Committee Hearing, February 5, 2001

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.)

Good morning.

Good morning.

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.

Thank you.

Could you briefly explain the revenues and expense assumptions for the Five-Year Plan and how it is based?

I will defer to Rob Dubow, the City's Budget Director.

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?

Much.

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, what fees are we talking about?

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.

And what was the increase?

It's about $29 million a year.

Thank you.

And TANF is temporary assistance for needy families.

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 --

Was the removal of the abandoned cars.

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.

That's still way below. Check the prisons.

We'll -- we'll get you a break-out on that.

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.

Isn't there someone here that can discuss it?

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.)

I'll have somebody come and respond to that.

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.

Do you know where the matching funds come from?

The CDBG.

The CDBG, okay. And how does that program work?

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.

Did you say Keystone Opportunity Zone?

Yes.

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.

That's -- that's --

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?

You're talking about the $60 million Children's Fund?

That's it, mm-hmm.

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.)

Good morning.

Good morning.

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 --

Do those figures change from day-to-day?

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.

Thanks.

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 --

Now, what is that based on? Why are you --

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.

Okay. And have we made those assumptions in the past?

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?

Yeah.

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?

The economy did better than we thought.

What does that mean, that people are just --

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'm sorry, I didn't hear you.

I said I've heard many speeches by President Clinton about that; I'm aware of that.

And different ones by President Bush.

I think we're going to start hearing some different ones from President Bush.

Yes.

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?

Yes.

Okay.

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.

Yes, yes, they are.

Okay.

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.

Okay. 53 2/5/01 FISCAL STABILITY - RES. 010024

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?

Yep.

And on that same line for FY '01, we're showing $152 million?

Yes.

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?

Yes.

Why is that?

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

You said after the adjustments?

Right.

What about before the adjustments?

I'd have to go check and look at it after surpluses, and I'd have to get back to you on that.

Okay, all right. Go ahead, I interrupted you.

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.

That would be incorrect.

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.

And what are the --

There has not been a hearing on that $45 million.

And what are the components of the $45 million?

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 --

Yes, okay, I'll --

-- almost a year ago, and that's one component?

Yes.

And isn't $25 million --

Bonuses.

-- Part of the payment from the contract from last year?

Yes.

Is that how we got the 45?

Yes.

Okay. But that has not taken place yet; is that correct?

That's 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?

That's correct.

Okay, all right.

In terms of our estimates in here, the $45 million is also built in, for a total of 60 million in '01.

What was the tail-end of what you said?

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.

Okay. And when's the hearing for the $45 million?

As far as I know, it hasn't been scheduled yet.

It has not been scheduled yet?

Not that I know of.

Has there been a request for a hearing on this? I'm actually somewhat surprised about that, given the nature of all of the discussions for both these chunks of 58 2/5/01 FISCAL STABILITY - RES. 010024 dollars, which have now been put together. At the time, it appeared that it was an emergency, and one of these is almost a year old, and the other one is, I don't know, six months? Is there a request for a hearing on this yet?

No. I don't believe we had a request for a hearing. We were anxious to have the legislation introduced. If you recall, it was introduced, I think, in the middle of stadium discussions. You know, it was introduced with the understanding that we wouldn't try to move it immediately. We will be needing a -- we'll be requesting that hearings be scheduled some time before the early spring. I think some of it turns on when the District will need the cash, and Janice can answer.

I'm sorry, Madam Chief of Staff, some of it turns on weather?

On when they actually need the cash. It was essential that they get a commitment from us of the availability of the funding. However, the actual cash needs are for 59 2/5/01 FISCAL STABILITY - RES. 010024 later in the fiscal year.

Not a commitment. What we wanted was to have an indication that the Administration intended to seek Council approval of. We understand that, you know, the Mayor on his own can't commit, you know, that it was going -- it was thought important that we initiate the process, so that the Mayor was, in fact, pursuing a course that he had committed to with the State.

Okay. Mr. Dubow, back to you. I had interrupted you a long time ago.

And I finished.

Really?

I think so.

I forgot what your answer was.

I was counting on that.

Actually, I didn't. Is the $45 million for PGW built into this assumption as well?

It's built into the estimate for '01, and then it's also built in as a repayment in '03. 60 2/5/01 FISCAL STABILITY - RES. 010024

Okay. Now, I seem to recall a number of five-year plans ago that -- and I don't think the number was 295; it may have been 250 back in those days. There was a spending schedule that had the surplus at that time, I think, going down to $4.9 million in FY '04. Do you have any recollection of that? Is that --

I know last year's took us down to about 6 million at the end of '05.

Okay.

It may be that two years ago, it took us down to 5 at the end of '04. I don't remember.

Okay. The current plan has the 295, and it looks like almost half is being used this year, the balance being used in the FY '02 budget and it's gone? Is that correct?

Well, we have a line -- I guess we've talked about this -- I think we talked about this a little last year too. That Line 26, Funding for Future Obligations, it shows $127.5 million. And then that gets eaten into 61 2/5/01 FISCAL STABILITY - RES. 010024 over the next several years.

What is that line and what does it mean?

It's essentially a funding- for-contingency line. It gives us room in case things come up, and then we show it going away over time.

Well, I guess that wasn't necessarily my question. Where does it come from?

It comes from the fund balance.

Is that 127 out of the previous year's 152?

Yes. I mean, that's -- yes.

You're being pretty cagey today, Mr. Dubow.

What?

I said you're being pretty cagey today. Why don't you give us a more expounded explanation of the 127, where does it come from, what is it for, how are you able to generate it? Just share with us today. 62 2/5/01 FISCAL STABILITY - RES. 010024

The 127 -- well, we present our budget with a zero every year because the Charter says you need to have a balance; we interpret that to mean a zero. So if there's revenue in excess of expenditures and we know that over the course of the plan, we need that extra revenue for obligations in future years, we put in a line that takes some of those revenues and distributes it over several years.

Okay. Let's go back to -- what was that, Line 22. So in ''02, '03 and on out, all of those years, we are showing deficits between estimated revenues and expected expenses.

Yes.

Is that correct? Okay. And then you're covering them with various components of the 127?

Partially that's right. It's partially that and partially you wind up with surpluses at the end of '03 and '04, and they get eaten into too.

Okay, all right. 63 2/5/01 FISCAL STABILITY - RES. 010024 Madam President, I have more questions, but I'll be glad to come back for them.

Thank you. The Chair recognizes Councilman Rizzo. I'm sorry. Before I do that, are there any other Councilmembers on the committee? I'll have to recognize the Councilmembers from the committee first. Councilman Cohen?

Mr. Dubow, with respect to your assumption that the stadium is going to produce, did you say, 10 to $15 million in plus revenue?

In tax revenue, yes.

Does that -- when does that revenue begin to flow to the City?

The first -- portions of it begin when construction begins, which we assume will be in -- well, actually later -- towards the end of '01.

When is it expected that the bonds will be issued?

I think that's also towards the end of '01. 64 2/5/01 FISCAL STABILITY - RES. 010024

When do the payments begin to be made on the bonds? When do the interest and repayment portion of the bond kick in?

In ''02, in Fiscal Year '02.

Would you say that again, sir?

In Fiscal Year '02, in the next fiscal year.

Is your estimate of a positive flow of revenue, does that mean after the expense of the bonds? Aren't the payments on the bonds out of the General Fund?

Yes, they are.

Well, does your estimate of plus-revenue take into account the expenditures for interest and payment of principal on the bonds?

The plan assumes both the principal and interest payments on the bonds and the increased tax revenues. So, yes, they're both in there.

Well, since, as far 65 2/5/01 FISCAL STABILITY - RES. 010024 as I've been able to discover, no city has shown any economic increases as a result of stadiums, isn't that a kind of brave and dangerous approach to estimate that Philadelphia will have a plus where other cities have not had them? No other city has yet made a claim in exact dollars. You get the puff pieces, like in yesterday's Inquirer, that says Pittsburgh is already benefitting, and when you read the whole article, you don't find a single reference to anything that is currently producing income.

Well, what we looked at was the amount of construction activity that the stadium would generate and what kind of wage taxes would flow from that. So that's one way that we have tax revenues in there. We looked at projected salaries for the teams, and that was also a revenue generator. We looked at concession estimates from the teams as to what they were going to charge and what that would mean in terms of tax revenues. So we really just looked at projections for activity at the stadiums and what kind of revenues those would generate, so -- 66 2/5/01 FISCAL STABILITY - RES. 010024

Did you consider the testimony of economists, that whatever increases come from deductions and other expenditures, that if the money were not spent for the stadiums, they would probably be spent in other parts of the tourist or hotel industry? Do you consider that? I'm only asking; I'm not wanting to argue the point at this stage.

One of the things that we did -- and we did this when we came to Council and looked at what the numbers meant for the plan -- was that we discounted the projections that were included in the runs that PIDC did. So for -- and I might get these wrong because it's been a while. For the Phillies, we took 80 percent of what the team had projected, what the team and PIDC had worked on. For the Eagles, we took 90 percent. And for the other events at the stadiums, we took 50 percent. And that's what we built into our projections.

Well, I hope your assumptions prove valid, but I think they're dangerous assumptions for budgetary purposes. One other just general comment I wanted 67 2/5/01 FISCAL STABILITY - RES. 010024 to make to the Chief of Staff particularly. Sometimes later in the year, after Council acts on this voluminous Five-Year Plan, we're later told in other things that Council has already made a decision on something because somewhere in this Five-Year Plan, there was a reference to something, and Council did not amend it out of the plan. And now, as far as I understand it, my understanding is that this is a general plan presented to PICA, in accordance with requirements of law that were followed in order to make it possible for the City to issue bonds about a decade ago, and that this presents a plan into the future, subject to amendment as conditions occur, and subject to whatever budgetary action this Council takes each year when it considers the budget. Am I right on that?

Yes, yes.

Or should we consider that this replaces our regular budgetary processes, and in one fell swoop, we try to bind the City Council for the next five years? 68 2/5/01 FISCAL STABILITY - RES. 010024

No. I think that the document before you does a number of things. Some are required by PICA, but a lot of what is before you is not required by PICA. A lot of the discussion that you have in your Five-Year Plan, I believe, is not mandated by PICA or even desired by PICA, Rob tells me. It's simply, you know, the number part. We have a budgeting process that the City adheres to. That is what guides the expenditures, you know, and guides the City --

You say this Five-Year Plan is not required by PICA?

Rob, you want to discuss it?

Yeah. For the most part, what's required by PICA is the appendices in the back. Most of the text up front is done at the Administration's discretion because it's a vehicle for communicating what it is the Administration wants to do and what the Administration has done.

I -- I'm sorry. I don't understand that at all. When did these five-year plans get born? 69 2/5/01 FISCAL STABILITY - RES. 010024

The five-year plans got born, I guess the first one covered the period Fiscal '92 to Fiscal '96. What's required in the plan is, there are a bunch of appendices in the back that lay out the numbers underlying the plan and the assumptions underlying the plan. That's what PICA requires. The front part, which is the text that talks what our plans are for the next five years and talks about what we've done for the last year, that's not required.

When did the City begin issuing a Five-Year Plan that had nothing whatever to do with PICA?

No, it has a lot to do with PICA, 'cause all the numerical projections are required by PICA. But the City, with the first plan, took the opportunity to go beyond what PICA required to include more information and to include specific --

Was there any ordinance that required that?

The level of detail that we 70 2/5/01 FISCAL STABILITY - RES. 010024 have in here? No, there's no ordinance that requires that.

I mean, that that administration ten years ago decided that it was going to have a Five-Year Plan, even though nothing required it?

No, the plan itself is required.

By whom?

By the PICA statute.

By the PICA statute.

Yeah.

It was my understanding --

Yes. And what the statute requires is that the City showed that it's going to retain a balanced budget for five years. It also requires that the City demonstrate that by showing a set of tables, including revenue projections, obligation projections, a description of our methodology. But what it doesn't require is descriptions of what every department's going to 71 2/5/01 FISCAL STABILITY - RES. 010024 do. It doesn't require that we have an introduction and a chapter on each department.

Well, would it be possible, say, to take this Five-Year book and separate it into a portion that PICA requires and a portion that is just projections by the Administration? I'm just very concerned that the Five-Year Plan seems to have been used a number of times by the previous, and perhaps the present, administration to commit the Council in advance, prior to extended hearings on specific subjects. And we always felt we had to approve this document for submission to PICA. Now I'm told that it's more than a PICA document, and I think what we ought to be having before us is the document that must be submitted to PICA, and then there can be an addendum saying, in addition, we think Council ought to know what our general plans are for the next five years, or for whatever time you might want to do, for 20 years, what we see well into the future. We ought to know that what we're doing is approving or considering a document required by 72 2/5/01 FISCAL STABILITY - RES. 010024 law. And from what I see, the whole of this document is not required by law.

That's correct. Although one of the rationales for having this whole document is that the text up front puts the numbers in the back in context. So if we just gave the numbers, I don't know how much meaning that would have to you.

I missed the latter part. What?

If we just gave you the numbers at the back, I don't think you'd have the proper context for them.

Well, could you designate which pages have to go to PICA and which are just for the general information of City Council?

Yeah, we can do that. I think it's really Appendix 2 on the back, but I will get back to you with a more specific answer to make sure not I'm not leaving anything out.

We'll have a letter written that defines specifically what it is in this submission that is intended to comply with 73 2/5/01 FISCAL STABILITY - RES. 010024 the PICA requirements so that you'll know specifically what it is that's being acted on.

Well, we understood that the reason we were put under this time pressure to consider in effect five years of budgets in great detail, without having the time to really cover each item in full, we were told that there was a PICA requirement, that a document had to be furnished.

Mm-hmm.

It's certainly always been my believe that what we were dealing with was with the furnishing of an item, and that's why I was so concerned about everybody knowing that that Five-Year Plan with PICA could also be amended. It was not something engraved in stone that acted as a straightjacket for the next something years.

Mm-hmm.

But now you're telling me that in addition to that, it serves some sore purposes unrequired by statute or by City ordinance. And I think it ought to be very clear, 'cause I'm personally very strongly opposed 74 2/5/01 FISCAL STABILITY - RES. 010024 to our consideration of a document like this containing the whole budgets for the next five years as presently conceived of and have us pass it in one or two hearings. It makes no sense whatever. And we thought we were doing it because it was required by PICA in order to maintain the stability of the bonds that PICA authorized us to issue some ten years ago.

I'm sorry. I guess I'm not being clear enough. The budgets for each year are required. So all the numbers that show our projection for each year and show that we'll be balanced at the point of Fiscal Year '06, that's required, we have to give that to PICA. It's the written description of that material up front that we don't have to give them, but we have to show that that we're balanced for each year.

Madam President, I'm going to be asking and probably introducing an ordinance to require that there be submitted to City Council a separate document that is required by PICA, and that that be the only document that 75 2/5/01 FISCAL STABILITY - RES. 010024 we consider under the time pressures we're placed under in considering a Five-Year Plan.

Councilman, if you would yield, I believe Councilman Nutter would like to follow through on your line of questioning.

Yes. I'll be happy to yield.

Thank you, Councilman. Mr. Dubow, Councilman Cohen's been asking questions about this Five-Year Plan concept. One, would you tell us directly, as you best understand it, what the PICA statute requires from either the Administration and/or the Council in terms of a plan?

The PICA statute requires that we produce a plan that shows that we will have balanced budgets for the following five-year period. It also requires that that be based on reasonable projections of revenues and expenditures, that we provide the underlying assumptions that generate those numbers.

The budgets that 76 2/5/01 FISCAL STABILITY - RES. 010024 you're showing and that have been approved in the past and the four additional years' worth of budgeting that even this particular plan is showing, are any of those out-year budgets binding on the City of Philadelphia in terms of next year's actual budget that may be submitted by the Mayor and may possibly be approved by this Council?

No. In fact, each year, when the plan's amended, that front year, this year's Fiscal '02 budget will look much different from what FY '02 looked like in last year's plan.

And has there ever been an occasion where a PICA Five-Year Plan in an out-year budget that had been approved as a part of that plan was substantially or materially different in that subsequent out-year when the Mayor actually introduced the City's budget?

Yes. They are probably very different every year.

Every year.

Then my question is: What is the amount of, quote/unquote, binding that is imposed upon either the City in general or 77 2/5/01 FISCAL STABILITY - RES. 010024 the Council in particular with regard to any Five-Year Plan or any year of any Five-Year Plan?

I don't think there's any binding in approving the plan beyond the binding of approving the FY '02 budget.

Then what is the purpose of the Five-Year Plan?

The purpose is to demonstrate to PICA that we're not -- we're not undertaking any commitments that will, over the course of the following five years, put us into the red. It's to show that we can maintain a balance through the Five-Year Plan period.

But if the City decides, or the Council decides, to make a change in a subsequent-year budget, are we prevented from doing that because of the previously-approved Five-Year Plan?

If we made a change that was of -- for example, just to give a really bad -- well, if we undertook a commitment this year that committed us to giving someone $200 million in FY '05, we would have to show PICA how we could maintain balance through '06. 78 2/5/01 FISCAL STABILITY - RES. 010024

But you will be able to respond to the Councilman's question with regard to -- you could take the Five-Year Plan that's in front of us today and either by marking or by some letter of explanation show us the actual components that are required by PICA statute and the components that you just put in, because you thought you'd like to have a nice story to tell.

And because we think they make the numbers clearer.

I see.

The answer to your question is, yes, we can do that. And we will.

Thank you. Thank you, Councilman Cohen.

Thank you. Councilman Cohen?

I will be waiting for the production of the revised version.

Thank you.

Because I think that's all -- from my understanding over the last ten years, it's been my understanding that we were 79 2/5/01 FISCAL STABILITY - RES. 010024 being subjected to the pressure of covering this huge volume of material very quickly because of the necessary filing with PICA, and I think it's wrong to include other items which can later be cited Council that considered has them and approved them in the Five-Year Plan. And I just think that's a bad legislative practice and something I was not aware of at all. So I will await the results of your production of the new document. Thank you.

You're welcome. Councilwoman Blackwell, is your question in the line of what has been discussed?

Sure, yes. For example, on Appendix -- on of Appendix 3, you list future target reductions on Line 20, and it's listed in Fiscal Year '03 and '04 stayed the same at 12 million, but 18 million is listed in Fiscal Year 2005 and 2006. Is the detail of that increase in future target reductions somewhere in this plan?

No. They're actually -- 80 2/5/01 FISCAL STABILITY - RES. 010024 this is consistent with what we have done over the last probably five or six plans. It's our way of saying that we have to find ways to reduce our costs out in those future years.

I'm sorry, I didn't hear you. Would you repeat that?

Yeah. It's something that we've done over, I don't know, maybe the last five or six years. Those are unspecified cuts, and it's our way of saying we have to figure out ways of making the cost of doing business lower in the out-years of the plan.

Okay, thank you.

Thank you. The Chair recognizes Councilman Rizzo.

Thank you, Madam Chair. I know the airport financial situation and the way that the monies are handled at the airport are very complicated, but I have a question of the Administration. I understand that the leases, contracts with the various airlines are about to end. And they will soon need to 81 2/5/01 FISCAL STABILITY - RES. 010024 renegotiate all of those contracts. And I don't see anywhere in the Five-Year Plan anything about the contracts with the airlines and the way we plan, and I've heard that there are some airports throughout the country that have lotteries with the airlines for the gates, they have in fact physically been on them. And I'd like to know what the Administration's doing to prepare for the fact that these leases have been for 28, I believe, 29 years, and they are about in a year or just a little more than a year about to need to be renegotiated. And I'd like to know a little bit about the plan for the renegotiation of these leases at Philadelphia International Airport and what are our strategy is to prepare for those negotiations.

We will have to get back to you on that question. There's no one here from the airport. From prior experience, I can tell you, I did work for an airport for quite some time. Those negotiations are usually begun very early, much before the actual expiration of the leases. 82 2/5/01 FISCAL STABILITY - RES. 010024 But at this point, the fiscal impact of those would be almost impossible to predict.

There's no one here, the Chief of Staff, there's no one here representing the Administration that can discuss this?

I think the Chief of Staff will be back momentarily.

Then I'll go to my next question and will follow up on that later. I was surprised and disappointed to hear that we might be facing an increase in our water bills. And based on some of the horror stories that we've read and have personally experienced at PGW, I'm wondering if someone representing Water Revenue, the Water Department can give us a feel for where we are with the outstanding debt that's not collected in the Water Department. I'd like to get a feel for exactly where we are with our collection process at Water Revenue. Because I have personally seen some water bills of businesses and customers that have water service when they owe 6, 7, 8, 9, $10,000 to 83 2/5/01 FISCAL STABILITY - RES. 010024 the Water Revenue Department. So I would like to make sure that every dime is collected before we consider a rate increase. (Witness comes forward.)

Good morning. Identify yourself for the record, please.

Good morning. My name is Denise Garrett, and I'm the Bureau Chief of Water Revenue. Good morning, Councilman. I did hear earlier that Commissioner Roy announced that there would be a rate increase for Water Revenue, and I would like to say that in spite of some of those large bills that you have seen, we've made tremendous progress in collecting revenue. In fact, since 1997, the receivables have been going down. In our commercial base, we introduced a program called USTRA -- Utility Service Tenants Rights Act, and that program is specifically geared toward large apartment buildings, and these were the most delinquent group within our receivable base. At this time, we've reduced that group significantly. And obviously, we haven been 84 2/5/01 FISCAL STABILITY - RES. 010024 able to reduce every account, but we are working with the Law Department, and they are assisting us in try to resolve the outstanding delinquencies that we're presently at.

Do you have a ballpark figure of how much -- could you break it out how much money is owed to the Water Department, business/commercial accounts versus residential? Could you provide the Chair with that information if you're not prepared to identify that, how much money we actually have out on the street?

Yes, we can provide the Chair with that information. We're not prepared to answer that at this point.

But would you -- could you estimate anticipate that possibly if we could do more in collecting revenue, that we could avoid a rate increase?

I don't believe that's possible at this time. I think that since 1995, when we began an aggressive collection program, we've reduced the fund by more than $50 million. We've also instituted many programs that would 85 2/5/01 FISCAL STABILITY - RES. 010024 allow us to reduce the delinquent base, we've instituted many programs to support customers who are not able to pay us. And I think that at this point, we have achieved a tremendous amount of success in that area. We obviously have not been able to liquidate every dollar of our fund, and I don't think we'll be able to do that to avoid a rate increase by 2002. As Commissioner Roy stated, the receivables have been going down; our collection rate has been going up. What we are experiencing at this time is that the consumption is going down; that means that the amount of water used for household or per service is actually declining, and the number of accounts are declining. And that's directly related to the economic condition of Philadelphia. And you notice that there has been a decline in the number of active residents in the City, and that directly relates to the number of active services.

Thank you. Thank you, Madam Chair.

Do you want 86 2/5/01 FISCAL STABILITY - RES. 010024 to question the Chief of Staff, now that's she's back, on your question regarding the airport?

Thank you. I understand we're getting to the point where the leases at Philadelphia International Airport are about to expire, and I understand throughout the country that there have been some very creative ways to negotiate airport leases, there's been lotteries, they've actually had to bid on some gate space at various airports. And I understand these leases, based on the information that I just received, that it's something that's normally done a year or more out, and I understand these leases are about to expire next year, if not the year after.

No, I believe our leases expire in 2006.

No, I don't think they're that far out. That doesn't -- that's not consistent with the information that I have.

I have asked for somebody from the airport to come out in order to provide you with specific information. I'm sure you're understand, though, that it does take a 87 2/5/01 FISCAL STABILITY - RES. 010024 long lead-in in order to do the kind of lease arrangements that will best serve the interests of the, you know, the City and the residents flying in and out of Philadelphia.

I understand that the leases -- and I'd be surprised if that's accurate the information that you have, that it's 2006. But if that, in fact's, the case, the leases have been in place now for close to 30 years, and I'm hoping that we're looking at the way the airline leases have been handled in other places, since it's good that we do that, and that we're planning -- I'd be pleased, I would guess, if it is 2006, because that then gives us a little bit of breathing room, but from what I understand, we might not have that luxury of 2006; I understand it's in the next couple of years -- 2003, maybe 2004 at the latest -- that those leases will expire. So I'll wait until you have some definite information and would appreciate knowing how we plan to deal with that issue.

Councilman Clarke? Councilman Rizzo, do you mind yielding? 88 2/5/01 FISCAL STABILITY - RES. 010024

Yes, not at all, Madam Chair. You need to turn on his microphone.

Thank you Councilman. Madam Chair, I just wanted to add to that, at the time that the information is provided by the representative of the airport, could they also talk about the potential, or actually I guess it's the impending, acquisition by American Airlines of US Air and how that will potentially affect our ability to enter into lease negotiations with what is currently US Air.

Yeah, I'll -- I'm trying to get him down here now. He's in a position to talk about that, both the, you know, the American and the United acquisitions, you know, will potentially impact Philadelphia. And so the airport people have been very vigilant about that and in order to protect the City's position.

The reason that this issue concerns me, on many occasions, when I talk to a resident of Philadelphia or from the suburbs, 89 2/5/01 FISCAL STABILITY - RES. 010024 they tell me they're about to take a business trip or they're going on vacation. And I said your visit to the Philadelphia Airport will be a pleasing visit; you'll find that there's been lots of improvements there. And I find out that they're flying from Baltimore, they're flying from Atlantic City, they're flying from airports that surround Philadelphia for reasons being that the lack of competition at Philadelphia International Airport has driven the price of a ticket up incredibly high, where people will be willing to drive to Newark to get a flight, people will drive to Atlantic City to get a flight, people will go to Baltimore to get a flight. And something has to be done about that because we are just losing so many people traveling through Philadelphia because there's very little opportunity for them to buy a fare that is competitive with these other airports. So I'd appreciate -- are we going to hear about that today?

I'm trying to track down airport representative to get him here today.

Okay, thank you. 90 2/5/01 FISCAL STABILITY - RES. 010024 Thank you, Madam President.

You're welcome. The Chair recognizes Councilman Kenney.

Thank you, Madam Chair. Good morning. I think the biggest problem facing the City of Philadelphia relates to every other problem that we deal with in this budget process is that over the last eight years, the City has lost virtually 200,000 people. At the same time, New York City gained approximately a million people. Boston broke even. And Chicago increased its population by about 3 percent. When it comes to blight initiatives, when it comes to the tax base, the revenues that we project or can't project, the condition of our schools, it all relates, in my opinion, to this continued loss of middle-class, working-class taxpayers in the City. I don't see anywhere in this Five-Year Plan any specific strategies to retain that middle-class workforce; and more importantly, to replace that leaving population, which is 91 2/5/01 FISCAL STABILITY - RES. 010024 out-migrating from every city in the country. Even the cities that I mentioned that have gained population in the last nine years have had a tremendous amount of out-migration and replaced those out-migrating residents with people from around the world who have come to this country legally. And I see nothing in any of these documents as to what we're going to do about that problem. And the reason I raise that is because recently in the Inquirer, our Planning Commission Chairperson was quoted, again, yesterday in the Washington Post that they view -- or she views the Planning Commission's responsibility as trying to find a way for the City to shrink gracefully. And a slogan, for example, the Philadelphia, more room 18 for those who stayed. What has me concerned about that particular position, coupled with our loss of population and coupled with our lack of a cohesive plan to attract new residents, is that somehow maybe we've thrown in the towel, that we can't increase the number of people that are living in this city. 92 2/5/01 FISCAL STABILITY - RES. 010024 And I'd like anyone at the table to comment on what exactly it we're doing to not only stop the flow but to increase the number of people. Because within that opportunity, as we've seen in the Brooklyn, in the Bronx, as we've seen in other cities in the country -- I guess I've read that the Boston biotech and e-commerce expansion in that particular area could have never happened without new immigrants, new people coming to this country to live and locating in cities like Boston, Chicago, New York, Houston, Los Angeles, Miami, but certainly not Philadelphia. And I just need some comment on that.

I think there are a couple of things, and you've indicated too that if we don't improve the quality of life in our neighborhoods, people will leave; if we don't provide a quality school system, people will leave. You know, and so we do have to address both of those things. There are things going on to increase the potential attractiveness of Philadelphia for other people. For example, there's the study of the North Delaware River, and it's anticipated 93 2/5/01 FISCAL STABILITY - RES. 010024 that that study will potentially open up new areas of residential, commercial, and other kinds of development. There are -- you know, part of what's going on in neighborhood transformation is not just to focus not just on neighborhoods that have experienced blight, but also trying to develop strategies that will bolster the housing market in areas like Chestnut Hill, Mt. Airy, and throughout certain parts of the Northeast and South Philadelphia. We've been working with GMAC and Fannie Mae to create mortgage subsidy programs that will assist those kinds of communities, understanding that we cannot allow those neighborhoods to decline in the way that the City permitted in parts of North Philadelphia and West Philadelphia to decline. I think some of Maxine Griffith's comments were targeted, though, at acknowledging the fact that the City has shrunken and that you have neighborhoods where 40, 50, 60 percent of the population has lost, and we have to figure out how to make those communities liveable communities for 94 2/5/01 FISCAL STABILITY - RES. 010024 the people who remain in them. It's not enough to have, you know, abandoned buildings standing up, it's not enough to continue to support an infrastructure that was developed at a time when the City's population was thought to be going up to 2.5 million. And so I think, you know, things have to go on on both -- well, I guess, on three fronts: we have to stabilize, we have to grow, but we also have to acknowledge the fact that in some areas of the City, we are in fact shrinking.

Well, I can't think of a more devastated area in the country -- maybe in the world -- at the time of 1977, '78, '79, '80 than Brooklyn, New York. It experienced, I think, after that major and famous blackout, the night the lights went out in New York City, total devastation and abandonment and destruction. That neighborhood was never stabilized until people from West Africa and West Indies and Central America and other places and Mexico started coming to buy up those homes, those abandoned shells, and create a vibrance and a sweat equity and a tax base that is rivaling 95 2/5/01 FISCAL STABILITY - RES. 010024 perhaps any city in the world. And I guess part of my concern is that we believe that in some way, spending City taxpayers' resources to do this kind of stabilization should be, maybe some of it, invested in trying to get people to come here to build it. I mean, Commissioner Timoney's sitting here, I remember his comment at the hearing we had on immigration, where Councilperson Tasco, I think, basically said the same thing, was that we should improve it, we should build it, and then they will come. And he corrected her politely and said, "No, if they come, they will build it." And I think in some ways, we have not concentrated -- in many ways, we have not concentrated considering the numbers of immigrants flowing to Philadelphia compared to other cities in this country, we have not made an effort to replace people. And the reason I raise this is because a lot of people who I know have left the City don't hate the City. They left because of the schools, and they left because their wife or this husband wanted a larger home, with a family room, 96 2/5/01 FISCAL STABILITY - RES. 010024 a garage, a lawn, a deck, things that we probably couldn't provide in a city environment no matter how hard we tried. But, again, those neighborhoods are depleted and degraded because no one came to replace those people, and we've made no 8 significant effort to have that happen.

I think you're right. We have to do a better job marketing, I think, you know, in commerce and also marketing some of our neighborhoods. And you're right, a lot of cities have grown because they have increased their immigrant population, and we need to develop strategies for that, and haven't done that thus far.

Let me ask you about the City workforce, about the size, and maybe, I think, Mr. Dubow and Miss Wilkerson have some institutional knowledge of these questions. In 1992, what was the size of the City workforce, in general terms? I know it varies comparing different agencies and --

I don't know; I'd have to look that up. I don't know off the top of my 97 2/5/01 FISCAL STABILITY - RES. 010024 head.

Do you know what the size of it is today?

It's a little over 25,000, General Fund employees.

Would it be a safe assumption to assert that -- or a safe assertion to say that it is approximately what it was in 1992?

That's probably right.

Can you explain to me the rationale and the potential for failure in any company or business or endeavor that has the name number of employees eight years later than it had eight years ago, with approximately 200,000 less customers/residents with which to serve? Is that not a formula for defeat?

Well, I guess there are two ways to look at that. One is looking at our population and clearly looking at just population and saying population has gone down in relation to the size of our workforce, yeah, that clearly gives us an exposure. At the same time, our revenues have gone up, and, I mean, that's the 98 2/5/01 FISCAL STABILITY - RES. 010024 reason that we've been able to fund those positions. But I think that really doesn't get to your real question, which is, what's happened and why has the workforce increased? And I think we've talked about this in general terms before, that the areas where our budget has really been expanding is in the area of social services and in criminal justice. And part of what's happening is -- and I guess it was the guy from one of the rating agencies said that the people left behind are residents with greater need. And so there's a greater cost per resident than there would have been ten years ago.

Is that not something both in the short term and long term we should be addressing in five-year budget planning? I mean, for example, what is the percentage of the budget increase annually over the past eight to nine years? Has there been an average increase that you could identify as to how this budget has grown?

I don't have those numbers.

Over the last ten 99 2/5/01 FISCAL STABILITY - RES. 010024 years?

I don't have those numbers with me.

Has it grown --

I could get that.

Has it grown percent in the last 10 years on average? Has it grown 3 percent in the last years on average? 10

I mean, that generally sounds right to me, but I don't know and I don't want to give you a number and then --

How has it grown between last year and this year percentage-wise?

Between '00 and '01? The expenditures actually -- in some ways, '01's a bad year to look at because we have all of the bonuses. So the growth this year looks like almost 10 percent. Now, if you look at next year, it's actually going down a little 'cause the bonuses come out. What you'd really have to do is -- (Unintelligible, parties talking over each other.)

What? 100 2/5/01 FISCAL STABILITY - RES. 010024

How about '01 and '02?

'01 and '02 actually goes down.

What's the percentage (indiscernible). I'm not looking for --

Almost zero. I mean, it's million out of 3 billion, so it's going down 11 marginally. 12

So would I be off-base by asserting that on an average, percent a year, percent a year, 3 to 5 percent a year?

I just know. I don't want to tell you something and be wrong.

The end question here is that at some point in time, don't we have to say that this budget is going to be the same as last year in the raw number, and then we try to figure out a way to live within that budget? As opposed to assuming that there's going to be an ongoing increase every year of 3 percent? For argument's sake. 101 2/5/01 FISCAL STABILITY - RES. 010024 I mean, at some point in time, don't we have to figure out a way to deal with the dollars that we have now as opposed to continuing to expand those expenditures in the face of a decreasing tax base? We lost 20,000 people just last year.

But we build our budget based on our revenue projections, so we do live within our means. And that's why -- you know, that's how the surplus has built up over time.

But does not that fiscal discipline imposed upon ourselves, either through a mechanism like a rainy day fund or a zero growth fund budget approach, require us to view and look at the services we provide in a different way? I mean, at some point in time -- I mean, you know -- and I think you'll agree that over the last eight years of unprecedented national economic growth, the City has barely benefitted in comparison to other areas of the economy, that we should be and, again, have been preparing for what might be coming over the horizon that you've alluded to in your 102 2/5/01 FISCAL STABILITY - RES. 010024 presentation. Rather than spending the to percent on increasing size of the budget in the last few years, should we not have been putting that away and also trying to figure out a way to spend within a zero-growth budget?

There are a couple of things. In essence, we have been putting away, and that's why we have the $295 million fund balance.

(Inaudible.)

But your other question, which I want to get to --

I don't know if we're at that number or not.

Yes, we should always be looking at the way we provide services and which services we provide and to ensure doing that we're doing that in the best way and the most cost- effective way possibly. And our goals should always be to do more with less.

Well, I would argue that if the budget's getting bigger and the workforce is staying the same size and your 103 2/5/01 FISCAL STABILITY - RES. 010024 customer base or service -- the people that you serve is getting lower, at some point in time, that's going to be a formula for disaster. And I don't know whether or not it's -- hopefully, it's, you know, not next year or the year after, but at some point in time, unless something gets reined in in some way, there's no business or government that can exist in the current way it's going.

I -- I agree with you. The only thing I would say is that we just have to differentiate between the number of people here and our tax base, 'cause our tax base has actually been growing. But I mean, I --

How does that jibe with the loss of 200,000 people?

I guess it's that jobs have started to grow over the last several years, and the wages for those jobs have grown faster than costs. But that's still -- I mean, that doesn't contradict your underlying point, which is, we really consistently have to look at the way we do business to make sure we're doing it the best way possible. 104 2/5/01 FISCAL STABILITY - RES. 010024

Our fund balances -- we had this question the other day but no one -- I don't think anybody in the media covered it, our rainy day fund here, which was, I thought, very interesting and very enlightening, but it wasn't, I guess, as sexy as District Attorney Abraham's announcement. What is our fund balance now?

Now?

Today?

The way we do our fund balance is, since we accrue revenues and accrue expenditures, we don't have, a you know, a December 31st fund balance or a February 5th fund balance. We look at it at year-end. At the end of '00, it was 295 million, and we're projecting that in this plan that at the end of '01, it will be 151 million.

Wouldn't there be some benefit to a required percentage of that fund balance in any given year or a required percentage of the actual budget that's being proposed be set aside in a fund that would be virtually impossible to touch by any of us in government, with the 105 2/5/01 FISCAL STABILITY - RES. 010024 exception of extremely dire economic situations that would trigger the ability to go into that fund for withdrawals?

There are a few benefits. One obviously imposes an additional fiscal discipline on us. It gives us an additional cushion in bad times. And third, as we heard last week, it helps in the eyes of the rating agencies and our financial overseers.

Okay. Just one more comment, and this will be the end of my questioning in this particular period. And I know that Councilmember Blackwell and Councilmember Cohen made comments in reference to the Gas Works, and I certainly respect their opinion. This individual Councilperson's opinion is that unless we are earnestly trying to sell this utility today, we are wasting time, because the length of time that we're going to try to anticipate using to stabilize, quote/unquote, stabilize this company, and the money that we're going to be required to spend out of our General Fund revenues -- 'cause I think the $45 million is lost. It's my opinion, I may be shown to be 106 2/5/01 FISCAL STABILITY - RES. 010024 wrong, but I do believe at some point in time in the spring, the Administration will be back again asking us for more money. This utility is not -- because of its abuse, not by this administration, but by governments over the past 30 years, is not retrievable. It is bankrupt. And unless we stop wasting time in dealing with its sale, not only will it cost the taxpayers more money in the near future, but we're going to have less of a value of an asset to sell when we finally come to the realization that no matter what we do, this governance scheme, the layers of government that gone on top of this utility for years have kept it from being able to respond in any way in an industry standard compared to any other energy utility throughout the country. Now, people say, you know, we run the Water Department pretty well, and we do. I mean, Commissioner Kischinchand and Acting Commissioner Roy and the people at Water Revenue, I think, have done a very good job. The difference between a water utility and a gas utility is that in the northeast part of this country, water is not 107 2/5/01 FISCAL STABILITY - RES. 010024 necessarily a problem commodity. Gas, however, in responding to the gas needs and the changes in the gas industry, this utility, under current control of the City government, has not ability to respond, virtually no ability to collect its bills, and virtually no 8 ability to serve its companies the way it should. And my only advice at this point in time is, we should be sitting with someone, whether it's a proposal, whether it's a negotiated sale, whether it's a bid, whatever it is, there is value left to this company, and the biggest part of its value is its half a million customers. It's about -- that and the (indiscernible) planner are probably the only two things that this company has left that's worth anything. And I think the longer we delay, the more expensive it's going to be and the less we're going to get for it in the end, and the less the taxpayer and ratepayer are going to benefit from any potential sale. That's just an editorial comment, and I'd just like to have it on the record. Thank you. 108 2/5/01 FISCAL STABILITY - RES. 010024

Thank you. The Chair recognizes Councilman Clarke.

Thank you, Madam Chair. I -- I have a couple questions, but before I do, I just wanted to add to Councilman Kenney's reference to our loss of population. I represent a district that is -- has the extreme, so to speak. In the Center City portion of the district, it is the only place in the City of Philadelphia where we have increased population. I represent parts of North Philadelphia where there has been a massive exodus over the last 10 to 20 years. And I think when we do an analysis of that, there is no rocket science associated with the reason why that has happened. In Center City, the quality of life has been enhanced considerably. We have a special services district now here, we have a job growth, we have probably one of the best elementary schools in Greenfield in the City of Philadelphia. So when you look at those things, you can get a sense of why we have 109 2/5/01 FISCAL STABILITY - RES. 010024 this great population increase in Center City. So I guess as we move ahead, I just want to say to the Administration and to Councilmembers, 'cause there is a partnership as it relates to this neighborhood transformation program, that we look at Center City in some degree and use that as model for transforming parts of North Philadelphia so we increase the educational opportunities and increase the quality of life up in those communities, and the job creation aspect of it is very important to us as we move ahead. But getting to my questions, I guess, Miss Wilkerson, if you recall, last year, when this whole issue with respects to PGW came to bear, there was a request for a rate increase and a loan. And at that time, I had talked to the Administration about a transfer ordinance that I was interested in introducing that would transfer approximately a million dollars to OHCD so they could contract with UESF to allow some resources to go to those individuals that make 150 percent of median income, which is the highest rung in terms of eligibility. 110 2/5/01 FISCAL STABILITY - RES. 010024 And I was kind of talked out of that, and I forwarded a letter and asked that that be acted upon, and I was given the impression that there was going to be something done administratively as it relates to that additional revenue in terms of support services.

Councilman, I'm sorry.

Are you not hearing?

I don't think the stenographer can hear you. I can't hear you either.

You're not hearing me? Where did it leave off.

Would you talk into the mic.

Okay. What part did you not hear? And as you recall, Miss Wilkerson, we had the discussion and subsequently, I forwarded a letter to the Mayor requesting that this be done in an administrative action. And can you give me the status of that, and if you don't have the 111 2/5/01 FISCAL STABILITY - RES. 010024 status of that at this point, can you let me know at some point in time where we are with that request?

Yeah. I'll get back to you. While you were out of the room, we talked about it briefly, you know, that there are two things. Individuals were interested in using part of the $18 million. The cost of gas has increased dramatically since you last proposed some kind of increase. We're talking with some legislative representatives from Harrisburg who are also interested in trying to look for -- for possibly using State funds as a way of trying to support that population group that doesn't qualify for CRP. But I will get back to you in more detail with exactly how we might proceed.

Thank you. Mr. Dubow and Ms. Davis, with respects to revenue projections, I've heard a lot of testimony as it related to that. One of the things I wanted to ask you about is this issue of economic development and revenue projections as it relates to economic developments. 112 2/5/01 FISCAL STABILITY - RES. 010024 If you recall, over the last several years, we've instituted a couple of programs. One is the Tax Incremental Financing Districts, and the other recently is the KOZ, the State- authorized development opportunities. And my question is, particularly on the TIFs, in your revenue projections, do we take into account what we are being told here, and every time we have a hearing, the potential for additional jobs, the increased revenue associated with those jobs, sales tax, sometimes U&O, and sometimes real estate. Do we take that into account when we project these revenues? And what stage in the life of the TIF program, if we in fact do, do we take that into account?

Unless it was a very big project, we probably wouldn't specifically build it into our projections, but we look in general at what TIF projects have done. So I don't think you'd be able to say that this project meant this to our revenue projections. But en masse, they're accounted for.

All right. En masse? I don't understand that. 113 2/5/01 FISCAL STABILITY - RES. 010024

If you grouped all of the TIFs together.

As an example, right now, it's my understanding, I think we have between and TIF proposals, and I think only 7 maybe 5, 6, 7, 8 of them have actually been 8 implemented. I think two of them right now, to my 9 knowledge, are under construction -- the 15th and 10 Spruce and the Filbert Street Garage development. 11 It's my understanding we'll include some 12 additional retail developments. And those are, I 13 guess, mid-range as it relate to TIF. But the 14 fact is that they are under construction, and 15 there was a lot of discussion about the additional 16 revenue that will be created. 17 Do we calculate those to that level of 18 specificity as it relates to -- 19

Not at that level of 20 specificity, but what will happen, for example, is those will have an impact on the level of construction activity. And one of the things we look at in developing our projections is what's going on with construction. So it wouldn't be that the specific project in itself would be in 114 2/5/01 FISCAL STABILITY - RES. 010024 our projections, but its impact on construction would be.

What about a larger one, such as the waterfront, the Simon-DeBartolo -- well, Simon now -- project? I mean, that's as substantial as -- what was it TIFed up to, like $70 million, I believe?

I think that's right. That's also not specifically in our numbers, but again, in looking at where the economy's going over the next several years and looking at what we think will happen in hospitality and tourism, one of the things that we factor in is the fact that that project is likely to come on board. And, I mean, it's the same theory looking at the tax abatement strategy or the KOZs. For each of those, I mean, assume that they'll have some impact on the economy in general. So it's one of the things in getting to like a 3.25 percent projection for the wage tax. We're assuming that there will be job generated from these projects.

So I guess you're saying that those projects are too speculative to 115 2/5/01 FISCAL STABILITY - RES. 010024 include -- to incorporate them into --

To do each one, that's right. And on the other side, I guess, you'd say that when we take a TIF for the abatements, we also look at what they do to the real estate tax.

Right.

So that, you know, one of the reasons that's not growing more robustly is because we know we're giving some of that up.

Right.