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?