Philadelphia Mayor Cherelle L. Parker presented to City Council her proposed budget for fiscal year 2026. Totaling $6.77 billion, the plan seeks to strengthen safety, infrastructure, housing and economic development, while reducing the tax burden on businesses and citizens.

The budget also includes a Five-Year Finance Plan and a Capital Investment Program, with an injection of $2.3 billion in new operating funds and $1.47 billion in capital investments. The administration has billed this budget as "One Philly 2.0," an enhanced version of its first finance initiative.

Stability with risks

Philadelphia's finances are currently stable, but face several challenges. Among the main factors affecting fiscal stability are the depletion of federal pandemic relief funds and national policy uncertainty.

Despite this, the city has strengthened its Budget Stabilization Reserve Fund, which will reach $280 million by the end of the five-year plan. In addition, the city's improved credit rating has enabled it to access financing on better terms, with S&P Global Ratings upgrading Philadelphia's credit rating to 'A+'.

Another key point is the status of the municipal pension fund, which has reached 65% funding, with the expectation of reaching 80% by 2029 and 100% by 2033. Once this occurs, the overall budget will reduce its burden by $430 million annually, allowing reallocation of these resources to other programs.

Spending priorities

Mayor Parker's proposal prioritizes five key areas:

- Public Safety: $746 million investment in operations and $289 million in infrastructure. It highlights the creation of a new forensic laboratory and the expansion of violence prevention programs.
- Housing: $800 million bond issue for the construction and restoration of 30,000 homes under the H.O.M.E. initiative.
- Infrastructure and transportation: $716 million for SEPTA and $30 million to improve road safety with the Vision Zero project.
- Cleanup and environment: A total of $752 million in infrastructure and $65 million in operating expenses for sanitation, parks and urban beautification.
- Wellness and Health: $216 million over five years for homelessness, mental health and addiction treatment.

Financing the plan

To finance these investments, the budget contemplates several sources of financing:

- Local taxes: they represent 70% of municipal revenues, with key tributes such as the Wage Tax, the Business Income and Receipts Tax (BIRT) and the Real Estate Transfer Tax.
- Fiscal reserves: $95 million will be set aside as a backstop against potential federal funding cuts.
- Bond issues: The city will use two issues of $400 million each to finance housing expansion.
- Tax adjustments: Targeted increases in certain municipal taxes and fees.

Tax Reform

One of the most ambitious points of Parker's proposal is the gradual reduction of taxes to encourage economic development:

- Reduction of the Wage Tax: For residents it will go from 3.75% to 3.70% in 2030, and for non-residents it will drop from 3.44% to 3.39%.
- Elimination of BIRT on gross income: The gross income component of the Business Income and Receipts Tax will be eliminated when the pension fund reaches 100% funding, projected for 2033.
- Reduction of the BIRT on net income: It will be reduced from 5.81% to 2.8% over seven years.
- Real Estate Transfer Tax Increase: Will increase from 3.278% to 3.578% in 2026 to fund the H.O.M.E. program.
- End of the Construction Impact Tax: Will be eliminated in 2026 to incentivize real estate development.

A plan with challenges and opportunities

Mayor Parker's budget reflects a strategy of aggressive investment in housing, safety and economic growth, combined with tax reform that seeks to make the business environment in Philadelphia more attractive.

However, the challenges are significant. Reliance on bond issuance implies an increase in debt service, and tax relief could create fiscal pressures in the future. In addition, efficient program delivery will be key for the city to see the results of this ambitious proposal.

The discussion now moves to the City Council, which will evaluate and debate the details of the proposal before final approval. In the meantime, the Parker administration is betting on a safer, cleaner and more prosperous city through an unprecedented investment in its future.