov 70 p 18

INTEREST RATES
Falling rates— San Fran Dec 70 p 234

REAL ESTATE INVESTMENT TRUSTS
A new financial intermediary— Bost Nov
70 p 2

IRON AND STEEL INDUSTRY
A note on the voluntary steel quota—
Cleve Oct 70 p 12

RECREATION INDUSTRY
Outdoor recreation— Kansas City Nov 70
p 15
Downhill racers' dollars—San Fran Oct 70
p 196

LUMBER INDUSTRY
Falling timber— San Fran Dec 70 p 227
MOBILE HOMES
Mobile home financing— Rich Nov 70
p 15

RETAIL TRADE
Recent trends in the retail trade industry:
U.S. and Fourth District— Cleve Dec 70
P3
SPECIAL DRAWING RIGHTS
A new asset supplementing reserves for
growth in free world trade— Dallas Dec
70 p 3

MODELS (STATISTICS)
Models as economic tools— Chic Nov 70
P9
MONETARY POLICY
1970-Economy in transition— St. Louis
Dec 70 p 2
Measuring monetary policy—Atlanta Dec
70 p 182

STATE FINANCE
State and local revenues and expenditures,
1960-1968— Cleve Nov 70 p 15

MONEY SUPPLY
Money supply revised— St. Louis Dec 70
p 18
The monetarist-nonmonetarist debate—
Rich Dec 70 p 2

TIME DEPOSITS
Time-deposit rebound— San Fran Oct 70
p 204

MORTGAGES
Should housing be sheltered from tight
credit?— Phila Nov 70 p 24

UNEMPLOYMENT
Professionals join the jobless—San Fran
Dec 70 p 236

OPEN MARKET OPERATIONS
A day at the trading desk— N.Y. Oct 70
p 234

WOMEN, EMPLOYMENT
Woman power— An important resource
— Dallas Oct 70 p 3

RESERVE BANKS
Federal Reserve Bank of Atlanta
Federal Reserve Station
Atlanta, Georgia 30303
. A- > ; • ;
.P W SBfjW
Federal Reserve Bank of Boston
30 Pearl Street
Boston, MassacFiusetts 02106
Federal Reserve Bank of Chicago
Box 834
Chicago, Illinois 60690
Federal Reserve Bank of Cleveland
P.O. Box 6387
Cleveland, Ohio 44101
Federal Reserve Bank of Dallas
Station K
Dallas, Texas 75222
Federal Reserve Bank of Kansas City
Federal Reserve P.O. Station
Kansas City, Missouri 64106

Federal Reserve Bank of Minneapolis
Minneapolis, Minnesota 55440
Federal Reserve Bank of New York
Federal Reserve P.O. Station
New York, New York 10045
Federal Reserve Bank of Philadelphia
1
925 Chestnut Street
Philadelphia, Pennsylvania 19101
Federal Reserve Bank of Richmond
Richmond, Virginia 23213
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, Missouri 63166
Federal Reserve Bank of San Francisco
San Francisco, California 94120
Mail will be expedited by use of these
addresses.
I

FOR THE RECORD

2 YEARS
AGO

YEAR
AGO

JAN.
1971

Third Federal
Reserve District

SU M M ARY

January 1971

mo.
ago

year
ago

mos.
19
from
year
ago

January 1971
from
year
ago

mo.
ago

mos.
19
from
year
ago

MANUFACTURING
0

- 2
- 8
- 4
- 1
-2 5
+ 15

Employ
ment
LO CA L
CHAN GES
Standard
Metropolitan
Statistical
Areas*

N.A.
+ 4

- 9
+ 16

mo.
ago

year
ago

+
+

2
2
2
3
5

+
+
+
+
+

13
12
20
9
27

+ 7f

2
3
1
0
+ 2
- 2

+ 14
+ 5
+ 22
+ 18
+ 24
+ 12

PRICES
Wholesale ......................
Consumer ......................

Lancaster . . . .
Lehigh Valley..
Philadelphia . .
R e a d in g .........
Scranton

....

W ilkes-Barre. .
+

0+ + 7*

Production workers only
**Value of contracts
*'*’*Adjusted for seasonal variation

Altoona .........

+ 2
+ 5

1 15 SM SA’s
^Philadelphia

York

.............

Check
Payments**

Total
Deposits***’

Per cent
Per cent
Per cent
Per cent
change
change
change
change
January 1971 January 1971 January 1971 January 1971
from
from
from
from

Harrisburg . . .

Trenton .........

Banking

Payrolls

- i
- 1
+ i
- i

Wilmington ..
Atlantic C it y ..

BANKING
(All member banks)
Deposits ........................
Loans ............................
Investments .................
U.S. Govt, securities. .
Other ..........................
Check payments*** .. .

Manufacturing

Johnstown . ..

- i
- 2
- 1
- 1
N.A.
+ 6

JAN.
1971

YEAR
AGO

Per cent change

from

Production ....................
Electric powerconsumed
Man-hours, total* . ..
Employment, total . . . .
Wage income* .............
CONSTRUCTION** .........
COAL PRODUCTION .

2 YEARS
AGO

United States

Per cent change

• • •

year
ago

mo.
ago

year
ago

mo.
ago

year
ago

+ i
-

+n
-

-1 3

+ 14

+ 20

+ 2

-1 4

+ 4

+ 23

+ 12

+ 2

+ 11

+ 4

+ 3

+ 11

-1 0

- 1
- 6
+ 9
+ 2
+ 3
+ 8
+ 5

+ 15

+ 18

- 1 - 4
- 1 - 8
+ 2 - 6
- 2 -10
- 2 - 3
- 1 - 5

- 2
- 1 - 2 + 6 - 3 - 2 +
- 1 -

2
4
2
3
8
2

5 -1 4

0
+ 8
+ 13 + 8
+ 6 -

+85

+ 15
+ 12
+ 14
+ 12
+ 6
-41

3
0
1

* Not restricted to corporate limits of cities but covers areas of one
or more counties.
** All commercial banks. Adjusted for seasonal variation.
***• Member banks only. Last Wednesday of the month.

Full text of Business Review (Federal Reserve Bank of Philadelphia) : March 1971

FRASER