This is excerpted from a PICA paper titled "Look Before You Leap: The Fiscal Situation That Awaits the Next Mayor." It's available, with detailed reports on the issues discussed in the paper, at PICA's Web site, picapa.org.

That's the likely reaction of the next mayor after he surveys the city's fiscal challenges in January 2008. Within the first six months, the mayor will have to negotiate contracts with all the city's major unions, develop a balanced five-year financial plan and determine how to achieve key objectives like enhancing public safety and strengthening the city's economy.

The general fund's balance will have dropped $130 million - 65 percent - in three years. The city's payment into the pension fund will be more than $110 million higher than it was during fiscal year '06, caused primarily by the unfunded liability for which the city will pay over $100 million more in '09 than in '06.

Health-insurance costs for employees will be $80 million higher than in '06 - even if the city is successful in appealing recent police and fire awards.

It will have been eight fiscal years since the city invested even half of the $185 million its own City Planning Commission recommends be dedicated annually toward its capital budget.

The new mayor will have only 90 days to develop a five-year plan that proposes solutions for these issues, as well as negotiate contracts with the four major unions three months later.

Whether the balance meets the five-year plan's projection will largely depend on the economy, the outcome of union negotiations and the administration's ability to control the size of the city workforce.

The city should follow the lead of a number of jurisdictions, including: improving vendor management, encouraging individual health management programs to promote healthier lifestyles, providing for true joint labor-management control of union health plans and increasing employee share of premiums, co-payments and co-insurance (but not so much as to dissuade participants from seeking preventive or other needed care).

If the other options don't work, the city could change plan design by reducing the size of the provider network, and changing covered procedures and types of drugs. The city and unions have tried some of that, but more can and should be done.

In addition to beginning to use some pay-as-you-go-funding, the next mayor should commit to new debt only to fund investment in the city's core infrastructure.

The city must continue to reduce rates for both the wage tax and the business-privilege tax. The approved '07-'11 Five-Year Plan calls for continued wage-tax rate reductions, with those cuts accelerating if gaming money is received. The city should also continue to reduce the gross-receipts portion of the business privilege tax. The next mayor should commit to a schedule that would eliminate the gross-receipts part of the tax and begins to reduce its net-income part.

Thanks in large part to new tools from the state, PGW has been able to increase average collection rates to over 94 percent. Although this enabled PGW to stabilize its finances, other fixes anticipated by PGW were not forthcoming or less helpful than expected.

There has been a great deal of speculation about a potential sale of PGW. Any scenario should include the buyer's assumption of all outstanding PGW debt and payment of $45 million to cover the outstanding city loan.

None of these issues will be easy for the next mayor. In many cases addressing them may require unpopular short-term sacrifices. But they won't go away.

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