COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COUNCIL COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, November 18, 1998 12:20 p.m. - - - RES. 980731 - Authorizing Finance Committee to investigate the hiring process of top officials of PGW; further, that PGW Executive Board explain executive personnel hiring policies, including compensation, that currently exist or will be implemented for all future hires; authorizing an investigation into all spending practices of PGW; and authorizing the committee, in further answer of such investigations, to issue such subpoenas as may be necessary to compel the attendance of witnesses and the production of documents to the full extent authorized under Section 2-401 of the Home Rule Charter. PRESENT: COUNCILWOMAN ANNA CIBOTTA VERNA, Chair COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN JAMES F. KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD T. MARIANO COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 COMMITTEE ON FINANCE - RESOLUTION 980731 I N D E X Gregory Driscoll, Chairman. . . . . . . . . . Philadelphia Facilities Management Corporation Ben Hayllar . . . . . . . . . . . . . . . . . 4 Director of Finance - City of Philadelphia PFMC Board Member Acting CEO - PGW Ramon Sharbutt. . . . . . . . . . . . . . . . 6 PGW Chief Financial Officer Stephanie Franklin-Suber, Esquire . . . . . . 11 Philadelphia City Solicitor Gregory Martin. . . . . . . . . . . . . . . . 35 Philadelphia Gas Works Deborah Estrin. . . . . . . . . . . . . . . . 138 PGW Senior Vice President of Human Resources 3 FINANCE COMMITTEE - Resolution No. 980731 P R O C E E D I N G S
Good afternoon. I do apologize for the delay. This is the continued hearing on Finance Committee regarding Resolution 6 No. 980731. I would just like to make a very brief statement. I want to make it very clear at the outset so that everyone will understand my intent. When witnesses come before this committee and are asked a question, I want an answer. When we ask if there is incentive compensation being paid to employees, we don't want a "no" answer only to find out that PGW's definition of these payments are quarterly payments. I expect witnesses to be very truthful and to answer the spirit of the question, not just the letter of the question. I can promise you that members will not be so kind if we continue to get answers that engage in semantics. Is Mr. Driscoll here? Yes. I guess Mr. Hayllar and Mr. Sharbutt, maybe all of you could come up to the table so that we can save some time.
Councilwoman, did you 4 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 want Mr. Sharbutt or did you want Mr. Martin?
Both so that we can all feast. (PGW executives come forward.).
Thank you, Mr. Driscoll, for being so patient. I would like to go back to your testimony that was presented on October 28th. The City Solicitor has clarified her opinion concerning moving expenses. She clearly states in an opinion dated November 13, 1998 that all moving expenses go against the management fee cap. Given your previous testimony that the cap has been exceeded, what options does the PFMC board have to recover this money?
I would like to defer momentarily to Mr. Hallyar who has a long history in this.
Ben Hayllar, Philadelphia Director of Finance; and right now, I'm the interim CEO and President of Philadelphia Gas Works. 5 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 What was the date of that opinion, Councilwoman?
Councilwoman, it's certainly not the fault of City Council. As someone who at least believed themselves to be a client of the City Solicitor, we believe we should be privy to these opinions when they affect our business.
I apologize if you didn't receive it; I thought you had. (11/13/98 City Solicitor opinion distributed.)
Because of time. 6 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Under date of February 13th, a draft of an expense account procedure was sent by Ray Sharbutt to Sidney Avent, Esquire, outlining revisions to expense account procedures. The first revision states that the treasury department will discontinue the practice of issuing expense advances and travellers checks to employees. Do you know how much in travelers checks used to be kept on hand? And can you also tell us how many are presently existing at PGW and who is responsible for them?
Madame Chair, I'm Ramon Sharbutt, the Chief Financial Officer. Historically, the level of travellers checks, which I might add, have been there for 17 years or so or more, have been in the 20 to 18 $30,000 range. They are kept in a locked safe, 19 which is accessible by only two people, one of 20 which is not me. They now total, I believe the last time I looked, about 2,000. We're depleting the supply of those.
The treasurer and one 7 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 supervisor in the treasury department. I might also add we've never had a security issue or any losses or any negative experiences with those.
That's typically what was required to handle the things that they were used for.
If an employee goes to a training course or if employees went on any trip for the company, they would get a travellers check in lieu of cash or some other advance. In addition, they're used for things -- if someone from the Law Department, for example, comes down to make filings with courts or others, they would use those or credit cards, if allowable, to pay fees. Just numerous uses.
According to the same draft, a minimal amount of incidental personal expenses are permissible. Can you tell us what personal expenses 8 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 would be permissible? And can you also let us know if the PFMC board approved this policy?
We have very small petty cash funds throughout the organization and in all of the offices and in the general office. They would be used for very small amounts. If individuals were to come down to the city and have a parking cost of $10 while on company business, that would be reimbursed for that. If they had filing fees or if they had miscellaneous small-dollar purchases. Generally, they're under $25, very small. The word "personal" is not meant to mean "personal"; it's all business.
I'm just telling you what's in that draft. I quoted exactly what was in there.
Well, "personal" is a word -- that is a word generally used in Internal Revenue Service regulations. And all others, for 9 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 lack of a better word, are just referred to as "personal expenses incurred." I know there may be other --
I'll accept that explanation for the time being. Mr. Hallyar, do you have a copy of the City Solicitor's opinion now?
And I asked you a question earlier, and you said you didn't see a copy the City Solicitor's opinion. We have now provided that to you. Do you want us to go on with our testimony so that you would have an opportunity to review the opinion?
The issue of the PFMC account and expenses is defined by the solicitor in this letter. The problem we have is that in preparing this document, which our clients have never seen, and we recognize this to be an open question. She did not discuss with anybody at PGW the history or how this had been applied historically. If you add up all the known expenses of the three senior officers as they applied in 1995, 10 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 they all exceed the -- I believe it was a $700,000 cap. So practically speaking, it would be very hard for the PFMC account to pay for all the known expenses.
Are we going to keep doing this indefinitely? Is that what I understand from your answer?
No. There's no question about that. In 1983, there is an opinion from the Obermayer law firm to PFMC, saying that certain expenses of the three senior officers should be and could be paid by PGW. The Solicitor, because she did not talk to anybody about it, is obviously unaware of that opinion. There is a difference of legal opinions and -- which is something we need to discuss with her because I think she's unaware of the fact that historically, certain expenses, the three senior expenses were paid by PGW.
I believe the City Solicitor just walked into the room. And perhaps 11 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 she can speak for herself.
I would welcome it. (City Solicitor Stephanie Franklin-Suber comes forward.)
Thank you. I apologize. I didn't think we were going to need you at today's session. But I don't know if you heard the question. We're talking about your opinion dated November 13th regarding the moving expenses as they go against the management fee cap.
Yes. I do understand that. I have not heard all of the testimony. But since I was paged, I thought if I could answer any questions or if I could supply any additional written information, I'd be happy to try to do that.
Mr. Hallyar, the City Solicitor is here now, do you want to ask her if she knows about the other opinion that you recovered to? The 1983 opinion.
PGW, as the client of the City Solicitor, would of course prefer to handle these matters in private, not in a public session, 12 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 but the Solicitor apparently was not aware that we made reference to a 1983 Obermayer opinion stating that certain expenses of the three senior officers were -- could appropriately be paid directly by PGW.
In rendering the more recent opinion, we did research and due diligence and consulted with the former City Solicitor, Joseph Duretsky (ph.), who was personally involved in negotiating the terms and conditions of the employment agreements. So I am comfortable that the opinion that was issued is consistent with the approach that was taken by the prior City Solicitor. So from that standpoint, to the extent that the advice he rendered came after the Obermayer opinion, I find that to be controlling from my perspective. I also made sure that once the opinion was released by you, Councilwoman Verna, that I circulated copies to the Finance Director and the Administration and spent some time talking with the members of the PFMC board to make sure that they understood that the advice was consistent with the position that the Law Department had 13 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 taken in evaluating and reviewing the terms and conditions of the employment agreement and the expense issues.
So do I understand you to say that you sent a copy of this opinion to the Finance Director?
Immediately prior to the hearing. We did have a discussion with regard to the opinion and I asked him when I arrived at the hearing if he had received the opinion, and he indicated that he had. So I'm surprised.
Mr. Hayllar, we're not going to have any personal conversations here, please.
Madame Solicitor, Madame Solicitor, before we get into the various opinions, I'm trying to get some clarity on actually the distributions of opinions and what the policy is. You serve in the precarious position of being legal counsel for a number of entities or clients. You are nominated by the Mayor, you are 14 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 confirmed by City Council. The Charter clearly requires you to at least render legal advice to the Administration and to City Council, possibly other clients. I would like you to walk me through the chain of events surrounding -- and I will use myself as an example. If I ask you for a legal opinion about a particular bill or a particular matter, do I at that point become the client in question?
If I asked you for an opinion about a bill or some other legal matter having to do with governmental business, do I at that moment become the client who made the request regarding the opinion?
At that moment, Councilman Nutter, you become the client, and you are entitled to privileged and confidential advice of counsel.
And as a result, are you allowed, or anyone in the Law Department allowed, to discuss my opinion request, the fact 15 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 that I even asked for an opinion or what the nature of the inquiry was with anyone else, including any other members of the Law Department?
At the outset, no. 7 There are circumstance, however, where the fact that you've made an opinion request will be discussed with other members of the Law Department; with other clients, no. 11
Are you allowed to discuss my request and what the nature of the request was with anyone else in the Administration?
When the opinion is given to me at my request, are you allowed to distribute it to anyone other than me?
The normal protocol -- and this was established by the prior City Solicitor -- is, we will send an opinion in draft to any client, whether it's a member of Council or the Administration. That client then has an opportunity to review the opinion, to determine, number one, 16 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 whether it responds to the question raised; number two, whether it prompts any additional questions that they would like for us to address; and number three, whether or not they understand the advice and whether or not they are satisfied with the scope of the opinion. If an opinion is issued to support a particular -- if the desire was for the opinion to support a particular position and we are not able to do that, then the client may decide that he or she does not wish the opinion to be finalized, in which case it is not. Or the client may wish to have the opinion finalized but would like to keep it confidential for whatever reason.
And so let's say that I get past the draft and the draft is okay, and I may want to use it to support my position or be against some other position or whatever, you give me the opinion, who has the discretion or makes the decision as to whether that opinion is 17 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 circulated to anyone else?
The client makes the decision as to the extent to which it is to be released and how it is to be released. Once the client decides to release the opinion, the privilege has been waived by the client so, therefore, the opinion is public.
So in this particular case, if Councilwoman Verna asked you for an opinion, which seems to be dated November 17th, which I think is yesterday, and you give it to Councilwoman Verna, once she has it in her hands, it is left to Councilwoman Verna -- and her alone -- to determine whether the opinion will be shared with other members of City Council even, or anyone else in the universe.
If Councilwoman Verna decided last night to put this opinion on the Internet, she could do that, but you can't give it to anyone; is that correct?
I do want to make 18 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 sure that, to the extent there is a misunderstanding, when I answered the question as to the opinion, my response went to the opinion that was issued prior to the last hearing. If your question relates to the November 17th opinion, this is an opinion that has not been distributed. The Finance Director has not seen this in advance. My comments went to the opinion that was issued at the prior hearing.
Okay, well, that's what elicited the comment from myself. I thought we were talking about the opinion from the last hearing.
Which I think came out that day, which I thought everyone else had. I was not aware of this opinion and the Councilwoman was not required to tell me. She made the decision to share it.
This opinion, however, is in response to a question that Councilwoman Verna raised at that hearing. 19 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
And during the course of my testimony, I had not had a chance to review the agreement. It's a very straightforward opinion that deals with the exact language in the terms of the employment agreement.
And it then relates it back to the opinion that was issued previously, so there is really nothing new or different about this particular opinion.
I understand. Councilwoman has been very accommodating. Two last questions all in one. Mr. Hallyar, you have made reference to, I believe, a 1983 opinion from --
From the Obermayer law firm. 20 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Okay. Can someone explain to us what this opinion is about; and secondly, what is its relevance as it relates to an opinion from the City Solicitor. I don't know who Obermayer is in the whole legal scheme of things. I mean, can a -- not to pick out one particular law firm. Can an opinion from a law firm overrule the City Solicitor's opinion as it relates to a governmental entity?
Because I'm not sure the City Solicitor's Office was of this opinion and --
The opinion states -- 21 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
If an opinion from a law firm can't overrule the City Solicitor's opinion, then what different does it make?
The Solicitor's view may have changed had she been aware of what previous -- what precedent had been on this question. And Obermayer had opined that certain expenses of the three senior executives did not have to come out of the PFMC account but could be paid out of PGW funds directly, that's the point.
Did the three senior executives know about that opinion when they negotiated their contracts? And did they make reference or benefit from that opinion when they signed their names to the contract?
I don't think they cared one way or another. They were simply interested in --
Well, what was their understanding -- did they know about the 22 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Obermayer opinion at the time they signed their contracts in January of '96?
Well, what was their understanding of their contracts when they signed them in January of '96? Were the expenses covered by the compensation, or were they to the side of it?
Councilman Nutter, if I might interject. I would be happy to look at the Obermayer opinion. I think the real question is not whether I was aware of it, but the whether prior Solicitor was aware of it so I think --
Because there really may not be a real difference of view.
Right, right. 23 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I can't gauge that until I've had a chance to look at the opinion --
So you're saying you're going to look at the '83 opinion and --
You may or may not need to revise your November 17, 1998 opinion based on a review.
That's correct that's correct. Certainly we would be happy to look at that. And to the extent that there's some significant issue to amend, we're also prepared to do that in view of the fact that he was the one that negotiated the agreement.
And so, therefore, you know, it may be that there's an issue but it may be that there really is not one. So from that standpoint, we would be happy to look at it and 24 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 work with our clients to make sure that we all understand the extent to which certain expenses fall within different categories.
It would seem to reason, though, that if the prior solicitor was aware of the opinion, the prior solicitor or the parties to the agreement, just to cover themselves, may have made reference to the '83 opinion that that's what they were depending on in terms of inclusion or exclusion of various expenses. I mean, to some extent, all of this may be a red herring and a little bit of subterfuge to get away from the more material issue, which has to do with what were the expenses, what did people understand them to be, not a massive legal discussion of competing legal opinions. There are obviously some controls that were not in place that, opinion or no opinion, there's some realm of an inability to keep track of what people were doing and how they were doing it. And that's not going to be cured by competing legal opinions.
That is correct. 25 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Thank you, Madame Chair. I mean, you know, the ordinance that was passed in 1995, you know, maybe my memory is fading in these years, I don't ever recall anybody ever stepping to the table and making reference to a 1983 opinion about moving expenses or anything else. We set firm numbers. I was here, I was directly involved in it. The numbers are what the numbers are. Expenses, moving or anything else that's going on, those numbers were hard and fast. What people ended up negotiating in contracts is a whole separate issue, and no one ever walked in here and talked about an '83 opinion from any law firm, which, based on where I stood, is always going to be subservient to the City Solicitor's opinion, anyway.
I'm not going to -- I don't think it serves anyone's purpose to debate this longer. This is a side issue.
I'm sorry, Mr. Hallyar, you raised the issue, I think.
The point is, when PGW was paying certain relocation bills, they thought they were doing it pursuant to a practice that had gone back to 1983, as I understand it, based on that opinion from Obermayer.
We can't be talking about the three executives; they weren't here in 1983. They don't know any more about a 1983 Obermayer opinion than the man in the moon. I mean, what are we talking about here?
But the process -- the process in which expenses were paid was paid pursuant -- was done pursuant, as I understand it, to that opinion.
By whom? Who is the person? 27 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
What person -- what -- you tell me the name of the person who relied on the 1983 opinion to pay all of those bills. What is that person's name?
Yes. And I believe they thought they were doing it appropriately.
The treasury function, the chief executive officer at the time, believed that they were doing it appropriately.
The chief executive -- are you talking about Mr. Hawes?
How would Mr. Hawes know about the 1983 Obermayer opinion? Who told him about it? 28 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I have no idea, and you know I don't know that, but I -- but that --
No, that was the assumption I believe that they had in terms of the process based on past practice.
Whose relocation expenses did the company pay in the past?
Between 1938 and 1996, whose relocation expenses were paid based on the Obermayer opinion from 1983?
It's expenses from the PFMC account, and whether certain expenses of the three executives could be paid directly by PGW.
I'm just asking you to tell me whose relocation expenses were paid pursuant to reliance upon the 1983 Obermayer opinion in the past practice, as you have testified, was established from '83 to '96?
No, I didn't say that, 29 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 sir.
I didn't say that. Certain expenses were -- probably benefits of various types that were paid to people who were employed at that time. I don't believe there was any relocation prior to the current three executives -- or the now two executives. But I don't believe there was any relocation.
But they believed that certain benefits could be paid directly from PGW. That's the point.
From PGW and not within the total lump sum of dollars that were allocated to the particular executives?
The PFMC account that, at that time, had a $700,000 cap to it. That was to pay for the salaries and the compensation of the three senior officers. Certain benefits, they assumed -- perhaps incorrectly -- were to be paid 30 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 directly by PGW. And I believe that the Obermayer opinion speaks to medical insurance, that kind of thing.
Fine. You say the Obermayer opinion is in your office, on your desk?
Can you have somebody fax it over here while we're in the course of this hearing?
I'd appreciate it. This will be very interesting. Thank you, Madame Chair.
Does anyone have questions of the City Solicitor while she's here? (No questions at this time.)
Are you going to remain with us? Are you going to remain with us?
I know that you don't feel very comfortable doing that, but I would appreciate it if you would. 31 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Thank you. Gentlemen, do you want to come back to the table, please, so that we could continue on with our questioning. (PGW executives return to the witness table.)
In the draft policy concerning the expense reports of February 13, 1998, a running fund balance, quote, running fund balance, end of quote, is referenced. Can someone tell me what a running fund balance is, please.
Yes, ma'am. That's a practice that, in my experience of 35 years or so in this business, is commonplace everywhere. If you have individuals who are continuously required to make small purchases or incur expenses on behalf of the company, it's customary to have them advanced $100 or whatever amount may be necessary to have that cash available on a daily basis.
It's like a petty cash 32 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 fund that is assigned to one individual, very similar. And they are generally very small amounts. And in my experience, even servicemen in the field have, on occasion, had a requirement to have those continuously held accounts. It's much cheaper if a gentleman's out fixing something to go by and pick up a part rather than incur the expense of some other option.
Certain, yes. The Chair recognizes Councilwoman Tasco.
Mr. Sharbutt, in what area -- you have one person who's in charge of the running fund account, or there are several people?
There may be sever people. There is a list of the people who have it, and it's monitored monthly and they are constantly turning in receipts and keeping whatever they have in their possession at the minimum level. I think there are probably ten 33 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 people within the organization who have that, maybe 15.
Operations, field services. Certain departments in a district office may have one. They're disbursed throughout the organization.
Is there a cap on that? Say, they're given $100 a month and then they have to be reimbursed based upon the fact that they submitted receipts for the expenditure, at what point -- are they just given a limited amount of money -- a limited account or is it a capital fund?
It's usually very small. I'm talking 100 or $50 or a couple of hundred if it requires a lot of turnover. But they're relatively small amounts, and there are caps based on the need of the individual.
Yes, ma'am. It may be stamps, or it could be just any incidental item, 34 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 and it's a very small amount of money, relatively small.
And then they are reimbursed based on the submission of receipts?
Yes, ma'am, receipts that are signed by the individual and approved by the supervisor. Even at that level, they are approved through the processing --
They're done on a monthly basis, a biweekly basis, a quarterly basis, yearly basis in terms of the submission of receipts and reimbursement?
It's done as needed. Quite often, it's on a daily basis. If someone has postage bill or something or if they pay Federal Express or something to send something, they would request reimbursement immediately for that.
You're welcome. Mr. Martin, what are your duties and duties and areas of responsibilities at PGW? And does anyone have a company credit card within your 35 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 areas of responsibility?
I'm Gregory Martin, Chief Operating Officer at PGW. And Chairwoman Verna, my responsibilities are in gas operations, materials management and contracts, information technology, customer services, and gas management. And, yes, there are people who report to me who have American Express credit cards.
Can you tell us how many do and what criteria you used to determine their need for a credit card.
Typically, Chairwoman Verna, the people would get the credit cards according to their need, whether or not that they were doing company business, they had to travel and by their position. And the people who do have them, to my knowledge, are Mr. Bud Karachiwala, who is the Vice President of Gas Management; David Lee, who is the Senior Vice President for Information Technology. And I believe those are the only two who directly report to me.
So there are three people under your supervision that have credit 36 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 cards?
Two people that I know of under my supervision, subject to change.
What is your understanding of what a proper company expense is? And how do you monitor the use of the cards for the people that you supervise?
Chairwoman Verna, I'd like to go back to answer again the previous question that you asked me.
There are two other people -- I'm sorry, three other people: Dennis Stenson, who is the Vice President for Operations; the Security Director, Hugh Bridges; and John Kelly, the Executive Director for Materials Management. They are the other people who report directly to me, who have American Express credit cards. And I'll answer your follow-up questions.
Well, what criteria is used for one to get a credit card? 37 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
As I said before, Chairwoman Verna, it relates to the person's position. Typically, if they're senior officers in the company, they get a credit card; if they show a need for one when they're doing company business so that they don't have to use their own credit worthiness in order to support the company; or if they do travel. So those are typically the criteria that are used, to my understanding.
Mr. Martin, I like you to review with us your understanding of your relocation expenses as they related the your employment contract with PFMC. Did your contract contain a cap on relocation expenses. And if so,, at what amount?
Chairwoman Verna, this is my understanding of the contract and the way the expenses were handled: When I negotiated my contract in December of 1995, I was asked, What would it take to sell your property in Pittsburgh, purchase a property in Philadelphia, move your family and your personal effects from Pittsburgh to 38 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Philadelphia? I outlined what those costs would be. They were approximately there are $5,000 for moving my personal effects from Pittsburgh to Philadelphia; approximately $35,000 on the closing costs of my property in Philadelphia; and approximately $15,000 in closing costs on the sale of my property in Pittsburgh. And those figures approximated $50,000, exclusive of anything else, $50,000. And that was the figure that was included in my contract for the relocation expenses.
For the relocation expenses, it was $50,000. I've spent so far for the items that I outlined about, let's see, there was $33,000 in the closing of my property here in Philadelphia, $4,777 on the transfer of my property from Pittsburgh to here. So that amounts to about $38,000, is what I spent on the closing costs of the $50,000 that were -- I'm sorry, of the relocation expenses that were outlined in that provision of the contract. 39 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Does the amount include the gross-up for federal taxes?
As I said Councilwoman Verna, I'll go to the provision of the contract, and I don't have a copy of that in front of me. (Mr. Martin approaches committee table to get copy of the contract.)
At paragraph 6b. is the $50,000 that I was alluding to in my previous answers to you. Relative to the expenses related to relocation of personal property to an address within the City of Philadelphia and other expenses incidental to moving, such as closing costs on sale and purchase, gross-up of moving expense reimbursement on account of taxes, transfer taxes, not to exceed $50,000. 40 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 That's the provision that I'm reading from in paragraph 6.
According to the information that we've received, Mr. Martin, it indicates that your relocation payment to date has been $69,599.
Chairwoman Verna, what is also not included in the information which has been sent to you is a memo from myself to Mr. Sharbutt stating that I don't agree with the totals that have been provided to this committee, and I also believe that you've gotten a recent delineation of my costs at a figure that's about $10,000 less than that.
This makes things so clear to me that A doesn't know what B is doing. I mean, how do you calculate expenses when they're -- we're given one figure, now you're telling us that you told them that it was incorrect. We never got information on it. I don't know. 41 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 How much has really been reimbursed to you to date?
Councilwoman Verna, I am not quite sure, but I can tell you this, that on August 27, 1996, I provided a memo outlining what my relocation -- or rather the closing costs are on my property here in Philadelphia. I don't know that the committee has been provided a copy of that. But in any event, it's a memo where I ask that a sum of $32,139.50 be submitted to the National Penn Bank on the account of E&M Abstract Agency. That would have been the amount for the purchase of my property and the closing cost of my property in Philadelphia. I submitted my temporary living expenses regularly, according to procedure. That was outlined in a policy that's numbered 778.01, and it's one of the 792 procedures that we have. It outlines how you're to report your expenses, both cash and credit-card expenses. My expenses were submitted regularly according to that policy. I don't keep a running tally on that. I expect that the people who are responsible for 42 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 that would do that.
It's my understanding that your house in the Pittsburgh areas remained unsold; is that true?
Is it accurate that PFMC will still have to pay the transfer costs and other associated costs from the sale of that house?
Chairwoman Verna, my interpretation of my employment agreement is yes.
That's what we thought. Mr. Hallyar, what is the procedure that PGW's required to follow when it wishes to enter 43 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 into professional services contracts? What approvals, if any, is PGW required to obtain from PFMC before entering into these contracts?
I believe that the PFMC board needs to approve contracts of a million dollars or more. The chief executive officer has signatory authority, which is basically unlimited, but requires board authority for over a million dollars. The officers underneath the chief executive officer have various signing authorities at various levels -- 200,000, 250,000 and so forth.
There was a contract between PFMC and Sheila Hanson that I requested as part of the discovery.
Unfortunately, it appears that I did not receive a fully executed agreement in so much as there was no witness listed, nor is there a date on the signed agreement.
Do you know on what date this agreement was signed? 44 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
No, I don't, but I don't believe it was with PFMC; I believe it was PGW. It should have been with the contractor at PGW, 'cause I don't believe that PFMC ever approved of that contract.
Well, I find it very interesting in that this particular contract was supposed to be for approximately six months --
-- at the amount of $72,000. And as of this date, Miss Hanson has been billed and paid over $316,000. Who -- was there any formal amendment to that original contact or terms? Who decided that they were going to extend the contact? And who gave approval for it?
My understanding is that there is no extension to that contract, either in time or in the dollar amount that the contract was to be for. And it was a contract signed without the approval or knowledge of the board. It was signed with the chief executive officer and the individual. The payments were run through the chief executive officer at that time, 45 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 and it was done on his authority.
The contract is still in existence, but it certainly -- there are no 10 further services being asked, nor do I expect there will be. There no contract; it's been exceeded.
Do you know if the Hanson Consulting Group had a business privilege number to do business in the City of Philadelphia?
You're jamming me up. Yes, I know. But, as you know, I am not -- by law, we cannot divulge individual tax matters other than those pertaining to real estate tax.
But you know they were billed and paid for in October of '98. Now, you had to have some knowledge, Ben, come on.
No, I didn't have any knowledge of this until it appeared in an 46 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 anonymous letter, I guess, some six months ago. This is an individual that --
Did they ever pay the appropriate wage taxes, revenue, licenses, and other fees to the City of Philadelphia prior to the publication in The Daily News articles concerning the contract?
No, you can answer it; you don't want to answer it, and I will tell you --
The law prohibits me from discussing any tax matters other than dealing with real estate tax, I'm sorry.
Well, have you had any internal conversations with the Revenue Department to determine compliance for this consulting group?
I am certain that the revenue commissioner knows about this matter. 47 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Well, you can yes or no; you don't have to elaborate. Did you have any conversations with him internal conversations? Yes?
Thank you. Mr. Martin, within your areas of responsibility, does PGW hire consultants?
Chairwoman Verna, PGW does hire consultants in my areas of responsibility.
How many and what services do they provide, and what is the cost?
Chairwoman Verna, I'd have to look at the responses that we provided to you. I'm not quite sure off the top of my head what it is that we've outlined as the consultant and the fees that we're paying them in the responses that we sent to you, so I would have to get them.
I believe we outlined the -- if Mr. Sharbutt can help me here, he's responsible for sending in the responses. I believe we identified all of the consultants that 48 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 we have -- that we have retained at PGW.
So we got them. But they were broken down by departments. So can you give us any indication as to how many there are, what services they provide, and what the figure is that we pay for the consultants?
Chairwoman Verna, as I said, I'd have to try to pull out the specific response because I believe that there was a data request from the committee asking for --
And they've just separated them into divisions. We don't have that kind of personnel that we could do what many of your people can do for us with the push of a button.
Well, we can do some that with the push of a button, Chairwoman Verna, but I've got to say to you that the level of detail that you're asking for is typically not the level of detail that I would have at the tip of my fingers. I now have some information and I will be glad to provide that to you.
Do you have that 49 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 before you now?
Yes, I do. In response to question number 14, the question is: Copies of all contracts with outside consultants and list of all the consultants retained by PGW. A response was provided on 10/23/98.. And as you can see, it's voluminous, and I'd have to go through this and pick them out for you. I can do that now if you'd like.
No, no. I prefer you do it at a later date and send it to both myself and members of the committee.
Very well. Chairwoman Verna, I also have now before me the exhibit that I referred to earlier where I stated that you received, or should have received, a revised relocation expense payments. And it shows revised 10/22/98, in response to question number 5, and it shows the amount that was paid to Martin, Gregory D., Senior Vice President and Chief Operating Officer -- that's -- I'm Executive Vice President -- at $59,102.22. The response that was given to you 50 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 before showed $69,013.62. That's what I was referring to.
Mm-hmm. Thank you. Mr. Sharbutt, according to an internal memorandum that was provided to the committee, there was a problem with a specific employee's paychecks back in 1996. On three different occasions, a particular employee's paychecks were alleged to have been stolen. On each of these three occasions, the check was replaced, despite the fact that the check had already been cashed. Yet, when asked to sign an affidavit stating that the employee had not cashed the checks or received the money, he declined to do so. Can you tell me why would the checks be replaced in light of the employee's refusal to sign such an affidavit when the checks were actually cashed?
I don't recall reading the memo. There were thousands of pages in what was submitted to you, but I do recall the incident. I believe it was in '96. Is that what you said initially? 51 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Okay. I don't recall it being in there, but I do recall the instance.
Yes, if you could, please. (Sergeant at arms brings memo in question to Mr. Sharbutt. )
Yes, ma'am, I recall this incident. What happened in this particular case was that at the time payroll checks in bulk for entire departments were delivered to the departments and no one signed for them, they were left at different locations around the company. In the case of this particular employee, he was not there at the time, and his check was left at the first floor reception security desk at PGW. Before he arrived on a shift a couple hours later, that check or his payroll checks were taken outside and cashed.
His paychecks were 52 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 -- are you saying "check" or "checks"? I'm sure there was one check at a time, on three different occasions.
I think this was one check at a time. Each week, we get checks, but the same thing did happen. It was taken outside and cashed at one of the street vendors. And after investigating the process, we could not determine who was doing it or what was happening here. It was not the employee's fault; it was the security and the delivery system. From this experience, we drastically changed the procedures that we used to govern the transfer of checks from the printing to the employees.
Do your employees get paid every week or every two weeks?
They are paid every week. In this case, it was not the employee's fault that the check was missing and he did not get it, and we could not recover it from the street vendor. It was just one of those 53 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 situations where we --
I don't understand. Why wouldn't he sign an affidavit saying that he never received his check?
I questioned that myself. And after finding out which particular employee it was, I'd rather not discuss this individual, but I determined that he just would not in his judgment sign anything. It was -- it's a very good employee. He just is -- is opposed to signing things. It was just -- I know the individual, and I did not suspect there was any wrongdoing on his part, and I respected his disagreement with signing any kind of a document. It's a very unique individual.
Well, I can understand something like that happening once, but not twice or three times. What is the company's policy? Do they still keep the checks downstairs so that anybody and everybody could help themselves to a check if the security guard turns his back? I don't understand it.
No. This process was 54 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 changed immediately after these events occurred. This employee was one who could be taken advantage of over and over. And rather than worry about this anymore, we just changed the practice.
They are signed out and witnessed. We do not take down, people pick them up and sign for each individual department and check, and they are responsible. The supervisor within the department has assigned someone to pick them up, and if that person loses the check or anything happens to it, it's their responsibility.
Thank you, Madame Chair. How much money was involved in total?
Each check. I don't recall the exact amount. 55 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
They are always notified and we, I believe, had an investigation and review done of the transaction and the incident, which we customarily do. I'm not responsible for notifying the police, and I can't say that I know specifically whether they were notified. We do have security who --
So we're not sure whether or not there was an actual theft report filed with the Philadelphia police and investigated by the appropriate detective division.
Any such report would have been filed by the head of security, and I'm not sure if a report was filed, but it could be a situation where it was determined that we had no 24 -- no one to accuse or no -- no evidence.
Well, is the same 56 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 sidewalk vendor or check casher still there?
I mean, to me, it would seem to -- Madame Chair, I apologize for --
This whole thing is kind of silly, but it's so intriguing that there's a check that somebody had to sign fraudulently, had to present, get cash in return. There's a paper record showing that the check was returned back to the bank that issued it. I can't believe that there's not a detective. I mean, a junior detective could probably track down the information at least to determine who forged the person's signature and whether or not -- you don't know if the check-casher, I mean the guy who may have been in complicity with this whole operation is still on the street cashing checks?
Actually, Councilman, I can answer your question. First off, there was an internal 57 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 investigation. Security reports to me. There was an internal investigation, the Philadelphia Police Department was involved, the person was apprehended, charged, and was convicted of a crime related to this.
Okay, both the person who stole the check and the check-casher, or the check-casher was not culpable?
Thank you, Madame Chair. Mr. Driscoll and Mr. Hallyar, for a 58 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 moment I'd just like to just refresh my recollection of where we've come from and where we are right now. How long have the two of you and the other members, for the moment, of the PFMC board been in your positions? There are seven members; is that correct?
Mr. Driscoll, you're the newest of the board members, and you're the chair; is that correct?
Well, I was the newest until this week. I was appointed in December of -- 16
I was appointed by the 19 mayor in of December 1997 as chairperson, and I had no involvement prior to that time.
Right, I understand. Now, does anyone have any particular institutional history -- Mr. Hallyar, how long have you been on the board? 59 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Since '96, okay. And did you come along around about the time of the three chief officers?
I believe Reverend Moore spoke to the fact that he had been on the board four years during his testimony last time.
We were all appointed when Phoenix was brought on, and that would be about, I'm sorry, 1995.
So with the exception of Mr. Driscoll, all of the other board members came on about 1995.
And so all of those board members were here at the time that the ordinance was passed, 950694, which put into place 60 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 the financial package for the as yet unhired, possibly interviewed, but not yet hired three officers; is that right?
Now, it's my understanding, only from news accounts, that Mr. Hallyar, you are now and you identified yourself this afternoon as the interim chief executive officer; is that right?
Do you now find yourself slightly in a position of being a board member overtime same agency that you run?
I haven't had a board meeting yet, and I wanted to discuss it with the 61 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 board when we meet on Friday. It is not unusual for a senior officer of an organization to also be a board member, so I don't think that causes any discomfort. I want to say what the other board members feel about --
Are you talking about in the private or in the public sector?
Probably in either. It's not an unusual situation. If the other board members feel uncomfortable with it, then I will abstain from activity as a board member.
Well, are there any examples of quasi-public or publicly-owned entities where the chief executive officer or the president also serves as a member of the unpaid board of directors?
I'm not aware of any, but as I'm sure you agree, there are boards that are constituted where the CEO also serves as either chairman of the board or as a board member.
Well, I understand that in theory, but I'm talking about PGW, which 62 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 is a publicly-owned utility. I mean, we can have more of this discussion, but do you think you automatically remove any real or perceived conflict of interest by continuing in your services as interim or temporarily CEO and not serving on the PFMC board?
I'm not asking you that; I'm asking you about a perception of confident of interest. I'm just engaging in a discussion about it.
I don't think there is one. But if anyone raises the issue and would prefer that I not be on the board, no one be happier to get off this board than I would be. I don't think it's what my job is or what my call to service is, but that's -- being on the PFMC board is not terribly important.
I've sat on 63 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 about a dozen business and civic and charitable boards over the last ten years or so, and I think in every instance that I can identify, the chief executive officer of the organization has served on the board.
Thank you, Councilman. I'm aware of that also, I just thought the issue needed to be raised and get Mr. Hallyar's perspective on it. Now, is it also my understanding, again, just from newspaper accounts, that you are also serving in capacity of either chair or director of the search committee for the new CEO or president?
This is a search committee that will report to the board, and it has had one meeting, and I was asked to chair it.
Okay. By your service as chair of the search committee, does that automatically mean that you remove yourself as a potential candidate for president or CEO job?
It's been my experience that people who are asked to serve on search 64 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 committees are the people that you don't want to have get the job. So my assumption is that that's a sign I'm not supposed to have this job. I will also tell you, by my chairing this committee, it is a highly motivated group.
I'm sure. There have been conflicting reports with regard to the scope of the search of the CEO. At one point in time, because of the relocation expense and gross-up issue, it was apparently decided that rather than face that prospect again, that we would only look for people who might be a car ride away or a bus token away from coming to work at PGW. Then a couple days later, it seems that the position was reversed on that and that the scope would be wider, if not national, in perspective. Can you comment at this point in time as to whether or not you are only looking at people who are in Philadelphia or the five-county area, or do you plan to expand the search?
You are correct. There was a great deal of confusion on that point. As the committee is functioning now, we 65 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 will answer three questions that have just -- on the floor and need to have some -- that need to have some answer, and our answers will be taken to the board with full documentation. The first question is -- and these are the issues of the future of PGW. The first question is: Should PGW be sold as some people have advocated? The second question is: Should we not hire a management firm or another utility to manage PGW in place of senior management? And the third issue, the one you're concentrating on is: If none of those two options are viable, find a new chief executive officer. In doing that, we will look in three smaller circles. The larger circle is we will conduct a national search, as we've been asked to do. We will focus also and concentrate on the Philadelphia area -- in Philadelphia, the Philadelphia area. And thirdly, we want to look inside PGW for that candidate. And that will all take place simultaneously.
Why are the 66 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 questions being asked or possibly decided in the rank order that you laid them out as opposed to, first and foremost, trying to ensure that there is strong, qualified, top-level management to run the company before you get into the issues of possible sale or anything else? It sounds like -- I mean, the current situation, at least from the public perspective, is that the place is rather a mess. Why would you engage in a discussion -- and is this only at the board level? -- as to whether or not a decision should be made to potentially sell the company?
Because those questions have been asked that are in the -- they are in the public arena. And for sometime, the City has had a consultant working on that question on evaluation of it, and it's just simply a question that needed to be answered.
Well, suppose the board decided that that was the thing to do, what next?
They would make that recommendation to the appropriate people.
To whom? 67 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Wouldn't it make any sense to have that discussion with most of us before you get into that issue at the board? I mean, do you have any idea what the members of City Council, for instance, think about the prospect of keeping or selling the company as we speak?
There are a variety of opinions. Our focus is on what is the value of the company. If it were to be put on the block, what could you get for it? That, to a very large extent, answers much of the question. Whether there is a public policy reason to do it is not within our purview; that's yours.
Yeah. I mean, it actually is in our purview to make that decision. You only run manage it. It seems to me, in the first instance, you are not necessarily the group to either make that decision or possibly shape that discussion, but if that's the path you want to go down -- and we can revisit this particular topic -- when do you anticipate going through that 68 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 process to get back to the point where you can get back to what you are in the government to do and having a full-time CEO running the company?
Do you mean dissolve the search committee because its work is done? I would like to do that by very early this winter.
Are you talking about the end of the first quarter of '99 or --
That would be an ideal deadline, yes. The mayor, when he made the announcement, suggested the end of June of next year, but I think we could be more expeditious than that.
Okay. Mr. Hallyar, you testified in favor, I believe, of Bill 950694 -- that was the compensation bill -- back in the in 1995; is that correct?
No, it's not, I never testified or appeared before Council on that. Are you talking about for the three executives? 69 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
No, I did not, I never attended Council on it. And, in fact, my understanding of the --
My mistake. (Unintelligible, parties talking over each other.)
My understanding of what took place was completely wrong. When I read the transcripts at the Councilwoman's request, things I thought had taken place had not. So I'm the least expert on that issue.
Well, that often happens in the function of the government. We often think that things that happen never actually happen and vice versa. Is it your understanding, though after reading the transcript and reading the bill, that the compensation for these executives and any 70 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 expenses associated with their service or getting them here or even expenses of the company were supposed to be covered by these annual fiscal allocations by way of the management agreement as laid out in the bill for five specific fiscal years and in a formula for FY 2001 and thereafter?
It is unclear. The PFMC account which, at that time, was $700,000 and goes up little bit each year thereafter in the agreement, is to cover base salary and, I believe, bonuses and other costs of PFMC. It is unclear what all that, including what other costs was. If you're leading to the question of whether contract limits were exceeded, I believe that is the case. But I think it is unclear as to what was supposed to come out of the PFMC account and what did not come out of the PFMC account.
Well, the particular session in question reads: The amount needed to pay or provide for the payment of base salaries chief for the chief executive officer, chief operating officer, and chief financial officer, and to pay the other expenses of the 71 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 company, not to exceed the following amounts for the specified fiscal years -- '96 at 700,000, '97 at 725, '98 at 750, '99 at 775, 2,000 at 800, and 2001 and thereafter, based on consumer price index for all urban consumers, and it goes on from there. So it was certainly our belief and our intention, by way of the legislation which amended the PFMC agreement that had all costs associated with these executives would come out of this base amount, exclusive of compensation, which is dealt with in a separate section, which seems to, quite honestly, be in conflict with the earlier discussion about a particular opinion from a law firm and other expenses, which seems to have been a very narrow case. It is clear in my mind, as an active participant in that hearing, that all expenses associated with these three individuals was to come out of these annual disbursements.
I yield to your opinion. I did not participate in those hearings.
Yes, Councilman? 72 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Let me finish the question. Did you negotiate your contract with PFMC with the 1983 Obermayer opinion in mind?
So you believed, when you negotiated your contract and signed it sometime in, I believe, January of 1996, that the amounts that were in the contract were the actual amounts, you weren't anticipating any other amount, you weren't expecting to have some other expenses paid from some other account somewhere else. The numbers were what the numbers were. Was that your understanding when you signed your contract?
My understanding of the contract were these: That my base salaries would be $212,000 73 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 a year to begin, to continue for two years, with the prospect of a merit adjustment at the end of the second year or the beginning of the third year; That my opportunity to have incentive compensation paid annually would be $ 45,000, based on certain criteria that was set up in the contract, at paragraph 4; That in the absence of a defined executive compensation program, that at the end of each fiscal year, the board would make an evaluation of my performance, along with the CEO, to determine how much of the opportunity of $45,000 I could get; That at the beginning of each fiscal year, the board and the CEO would set out the criteria that would determine the opportunity for the $45,000 incentive compensation for the upcoming year; That the PFMC would pay my relocation expenses, my temporary living expense, my house-hunting trips for my family to Philadelphia. And those were the basic compensation 74 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 provisions. I knew nothing about any opinion. I had no attorney to negotiate that contact with me; I negotiated it myself.
Okay. In response to an earlier question from Councilwoman Verna, I believe she asked -- and I'd like to ask pretty much the same question -- with the exception of the $212,000 in base salary and with the exception of the incentive compensation that's laid out in your contract, can you tell us how much you have received from PGW in reimbursement of all other expenses associated with your relocation, any kind of gross-up, any kind of federal tax payments as a result of dollars that were given to you that are considered compensation, or any other expenses that you've incurred since 1996, when you relocated to Philadelphia?
Councilman, I cannot at this point in time give you those numbers. I will be glad to give them to you in a follow-up written response to you. 75 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Okay. With regard to the various reports that are circulating -- and I tried to provide the same opportunity at the last hearing to another individual -- what is your explanation for the various reports that seem to indicate that there were fairly excessive dollars repaid to the three officers, in excess of their various caps in their contract? How do you explain the various reports and the incidents that have taken place, that have led us to where we are today? What is your explanation for all of this?
Councilman, I don't have an explanation. I read about and probably understood as much as the average individual who opened the newspaper up on a daily basis and read whatever accounts were there. I don't know the source of the information. I can tell you that as I read the newspaper reports, I found them to be fragments of fact. 76 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I found them to be fragments of facts, as I know them, some misinformation, and so I cannot explain the reports that you and myself and others have read in the newspapers and heard otherwise.
So your testimony is that you've not exceeded any cap on allowable expenses by way of your contract.
That is not my testimony. My testimony is that with respect to the relocation expenses outlined -- proscribed at paragraph 6b., I have not exceeded it. With respect to the other provisions, the temporary living exceptions at paragraph 6c., I believe that I may have exceeded by about $2,000. The amounts of money that, if one would take a strict or literal interpretation of the contract, the $12,000 that were outlined there. But otherwise, that's the only provision that I believe that there was an exceeding of. And I've made that point clear to the independent auditor who questioned my expenses, and I made that clear to him in writing. 77 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I seem to recall reading on one record regarding credit-card use, one, I believe I'm aware that you may have turned your card in as a result of some of these reports. When you were given the card, what were you told that it was for?
I'm sorry, I didn't hear the last part of your question, Councilman.
When you were given the card -- or did you ask for a credit card.
So someone showed up at your office one day and said, Hi, I'm the credit card person, here's a credit card from PGW.
Someone showed up to my office and said, "Here's a credit card."
Well, I had the first part of the story right. 78 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Okay. And what was the explanation or what was the documentation --
Pardon me. Also -- it was also brought to my attention, and which is true, that I also have a gas credit card for the Sunoco gasoline. So I have two credit cards.
Do you find that to be other than better than some other brands or --
Pardon? I think we found a better deal with this particular --
Okay, I understand. So they show up with the credit cards, and what do they tell you? What's the policy? Did they give you anything in writing or is it just past practice, or "Greg, go out and have a ball" or what did they say?
Councilman, nobody explained to me what the policies were. My practice is that when taking on a new assignment in a new organization, I do a couple of things. One is to take a look at whatever policies and procedures that are outlined for the company, whatever the written policies and 79 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 procedures were. So I found with my assistant, the policy governing expense reports, which includes credit cards, cash expenses, and others -- that's Policy No. 778.01. I read it, I think I understand it, and I try to comply with it the. The other thing that I try to do is to basically look at any of the -- in any governmental agency as this is or a quasi governmental instruments for its operation. That is, the articles of incorporation or any bylaws or anything else. And those are typically my practices when moving into a new organization. I read the policy myself. I understand what it says.
And when you made your purchases, you then fill out a voucher and send it in to someone?
With respect to any purchases, whether they are cash or credit purchases, if one seeks reimbursement -- well, 80 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 with respect to the credit card purchases --
What was the purpose of the credit card, the PGW American Express card?
Did someone tell you that, did you figure it out from reading the policy, or is that your personal policy?
Figured it out from reading the policy, and that's typically the way I would try to perform in any of that.
Do you have a general definition of business expenses?
When I'm conducting business on behalf of PGW or the organization that I was employed by -- in this case PGW -- it would be a business expense.
Okay. All right. Mr. Hallyar, what's the City's policy on relocation, credit cards, expenses, checks, reimbursement and the like?
It's very, very 81 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 conservative. We have paid location to some senior managers for the cost of the moving, for the physical cost of the moving. We have not, to my knowledge, paid any taxes, either for closing costs on houses or income taxes because relocation benefits are treated by the IRS as a taxable event, it affects your year-end income tax. So we have done that for a few thousand dollars from time to time. In regards to expenses, we permit reimbursement if there is a legitimate business purpose with a non-City person that -- and most typically, it's lunch that is conducted. For example, from time to time, I do not want the person I'm having lunch with to pick up the check, if it's a vendor or a potential vendor. I will pick up the check and for that and then I will seek reimbursement. It's basically that limited.
All right. Either Mr. Driscoll or Mr. Hallyar and Mr. Sharbutt and Mr. Martin, you may have some insight in this. The one consultant contract that we have in the large book -- there are a number of them but one 82 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 of them is pretty extensive. This is the Hanson Consulting Group are you familiar with this contract?
Are you saying that you were not aware of this contract by way of reading it, or you were not aware that this contractor for service existed until recently?
I think we were aware that there were consultants assisting in putting together not only a strategic plan for the company but also trying to bring the many diverse and not always well-integrated units of the company to understand what that plan was and what their role in it was so it became a very massive collaborative effort, with every level of PGW becoming a party to defining what it is that the company did. Now, this was done in a period where it appeared to be all but certain that there would be 83 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 deregulation and unbundling of the gas industry, as there is in electric. So there was a major revolution afoot, and this seemed to be appropriate. The board never passed -- to my knowledge, the board never passed the resolution 8 because it was originally a contract -- excuse me, it never approved the contract because it was basically a small dollar amount. I think it was $62,000 was the cap.
Okay, $72,000 was the cap. To my knowledge, the board never met with the consultant, so that our knowledge of the individual was basically limited to the knowledge that the company was undergoing -- in this case, I think -- a very appropriate self-analysis and self-definition of what to wanted to be.
Well, the original contract is dated to go from a period of May 20, '96 to December 21, 1996, for $72,000. Did anyone think it was unusual that the person was still doing work in 1997 or 1998? 84 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I don't think anybody -- certainly at the board, I don't think anybody knew that the individual was still doing work.
Well, wasn't the individual doing work with people in the company or people at the board? I mean, the nature of the with work was strategic planning for the company, right?
Yeah, but I do not believe the board knew the individual was still working by that time. I don't think we ever met or knew the individual other -- until the anonymous letters began to arrive making various allegations about her. But other than that, I think this was the first time I ever heard about it.
I mean, this is a round-robin. Who at PGW is responsible for monitoring the contracts and the payment procedures? 85 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
In this case, obviously, it was not well-monitored. It was -- the contract was executed by the chief executive officer at that time, and when invoices came to be paid, they were paid to the -- just simply by the normal function of paying bills. Apparently, nobody was involved, and I can be corrected 'cause I don't know what the procedure was then, but apparently, nobody was aware that the payments has exceeded the contracts. They did not have a system that you have in the city, where you check every payment to make certain it is not exceeded either at the time or of the dollar amount of the contract.
So how do we know what if any benefit we received from this contractor and how long he was working? I mean, we simply paid $316,000 in October of '98 because somebody said he was doing something? Where did it come from?
I have no idea, I've never met the person, and I believe it's a she.
Who from PGW knows? 86 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Chairwoman Verna, I know the individual. I'm unfamiliar with the contract, I've never read the contract. And, as Mr. Hallyar said, I believe that the contract -- not having seen it -- was executed by the chief executive officer at the time.
You know, I find this very disturbing because this is only one that we know of that has been called to our attention reading into some of the literature that you sent us. I wonder how much more contracts there are existing that we're paying for that do not -- yes, do you want to say something, Mr. Martin.
With respect to the contracts that are in my areas of responsibility, I know that we have identified all the contracts and what we are paying on them and how they're being administered. I can speak to the areas of -- my areas responsibility. We outlined those in that one question -- that one response that we gave to you. 87 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
How do we know -- how do they monitor expenses then if they don't know what we're paying? What are we paying for all these contractors? If we didn't even have a written contract for this Miss Hanson and we're just paying out, my question is, how do we then know what the expenses are? How are we going to correct problems like this, Mr. Hallyar?
That is a situation that is -- you're correct, it is was wrong.
As Finance Director, would you allow that to happen in the city?
Of course not. And you can't make the accusation that anybody allowed that to happen 'cause nobody knew it was happening. We are putting in and have put in fiscal controls to prevent that kind of thing from happening again. Certainly, the board must approve contracts and must be knowledgeable of contracts that are being signed. We already have a policy that any contract that exceeds a certain dollar limit over a period of time must go to the board's attention no matter how small it might be. This is a matter of having good fiscal procedures, which we are about the business of installing now -- modeled in great part over what the City does. But in this particular case, one individual got a contract through, authorized the payments, and the company paid them because it was on the authority of the boss.
Can I address the issue that I think is more within my area, the monitoring of these costs. I don't think there's 89 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 any question that they were monitored. The contract itself, I didn't know the existence of the contract until it came out in the discussions that we're having here, but the procedures and policies used to make disbursements were followed, we know how much was paid, we had the proper authorization to make the payment from the proper person with the level that gave them the approval level to make those expenditures. So I think the process was not violated. We have improved it but it --
The question that I have is: If the contract was for $72,000, at one point does the red flag come up from you or the people at your department to say you've reached the $72,000 amount? Because, evidently, more was spent for the contract than $72,000. And even though the CEO may have authorized the payment, where is the red flag to say this exceeds the contract, and you need to amend or renegotiate the contract. I think that's the question that we all are concerned about, where is the control over things? Because if this person has a contract, 90 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 the CEO has the power and authority to exercise the contract. Then if the $72,000, if the spending exceeds that amount, who tells the CEO that the contract has to be renegotiated or amended? I think that is the question. And then the question becomes: If the board has an amount that they have to -- say if it's under $100,000, and I don't know what it is, and if this contract is going over a $100,000, at what point do you notify the board that this contract is going over a $100,000? Or what happens, the CEO negotiates a contract for a smaller amount without the board's approval and further extends the contract or pays the person for the services without going before the board to have approval. That is the issue, at least for me. How do you control that spending by the CEO who has to report to the board and is not -- what control can you put in place to prevent that from happening to exceed the authority of the contract?
As far as that applies to my responsibility for monitoring the contract, 91 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 I did not have access to the contract and did not know of its existence until I got --
If the board -- if the CEO executed a contract, who in PGW revoked the contract, who reviewed the contract? That is the question. And then after the contract is reviewed, it seems to me that the contract or a copy of it should go to the Finance Department so you have the authorization to pay the bills as they come in.
You are correct, and that was not done, and it's not going to happen again. We are putting in controls that are similar to the City's so that there were be, A, copies of the contract to check off of when bills are paid. Secondly, there must be a not-to-succeed amount in the contact so they don't -- you set up $100,000 contract, the board will never see that, and then you just let it run till it hits, you know, 600 $700,000. That process has to be put in place to prevent that, and that is being done now. In my taking overtime interim appointment, we lowered the board -- the 92 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 requirement that the board approve all contracts from the $1 million to $500,000, so the board will now be seeing more of the contracts that are let, and these are both in the public works service supply and professional services area. And we are going to have those fiscal controls in place so that this does not happen again. We are also, regarding the tax matter, working with Mr. Volpe. We are setting up first a certification process where a contractor must certify they owe no taxes. And then, as contracts are put in place, have the City Controller verify that no taxes are owed and that the appropriate licenses are in place, same procedure as we use here. That will delay things by (unintelligible), and that's certainly a day worth spending --
We're working on it now. David and I have talked about it a number of times.
If I might, Madame Chair. At the end of our last session, I think we had the beginnings of a debate about what is PGW. 93 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 And my review of this kind of looks in arrears. I kind of look back at it and say, What does it look like this was all about to me? And I'm a person from the private sector, as you know. In the private sector, there are very few people in any organization that if the CEO has an arrangement for someone doing planning work or another kind of work and the CEO says there is value in this and there is no contract, that they wouldn't pay it. Now, that's not appropriate here, right? However, returning once again to the hiring of Mr. Hawes -- and I don't want to say anything bad about Mr. Hawes per se -- but Mr. Hawes was from the private sector, and I believe Mr. Hawes brought with him a private sector view and a private sector approach to making PGW a competitive organization in a deregulated world. And from the first day, he intended to conduct it in a private sector way. And that is kind of at the crux of this debate that we're having, it seems to me. And what is PGW? It is a public sector entity that is chartered to perform certain functions for the 94 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 City in a reliable and safe manner, and it has to act that way. The controls that are being put in, we're working closely with the Gas Commission, we're working closely certainly with Council and with everyone else who is investigating, and those controls continue to go in. And this they be ironclad as we move forward. It is sad about the past, it is sad about the past. You know, I am terribly disappointed --
I'll tell you, with some of the articles that I have read, I will tell you, it actually nauseated me because I see what happens in the city, and we have in the Police Department, for instance, where a captain wants to get beepers for his officers, and he's told that there is no money, and we're squandering money like I'm hearing here? I find that very, very upsetting.
Madame Chair, please don't misconstrue my view about the private sector that says they do squander money. They have responsibilities too. 95 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
They can squander money. And as far as I'm concerned, with all of that I have read about PGW, I think it's a disgrace the way it's operated. And I agree with you -- that was the past and I want to make certain that we don't do it in the future.
And this is the process that has been going on for a few months.
And I commend you for being firm in your commitments with PGW, Mr. Driscoll. Yes, Councilwoman?
I have a question. I want to go back to the initial negotiation of the contract. Who other than Mr. Duretsky negotiated this contract?
I negotiated some of the contract with Mr. Martin. The majority of it, in terms of the similarities of the three contracts, the Solicitor handled. 96 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
On what basis did the City Solicitor draft the contract, and why were they different from the City rules on contracts and relocation? You said earlier that you may pay some relocation expenses but you don't get into taxes. Do you do gross-ups?
So how did we come to negotiating contracts that involved the relocation expenses? Which, I understand, is the policy. But also, how do we get into the tax gross-up, which seems to be a real question, and -- since PGW is viewed as a city agency asset?
Well, allow me to walk back into the hornets' nest. At the time, there was this suggestion that we should run it like a business, and the effort was to try to get private-sector experience, people who had utility experience from the private sector, to run PGW. And the terms in which we could get talented people -- and they are talented, Mr. Hawes is extremely talented -- the terms in which we'd get them required us to meet the terms that they would expect from the private 97 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 sector. And that's what we did.
Can I make some comments? I was there at the time, as were the other two. And I have relocated, the first time when I was a laborer, in 1968. I still have my tax returns from every year, and I was reimbursed as a laborer moving with a tax gross-up in 1968. I moved again in 1976, I still have the calculations with the tax gross-up. When I came to discuss a possible job here, the initial piece of paper that was given to me with salary proposal, benefits, others, did not have anything referring to that. I discussed it with Mr. Martin and Mr. Hawes. And I said I wouldn't sign a contract anywhere without a gross-up because I know of the impact of it. I also asked a couple of others things that were of concern to me at the time. One, I would certainly hope to have pension vesting, but after discussing that issue, I knew that we had a ten-year vesting, which was different than what I would experience in the private sector. So the primary issues that I brought up in the negotiating process were pension, which I 98 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 gave in on, relocation, and specifically the gross-up issue. I think many of the people during that process have never even heard of the issue.
I think that's the issue here, not having had to relocate personnel for this -- for PGW and to have this reported without people having any knowledge or sense of what it's all about raises the question, Mr. Hallyar and Mr. Driscoll, in terms of what will -- and I believe you -- we have to set some policy on what and with all the critical stakeholders so that as we move forward to find a new CEO, what will be the understanding around the hiring policy, what they -- what their benefits are, and I think that should be made clear, some decision about that policy should be made before we launch anything to get anyone. And I do believe that the critical stakeholders have to be consulted so that they will know what we are offering a new CEO, and in the future, how we handle bringing on new staff.
I believe one of the reasons you're a member of the search committee is to give us guidance into that area. What is, you 99 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 know, now, what would be anticipated in that regard. I mean, that's -- I look to you for help in that.
This is probably an oversimplification, but it seems to me that what we're talking about here is an organization that's been run for a long time in a somewhat haphazard fashion. I know when I first came into Council, back in the 1960s, that was our attitude towards PGW, it was being run then by UGI, and we all still felt that it was not producing as effective an organization as we'd like to have. And since then, we've stayed away from it pretty much, Council, letting the people who are supposed to run it run. And we finally reached a conclusion led on by the mayor, back several years ago, that we ought to go about restructuring. We talked about selling, we talked about some other alternatives, and decided that what we'd do is hold on to it and approve it, do it better, and that business contact was something that was very, very much present in those discussions. 100 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 So seems to me that we hired someone to do this. And certainly, the results, the financial results seem to be pretty good. And I don't think we should lose sight of the fact that some of the things that were done apparently worked pretty well, if you look at the numbers of the last several years and compare them to what had preceded. There are some irregularities that are occurring, but I think it would be a great mistake to let those irregularities become our total objective. To point them out and to cure them, that's important, of course. And I'm surprised at some of the things that were being done and the fact that nobody really knew that they were. I think we should recognize particularly, Mr. Hallyar, that you've come on board several weeks ago and have been given an onerous assignment. And I think we must be very careful to separate the people who have been there for a while and can be held responsible for some of the things that we don't like; and, at the same time, crediting those same people with the things we do like. 101 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 So I would be very anxious from my standpoint not to see this turn into a witch hunt, where we're trying to hang a group of people, some of whom may be guilty of bad judgment. And at the same time, I think that, obviously, you have the responsibility of shaking things up a little bit during the next few months while you're in the process of looking for your successor and getting a new team, if necessary, individual or team on board as soon as possible. So I think it's very healthy that we're holding these hearings 'cause it brings out a lot of things that we should have known about before here in Council, I think. But, at the same time, I don't want to lose sight of the fact that there are a number of people who have done a very good job at PGW during the recent years, and they should not be indicted across the board with foolishness and with bad management, because that's a very small part of the picture.
We thank you for the acknowledgment of that which has been positive, and we are working with Council to make certain that the errors are corrected and not repeated. 102 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Thank you, Madame Chairwoman. I really haven't been here as long as Councilman Longstreth -- he was here before the building was built. I do agree with everything he's saying. And he mentioned one point that people are guilty of bad judgment. Mr. Hayllar, I certainly -- I know you and I respect the job you're doing, and (unintelligible), but it is a tough task for what you have to do, but I think what people are guilty here of is Section 303 of the stupidity code. I mean, it's hard for me to go to Kensington Juniata, and Frankford knock on doors and ask people to vote for me for City Council in May when I have to run and have people say, Look, they shut my gas off. Or what's going on there? Because the people out there think that it's a big joke. And we are flooded every day with phone calls like, Well, why don't this guy pay his gas bill, why don't this person? Why is somebody taking limo rides when they live six blocks away? 103 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Why are they going here, why are they doing that? I'm not prepared to answer all that stuff. And then we come here and everybody's looking around like -- some people like look like they're on Thorazine. I mean, oh, boy, this is a problem. Yeah, it's a problem. It's a problem when we go back up there or we go out to West Philly or we go to where Councilwoman Tasco's from, and you have to answer to people that work every day and try to do their job and don't have American Express credit card. I mean, it is just stupidity and arrogance. You should know when you have an American Express credit card to the Gas Works that you don't do certain things with it. It's quite obvious. Why was that never there? Like Councilman Longstreth said, we're certainly trying to get this into a business, and we need to go get those great people that are business people, but the business people are the ones that came here and did the things they would never do in private industry, correct?
It's a good question, and let me add to the dilemma. There's approximately 104 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 1990 PGW employees who are mortified about what they read about, and there's no reason for them to be embarrassed, but it's something we have to deal with and correct and make certain that the pride they have in their work is returned.
Let me tell you the last thing I'll say here, let me tell you what's real in my world. When they're fixing the streets up on Kensington Avenue and I stop and I talk to the gas workers, and I say, Hey, guys and ladies, what's happening? And they go, Well, we used to do this every day, and then they would take us on Saturday when we would go around and do the emergency turn-ons, but now we don't do that because they don't have the overtime to pay us on Saturday. And you know what? I was a construction worker for a long time. It's either feast or famine. So that bonus money that they give 'em, which is -- they're working for it on Saturdays, from Thanksgiving on or from Halloween on, to have extra money for Christmas. Now they're going out doing that stuff during the day, during the week 'cause they don't have the extra 105 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 money for Saturdays, so these guys don't get a bonus, okay, that's fine. But what happens to the work that's being done on Kensington Avenue? That has to stop, there's independent contractors with backhoes, walking around, and everybody's sitting on their hands. Mr. Martin, you're looking at me like you know a little bit about this. Maybe you can elaborate how the worker suffers because of the perception in the press and in The Daily News where we're reading every day all that's going on. Can you help me with that?
There is the issue of what this does to the morale. And that we recognize. In terms of overtime, and if you're the recipient of overtime, you're not going to agree with this, but the fact is, PGW was very rich in overtime, and the overtime has been racheted back. And I would submit that that is, by and large, a good thing because it has been, I think, in the past, it has been excessive. Just as, in 1994, there were 2700 employees and -- 106 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
But, Ben, that's easy to sell if you're a business man like you, but you tell the guy working in the ditch in Kensington or Frankford Avenue, and then he says, Yeah, but everybody's going to the opera and taking limos and having American Express cards. All I'm asking for is eight extra hours of bonus time on Saturday. I don't get it because I'm not that smart -- I just graduated from high school, I didn't go to college, they pushed me out. These are the people we're dealing with. That's my constituency, and they're mad and morale is a problem.
Councilman Mariano, I do know something about that. I am the chief operating officer for the company. I basically set the policies and practices that we follow. With respect to the issues that you outlined, there are several things I'll say. The first is that when I was hired here, I was told that you're going to be a change agent, you're going to make this company run as an efficient, effective operation. Get rid of the waste, make sure the people have the tools that they need, the 107 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 infrastructure is supported, customers are getting service and so on. In 1996, when I came here, overtime amounted to approximately $12 million, $12 million. We're as productive today as we were in 1996. Today we have allocated $5,888,000 for overtime. We're as productive today as we were in 1996. You know, I go around and I probably have spoken to more employees than any individual in this company, including the union officers individually. And I can tell you that one of things that I have told them, and I say to this body today, if we do business today the way we did it yesterday, this company will not exist. And it is my responsibility, the management responsibility and the average employee's responsibility to get the most done in a day's time as possible. There has not been one opportunity where -- one situation that I can think of, that I know about, where we need to do get work done, it was productive work and it required overtime to do it that we didn't do it. The issue for me is that people have 108 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 come to believe that overtime is an entitlement, that regardless of how much work we get done, that we still have to get paid overtime. It sickens me also when I ride around the City in the morning time, before I come into work, where individuals who have started work at 7 o'clock in the morning and they're sitting at a delicatessen with a distribution truck and four people sitting in the truck, drinking coffee, eating donuts. That's something also that our consumers don't necessarily want to see. So the point is that, yeah, we have reduced overtime dramatically. We are trying to make this company a very efficient operation. We have practices that we need to change, and we're going to do that. But the most important thing is that we have an efficient, effective operation, where people feel like they're contributing to what they're supposed to be doing. And I've got to agree with you, that some of the things that we've read about in the newspapers is appalling to me also. And what I've got to say is that this body, and I would agree with Councilman Longstreth, that, you know, we 109 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 shouldn't paint with a broad brush all of the executive management with all of the things that have happened, because it's not -- it's not the right thing to do.
Mr. Martin, I appreciate that and before Mr. Hallyar speaks, just let me finish with this, if you don't mind, Madame Chairwoman, but leadership starts at the top. You know, there's that painting with the horses running out of the corral. Well, everyone I know that has gotten to a certain office has that in their room. That's leadership.
Excuse me just a minute. (Unidentified PGW worker responds off-mike).
Mr. Givens (ph.), I'll address that issue. Thank you.
Excuse me, just a moment, please. The stenographer has been sitting here since 9 o'clock this morning. She is asking for a ten-minute break, and I think we ought to do that so we're going to recess for ten minutes. 110 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I didn't mean to interrupt you but. . . (Short recess taken.) (Proceedings resume.) - - -
We are now back in session. Councilman Mariano, you can continue your line of questioning.
Thank you, Madame Chairwoman. Mr. Martin, I'm really -- I'm really, really, really, you know, offended and I'm sort of amazed. You're lucky that they took this break. You know, I can't believe that somehow, you would work into this whole mismatch of bad funding and people using credit cards that the union guys on the street are drinking coffee. I mean, that's like comparing apples to oranges. 111 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 They can drink coffee all day, and it wouldn't have anything to do -- it wouldn't even come close to you comparing it to the money that's been wasted and -- I'll say it, it was stolen, stolen. You know, and I'm offended, and I think you owe an apology to the gas workers and I think you owe an apology to every working man and woman in the City of Philadelphia. I really mean that. I mean, don't really know you that well, and I'm sure you have some noble intentions. But what happens here is, there's crew chiefs out there that aren't members of the union. So if the guys are around drinking coffee and doing what they're not supposed to be doing at 7 o'clock in the morning, you know, where's the crew chiefs or where's the supervisor? I don't know if there's one for every crew, but isn't there a supervisor that rotates between to say, Come on, guys, let's go. I mean, I was a construction worker. I had job where there was 250 men under me. Everybody has problems, but the thing is, you got to work, fellas, or you're not going to be here 'case we got to make money and we got to do the 112 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 job. I just don't get it. How can we turn this around somehow and blame it on drinking coffee and eating muffins on the workers on the street crews. I mean, can you answer me that?
First off, I don't know -- I have no firsthand knowledge or any knowledge whatsoever that any money has been stolen from PGW, PFMC, or anything related to the Gas Works.
If I knew that, Councilman, I have an obligation, a legal obligation to report that and to do something about it. And I would.
Well, it's a misappropriation of funds, funding? I mean, if The Daily News didn't do the article, we wouldn't know. People are paying stuff back now. 113 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Mr. Martin, I mean, is this distasteful to you? Is it a problem? Because it's a problem every day to me when I see people out on the streets that are having problems because they're trying to get to work. This is -- is this a big joke, is it fun? Because it's not to us; it's painful to me, it's painful to Joe Givens. You should -- personally, you should apologize to him, you should apologize to every person in the City of Philadelphia that actually goes out and gets their hands dirty. I mean, you know -- oh, yeah, they didn't steal anything, but would they have turned the money back? If the guy on the crew steals a $200 tool, what happens to him? He gets prosecuted like he stole it out of a store. But this won't happen here because it's a white-collar deal. You know, I mean, I -- sometimes I wonder. I've been here three years, and I go, You know what? What happens here? We bring people in and we talk about different things that are going on and everybody looks up in the air and people 114 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 get in and testify this and people say that but nothing ever happens. We go back tomorrow and them guys are still on Kensington Avenue, or whatever street that is, or out in Councilwoman Blackwell's district trying to do their job, and management again is blaming the worker on things that happen. And then we're going to talk about going and recruiting people from somewhere else to bring 'em in here. If it was up to me, if you don't live in Philadelphia, you're not from Philadelphia, you shouldn't have the job. We certainly have talent here. I mean, can you help me with that?
I want you to start with why you would blame everything on the guys drinking coffee in the morning?
No, I didn't. Now, see, I'll tell you when I heard what I want to hear, okay? Give me a break here. 115 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I'll say to you, as I've said to our employees, 95 percent of the employees in our company are honest, hard-working people. They want to do their job and they want to do it effectively. But 5 percent are not, and it's the 5 percent that make it look bad for everybody else. And among that 5 percent are those gentlemen that I talked about that started work at 7 o'clock and didn't even get to the job site by 8 o'clock. And I make no apology on that because that's a fact. And I not indict all of the union workers, all of the laborers.
It's a broad brush when you say a statement like that, but let me tell you, as someone who came from a blue-collar background, most people want to work. But when I had people working for me, you make it like a game, you make it a challenge. You got to have them people going at 8 o'clock or 116 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 whatever time it starts. It's up to supervision to make sure them people are up the ladders or down in the ditches or on the street jackhammering. And if not, you say, Guys, look, here's the time, one time. You know, if we know there's bad employees, why don't we get rid of 'em?
But what does that have to do with when you started that statement to my original question to Mr. Hallyar and you?
Councilman, you're right. This is not about the workforce. These are issues about fiscal control, that we did not receive -- the board has never received any tips, any information concerning the workforce; they concern fiscal matters, that's the subject of Councilwoman Verna's questions, and that's what we're here to discuss. Overtime has been a problem; it's being racheted down. That's not an indictment of anybody. You know, I don't think Mr. Martin needs to be anything but proud of being a part of trying to get that overtime down to a more reasonable 117 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 number. And, you know, this is not about -- nobody said anything derogatory about the workforce. This is about a fiscal control problem that we all want to correct.
If I can say just one last thing, please. Sometimes there has to be overtime. It's not about fat guys with their (unintelligible) hats on backwards and The Daily News in their back pocket and a cigar and their coffee.
It's about getting things done, okay, because the pendulum has swung, and people are seeing it. It's just hard for us as public officials swung go out there and keep selling this company and keep selling it. It's okay, it's okay. Guess what? I'm not sure it's okay. I'm glad you're involved 'cause I personally like you 'cause we had some kind of thing back and forth. I've known you since I been here and you seem to be a no-nonsense guy. And, Mr. Martin, maybe you're like that. I don't know 118 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 him well, but it's about sending the right messages to the people, and that's not happening. How do we do that? You know, don't just cut out overtime unless it's necessary.
Well, we've budgeted -- I think it's $5.8 million. There's a lot of overtime, but it has to be done when it's necessary.
You're welcome. Are there any other questions? I have a couple. Mr. Hallyar, we have been made aware of an employee who used her credit card to pay for a $320 limousine ride from her home to an opening at the Academy of Music. Under the original guidelines on the cards, was this an appropriate use of the credit card? When was this expense made? And how long did it take the employee to reimburse PGW?
I can answer only some of that. The answer is no, it is not an appropriate use of a corporate credit card. It's not 119 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 condoned. The individual has reimbursed the company for it and will reimburse the company for any other inappropriate expenditures that may have been made. That person as well as every other person who has a credit card, including the people sitting at this table, who may have made an inappropriate nonbusiness-related expense. The internal auditing department, assisted by Deloitte Touche and the City Controller, has reviewed all the expenses for the past three years, all the credit cards and all the expense accounts. We have sent everyone a letter requesting justification for any expenditure that does not, on its face, prove to be business- related. And if those justifications can't be made, that person will be asked to reimburse the company for the amount. Generally -- and this is not to condone anything that happened -- but generally in PGW, there was a very permissive attitude about the use of expenditures. And if a person files -- gets reimbursed for an expenditure and nobody says anything about it, it's not criticized, it's not questioned, you're pretty certain happen that's 120 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 going to again next month because the company has, in its way, condoned that. It tended continued to be in non-operations areas, it tended to be in generally one area -- a lot of it was in one area of the company where there was a proliferation of cards. Those costs will be reimbursed to the company. But there was a permissive attitude. And while I don't condone it, I can understand how some of those things happened. Nobody said no. 12
Well, I don't want to go into -- I'm sure you read the newspaper as I did yesterday.
Can you tell me, has this individual been told how much she has to pay back to PGW?
She's, I believe, paid back approximately $4,000. We are questioning another 37 or 4,000 from the expenses that we've seen. If there's a legitimate business excuse -- or excuse me, business expense we, will do it, we will permit it, but if there's not, if it's a personal matter or if it's not a good business 121 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 expense, we will not permit it, and the person will have to reimburse the company.
So in other words, I think, from what I understand, this employee probably had no intentions of reimbursing PGW for any of the personal expenditures until, you know, many of these articles started appearing in the paper and then was almost forced to pay back PGW.
Okay. As I've described, Mr. McDonald is our as ex-officio auditor, but in reality, we have a real auditor, Mr. Flamm (ph.), and others who have been looking into this. So I don't know at what point the matter was brought to the person's attention, but I can't read another person's heart and say they did not intend to pay it back. I know that checks have been written to reimburse the company. I assume more will be written by a number of people before we are through.
Number one, essentially every expense account for three years has been 122 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 reviewed. Every single unsupported or inappropriate expense has been targeted and we are asking people to either explain or repay inappropriate expenses. The third thing is, we are now in the process of implementing an entirely different card management system so that the individuals will be directly responsible for payment of the bill, and they won't be then allowing the company to pay the bill and then have to reimburse the company, but indeed, they will have to file to the company for reimbursement in the future. So that's another one of the steps that's been taken to change this and to put more accountability on the individual who accrues any expense on a credit card.
Well, with this one particular individual -- I'm sorry, I didn't understand what you had said. How much was paid back? Because it's my understanding that many of these expenses go back to 1996.
And when were the checks written? 123 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I do not know. I have not seen them. My understanding is it's fairly recently, but I have not seen them.
Okay. Are there any other questions from members of the committee? I think that Councilman Nutter had some questions that he wanted to ask.
Thank you, Madame Chair. Either Mr. Hallyar or Mr. Driscoll, and I actually see in the back Miss Estrin, can you shed any light on the story that was literally in the paper yesterday about limousines and dinners and tickets and what appears to be a wide variety of personal purchases that, apparently, some are under the process of being reimbursed, some may already have been reimbursed, some may not be reimbursed at all. We had some discussion about credit cards with Mr. Martin and what we he understood the policy to be in conjunction, I guess, with his own personal policy. How is it possible that something like that could happen?
There were not 124 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 appropriate fiscal controls and, in fact, the system of using the corporate credit cards was just poorly designed. The cards were issued in the name of the company, the company would receive the bill 7 from the 40 or so cardholders and would pay it. It was then the responsibility of the employee to accepted in a justification for the expenditures. In a system like that, it is very easy for that card to be used either mixed with personal expenses and there's no incentive to report to the company what the business person was. And in fact, it --
How was it easy for a person to use the card for personal expenses if is given to them and, apparently, there is a policy, as designated at least by Mr. Martin, who either has excellent notes or an incredible, 'cause he seemed to cite the chapter and verse of the particular policy and what it states. If the credit card is for business purposes only, and that is the policy, how is it possible for it to be used for anything else?
There is no incentive. 125 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 The best I can answer is, there's no incentive.
There is no incentive to restrict yourself to business purposes because the company paid the bill. The system that should have been in place and is now --
If you're a senior executive, you are given a policy as to what to do and how to conduct yourself with regard to a credit card. Is it the incentive that I'm a senior executive and I'm supposed to follow the policy, if not the law?
I would agree with you. But in other cases with these cards, you saw an expansion of what people thought a business purpose was that I think is wholly unacceptable. 126 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 They've tried to rationalize a luncheon between colleagues that is rationalized as, you know, we're discussing business, and I think that's a completely inappropriate expense, and those are the expenses that have to be questioned. And that's what happens when you have a very permissive system. That system has ended, and have one that has accountability attached to it.
Well, I'm going to ask you the same question I asked at the last hearing. When did you become aware of these impermissible expenses?
I think they were first brought to our attention there -- was one case that was brought to our attention probably in May, and others were --
Some of them go back to '96 '97. 127 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
So your testimony is that until May of '98, you had no idea that the card or cards were being used in this fashion.
AND how is it possible that the board or the senior executives would not know about this?
The board didn't. I think everybody was focussed on other serious matters. The company just -- the board would not have considered this a board matter; this is an internal matter that's the responsibility of management.
But you don't mean to inarticulately even infer for a second that this is not an important matter.
It is an important matter, but there were other matters that the board was focussing on.
And this is not -- normally would not be a board -- this would not be something that the board would deal with. The board is -- 128 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
That would be the responsibility of management and the management fiscal controls that were not in place at that time.
Wait a minute, we had management. The excuse for years with PGW and PFMC was that we did not have management in place, that the company operated -- I don't remember how long, but upwards of possibly six years, I think, if my recollection is correct, without any senior management. We went through a process significantly increasing the management fee and the compensation package for the express purpose -- if we grab the notes of testimony from the chief clerk's office -- for the express purpose of being highly -- the package was sold on the basis of, if you want to move the company to the next level, you have to get high-level, well-paid senior executives, more often times than not for, whatever reason, from outside, to come here and run this company. We took that lead, changed the package 129 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 from $300,000 such that almost, at least the top executive would make $300,000 and then on down for COO and the chief financial officer. Now you're still saying that there was no management in place. My problem is, there was three managers in place who were all highly and well paid.
That's an exaggeration of what I said. There was no appropriate management in these fiscal controls. Management was dealing with many other things.
Councilman, there is a saying in business that says, "What gets measured gets done." Now --
We measured customer 130 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 service, and we had improvements in customer service. We measured receivables -- or it was measured in the previous three years, and receivables were reduced. We measured service factors, and service factors were improved. We measured automatic readers, and automatic readers were installed. We measured expenses, expenses were reduced. There was apparently, without excuse --
Expenses apparently of the company were reduced. But on the other side of the ledger, expenses are being driven up on the ledger side.
Let me finish. In another area of the company, this area that we are talking about today, there was not measurement. That is inappropriate. It is totally inappropriate. There was not.
Well, take me back through the change of events. A person submits a bill for whatever they submit it for. Where does it go who and does it go to and who is ultimately responsible? I've heard nothing here today that indicates that 131 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 anybody is directly responsible for anything.
Today, yesterday, tomorrow. Don't talk about -- tell me what was going on at the time. You make an expenditure, you pay for something, you submit whatever the document is, where does it go next and who's responsible for the sign-off? I mean, at the end of the day, somebody's got to be holding the bag on this. I refuse to believe that somebody could be paid $340,000 as a consultant on a contract that expired two years ago and still be paid and no one seems to know anything about it, that people are running up bills -- senior executives -- on credit cards, and no one seems to know anything about it. Somebody's paying the bills somebody's signing off on a piece of paper somewhere, and I want to know who, that's all I'm asking. 'Cause I can't believe the system's so loose that anybody could walk in the door any day, submit any bill to anybody and walk out with a check. That's not possible, is it? 132 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I will take you back in the principal, and I would ask the currently available managers of the company who are here to comment on the specifics. Historically, company credit cards were in the hands of individuals. Those company credit cards, the bills, came directly to the company for payment; they did not go to the individual carrying the card.
The system that was in effect prior to our coming on board had been in effect as far, as I know, for years or so. 19 When we came on board, just as Mr. Martin said, 20 under the procedure that had been effect for all of these years, cards were delivered and there were procedures which were followed that were --
Mr. Sharbutt, in your previous employment, did you ever have a credit card? 133 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
And in your previous employ, did the bill go directly to the company, did it go to you, did it go out into outer space somewhere, what happened to it?
In my immediate previous employer, it was exactly as PGW's long-standing practice. That may not be true in other companies; it just happened to be true in that one no change.
Yes. And I was with a company ten times the size of PGW, and we had around a thousand or so credit cards, and it was the same practice.
Was there a policy at that place about how you use them?
There was a policy, and 134 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 it was --
Did you use them for business expenses, business and personal, or some other system?
That is unique to a company. We did have authorization for personal expenditures in my previous employment. And in PGW, the issue was discussed in 1996, and it was not overruled as something that could take place with reimbursement, and it did take place.
Councilman, my previous experience was that the corporate credit card was the individual's responsibility. The statement went directly to the individual at the end of the month, the individual had to, by the fifth working day of the next month, file the expense report, and once it was approved by the approving authority and going through the treasury department, then the company would pay the credit card expense. At PGW, it's different. 135 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 And, for your information, you asked what's the procedure at PGW. Well, the policy that I enumerated before, 778.01, outlines --
The policy outlines the line of succession with respect to approvals.
Yes, sir. It states that the individual has got to, by the third working day of the following month, complete in duplicate form and file any expenses -- I'm relating right now to the credit card expenses.
The approving authority is to receive the reports in duplicate form from the employee.
The individual's 136 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 supervisor or the next in line.
Verify that the expenses conform to PGW's policies, approve expense reports, and return to the employee. From there, they go to the treasury department for review. The treasury department forward all receipts and credits to the appropriate personnel. The treasury department verifies that the report is complete, it's to return incomplete forms to the employee. It verifies that the approvals are made by the appropriate authority, that the computations and expense account numbers are correct, that the reported expenses are current. And it has a note on it which says that the treasury will reject any reimbursement for expenses submitted six months after the cost. And there are other procedures outlined.
If you could copies of that available to the Chair, I would greatly appreciate it. So now when you -- prior to your 137 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 returning the card, when you made your expenses, who signed off on your forms?
So you do whatever you did in the course of a month, and then you'd bring your forms over to the chief conceive executive officer, and that person was responsible for signing off it?
And they were supposed to review it to figure out whether your expenses as the other two members of the senior management team, a CFO and a COO, were in compliance with this policy.
Well, how much time 138 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 does a CEO have to spend checking somebody's credit card bills?
Okay. Miss Estrin, can you come up to the table, please. (Deborah Estrin comes forward.)
I have some questions about my understanding and then, I guess, your understanding of your contract. I have a copy of your contract, which is dated September 17, 1996, signed by James Hawes, Chief Executive Officer, signed by yourself and witnessed by a Nancy Cullin (ph.). Who's Nancy Cullin? Please identify yourself for the record.
I'm Deborah Perry Estrin, Senior Vice President, Human Resources, for PGW.
Nancy Cullin was Mr. Hawes' administrative assistant -- executive assistant, excuse me. 139 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Okay. And how did you negotiate your contract? And who did you negotiate it with?
I negotiated it directly primarily with Mr. Hawes, Rotan Lee was also involved in the negotiation, as was Joe Duretsky.
Joe Duretsky in his capacity as City Solicitor of Philadelphia at that time?
And what is your understanding with regard to your compensation? I'm looking at of your contract, item number 4 that talks about compensation. Your base salary was $175,000 a year; is that correct?
Okay. And it then goes into incentive compensation to be earned. If all performance targets are fully achieved, will not be less than $30,000. The actual amount of incentive compensation to be awarded hereunder shall be determined at the close of each fiscal year of PGW by the CEO, based on an evaluation of the achievement of the performance targets. 140 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Is that your understanding of your contract?
Okay. And did you receive any incentive compensation in the amount of $30,000 or less as a result of an annual review?
Okay. And what was that incentive compensation based on, or what were the criteria?
There's a book of performance measures that we had for the year presented to the board. There was, in the area of my responsibility, a 117 percent achievement of those performance measures.
And what are some 141 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 of the performance goals of -- your position was vice president of human resources -- senior vice president of human sources?
Yes. There were about 8 pages of objectives. They ranged from analyzing 9 the current compensation structure and making 10 recommendations to changes to that structure, to 11 developing platforms for training programs for 12 assessing the competencies needed to take the 13 company into the future, for consulting to senior 14 management on strategic planning and on the culture transformation. A major project was working with the sales and marketing organization to develop the sales and marking strategic plan and staffing that organization. Those are some of the highlights.
I'm sorry, you said strategic marketing or did you say strategic planning?
And later on in the contract, it says, in lieu of the incentive 142 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 compensation described in paragraph 4c. hereof, annual compensation paid under a formal executive incentive compensation plan for PGW, if developed and implemented by the board, provided that such plan is adopted, provides an opportunity for Estrin to receive $30,000 (or more) per annum. Now, what does that mean in contrast to the paragraph above? Is that an automatic $30,000 bonus?
In both cases, the amount of the incentives is to be not less than $30,000.
The second one was only if we developed a formal executive incentive plan and had it approved by the board.
The former executive incentive plan would have afforded the ability to earn a range of incentive payments.
Well, is it fair to say then that your package provided the opportunity for the $175,000 salary, $30,000 -- or not less than $30,000 incentive compensation, plus 143 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 an additional $30,000?
No. The second piece would have replaced the first piece had we gotten an executive plan approved.
Okay, all right. It's also part of your package, under Benefits, number 5, on the same , that you have use of a personal company automobile as available or leased if not otherwise available, which shall be a non-luxury car of domestic manufacture. Did you get a car or lease a car, or was a car leased for you by the company?
I've had a series of cars in the two years I've been here, ranging from an old Dodge product to, currently I'm driving a '98 Taurus that's been leased by the company.
So you've had a car from the day you started, okay. MS. ESTRIN; I've had a company vehicle, yes.
Now, the reports 144 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 from yesterday seem to indicate that from time to time, that you have accessed or utilized the services either of cabs or limousines for a wide variety of things; is that correct?
I don't think I've ever ridden on company business in what I would call "a limousine," one of those big stretch things, but it was car services.
But something other than the vehicle that was leased on your behalf be by the company.
Okay. And you said that you don't believe that you've ever used one of those vehicles on company time.
No, I said I don't think 145 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 I've ever used a stretch limousine on company business.
But you've used other things that fall into the category of car service?
Some of those occasions were during my relocation, when I was moving from Stamford to here and commuting between the two houses. I would take the train from Philadelphia to New York. The last train to Stamford would already have been gone, so I would take a car from New York to Stamford to get me home.
And did you ever utilize any of these car services on non-company time?
And for what reason might that be? 146 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Various needs to have cars, but I've never charged those kinds of things to the company other than the ones for which I've already reimbursed the company.
Well, prior to your reimbursement to company, did you ever use your credit card to pay for these car services at times not on company time?
The instance that was quoted earlier, when I took the car service, to a symphony function.
My understanding was that we were allowed to use the company credit card for 147 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 personal business as long as we reimbursed it.
Did you get a copy of the same company policy as read into the record by Mr. Martin?
Okay. Well, what was your credit card experience? When you got your credit card, gave it to you and what did they say?
It seems to me that it was sent to me and handed to me by my secretary, here's your company credit card.
That's a good thing to say, "please" and "thank you." After that, did you ask, What's the company policy on this reimbursed, how do I use this, how do I get reimbursed, what do I use it 148 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 for? Did you ask for it, did you ask for a company credit card??
So your secretary showed up one day and said, Here you go?
You never inquired as to what you could use it for or what was appropriate or what was inappropriate?
I've had company credit cards throughout my business career as well, and I thought that the understanding would probably be the same as previous cards I've held.
Have you ever work for a public agency? 149 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
You could use your card for personal business. We did, however, have the practice of monthly billing to the individual rather than through the company.
I have a question. As director of human resources, what is your role in explaining the benefits of the corporation to employees, future employees? And would not the policy of credit card use be a part of your responsibility in?
We do explain to new employees the benefits that I would consider to be the traditional, what used to be call the "health and welfare benefits" -- health insurance, life insurance, those kinds of things. 150 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Financial policies and other kinds of usage, including transportation policies. For example, I didn't get a policy on what I was supposed to do with my car. Somebody finally came to me two or three months later and said, You haven't turned your mileage in. And I said oh. So there are certain things that we do explain in orientation and human resources, but they are typically the human resources type of benefits and not the broader company policies.
So, okay, thank you. But I guess my question would be, and that's Councilman Nutter's question, where do the policies come from? Who determines who gets the credit card? Is that out of your shop, Mr. Sharbutt?
Historically and with other employers, it has been the chief financial officer. In this situation at PGW, it was not my responsibility. In fact, I have only signed or authorized the issuance of one credit card to one subordinate. The authority for issuing credit cards 151 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 was delegated to the vice president or senior vice president level throughout the organization for subordinates within each department, so --
There was no single person signing to authorize it. It was any vice president or senior vice president could authorize the issuance of a card.
We have changed that. I am and have personally approved many of those since changes were made by the board, investing that responsibility in me. I personal sign for them now.
Yes, thank you. You made mention that some of your work involved strategic planning; is that correct?
Okay. But now there was a consultant who had also been hired 152 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 technically prior to your arrival in May to do strategic planning.
So -- and that person, their contract was for $72,000, for May to December, although the payments have gone on for a couple of years up to 340-some odd thousand dollars by PGW, at least by way of the information provided to us by PGW. So, in essence, we had two people working on strategic planning, one on the ground and one flying all over the country, coming back and forth?
No, there were much more than that. I worked on the strategic planning piece for the human resources function and for any function that the human resources strategies might impact. Mr. Martin, for example, would work on the strategic plan for the operations group with his operations directors and vice presidents. So, in effect, all of the senior managers became engaged in the strategic plan once the broad umbrella was put in place. 153 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 One of the things that Miss Hanson did was help us facilitate getting the plans in alignment with the overall company strategic plan and then identifying what the performance measures should be so that we would know that we were headed in the right direction and making progress towards those plans once the objectives were set and.
And do you have any information with regard to how Miss Hanson was able to do her work when, apparently, she would, from time to time, be here for a day or so and then, at least by way of the expense records, go back to Colorado and then back to Philadelphia. I mean, was there ever any coordination problems with an arrangement for having someone for two and a half years not being situated here in Philadelphia doing this kind of work?
I had interaction with her, but my experience was that I generally knew when she was going to be in town, and if I needed 154 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 to use her services while she was there, I scheduled it while she was there.
Again, I guess by way of providing the same opportunity, for the reports in the paper yesterday, do you find -- is there any validity to the variety of expenses that have been outlined, whether by location or amount or purpose? You've made reference to -- did you say that you took one of these car services to the symphony?
For which you used the company credit card to pay for?
No. It was a situation where we had been told that it would be impossible to park and to get in and out because of that function that evening.
Somebody must be 155 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 parking down there, right?
I was new in town and I took some advice from someone who seemed to know what they were talking about.
Okay. And some of these lunches and dinners, I mean, have some fairly hefty bills to them. Do you have any particular explanation as to why some of the lunches and dinners were so much, I mean, in the hundreds of dollars? Is this mast entertaining or small group or --
Sometimes it was more than two or three people. For example, I think one of the questions was about a dinner at Zanzibar Blue. We'd had a two-day off-site meeting for the senior team, a team-building session for all of the senior team. The dinner at Zanzibar Blue was attended by the entire senior team, and it was supposed to be a part of the team-building exercise to put us in a more of a relaxed environment so that we could discuss some of the 156 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 things that had happened during the day, not all of which were pleasant, and hopefully forge a better team.
Well, talking to each other in a social environment is something that we don't often get to do. And after you've had a very intensive day of team-building --
Sometimes it's pretty prickly and not very pleasant, and so it helps to get people back together a in a more collegial kind of way. Since I was the person who set up the arrangements for that meeting, it was my credit card that got charged.
I understand, okay. Now, your contract actually required you to relocate to Philadelphia, you said, from Stamford? 157 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Stamford, okay. And so you're in the city, I mean, you live somewhere in the city.
I was just looking at your contract, and I would like to know if you think you are eligible for another incentive package for this year?
It's my understanding of my contract, when I negotiated it and now, that I am, yes.
Not less than. When you entertained at the Fountain Restaurant for an interview that cost approximately $416, I believe that was exactly one-third of -- you paid back what, one-third?
That's correct. 158 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Well, can you tell us whether or not there was -- there had to be more than one person there.
Because the third person was my husband, and I didn't think PGW should have to pay for his dinner.
But wasn't that a business dinner? Were you interviewing somebody, and was your husband a part of the interviewing process?
This was a person that had been interviewed three times, and we were trying to -- I was trying to persuade him to come to Philadelphia to accept a job. It is, in my experience, not uncommon, particularly when you're trying to sell a new location, for the spouse of the recruiter and/or 159 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 the hiring manager -- and, in this case, I was both -- to go along on one of those dinners to try to help get the person to come to the city.
Are there any other questions from any members of the committee? (No further questions.)
Mr. Hayllar, I'd like to go back to the first question, please. My question was pertaining to the City Solicitor clarifying her opinion concerning moving expenses. She clearly stated in an opinion dated November 13, 1998 that all moving expenses go against the management fee cap. Given your previous testimony that the cap has been exceeded, what options does the PFMC board have to recover this money?
Oh, I can see that. I mean this is the third time that we've gotten -- 160 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Historically, the PFMC account has been used to pay benefits of the executive officers. Now, this changes that, and we have to decide how we're going to -- what our options are. We could come back to Council to raise the cap. There will be a surplus in the PFMC account this year because, clearly, one position is vacant. Also, you can use -- I believe that you can use future year accounts to reimburse the company. It's all PGW money. It's PGW money that goes into the PFMC account. If it was overspent, then the PFMC account has to find a way over time, if necessary, to put it back -- to adjust the books for PGW.
Mr. Hallyar, am I understanding you to say -- I mean, you're offering some kind of opinion that, if, for instance, in FY '99, in which we are situate right now, and if the CEO had stayed through the course of the fiscal year, are you now saying that if somehow PFMC exceeded -- strike that. You're saying that PFMC could, in fact, 161 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 exceed the FY '99 amount laid out in Bill 950694 of $775,000 as long as, in a future year, they take some dollars from that year to make the account balance out. Are you saying that?
Mr. Hallyar, wait a minute. A bill is a bill. It is the law. That's why we put the numbers in here. The number is 775 for FY '99, that's the number. It's in the contract. How do you suppose that it can be exceeded, and based on what authority?
I don't believe it can be exceeded. I believe the past practice was that benefits of the three senior officers --
I'm not talking about past practice. We amended the contract in December of '1995. I don't care about the past practice. We have the present practice and the present law. We changed the contract, forget about the past practice. The number is what it 162 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 is, it doesn't get to change unless we do it. What are you talking about?
Yes, for FY '96. We changed it to 725 for '97, we changed it to 750 for '98. And we're in '99 and it is 775.
The question is, what is required to be paid out, what is that $700,000 to pay for?
It's to pay for salaries and other expenses to the compete for those three people. That's what it's for.
And, historically, the benefits of the three were paid by PGW. The relocation expenses --
Mr. Hallyar, we're not living in the past; we're in the present, we've changed the contract.
I don't know that that's 163 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 the case. I only know that the --
Because you raised the level of the dollar amount, that which could be paid for -- that must be paid for by the PFMC account, I am not aware that that changed.
Yes, I will try again, sir. PGW has always paid the benefits of the three senior executives. It was not paid out of the PFMC account.
It was contemplated that the benefits would be continued to be paid by PGW, and only salary and bones come out of the PFMC account.
Okay, stop right there. Do you have a copy of the bill? 164 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
No, I don't, not in front of me. (Copy of bill is delivered to Mr. Hallyar by sergeant-at-arms. )
Section A, on 2, it reads: The amount needed to pay or provide for the payment of base salaries for the chief executive officer, chief operating officer, and chief financial officer and to pay the other expenses of the company are not to accompanied the following amounts for the specified fiscal years. . . We are now in FY '99, and the amount is $775,000. Now, can you tell me, either in this bill or in some other part of the contract that has not been amended since that time, read to me the statement that indicates that some other benefits or dollars that are a result of the service of these three individuals is to be paid by PGW. I want you to read me the language.
The language comes -- I 165 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 regret that I have to do this, Councilman, 'cause I know where this is going. In the Obermayer opinion of 1983, other expenses of those three were -- could be paid for by PGW, the benefits of the three.
First of all, let me ask this question: When did you become aware of the Obermayer 1983 opinion?
When we were asking why PGW was paying these benefits and not the PFMC account.
Your testimony is that until a couple months ago, not even you were aware of this 1983 Obermayer opinion. That's your testimony? 166 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I understand that. Tell me or read to me in the 1983 Obermayer opinion where it says that relocation costs, other expenses, benefits or anything else are allowable -- notwithstanding the fact that this opinion is years old and superceded by a law that was 12 passed by the City Council and the Solicitor's 13 opinion, which make, therefore, rendering this 14 opinion completely worthless, we'll put that aside 15 for the moment. Read to me out of here anything that supports your premise about relocation expenses, benefits, tax gross-ups, or anything else. Read the language out of this opinion for me, please.
Okay. I don't disagree with you about -- I'm not sure the 1995 ordinance 22 changed this. I recognize that the Solicitor's opinion does supercede this.
But Obermayer was not our city solicitor. I mean, you're taking the 167 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 opinion of an attorney. We have our city solicitor.
What was the basis of this opinion? What was the purpose of this opinion? What was the circumstance under which this opinion was requested?
The 1983 Obermayer opinion? Who is Gabrielle Stritch (ph.)?
The question that was of concern was, why was PGW paying for this out of its own money and not through the account?
You're not answering my question. My question was: In 1983, for what reason did Gabrielle Stritch request an opinion of Obermayer about this issue? What were 168 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 the circumstances and what was the situation that resulted in this opinion?
She wanted to know whether some costs of the three executives could be borne by PGW.
I don't know. Would ask me a question -- ask me whether I -- whether I authorized --
I don't need to your question, you can answer the question that you want me to ask you.
I didn't authorize the payment of these expenses through PGW.
Mr. Hallyar, you 169 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 brought this opinion in the room. I never knew about this, no one ever told us about this, it was not brought in here in 1995, it was never a part of any discussion, it's not referred to in the bill from '95, it's not referred to in any of the contracts that any of these people signed and negotiated. One was negotiated by the person's spouse, the others apparently negotiated on their own. There is no basis anywhere for this opinion to substantiate anything related to those contracts and the amendment that we made to the PFMC agreement, nothing. And in document only seems to talk about work, day-to-day work of the CEO and the CFO related their management of vice presidents of operations engineering, administration, planning, customer activities, corporate communications, finance services, rates and regulatory affairs, marketing and special projects, together with more subordinate management and supervisory personnel what. Does that have to do with their benefits or relocation costs or gross-ups or 170 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 anything else?
It seemed to be the justification for why PGW historically has paid for them.
And I want to go back to the other question: Justification by whom?
No, no, no, by whom? Whom is a person, whom is a being.
Councilman, I'm sorry, I cannot go any further in this discussion, I don't have any other answers for you.
I'm advised not to do the this, but I do know a little more about the practice and why this was done at the time, and I know from questions that I asked initially about the allocation of costs when I first came on board.
It was my understanding 171 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 that this practice, although I didn't review legal opinions at the time, I was advised of this practice. And it occurred --
He does the planning for the company, and has done it for years. 19
And Mr. 20 Bogdonovich, in a conversation with you, made 21 reference to this particular opinion as to why 22 they do what they do? 23
He had this in his 24 possession, and the practice implied in this 25 opinion has been in effect since the 1970s. 172 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I became aware of what was in practice two and a half years ago or so.
The practice was implemented. And each year, as we report the amounts incurred on behalf of PFMC, it is reported, assuming that this is the policy. Now, what happened with this one, if you look at the bottom, you see a Mr. McKee (ph.) here.
Mr. McKee actually incurred relocation expenses, which were reimbursed. At this point, the salaries of individuals being paid, who were considered PFMC employees, exceeded the PFMC authorization amount at that time.
The duties that they performed for PGW were above and beyond those that 173 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 were specified in their PFMC capacity. In addition, if these employees were solely PFMC and not partially PGW, benefit plans would have had to have been established for them at PFMC for two or three people. They have to be dual employees to get the benefit plans that are in existence at PGW. So I know the distribution and the reason for it. I'm not saying I have any opinions on it, but that's the practice that we have used since I came here when I did question it, and it's the practice that has been used --
And when you found out about it, did you think there was anything unusual about this, or did you ever have a conversation with anybody about it or did you share this information with either your CEO or a person on the board or anyone else, or you just got the information and said, Boy, this is very interesting and let me get back to work.
I send them monthly to 174 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 -- well, the director of finance gets a report prepared by me, I send it to one of his staff members, and we are required, I believe, to report it annually to the City Council.
So you're saying that you sent the information over that essentially amounted to this practice going on pretty much from the time that you got there.
Yes. And it did not seem unusual to me at the time. In a holding company or other environment or in the private sector, this same thing occurs.
And, Mr. Hayllar, when you got the information, what did you think of it?
I can't tell you that I remember receiving this information prior to the time that we were trying to find out why the practice was in effect. It may we will be it was sent; I don't remember reading it prior to our inquiry.
I'm not saying that I did not send Mr. Hallyar this piece of paper.
I understand. No, 175 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 you sent him reports.
I sent him numbers with the report and the dollars that were expended. And I was responsible for doing that, and it was done each year.
Let me try and understand one thing, Mr. Hayllar, then I know the Solicitor wants to say a few words. Is your sharing with us today of the '83 Obermayer opinion for the purpose of trying to explain what happened and why? Or is it an effort to justify what happened and why?
Two things. It originally came up, if we can think back to 2 o'clock this afternoon, when we were presented with an opinion that we hadn't seen, and I made the point that the Solicitor had not talked to the practitioners of PGW as to what they did in terms of these costs, so I knew --
Did you share this opinion with the Solicitor at any point in time?
I have sent it to her. I don't know that she has received it.
When did you send 176 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 it?
I mean, there's no 10 confidentiality to a 1983 opinion --
It's not a confidentiality issue. I didn't know there was another opinion coming today, so I didn't have any immediate rush. I wanted to bring it to her attention. It also dealt with another issue that's not --
Well, but, I mean we got those books just the other day. I mean, wouldn't it have been helpful -- for a moment, forget about the Solicitor's Office. You knew that you were coming over here 177 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 today, you obviously had this in your possession. Don't you think it would have been helpful for the members of Council anticipating today's hearing if you knew that you were going to try to use this as either an explanation or a justification for what covered, don't you think it would have been good practice or policy or just good common courtesy --
I sure do now. I didn't realize that this would come up. Now, I certainly am not just --
I did not know there was an opinion from the Solicitor dated the 17th of November.
You had an opinion that you wanted to share at an opportune moment, 178 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 right?
No. I didn't know this was coming up. I explained, this was something that I knew the Solicitor's Office wouldn't know about.
If we had never known the opinion from the Solicitor today, certainly at some point in time, you would have raised this issue when we got into expenses and the justification thereof.
You didn't have this thing in your pocket for -- just to keep you company?
You had it in your office, you knew that it existed and you knew you didn't share it with us. You knew that. 179 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I didn't know there was -- I got a surprise opinion right at the start of the meeting.
Let me answer your question 'cause it's the important one. Am I referring to this to justify what happened? No. 14 What was the past practice, why did they do it that way, this was the reason.
But then we passed an ordinance, and is that totally ignored?
Madame Chair, I'm probably getting into something that I probably shouldn't but --
Of course it was ignored. The bonus provision was ignored from 180 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 three years ago.
Part of the problem that exists here is the management agreement. Part of the expenses are paid by PFMC, part of the employees's expenses are paid by PGW, part of their pension and some of the other expenses, benefits, they have to be employees of PGW to get those benefits. What we have to do, is the Council and PFMC, the Administration and Commission is straighten out what has been a question of the management agreement. And you're not going to resolve that issue here because they're working on the assumption of past practice based on the management agreement. We had an ordinance and didn't specifically state what the expenses were. We didn't know the gross-up, we didn't know any of that would happen 'cause it may not have been that 775 would have been enough money. If we had known all of the expenses that we would have had to incur as a result of this movement, then maybe it wouldn't have been enough money. So we have to -- these questions raise 181 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 policy issues that have to be addressed prior to us moving to and hiring new management. 'Cause if we don't, we'll be here another year.
Councilwoman, I understand that and I can appreciate all of that and I think that you're right. But I think the record should also be clear that the bill on amending the PFMC contract with regard to compensation was presented to this Council back in late 1995. There was an original amount in there, it was changed. And also by this Council, an incentive compensation provision was added to the contract. If the people who are negotiating this deal prior to us even knowing who the executives were, 'cause if you remember at the time, we did not know Mr. Hawes, we didn't know Mr. Sharbutt, we didn't know Mr. Martin, we didn't know who we were getting. We just thought that we needed to put the money out there to make sure that we could get the good people. And if the folks that put the package together didn't put the right numbers in there, that is their responsibility. 182 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
The people who put the package together are not here either.
Well, I'll be glad to see them also. But I think your argues, quite honestly, for -- you know, if we're going to do a recodification on pension for the City of Philadelphia, then we probably need to take a second look at a reworked PFMC agreement and not a from-time-to-time amendment approach which, quite honestly, there was discussion back in 1995 that the then-city solicitor, put on the record, or in a private discussion indicated that there were upwards of changes that people wanted to see to 19 the PFMC agreement, but that they didn't want to 20 do any of those then, but they only wanted to get 21 the compensation piece put into place because we 22 were imminently on the verge of making offers to 23 people, and we wanted to have our bucks in line to 24 make those offers. So thank you. 25 Madame Solicitor? 183 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Thank you. If you'd permit, I'd like to try to focus on two different things. First I would like to try to clarify the scope of the opinions, and that includes the 1983 opinion. I have had at least a few moments to review that. And then, secondly, I'd like to get into a little bit about the 1938 opinion and what it says and what it doesn't say. First of all, Mr. Hallyar is correct in the fact that he did not receive or talk to me about the November 17th opinion. That is the opinion that was distributed this morning. Just for the record, the opinion was requested by Councilwoman Verna in the public hearing on October 28th. It deals with a very simple question. The question she asked publicly at that hearing was whether or not Jim Hawes' employment agreement includes a $90,000 cap on expenses. This opinion is in response to that question. There is nothing in this opinion that is inconsistent with or should be a surprise to anyone, because the only thing that it does is 184 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 repeat the language that is in the employment agreement, which is a matter of public record. The opinion says that subparagraph 6b. clearly establishes a $90,000 cap on the reimbursement of Hawes for various moving expenses listed in the subparagraph. That's exactly what the contract says. I make the point simply to say that while the fact of the opinion may have been a surprise, my office is very careful about trying to make sure that as we deal with confidentiality and privileged issues that our advice is consistent. If we believe that there is going to be a conflict and there is a client that is going to be adversely affected, then we make sure that people are aware of the fact that there is a conflict, and then we try to deal with that. In this particular instance, this opinion is straightforward and simply deals with the question of interpretation of the language in the employment agreement. It also then recaps what is set forth in the opinion that I issued in connection with the hearing. What that opinion says, and what I 185 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 think is really at issue here in terms of whether or not the more recent opinions are consistent with the 1983 opinion and past practice, is fundamentally the question of which costs in connection with the three executive officers should be allocated to the management cap. The October 27th opinion says: The management fee is intended to cover the personnel costs for the three specified executives, including relocation costs. That opinion is not necessarily inconsistent with the 1983 opinion as I read it. The 1983 opinion -- and I will confess I have not read it before today, and I've looked at it only briefly. But as I read this, the opinion specifically says that Gabrielle Stritch reported to Obermayer in 1983 that a, quote/ nquote, recent analysis of functions currently performed, so functions performed at that point in time by the chief operating officer and the chief financial officer, not the chief executive officer, indicates that a, quote/unquote, significant portion of the activities of each of the two individuals fall outside, outside of the 186 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 scope of their duties as COO and CFO. So to the extent that they were performing functions outside of the scope of those duties, the opinion says that it is appropriate to allocate the cost of employment of each of these two officers, in part, to the overall costs of operations of PGW. So to the extent that they were performing duties outside of the scope of their functions, I don't necessarily know that I would disagree with taking the position that if they are performing duties beyond the duties specified, let's say, for example, in the employment agreement, that it would be properly allocable to PGW as compared to PFMC.
Whether or not the duties have changed, given the fact that this was done in connection with an analysis in 1983, there have been employment contracts negotiated, at least in 1993, 1994, defining specifically the scope of those duties, a very clear clarification in the ordinance of the allocation of expenses. This opinion did not interpret the ordinance it; preceded the ordinance. 187 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
But it does recognize that to the extent that they are performing duties outside of the scope, it may be appropriate to allocate those costs.
Then let me ask you a question, Madame Solicitor. To your knowledge or to Mr. Hayllar's knowledge or to Mr. Driscoll's knowledge or to Mr. Martin or Mr. Sharbutt, has any analysis been performed of the contracts and the scope of services required under the contracts of Mr. Sharbutt and Mr. Martin to determine whether or not their current duties exceed what they are supposed to do by way of their contracts?
Well, I'm not sure if this if responsive entirely to your question, but I would hope that Mr. Driscoll would not object to my sharing this with you, but one of the things that we have talked about is, from the Law Department's perspective, working with the board of PFMC, with the managers of PGW, in light of these issues and in like the of the fact that we have now clarified, communicated, formally conveyed our position in terms of how we view the 188 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 relationship between the management fee, the expenses, the ordinance, the existing employment agreements, that we would sit down and make sure that we work with them to identify the categories of expenses that we believed are properly attributable to the management fee, what is capped, how it's capped, and then to try to do not simply am analysis of functions, but analysis of expenses and then try to go through and make sure that everyone understands what is appropriate and what is not.
I understand that and I appreciate the answer but my question still is: To the best of your knowledge collective at the table, has there been a recent analysis of functions currently performed by the chief operation officer and by the chief financial officer? And if such an analysis has been performed, has it been determined whether or not those two individuals are performing functions that are outside the scope of the contracts that both of them signed in January of 1996?
I am not aware of any such analysis, Councilman. 189 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
-- in terms of the opinion because it could be that it's appropriate to do an analysis of those functions, and it may be that you reach a similar conclusion.
I understand that. It may very well be appropriate to do that kind of analysis. But the answer to the question was, that kind of analysis has so far not been performed, there is no reason to believe that one has been performed. Mr. Sharbutt, are you fully aware of what your duties and responsibilities are according to the contract you signed?
I'd first like to make the comment that an analysis of some sort was performed for a specific purpose recently, which did allocate time that's those individuals named and all others in the company may dedicate to another function.
I'm sorry, I don't understand that. 190 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
And did an analysis and we had formally identified what time could have been allocated, so there has been some analysis, although not for this purpose that we're discussing today.
As far as an analysis of duties that I performed or others, I manage $550 million a year. PFMC has no revenue whatsoever. So I'm assuming, just based on what I daily manager, that it would be a substantial percentage PGW and not PFMC. I'm thinking in the 90 to 95 percent PGW management.
But is it your understanding that according to your contract, that that's what you're supposed to do?
That's the purpose of the contract. 191 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Right. So from your perspective, you are doing your job as you signed up for it and signed on the dotted line for.
And this is not an issue that I'm unfamiliar with, even in the private sector, where the holding company may have three executives and they charge to the various subsidiaries, which is consistently reviewed by regulatory authorities and governmental authorities to assure that excess allocations are not being made to regulate the jobs.
So in the final analysis, Madame Solicitor, notwithstanding the 1983 opinion, which was based on an analysis having been done of the two senior executives at that time and what they were doing, does this opinion have any particular basis with regard to 192 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 how expenses are split between PFMC and PGW based on the contracts that were signed by the individuals and in lieu of the fact that no 5 analysis has apparently been done to make any determination that they are operating outside of the jobs for which they signed up for and signed a contract for? You can give me the long answer or you can say yes.
Has the '83 opinion overruled your more recent 1998 opinions? Does it have -- the question earlier today was, when we didn't have the '83, was: Does your November 17, 1998 opinion change in any way, shape, or form as a result of your opportunity from a couple of hours ago to read the 1983 opinion which the Finance Director said you were not aware of or possibly not aware of at the time and put forth an opinion dated November 17, 1998, which may be affected by an opinion which you had not read?
Councilman, the short answer to your question is that the 1983 opinion does not overrule the opinion that I've 193 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 issued. And based upon my reading of it, what I said previously was that I certainly would be willing to reconsider my opinion, but I do not think it's necessary to reconsider my opinion. First of all, I don't necessarily read this as being inconsistent. But frankly, to the extent that it's inconsistent, my view is that it is no longer controlling in any event. I think if the point of bringing the opinion to your attention was to simply explain that there certain had been a reason from, let's say, 1983 to 1993 for the company to have engaged in a certain practice, then the opinion, I think, sheds some light on why things were being done in a certain way at that time.
And I don't necessarily think if we go through an analysis and we go through and are very clear about the allocation of expenses, that we wouldn't necessarily reach a conclusion that's similar with regard to certain of the functions. That hasn't occurred. It may be something that the board elects to do. 194 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 But, again, what the opinion does not say is that all employment expenses are properly allocated to PGW. It clearly recognizes that for the chief executive officer, it does not stand for the proposition that any of the costs of employment are allocable to PGW. That's number one, it deals with these two particular officers. Number two, it clearly recognizes that to the extent that they are performing duties as COO and CFO, those are allocable to the management fee. That is what my opinion says. So to that extent, they are not consistent. If the rationale for charging benefits to PGW is based on the notion that for these officers that are performing duties outside the scope of their employment, they're literally working under that scenario outside of the scope of their duties and it's proper to charge it to PGW, we may end up reaching a similar conclusion if we do an analysis of functions. But that's not where we are today, and I don't think that that's inconsistent with the opinion that I've issued.
Last statement. 195 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Madame Solicitor, I would like to formally make an opinion request of you, in light of the earlier discussion, if not debate, about privilege and confidentiality with regard to solicitor opinions. I would like to formally request in this hearing an opinion of you as to the nature of privilege and confidentiality of opinions as issued by the City Solicitor and the Law Department and who has the right to receive and release the opinion, notwithstanding any other person in the government.
Councilman Nutter, I will go a step further. This, I consider to be a public request. I think it's important for all of our clients to understand what the protocol is. The protocol was established before I became city solicitor. I will make sure that we recirculate it. We will address in the opinion the issues of privilege and confidentiality. But I do think it's important for all of our clients to understand the opinion protocol. All of our clients are entitled to privilege and confidentiality. And all of our 196 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 clients have the right to work with the Law Department on a confidential basis. And they have the right to request opinions. And they the right to elect to release it publicly or not.
Because if that wasn't the case, then theoretically, I guess, if a member of the Administration asked for an opinion of the Law Department about, you know, they might have an interest in one of the bills I introduce, you know, which generally are not controversial. But if a member of the Administration asks for an opinion on a matter that I was involved in, your perspective is that I have no 15 right, no matter how many times I ask you or one of your attorneys in the Law Department, that I have no right to get any information about that opinion until that requesting party gets it and chooses whether or not they want to release it to the rest of the government or the world? I mean, is that --
Absolutely not. 197 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 If the Mayor asks for an opinion and I send it to him, I certainly will not share that opinion with you. If the Mayor decides to share that opinion with you, that's his prerogative.
The Mayor told me that any opinions he ask for, said I automatically can get a copy of anytime I want. He told me told me that privately.
Thank you. I'm always proud of our city solicitor. She always does us proud.
But I certainly have enjoyed that relationship with her and have been involved in some controversial things from time to time, and I appreciate having that relationship and knowing. And, frankly, this is the first time I've seen it and the first solicitor with whom we have enjoyed that 198 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 relationship. So she has treated us with solicitor-client confidentiality. And I say that especially to my colleague Michael Nutter so that he understands that it has happened. Thank you.
Okay. Any other questions or comments from members of the committee? (No further questions or comments at this time.)
Hearing none, the committee will stand in recess until the call of the chair. Thank you. (Adjourned at 5:58 p.m.) - - - 199 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, November 18, 1998, were reported and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE ON FINANCE RESOLUTION NO. 980731 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter