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Philadelphia Budget Surplus Drop Concerns Morningstar

Philadelphia Mayor Michael Nutter’s proposal to reduce the city’s annual budget surplus by more than 50 percent in a year “is a concern,” Morningstar Inc. said in a report.

Philadelphia’s surplus, known as the general-fund balance, would drop from $107 million this year to $50 million in fiscal 2015, and to $24 million the following year, analyst Rachel Barkley said in the report dated March 17.

Nutter said in a statement that he would set aside more than $44 million for potential labor costs, which Barkley called “a positive note.” Nutter’s $4.5 billion spending plan for the year beginning in July awaits approval by the city council.

The budget also calls for $146 million in capital spending and $131.5 million of new general-obligation bonds, the highest sums for each since 2001, Barkley said. The nation’s fifth-most populous city had $8.6 billion in debt as of December, a bond document shows.

A Philadelphia general-obligation bond due July 2023 traded March 17 at an average yield of 3.1 percent, or 1.15 percentage point above top-rated municipal debt. The spread averaged 1.36 percentage point since January, data compiled by Bloomberg show.

Weaker wage taxes are projected to reduce balances for the next two years, Mark McDonald, a spokesman for Nutter, said by e-mail. The revenue, originally expected to rise about 3.6 percent in the year through June, may now grow by about 1.8 percent, he said.

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