Philadelphia warns state inaction may force layoffs

PHILADELPHIA (Reuters) - Philadelphia's plan to balance its budget by raising a sales tax and making changes to its pension payments may be blocked by state lawmakers, forcing the city to lay off thousands of workers and close some services, a spokesman for Senate Republicans said on Monday.

Philadelphia Mayor Michael Nutter, a Democrat, warned again on Monday that he will have to start cutting police and firefighters and shut libraries and recreation centers if state legislators don't approve those parts of the city's $4 billion budget plan by August 15.

But GOP spokesman Erik Arneson said the Republican-led Senate is unlikely to approve a bill containing the Philadelphia proposals separately from the state budget for fiscal 2010, which is still deadlocked more than a month into the new fiscal year.

"The idea that Philadelphia's parochial issues are separate from the needs of the other 66 counties isn't something that we think would win support in the Senate," Arneson told Reuters by telephone.

And a budget is unlikely to be approved in the upper house by August 15 because large portions of it will likely be renegotiated after the expected passage of a "stop-gap" budget in coming days, the spokesman said.

"A resolution by August 15 does not seem likely," he said.

BATTLE OVER STATE INCOME-TAX HIKE

Republican lawmakers refuse to accept a plan by Democratic Governor Ed Rendell to raise the state's personal income tax by half a point to 3.57 percent for three years to help close a $3.2 billion gap in his proposed $28.9 billion budget. Rendell argues the budget cannot be balanced without raising revenue, while GOP leaders insist on cuts alone.

In an attempt to break the deadlock, the Democrat-controlled House was expected on Tuesday to approve a budget passed by the Senate in early May, and send it to Rendell, who will veto all but the portions that allow state employees and vendors to be paid.

The rest of the budget, such as education and welfare spending, would then be up for renegotiation, a process that could take weeks or months, Arneson said.

In its fiscal 2010 budget, Philadelphia plans to temporarily raise its sales tax by one percentage point; to defer a portion of its pension payments, and change its pension amortization period -- all measures that require state legislative approval.

If those proposals are not approved by state lawmakers by August 15, the city is required to submit a new five-year financial plan to PICA, its fiscal oversight authority, by August 30, a move that would require "massive" reductions in its budget, Nutter's office said.

Without approval of its plans, Philadelphia would have to cut 972 police positions; deactivate six fire-engine companies; close two health centers, and shutter all libraries and recreation centers with the loss of almost 1,000 jobs, Nutter said. Trash pickup would be cut to twice a month, eliminating 350 positions.

Faced with sharp revenue falls during the recession, the city has already cut more than 3,000 positions, reduced overtime and mandated furlough days for some employees in its fiscal 2010 budget.

Luke Butler, a spokesman for Nutter, said the mayor is continuing to work with state lawmakers in an attempt to win their approval.

"It looks like the Senate leader is firm in his intention to consider the state budget before Philadelphia's measures," Butler said by telephone.

"For every day that we don't have approval of our measures, the consequences get more serious," he said.

(Reporting by Jon Hurdle; Editing by Jan Paschal)