PHILADELPHIA -- Once regally indifferent to the financial plight of its urban neighbors, Philadelphia has suddenly become, in the words of one local politician, "the nation's junk-bond town."
City leaders initially described their money problems during budget meetings this spring as a "fiscal shortfall." It quickly became a "cash crisis," then a "calamity." Last week, as the nation's fifth-largest city lurched to the brink of default, Mayor W. Wilson Goode (D) called the projected $206 million deficit a potential "catastrophe."
"The fairy tale is over for Philadelphia," said City Controller Jonathan A. Saidel, who has warned for months that the city was on a financial precipice. "If we do not sell our short-term notes, we will be out of money by November. Even if we do make it through this round, we will be bankrupt by May."
Philadelphia's crisis partly echoes the troubles of other struggling cities, which no longer can deliver the increasingly expensive services that they were created to provide. Besieged by myriad urban ills, from epidemics of crack addiction and AIDS to homelessness and child abuse, thousands of middle-class residents have fled to the burgeoning suburbs, leaving the city with greater needs and fewer ways to pay for them.
But many city and state officials say Philadelphia's problems have been compounded by bad management and shortsighted political accommodation. They point repeatedly to the City Council's refusal to raise taxes even when it had become apparent that an emerging recession would decrease tax revenues. More often, however, they blame Goode, whom they describe as a well-intentioned loner who hates confrontation and has no influence over a City Council controlled by his own party.
"I am not from the school that says bad things just happen," said State House Speaker Robert W. O'Donnell (D-Philadelphia), who almost certainly will play a major role in any plan to rescue the state's largest city. "People make things happen. People make problems. We cannot just sit around here and say we are in the grip of bad times. Everyone's in the grip of bad times. We need to respond to them."
The city's financial situation has grown so grim that the mayor no longer will discuss it publicly or with the news media, fearing that he will scare away potential investors for a $400 million bond offering. Earlier this month, scrambling for ways to find cash, he said he would consider selling many of the city's most valuable properties, including Veterans Stadium, the Philadelphia Gas Works and a great many city-owned parking garages.
Few people here think that selling city assets will solve the problems, but Goode faces limited alternatives. Other than police and firefighters, who city officials said are unlikely to be laid off, unions for most other other city employees have negotiated contracts that exempt them from layoffs for at least the next two years.
A sales-tax increase would require approval of the Legislature during an election year, and candidates from rural parts of the state commonly run for office by attacking Philadelphia.
Many activists and politicians have become frustrated with Goode, a second-term mayor who has failed for three consecutive years to push a tax package through the council. Breaking nearly two weeks of silence on the city's fiscal troubles, Goode hinted in a speech last week that huge cuts in city services, a new attempt to raise taxes and concessions from labor unions would be necessary to drag the city out of its hole.
As a big-city Democrat, Goode also has joined the chorus of mayors who blame their problems on cuts in federal and state funding. There is no doubt that some of the problem has been caused by a shrinking federal contribution to Philadelphia at a time when many unavoidable costs are increasing.
In 1985, for example, the city spent $100,000 to treat drug-addicted infants born to mothers who could not afford medical care. This year, the figure will be $14 million.
In the last decade, jobs in the city have declined while Philadelphia's tax base has stagnated. The local tax burden for a family of four earning $25,000 is $2,134, the largest such figure in the East.
"I don't know of an administration of a major city willing to cut services and raise taxes at the same time," said Council member John F. Street (D), who as chairman of the Appropriations Committee largely wrote the current budget.
"Local government is just not capable of providing the revenue you need to deal with these problems every day. If you raise the taxes and cut spending, you better also be prepared to widen the highways out of Philadelphia because in five years, we could be a ghost town."
But the city also is plagued by an entrenched labor bureaucracy that consumes an enormous percentage of general funds. The school district budget exceeds $1.5 billion annually, a figure larger than Pittsburgh's entire municipal budget. The city receives nearly $2 billion of the state's $12 billion annual budget, with school funding from a separate account.
"I can promise you one thing, and that is that there will be no more blank checks to Philadelphia," said State Sen. Richard A. Tilghman (R-Montgomery), chairman of the Appropriations Committee. "We will help them in every reasonable way. But after years of absolutely inept management, with a recession already here and state problems mounting, we are not in a position to start writing checks."
Tilghman said a proposed one-half percent increase in the sales tax in Philadelphia also would have a very tough time passing the General Assembly in an election year in which money troubles are playing a key role.
But the city clearly requires help from somewhere. Philadelphia has been trying to sell bonds to satisfy short-term debts, a common practice in most major cities and one that Philadelphia has managed with ease until this year. Yet the Goode administration has been unable to obtain a letter of credit from a bank that guarantees the debt. Without one, the city's interest rate on the bonds could become prohibitive.
"If these notes don't sell, we will move very quickly to a final test of Philadelphia's leadership," O'Donnell said. "If they fail, you will see a very rapid shift in the control of this city."
The Greater Philadelphia Chamber of Commerce has called for a control board comprising local and state officials to help run the city. That proved necessary to rescue New York City during its brush with bankruptcy in 1975, but state and city leaders have expressed little enthusiasm for that kind of tight, outside management.
If the situation worsens, as many analysts and bankers forecast, Philadelphia might find it easier to obtain help from financial institutions and the state. With 24 percent of Pennsylvania Democrats and 15 percent of the state's population here, Democratic Gov. Robert P. Casey, running for reelection this fall, would find it difficult to ignore the plight of his largest constituency.
Republicans, too, apparently would be willing to help if the situation becomes bad enough.
"When things get really tight, bankers and bondholders start calling up their friends in the capitol and saying they want to get their money," said Sandra Featherman, director of the Center for Public Policy at Temple University. "And if the unions have to choose between keeping their contracts intact or getting no paychecks, they, too, will begin to get helpful."
But grounded in years of political erosion, mounting social ills and a divisive local political climate, few people have said they expect the city's problems to disappear soon.
"The test of leadership is not whether we can pass the buck to someone else," said Council member George R. Burrell Jr. (D), who plans to run for mayor next year, when Goode cannot succeed himself. "The test of leadership is whether we meet this challenge."