COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE SELECT COMMITTEE ON FISCAL STABILITY AND INTERGOVERNMENTAL COOPERATION - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, 02/05/01 9:40 a.m. - - - RES. 010024 - Providing for the approval by the Council of the City of Philadelphia of a Five-Year Financial Plan for the City of Philadelphia covering Fiscal Years 2002 through 2006 and incorporating proposed changes with respect to Fiscal Year 2001. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILMAN MICHAEL A. NUTTER, Vice Chair COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN JAMES F. KENNEY COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN BRIAN J. O'NEILL COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 2/5/01 FISCAL STABILITY & INTERGOVERNMENTAL COOP. I N D E X Joyce Wilkerson, Mayor's Chief of Staff. . . . 3 Rob Dubow, Budget Director . . . . . . . . . . 10 Janice Davis, Finance Director . . . . . . . . 15 Estelle Richman, Director of Social Services 25 Richard Roy, Acting Water Commissioner . . . . 27 Denise Garrett, Bureau Chief, Water Revenue. . 83 Ernie Leonardo, Planning Commission. . . . . . 118 Police Commissioner John Timoney . . . . . . . 130 Linda Seyda, Director of Personnel . . . . . . 151 Charles Isdell, Director of Aviation . . . . . 158 Nancy Kammerdeiner, Revenue Commissioner . . . 197 Bill Graub, Director of Labor Relations. . . . 200 3 2/5/01 FISCAL STABILITY - RES. 010024 P R O C E D I N G S
Good morning, everyone. Thank you for your patience. This is the public hearing of the Select Committee on Fiscal Stability and Intergovernmental Cooperation. I would ask Mr. McPherson to please read the title of Resolution No. 010024.
Resolution 010024, providing for the approval by the Council of the City of Philadelphia of a Five-Year Financial Plan for the City of Philadelphia covering Fiscal Years 2002 through 2006 and incorporating proposed changes with respect to Fiscal Year 2001.
Miss Wilkerson, are you going to be testifying? (Witnesses come forward.)
I was going to do an interpretive reading. My name is Joyce Wilkerson, and I'm Chief of Staff to the Mayor, John F. Street. And with me today are Janice Davis, the Finance Director and Director of Fiscal Oversight 4 2/5/01 FISCAL STABILITY - RES. 010024 Committee for the City; and Rob Dubow, the City's Budget Director. I appreciate this opportunity to provide testimony in support of the Administration's proposed FY 2002 to 2006 Five-Year Financial Plan. I know that you have all received copies of the plan. I think you have also received copies of my testimony, and I can either abbreviate the testimony, you know, do -- handle this however you want, if you are not interested in hearing me read the testimony.
I think we'd appreciate your abbreviating your testimony.
All right. I'll try to hit the highlights. As you know, this is the tenth Five-Year Financial Plan for the City. It outlines what the City intends to do support the Mayor's five principal objectives and ultimately his vision for Philadelphia. Those five objectives are: Maintaining fiscal stability, with a steady tax reduction; Implementing neighborhood 5 2/5/01 FISCAL STABILITY - RES. 010024 transformation and blight elimination; Providing high-quality education and comprehensive coordinated social services; Enhancing public safety and quality-of-life standards for all communities. By obtaining those objectives, the Administration will be able to realize the Mayor's vision of establishing Philadelphia as a premiere city to live and visit, with neighborhoods that are attractive and safe from crime, well-educated and well-protected children, and thriving new and traditional industries. The testimony then goes on to talk in brief detail about some of the initiatives that the Mayor proposed. The Administration's ability to implement its agenda is contingent on its fiscal health. The City ended FY 2000 with a balanced budget and a positive five-year fund balance, totaling a record of $291 million. It marked the eight straight year in which the City's General Fund had recorded improvement over the prior budget year. While the positive trend could be a message that the City's in a position to relax its 6 2/5/01 FISCAL STABILITY - RES. 010024 fiscal vigilance and overspend, the City has in fact taken the opposite approach. The City will continue to reduce the cost of providing services and exploring opportunities to generate revenue in order to ensure the objectives of this administration can be achieved. The next section of my testimony discusses revenue growth projections that the City has been using. Mr. Dubow can answer any additional questions you might have. The Administration has chosen to adopt a conservative approach to that. There have been some changes in the national economy, and we expect that Philadelphia will be -- will not escape the impact of a possible downturn in the economy. So, you know, the City has assumed more conservative projections in response to that. The Mayor has continued the tax reductions that were begun in 1996. It's the position of the Administration that reducing taxes strategically and in a conservative way will lead us to where we need to be ultimately but that has rejected an approach of progressive tax cuts in light of the kind of investments that need to be 7 2/5/01 FISCAL STABILITY - RES. 010024 made in the neighborhoods and in programs in support of our children. The testimony talks briefly about neighborhood transformation, about the increase in support services for children. Increasing after-school programming is something that is significant for the Administration, and we continue the pattern that was begun last year. The testimony highlights some of the areas of particular challenge that the City faces. The City has received substantial funding, TANF funding, in the past. There is some concern that that level of funding may not be sustained throughout the entire period of the Five-Year Plan. The School District and the Philadelphia Gas Works present enormous challenges for the City. The City anticipates providing a significant infusion, $45 million in support of the School District out of this year's -- this fiscal year. The City has also extended a $45 million loan to PGW, and while we anticipate having that money repaid, there still are elements of risk associated with that. 8 2/5/01 FISCAL STABILITY - RES. 010024 The threat of an economic downturn also poses a risk to public safety efforts, and economic downturn usually leads to increase in crime and ultimately to prison population.
Even while the economy has been strong from FY '96 through FY '01, criminal justice costs, including obligations for police overtime, the DA, the juvenile justice systems, and the prison systems have grown 40 percent faster than General Fund obligations. A surge in crime may result in exploding criminal justice costs, which would limit the City's ability to fund other services. Some of the other factors that pose particular challenges include the cost of current and future collective bargaining agreements covering Philadelphia's workforce. 6 billion. The plan includes no funding cover increase for any bargaining unit beyond the expiration of the fire and police and contracts in FY '02 and the AFSCME contracts in 2004. If the 9 2/5/01 FISCAL STABILITY - RES. 010024 costs of these agreements are some substantially higher than current agreements, they will threaten the City's financial health. Regardless of the extent to which the City's long-term fiscal stability may be tenuous, the Five-Year Plan we submitted to you last week reflects the Street Administration's rejection of major service cuts or tax increases as a way to balance the budget. Instead, the City will continue to work to make most of its available services in order to sustain and enhance basic municipal services. Through the plan, the Street Administration puts forth its vision for a better Philadelphia, with well-maintained and safe neighborhoods, positive opportunities for youth, exemplary municipal services, and thriving local economy -- all possible only if the City remains true to its commitment to maintain its fiscal principles. I thank you. And members of the Administration are available here today to answer any specific questions you might have.
Thank you. A copy of your testimony has been given to the 10 2/5/01 FISCAL STABILITY - RES. 010024 stenographer, and your testimony will be in the transcript as you provided it to us.
Could you briefly explain the revenues and expense assumptions for the Five-Year Plan and how it is based?
And I'll start with the revenues -- and tax revenues in particular. For our largest tax, the wage tax, we assume that there would be some slowing in growth starting in the second half of '01, that the economy would recover in '02, that there would be some positive impact of the stadium construction and the new stadiums so that we'd have about 3.5 percent growth in ''02 and '03 before going down to 3.25. We assume slightly more aggressive growth in other taxes than we had -- than we would have without stadiums. We were about 3 percent for sales --
Mr. Dubow, I think you're speaking too closely into the mike.
Too closely? Is this 11 2/5/01 FISCAL STABILITY - RES. 010024 better?
Okay, let me start over then. For revenues, particularly tax revenues, we had a generally conservative approach, assuming the economy would start to slow down in the second half of this year. That would somewhat counterbalance in '02 and '03 and then going forward by the anticipated impact of the stadium deals. We assume that other taxes -- the sales tax, the business privilege tax, the relate transfer tax -- would also grow at slightly slower rates than they have over the last few years. We assume that current reimbursements for State and federal revenues would continue at their current rates and under current laws. And locally- generated non-tax revenues we essentially kept relatively flat. On the expenditure side, for personal services, we include all of the current labor agreements and no costs beyond those agreements. And then in the first year, we assume no growth in 12 2/5/01 FISCAL STABILITY - RES. 010024 other classes of expenditures for contracts, for materials supplies and equipment, and then 1.5 percent growth after '92. And we also assume in the out-years unspecified future target cuts equaling about 60 million over the life of the plan.
Okay. You state in the plan, , in the Philadelphia metropolitan area, the median housing price actually declined by 1.7 percent, according to the National Association of Realtors. How does this statement support the plan's assumed assessment growth for residential properties of 1.4 percent per year through FY '06?
In building our assumptions, we looked at the actual growth in assessments in Philadelphia properties, and that growth really came from the BRT. And we looked at what's happened over the last couple of years, and we think that our assumptions are actually relatively conservative on that. The property tax grew at about 2.6 percent in '99, 3.2 in 2000, and then 1.3 in '01. 13 2/5/01 FISCAL STABILITY - RES. 010024
Does the Administration plan on raising City-imposed fees during FY ''02 or the plan period? And if it does, can you tell us which fees, what are the plan's increases, and when do they take effect? Also, tell us what are the projected revenues to be generated from these increases.
Normally, the increases assumed in our projections are in '05 and '06. We have 5 million in each year in anticipation of increasing costs over time, and then we would increase fees to cover those costs.
Well, actually, we do this pretty much every year. We don't specify where the costs will be; we assume that somewhere in our fee structure, there will be increased costs over the next four years, so we essentially built in some room in the last couple of years of the plan in case we need to increase fees.
From a policy perspective, what are the differences from this plan and last year's plan? 14 2/5/01 FISCAL STABILITY - RES. 010024
I think one of the things that the Administration has tried to focus on -- has tried to get away from is cataloging historically where it is that the Administration has been, and try to project looking forward initiatives that the Administration intends to undertake in order to improve the delivery of services and also reduce cost. It is consistent with last year in that it continues to roll out the tax reduction plan. I think. . . those would be the two most significant changes -- I mean, the two most significant elements. One is a change and the other is continual.
All right. In the introduction, the Administration states that it must find alternate revenue streams. What are the alternative revenue streams that are included in this plan and the dollar amounts to be generated?
I think the biggest single increase -- and it starts to hit in '01 -- is an increase in TANF reimbursements.
I'm sorry, 15 2/5/01 FISCAL STABILITY - RES. 010024 what did you say?
TANF is federal funding. It goes from the mid- sixties in '00 to the nineties in '02, and then it stays at that level.
The Administration states that it will continue the target budget process. Please explain what the process entails.
After the budget's adopted through the Council process and before the next fiscal year starts, the Administration asks every department to then take a cut off its approved budget, usually somewhere between and 1.5 percent. And then that cut is used to give us a cushion against any unanticipated events during the year.
With that 16 2/5/01 FISCAL STABILITY - RES. 010024 having been said, how will the target budgets impact the various City departments and their ability to accomplish what they say the budgets before us will allow them to do?
One of the things that we stress with departments is that this is a way to force them to look at how they do their business and to have them do things more efficiently. So it shouldn't really affect their ability to impact services. But what we also do, when they give us their target budgets, is give them an opportunity to say, Well, we can't do it; if do it, services will be cut and we need extra funding. And then we consider those requests. And if we believe that they can't take a cut without impacting services, then their budgets aren't cut.
Thank you. The plan states that the Mayor has already taken a number of steps during his first year to transform our neighborhoods into attractive, thriving, and vital communities. Would you please identify the communities you're referring to. 17 2/5/01 FISCAL STABILITY - RES. 010024
I think, you know, the most dramatic thing that happened --
That's right. I think that you can't understate the extent to which that impacted the quality of life in neighborhoods in the City. I think a lot of the other dramatic consequences of this initiative will actually be unfolding in this year as we begin to do a baseline cleaning of vacant lots in the City and also do demolitions. The number of demolitions in the current year increased in part because of the collapsing house experience that we had during the fall. I don't know what the exact number was of the increase in the demolitions, but there was an impact this year.
In the introduction, you mention the Office of Neighborhood Transformation, and that that office has received significant contributions to help with the planning and implementation of the NTI. At what point do you plan on involving City Council? 18 2/5/01 FISCAL STABILITY - RES. 010024
The -- well, some members of City Council's technical staff have become involved in the bond finance planning that's going on. We've had one briefing of City Council. It's our hope to reschedule a follow-up briefing to the one that occurred last spring. There have also been individual conversations with various City Councilmembers. One of the things that's come out of the whole announcement of the initiative is a very aggressive planning effort by some Councilmembers, and so we've had conversations with Councilmembers about what their visions are for their districts. But, you know, we will continue interacting with individual Councilmembers but also look forward to having more formal briefings of Councilmembers to advise on the details of the plan.
Well, I have yet to have a meeting, and I'm really very concerned about that. And I think there should be a briefing sooner than later. And as you know, we are presently going to be starting our budget hearings, so I don't know when the Administration 19 2/5/01 FISCAL STABILITY - RES. 010024 plans to come up with the blight program, but I think we all have to be satisfied that we're going in the right direction. The plan indicates that the prisons' population will continue to increase in FY '02. Yet the prisons' FY '02 payroll cut is being decreased to a level below the adopted '01 budget. How are you able to reduce their payroll cost in FY ''02? I believe that's on .
One of the things that will show from departments -- pretty much all departments are going to look like they have a decrease in 100 because -- many of the departments are going to look like their going to take a cut in 100 because of the bonuses in '01.
Why is the Administration proposing to reduce the number of full-time by 167? The FY '01 adopted budget had 25,618 positions, while the proposed FY '02 budget has 25,451. What departments are being reduced 20 2/5/01 FISCAL STABILITY - RES. 010024 and why? And it is of particular interest to note that the prisons are being reduced by 34 positions. Mr. Dubow?
Yeah. One of the things that the prisons budget had last year and that we're still figuring out is the appropriate staffing for the new women's detention facility. And that facility now looks like it probably won't be open in ''02 and it will probably be open in early '03. And that's -- I mean, the big reason for their change in staffing was to staff up that facility.
The projected position level shows that the stadium employees disappeared in FY '04. Yet the Recreation Department's no-stadium component does not have a corresponding increase. What happens to these employees?
We're assuming that they move throughout the government, not just into Recreation.
You mentioned that Philadelphia was one of the four cities 21 2/5/01 FISCAL STABILITY - RES. 010024 statewide to participate in PHFA Home Ownership Choice Demonstration Program. PHFA awarded $1.7 million for the development of 50 units of twin houses in northeastern North Philadelphia. Where is the location of this development project, how does this program work, and can you tell us what are the City's matching requirements, and where do the matching funds come from?
Rather than try to give you the details now, I'll get that information for you. I believe it's around Ninth, around Ninth and -- north of Girard, but I don't have the details on that program. I will supply that.
I'm looking for Mr. Kromer. I will make sure that he comes before the hearing is over in order to give. . . (Miss Wilkerson confers with colleague off the record.)
Okay. Well, maybe we could go on, because I'm sure everybody 22 2/5/01 FISCAL STABILITY - RES. 010024 has a number of questions. Oh, are you going to respond to this?
I was going to say, Madam President, that I could respond to that, but I don't work for the Administration so I think I'll let them earn their keep.
It is a targeted program that its attempt is to increase more moderate to middle-income individual home ownership initiatives. PHFA is actually -- the program was actually initially put into a Keystone Opportunity Zone, with the hopes that it would create an additional incentive to have higher-income individuals move into that area in the last administration, if you recall.
Are we 23 2/5/01 FISCAL STABILITY - RES. 010024 building residential properties in Keystone communities?
Well, the developer at the time did not alert the City of Philadelphia that they were doing that. The last administration, if you recall, there was an arrangement with the Governor that they would not place any residential developments in Keystone Opportunity Zones. So they were told once that was submitted that they could no longer use that as an incentive to increase the levels of income for home ownership initiatives.
Thank you, Councilman. You indicated that the City has created a task force with the charge of developing and implementing a streamlined and accelerated process for acquiring vacant land. Who are the people that are serving on this task force? Has this task force had any interaction with City Council?
The Administration has established a steering committee for the neighborhood transformation program that is largely comprised of members of the Mayor's 24 2/5/01 FISCAL STABILITY - RES. 010024 cabinet. Those -- there are -- supporting the steering committee are a number of task forces that are looking at a lot of different issues. The acquisition disposition process is one of those task forces that have been constituted. I do not believe there's any City Council participation in that. There are other committees that are looking at vacant land, looking at the financing. And I believe on the financing committee now, you know, Charlie and some of the Council technical staff members are participating, but there is, I don't think, any Council participation on the task force for acquisition disposition. A lot of what those people are doing is trying to flesh out the implementation. You know, we want to have a better-coordinated system that's supported by technology, how the work flow actually moves through the various City departments, and where there might be opportunities to coordinate more strategically end up being the kind of issues that they're issues looking at, so --
Well, I'd 25 2/5/01 FISCAL STABILITY - RES. 010024 just like to call to your attention that the technical staff has not been involved. The only invitation they received was to a bond meeting.
Well, again, I think Council has to be involved with what we are doing. That bill is going to becoming before us and we know next to nothing about it. Let us talk about the creation of the Children's Fund. Who will administer these funds and how will they be used?
I'll ask Estelle Richman to come up and talk about that. (Witness comes forward.)
Good morning. COMMISSIONER RICHMAN: Good morning, Madam President and members of Council. I am Estelle Richman, Director of Social Services for the Managing Director's Office. We are, at this point in time, looking 2/5/01 FISCAL STABILITY - RES. 010024 at ways that we are going to not only -- design ways that only that we are going to spend the money, but in what format are we going to accept it; in other words, whether it should be directly into the City budget, whether we're going to create a separate private nonprofit to handle it that will be independent but controlled by the City, and exactly what kinds of services and programs for children that we will dedicate it to. We have been -- we should have some type of format as we work with the Children's Commission probably available within the next couple of months. But right now, we're examining all of our options, making sure we know exactly what format the money will take, what legalities we need to meet in that process, and probably will at that point again design either an RFP process to disburse the money or some other type of format that will be fair to the various folks in the City who provide children's service. And we are, at this point, dedicating most of these dollars probably to our after-school programs or to child prevention activities -- problem-prevention activities. 27 2/5/01 FISCAL STABILITY - RES. 010024
Thank you. Explain what the rate assumptions are with regards to the Water Fund for both the budget and plan. Mr. Dubow, are you going to respond to this, or do you want somebody from the Water Department up here? (Witness comes forward.)
Richard Roy, Acting Water Commissioner. Could you repeat the question?
Explain what the rate assumptions are with regards to the Water Fund for both the budget and plan.
The budget assumptions, we have been reviewing all of the numbers with regard to this rate increase --
Is there a proposed rate increase for FY '02, how much is it going to be, and why were we never informed?
In the last few five-year plans, we have been predicting that we would have 28 2/5/01 FISCAL STABILITY - RES. 010024 to go for a rate increase. We have been able to make enough savings each year that we did not have to implement that rate increase. This year, it -- it -- we have finally reached the point where we can only take so much out of the rate stabilization fund, and we have a gap of about $16 million, which we would have to then increase rates for. Those numbers are still being reviewed. There has been no decision on that. We have reflected it in the Five-Year Plan because that's what the numbers had showed. As of the last --
They have changed. We have been looking at -- the consumption of water has been going down, the accounts, the number of accounts are going down. And the costs are not going down; the costs are going up. And so you have to cover that difference. Right now, the latest numbers that we have seen look like the average increase to a homeowner will be around $1.33 a month. 29 2/5/01 FISCAL STABILITY - RES. 010024
In terms -- I think the Administration probably did make a mistake in the not highlighting it more clearly. While there has been no definitive decision made, you know, about the magnitude of any increase, I think we probably should have been up front in the introduction and said that the numbers proposed, you know, involve consideration of a rate increase as opposed to having it buried, where people have to figure it out. I think having to do it over again, we'd probably be more up front about that. Or explicit about it, rather.
I have any number of questions that I want to ask, but I don't want to dominate this hearing. Who would like to be recognized next? Councilwoman Blackwell.
Thank you. Thank you, Madam President. I understand that there are general bonds that are supported by tax dollars and they're generally all for a modest risk level, but self-sustaining bonds which could be more high-profile and controversial have a higher risk 30 2/5/01 FISCAL STABILITY - RES. 010024 level and are issued through quasi-public agencies and not through voter approval. Therefore, it offers the City Council significant political liability, and we don't always know what is planned. So my question is: How is the City managing tax-supported and self-sustaining debt and how can Council be better informed of current liability and retirement of both kinds? That is, how can we have a better tracking ability so that when new projects or emergencies occur, we can better understand projects?
With all debt issuances, the self-sustaining, which would be our revenue debt for water and the aviation as well as the GO are all approved --
Councilman Cohen asked if you would move your mike a little closer. We asked Mr. Dubow just the opposite.
Our debt, whether it's the self-sustaining for water, sewer, and aviation, are debt issued by the City on behalf of the City, and it comes to City Council for approval. So that is the City's -- City Council's entry into 31 2/5/01 FISCAL STABILITY - RES. 010024 seeing what we're doing with the debt, through that whole approval process.
So there is generally no opportunity then when we would not be --
Well, you do through the whole approval process on all of the debt. It has to be approved through ordinance by City Council.
In terms of the Philadelphia Gas Works -- I know I spoke a little bit before this hearing -- we are absolutely concerned, and I think that many of us, or the majority of Council, would support some way that any monies considered would go to customer relief. Certainly, we understand the position that the City is in. We heard the Mayor's address that referred to the possibility of selling the Gas Works, and certainly, we are concerned that if we raise customers (sic) so much, people might die because many are going to get kerosene heaters. Other people are going to turn their gas on illegally, and if they get caught, then they would be forced to either not have gas or buy kerosene 32 2/5/01 FISCAL STABILITY - RES. 010024 heaters because they just simply cannot afford it. And everywhere we go -- and certainly, Miss Davis, you mentioned the same thing -- everywhere we go in the community, we are inundated with people approaching us or calling to us to request this. Would you be amenable to some way that we can attach debt, whether it be the million, 10 or some way to put it on the debt that the 11 customers have to pay? People just cannot pay it, 12 and with their bills at least doubling and some 13 tripling, even seniors, we're in big trouble here. 14
I have a couple of 15 responses. 16 The rates have been going up in a 17 dramatic fashion. Thus far, the only increase 18 that customers have seen are increases directly related to the increase in the cost of gas. The company had filed for a rate increase to support its operating expenses. The company got less than it had petitioned for and opted to litigate rather than accept the $11 million increase. So there is no rate increase that supports the company's operations. Everything that customers are 33 2/5/01 FISCAL STABILITY - RES. 010024 experiencing right now are linked to the increase in the cost of gas. There are a couple of things that PGW is doing. We have a lot of our employees out on the street, going door to door, encouraging customers to apply for LIHEAP. A lot of senior citizens in particular might be better served by participating in the CRP program that caps the amounts that the customer pays to a percentage of increase. So as prices continue to climb, the customer would not pay anything more, because their rates would be capped by a percentage of income. Councilman Clarke, when I think the City first came -- when we first came asking for the $45 million loan, he recommended that we take a look at using some of the $18 million to perhaps support some kind of subsidy program for those customers who are in the cut above eligibility for low income, and we're taking a look at that. And as you know, though, the $18 million is incorporated into the Five-Year Plan, and we're trying to figure out, you know, what the potential impact might be. 34 2/5/01 FISCAL STABILITY - RES. 010024 But I think that the run-up in the cost of gas is so dramatic that we're taking, you know, a real hard look at what might be the most appropriate strategy to try to help those who need help. The company also has ads running encouraging people to participate in LIHEAP. We are talking with the State to try to encourage the State to do a broader mailing on LIHEAP. Historically, they've mailed to people who applied for and received LIHEAP the year before. We're trying to get the State to mail to the entire universe of potentially eligible people. And the LIHEAP payment has an indirect benefit to individuals who are not eligible simply because it brings additional revenue into the company. But, you know, PGW continues to be, you know, an enormous challenge for the City. As the costs go up, it's not just a burden for the customers, it drives up -- or it creates problems with collection for the company. You know, we understand that. There are some people who will simply not be able to pay, and that the company will in all likelihood end up writing off more 35 2/5/01 FISCAL STABILITY - RES. 010024 debt that than it has historically. So, you know, it presents a challenge, you know, in both respects.
Part of our concern is that -- so we agreed to the 45 million, but for to us try to help PGW to become stable enough to even sell certainly still hurts us. It takes money away from our budget process, and then we have a company that, if privatized, may wipe out all of the things you've heard. It may wipe out the senior citizen discount or certainly be less accessible than any City-owned utility is. I always like everything under the City roof because we have some way to access issues when problems arise. But certainly, we just feel kind of squeezed that we are kind of in a no-win win. We're supposed to deliver money, but yet we just don't see a way out. And everywhere you go, as you know, we are just inundated with people who are complaining and who just can't pay for this burden.
Well, what's happening with the cost of gas is something that's going on 36 2/5/01 FISCAL STABILITY - RES. 010024 nationally. The cost of gas has increased 400 percent since the summer. You know, the company does not have the internal wherewithal to absorb all of that and so is in a position of having to pass on the costs to the customer. I think that as to the analysis of whether or not the City ought to undertake the sale of PGW occurs, I think a lot of questions you raised are questions that we need to consider very carefully.
We would like -- I know Councilman Cohen wants to follow up on the PGW issue, but we are really, really concerned with that. I see that we got through stadiums, and I think see that as the next big issue, between this and blight. And certainly, we are interested in trying to help come up with something that certainly makes sense and that gives the ratepayer some relief. Let me defer to Councilman Cohen on this issue.
Well, on the gas issue, it probably relates to the entire Five-Year Plan. It seems to me the Five-Year Plan limits 37 2/5/01 FISCAL STABILITY - RES. 010024 itself, probably by statute, to questions concerning the financial condition of the City and how it will operate in a solvent fashion. But the City has a second responsibility, the City has a second responsibility, and I don't see reference to it in the Five-Year Plan, but I do hear reference to it by Councilwoman Blackwell, and that is a responsibility to the citizens, how they're going to be able to meet the demands that are placed upon them. Now, there's the National League of Cities, there's the Conference of US mayors. Has the City Administration taken any leadership in addressing the problem? It's just not enough to say it's a national problem. We know that. And we know that it's not just confined to Philadelphia, that people using oil and gas in whatever form of heating are undergoing great difficulties, and many are resorting to dangerous methods to deal with the situation. I think the Fire Department might have seen already some increased fires as a result of the increased usage of kerosene heaters. 38 2/5/01 FISCAL STABILITY - RES. 010024 How is the City taking the leadership in dealing with that problem and giving guidance? Because I think the last thing in the world we want to do is to have our people freeze and, therefore, the City has a very direct responsibility to make sure that that does not happen.
We will have some conversations with some people in Harrisburg about the possibility of trying to generate some kind of subsidy support for individuals who don't qualify for CRP. You know, it doesn't rise to the threshold of being a proposal or a discrete initiative we're trying to move at this point. I think that ti is a national crisis, a local crisis and, you know, we're trying to figure out what opportunities there may be for getting additional support. And we don't have a more general proposal that we're moving that would, you know, talk about capping rates or anything like that. You know, we're not working at that level at this point.
Does the City have a policy whereby it advises users of natural gas 39 2/5/01 FISCAL STABILITY - RES. 010024 that, for example, if they pay the same amount that they paid previously before this enormous increase, that the City will treat them somewhat differently than it might treat those who don't make any effort or who don't make any payment at all?
The company is trying to do outreach both on the radio. We're putting inserts into bills, we're sending out employees door to door to alert individuals to various opportunities for them to get support, you know, advising those who can pay that we expect them to pay. You know, so we have any number of public relations and outreach initiatives that we're undertaking. The company has enlisted the support of the clergy, trying to increase the number of individuals who are applying for LIHEAP. So, you know, we're taking a number of different approaches. The City also recently has competed, we think successfully, to increase the amount of weatherization support that's going to come into the City. It's not a short-term remedy by any 40 2/5/01 FISCAL STABILITY - RES. 010024 means, but it is part of a solution, a bigger- picture solution.
I didn't hear any reference to the specific problem I raised. How about people who were good payers, they paid regularly, who can continue to at least make that payment but who may not be able to make the total payment? Is there any policy with respect to them? They may not qualify for LIHEAP, even if LIHEAP time limits are extended and the income level is raised. Is there any specific attention being paid to what I believe is the great bulk of payers, users of our gas works?
Rather than trying to explain specifically what the policies are that will guide the company through the next six, seven months, I would rather contact PGW and have them provide something in writing that talks in detail about how it intends to approach the various categories of need that are out there.
And let me note at least one voice of dissent -- I hope there will be more -- to the proposal of selling the Gas Works. 41 2/5/01 FISCAL STABILITY - RES. 010024 Like Councilwoman Blackwell, I believe it ought to be maintained as a City property. And if there were ever any contemplation of the sale, I think it would have to include the protection for those groups that Councilwoman Blackwell referred to -- the senior citizens and the low-income people. And if we could solve those problems, I believe that the citizens would best be served by maintenance of the City's handling of the Gas Works. Thank you, Madam Chair. And thank you, Councilwoman Blackwell, for yielding.
Thank you. Madam President, I'll ask two questions and then defer to others.
We've been talking with the Managing Director about the X Games that are due here in August and certainly -- and about the choosing of the site, and I understand that's still ongoing. We would certainly like to know as soon as possible where that site is. My information is that the skateboarders, as their own nonprofit group, have 42 2/5/01 FISCAL STABILITY - RES. 010024 already raised $100,000 for construction. So they're ready, but we really need the City to kind of push that along. It's been a real struggle on the X Games and the skateboarders, and we hope that we can all end with up with a win-win situation.
What we can do arrange a briefing on the X Games. I think it represents an exciting opportunity for the City to get, you know, national exposure, to attract the Gen X group to Philadelphia, and to fill up some of our hotel rooms. There will be venues, you know, a lot of venues are going to be at the First Union Center complex. There will be other venues in the City that will be utilized, but I'll make sure that a briefing gets set up, you know, so that Councilmembers and their staffs will know exactly what is --
Absolutely. We've been fighting hard for skateboarders not to feel like enemies of the City, and we certainly hope that between now and then, that we can foster that kind of community interaction. They bring a lot and do a lot and try to use all the resources 43 2/5/01 FISCAL STABILITY - RES. 010024 they have. As I said, they've already raised $100,000. They're trying to do their part, and I hope that we as a city can make them feel a welcome part of it. As you know, there was a big debate about Love Park and the part it plays in it, but certainly, we should not make those people who engage in skateboarding feel that they are not a welcome part of our city. My final question on this round is, how are proposed plans to link workforce developments under the Commerce Director and the Managing Director -- that's on of the testimony -- connected to the Commonwealth's Career Link Programs that full under the Federal Workforce Investment Act?
I think the whole workforce development area is one of those areas that the Administration needs to pay particular attention to in the coming year. The Mayor met with Secretary Butler just last week to talk about the City's workforce development programs. We want -- you know, one of the things that Estelle Richman has been working on is trying to coordinate more closely the social service 44 2/5/01 FISCAL STABILITY - RES. 010024 programs. Probably the largest initiative that has not been brought under the tent would be the workforce development programs. It represents enormous financial support, you know, the potential for enormous financial support. And we're going to be looking at trying to coordinate those resource more closely to assure that, you know, the programs that are developed, Career Link and the others, in fact deliver the kind of services to people looking to enter the workforce or to go back into the workforce that we want, you know, out of our investment. But, you know, that represents one of the challenges out there that we intend to tackle aggressively.
Thank you. I'll wait until the next round, Madam President.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam President. Mr. Dubow, I'd like to go back to the start of your testimony. You laid out a number of 45 2/5/01 FISCAL STABILITY - RES. 010024 assumptions, fiscal and economic assumptions, that you said the Five-Year Plan and this year's budget were based around. I'd like to try to better understand that. And, one, can you reiterate what those assumptions are?
Let me go through the tax assumptions first. Why don't I walk through the tax assumptions first for '02. Generally, we assume some slowing of the economy in the second half of '01, with some recovery in ''02 that shows in the wage tax primarily --
The slowing in the second half of the year? It's based on discussions with economists looking at the way our taxes were coming in and looking at our econometric model.
Yes. I mean, we've made assumptions every year about what's going to happen with the economy. 46 2/5/01 FISCAL STABILITY - RES. 010024
Has the reality ever been different than the assumption?
Why don't you tell us about the past couple years. What was the assumption and what was the actual?
Over the past couple of years, wage tax revenue growth has been stronger than the assumptions in the plan, and that's one of the reasons that we have a positive fund balance.
And what was the reason that it was stronger than what you anticipated?
It's been a record-long economic expansion, so it's done better than anyone thought.
Right. I know I've heard many speeches by President Clinton about that. 47 2/5/01 FISCAL STABILITY - RES. 010024
I said I've heard many speeches by President Clinton about that; I'm aware of that.
I think we're going to start hearing some different ones from President Bush.
So tell us about the near term and the next few years.
In the near term, for the second half of '01, we assume the economy's going to contract and then begin to expand again in ''02 and '03.
And did I understand you earlier to make some reference to the stadiums and the impact on our economy? Did you say that?
The assumptions would be 48 2/5/01 FISCAL STABILITY - RES. 010024 even more conservative if we hadn't assumed that there'd be some balance from the construction of stadiums and then the stadium activity itself.
Well, how large of a role do the stadiums play in the economy of the City of Philadelphia?
In the analysis that was done when we were going through the stadium hearings, we looked at about a 10 to $15 million increase per year in taxes as a result of the stadiums.
Okay. And are there any other sectors that you're anticipating growth in?
And we also estimate some growth in hospitality in general. I mean, while it's not explicitly shown in our assumptions, one of the focuses of our economic development strategy is, you know, e-commerce in general, but we don't build that into the projections, we don't have faster growth because of that.
Okay. Well, you've made reference on a couple of occasions to, I guess, things in general. Can you tell me with a 49 2/5/01 FISCAL STABILITY - RES. 010024 little more specifics about just what your view is of what's going on in the Philadelphia economy. Are we expecting to do anything different, unusual, significant? Or do we just kind of open the doors every day and hope for the best?
You're talking about our economic development activities in general; is that your question? Or I'm not sure I understand what you're asking.
I'm responding to the statements that you've made. You said that you expect in hospitality, in the hospitality sector, things are going to improve in general. Based upon what?
I mean, I -- can I jump in if you don't mind? I think one of the things that has had a drag effect on our hospitality industry is the labor situation at the Convention Center. I think working out an accord among the various unions was enormously important. Philadelphia was not getting the kind of repeat tourists, convention trade that other major cities were experiencing. The factor pointed to more often than not was the 50 2/5/01 FISCAL STABILITY - RES. 010024 labor situation. I think that resolving that and then marketing aggressively on the heels of the resolution is something that we expect will help, you know, the tourism industry in the City. I mean, that's just one example of something specific. Later on this week, the Mayor's going to make, you know, a speech to the Chamber of Commerce and talk more specifically about some of the economic development initiatives that the Administration intends to launch. There are fertile areas within the City, you know, in the realm of e-commerce and other parts of the economy, and the Mayor will be discussing those on Wednesday, I guess it is.
Okay. I mean, I'm just trying to understand both how you make the assumptions that we do for our budget, what the components are, why we think what we think, and what, if anything, we can do to either improve our situation or make sure that it doesn't slide backwards? Because I think that that's a fundamental part of any analysis of the Five-Year Plan, and that's -- today's hearing is primarily 51 2/5/01 FISCAL STABILITY - RES. 010024 focused on that as opposed to some of the more detailed individual components of our budget process. Naturally, you know, members will ask whatever they want to ask about. But I want to, for myself at least, get a better understanding of why you say what you say, what the assumptions are behind it, and what's the basis for the assumptions, and have a better understanding of how that process drives what we do, for instance, in tax reduction. 'Cause, I mean, the two are connected.
It's really -- like I said, it's a multi-step process. The first thing we look at is what collections have been like, to give ourselves a sense of, you know, the history of what's happened in our economy. Then we look -- we have the REMI (ph.) Model, which is an econometric model, and we look at what that's projecting for the economy. And then we talk to economists. So we gather all of that information together, and that's how we, you know, base our 52 2/5/01 FISCAL STABILITY - RES. 010024 projections.
Based on the strong performance during this unheralded economic boom in the past, might it have been possible in retrospect to have had a somewhat more aggressive tax reduction strategy since our revenues were clearly outpacing, even I'm sure in your time, generally conservative estimates on revenues? Would that have possible?
I don't remember the year. Joyce and I were talking about -- there was a year when we flipped our increase to accelerate it based on what was happening in the economy -- flipped the decrease, right, made the decrease larger. In general, if we had known how strong the economy would be for how long, we could have done more with the tax reduction program, but we don't know, and I don't think really any economists knew either. And I think the last thing we want to do is over-project our revenues because that's when we'll get ourselves into serious financial problems.
And, Councilmember, it was through that over-collection that we developed the $295 million fund balance that will hopefully cushion some of what could be a downturn or a softening in the economy going forward.
Well, in that regard, am I reading the plan correctly on Appendix 3, , that in FY 2000, we're showing on Line 31 a $295 million surplus; is that correct?
And on that same line for FY '01, we're showing $152 million?
Okay. And am I also reading that you expect without any adjustments, the City would actually close Fiscal Year '01 with a $170 million deficit?
There are a few things that go into why our performance is -- is negative. One is our --
Do we have any 54 2/5/01 FISCAL STABILITY - RES. 010024 previous recent years where we've run operating deficits?
After -- after the adjustments, we've had surpluses in each of the last eight years. So the answer is no. 7
I'd have to go check and look at it after surpluses, and I'd have to get back to you on that.
There are a few things that lead to that deficit. One is the projection that revenues will start to slow in the second half of the year. The second is, we assume that the $45 million licensing fee with the School District and PGW loan is in there.
You know, Mr. Dubow, it troubles my heart to ever have to interrupt you, because I like it when you get on a 55 2/5/01 FISCAL STABILITY - RES. 010024 roll. But something you said triggered a thought. I continue to read in various press accounts that the City has given the School District already this year $45 million.
And since you're at the table and you have Miss Davis there and the Chief of Staff, could you clear up for our esteemed members of the fourth estate, how much money has the City this year given the School District?
The City's budget has $15 million for the School District and there is a proposal from the Administration to give an additional $45 million to the School District.
The $45 million is a licensing fee agreement between the Recreation Department and the School District for the use of school recreation facilities. 56 2/5/01 FISCAL STABILITY - RES. 010024
All right. Why don't we go back -- before you -- before that idea, I guess, had been crafted, can we go back to the genesis of the $45 million? Isn't that $20 million that was discussed --
-- Part of the payment from the contract from last year?
Okay. But that has not taken place yet; is that correct?
All right. So the only money to the School District from the City at this point is the $15 million that was already 57 2/5/01 FISCAL STABILITY - RES. 010024 built in to the City's '01 budget; is that correct?
In terms of our estimates in here, the $45 million is also built in, for a total of 60 million in '01.
In terms of our estimates for '01, we built in the additional 45, so there's a total of 60 million for the School District in our '01 estimates.