COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FISCAL STABILITY AND INTERGOVERNMENTAL COOPERATION - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, October 21, 2008 10:20 a.m. - - - PRESENT: COUNCILMAN DARRELL L. CLARKE, CHAIR COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN CURTIS JONES, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN MARIA QUINONES-SANCHEZ COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILWOMAN MARIAN TASCO RESOLUTION 080603 - Resolution authorizing the Committee on Fiscal Stability and Intergovernmental Cooperation to hold hearings regarding the City's Operating Budget for Fiscal 2009. - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2
Good morning. This is the Committee on Fiscal Stability and Intergovernmental Cooperation. We have a quorum present. On my left we have Councilman Brian O'Neill. On my right we have Councilman Frank DiCicco, who is the Vice-Chair of the Committee, Councilman James Kenney, Councilman Wilson Goode and Councilwoman Joan Krajewski. We also have present Councilman Bill Green. I'll make a brief statement and then we'll proceed with the witnesses. The Committee on Fiscal Stability's role has been expanded under the new rules upon the new reorganization of the City Council of Philadelphia. One of the things that the Council President requested, that we have periodic budget briefings. The thought was that our ability to have a better handle during the course of the fiscal year would enhance our ability to make the 3 10/21/08 - FISCAL STABILITY - RES. 080603 appropriate decisions once we enter into our annual budget process. We earlier had anticipated, upon working on the scheduling of this particular committee hearing, that we would essentially deal with the status of the various departments. Unfortunately, we have been met with somewhat unpleasant news obviously on the national economy and it has filtered down to the local economy to a significant degree. So rather than us having the status of the various departments, because they probably are going to change over the next several weeks, we asked the Administration to come in, and they have concurred, to talk about our problem. I know a lot of people have been reading in the newspapers and other accounts the level of the problem in the City of Philadelphia. What we wanted to do was get into more detail to talk about the levels of specificity of how we got here. Today we will not talk about how 4 10/21/08 - FISCAL STABILITY - RES. 080603 we're going to get out of here. I believe there will be a number of statements from some of the members, both on the Committee and Councilmembers who are present, to talk about some of the initiatives that may be forthcoming. What we would like to do, because we have a rather lengthy -- by the way, Councilwoman Blondell Reynolds Brown is also present. We have a rather lengthy agenda. We would ask that most of the -- or pretty much all of the individuals testifying limit their statements, because there will probably be a significant number of questions. So with that, Mr. Carter, will you please call the first witness.
Rob Dubow, Finance Director. Steve Agostini, Budget Director. (Witnesses approached witness table.)
Good morning, 5 10/21/08 - FISCAL STABILITY - RES. 080603 Chairman Clarke and members of the Committee. Thank you for having us here today. We appreciate the opportunity to give you this update. My name is Rob Dubow. I'm the City's Finance Director, and I'm here with Steve Agostini, the Budget Director. He is going to walk you through a presentation and then we'll be happy to answer your questions.
Mr. Chairman, members, good morning. Steve Agostini, Budget Director.
I hope that all of you have copies of the presentation, and I'll try to walk through this quickly, but try to be clear. And if there are questions after, I'm more than happy to walk you through them. I would ask you to turn to of the presentation, which is really the sort of first page of substance in the presentation. 6 10/21/08 - FISCAL STABILITY - RES. 080603 When we began the deliberations for the 2009 budget, the underlying economic forecast that we used were from the Congressional Budget Office, which at the time had been projecting relatively modest growth and a small drop-off in economic growth in the national economy for 2009. In addition to using those forecasting estimates, we also then constructed our own forecasting models and tried to consume as much information at the time about underlying economic trends, because we were somewhat concerned that there was a slowing of the economy that was beginning at that time. And as you can see in the chart on 2, we then checked those estimates versus the Federal Reserve estimates that came out just after we had presented the budget to you in January, in February of 2008, and those estimates are in the chart. The original CBO estimates are 7 10/21/08 - FISCAL STABILITY - RES. 080603 in green. The Federal Open Market Committee, which is the rate-setting committee for the Federal Reserve Board, had two estimates. They had a low end, which is represented in orange, and in the yellowish bar, their high end, and as you can see, the Congressional Budget Office estimates fell within that range. On of the presentation, while we did use economic estimates from a variety of sources, we also thought it would be prudent to go and walk our estimates through with individuals in the local area who had some familiarity with the economy, had some sense of what was going on. And so we talked to the Pennsylvania Economy League, Pennsylvania Intergovernmental Cooperation Authority, who at the time told us that they thought that our estimates contained in the FY Plan were indeed reasonable. And what you see on the chart to the right on that page are those estimates that were included, and as you can see, with the 8 10/21/08 - FISCAL STABILITY - RES. 080603 exception of wages in 2010, they were all at or below inflation, which we were estimating at the time to be about two and a half percent for the metropolitan area. It also should be noted that wages and the business privilege tax, BPT, also included a schedule for rate reductions moving over the life of the Plan and is why in the first year you see the wage tax number below zero and in the out years the BPT numbers grow at one and a half percent or less than that. S. economy and for the international economy, that it was important to be cautious about moving forward. And we made some cautionary statements. We included them in the Five-Year Plan. We also provided them in testimony to the Council as it was deliberating. And what 9 10/21/08 - FISCAL STABILITY - RES. 080603 we said at the time is that all of the estimates in any of the Plan components were subject to changes that we could not foresee and could not capture that would unfold in the economy if indeed there was a recession that began over the life of the Plan and particularly in the first years. In addition, we also cautioned that because we lacked the final business privilege tax numbers, since they did not come in until April and May of 2008, that we would also be at risk if those numbers proved to be soft or did not meet our target estimates that we had included in the Five-Year Plan. And, finally, we also mentioned that at the time we were somewhat concerned about the potential for market turmoil, creating a situation where moving forward with the pension obligation bond that we had proposed as part of the Five-Year Plan would be difficult, as well as any other impacts 10 10/21/08 - FISCAL STABILITY - RES.
080603 that might be generated from that, most notably with pension earners and the impact on our pension payments. Moving to , before the introduction of the Five-Year Plan, we also lowered revenue estimates to reflect what were at the time deteriorating economic conditions. Most notably, we made an adjustment to the real estate transfer tax and reduced that number by approximately six percent to 12 million, because the information we were seeing at the time with respect to transfer taxes suggested that the numbers that we had originally built into the Plan would not be sustained over the first year of the Plan and in subsequent years moving forward. We also, as part of the final deliberations on the Five-Year Plan, made an adjustment to the savings we anticipated for the pension obligation bond and made the recommendation that the savings not be counted for FY09, that 11 10/21/08 - FISCAL STABILITY - RES. 080603 those be delayed until FY10, which shortened considerably the savings that we thought we would generate, but we thought it was prudent at that time, given what was happening in the markets. Moving to , in late August of 2008, about 60 days after the close of the fiscal year, it became clear to us as we were in the process of closing the books for FY08 that a number of the receipts, while performing well, some of the receipts had not come in as we expected, some of the tax sources. Real property, sales, parking and amusement taxes had come in at or above the target budget levels for FY08. 8 million, which is about a $39 million drop below the target of 438 million that we had in the budget. This is approximately a nine percent 12 10/21/08 - FISCAL STABILITY - RES. 080603 drop. Despite dramatic growth in the BPT through FY07 that you will see in the chart following, we did think that the BPT numbers that we should include in the Plan should be at nominal, if any, growth moving forward. However, that experience proved to be worse. In addition, the wage taxes have now proved to be slightly less strong than we had anticipated and they've come in slightly below our estimates. And if you would turn to 7, you can see a chart displaying that, where our wage taxes have come in slightly lower, but as you can see, the BPT numbers are significantly lower. On , there's actually an illustration of the growth rates associated with that, and I should say that these numbers have been so volatile and dramatic that the number actually there for FY08 Actual Collections for BPT should say nine percent. It's not the 13 10/21/08 - FISCAL STABILITY - RES. 3 percent. And as you can see, we had a peak of activity in FY05 for BPT, but that has now reversed itself dramatically, and the growth rates that we had included in the Plan for and 8 were less than one percent, and for 8, 9 even that very conservative assumption proved to be incorrect. Moving to , in addition to the results for BPT, we've also now experienced market downturns. Now, these market downturns are not inclusive of what has happened in late September and early October and the extraordinary times that we have now witnessed in the equity and credit markets globally. The market downturns through FY08 have reduced our pension earnings substantially. 7 percent, 14 10/21/08 - FISCAL STABILITY - RES. 080603 which is in stark contrast to the 17 percent increase that we experienced for FY07. And, as I said, these losses do not reflect the extraordinary market losses that we've seen in the beginning of the month. And because of these changes, we've made some additional changes to our savings on the POB, now suggesting that those savings may not materialize until FY11 and that they will be reduced from the original $50 million level that we had included in the Plan to something closer to 35 million in the last three years of the Plan. And if you turn to , you can see an illustration of those market returns.
And what we've done here is, we've included benchmark estimates, what we sort of rate ourselves against. 2 percent. 15 10/21/08 - FISCAL STABILITY - RES. 080603 Moving to , as you know, the Mayor on September 11th announced that just these two items, the business privilege tax impact and the market downturns, created a situation where we were looking at a $450 million shortfall for the balance of the FY09 through '13 Plan. Two-thirds of that was approximately due to the BPT revenues coming in at less than we anticipated, and about a third of that, about 150 million, the result of what we anticipate to be increased costs for our minimum municipal obligation to the pension system, as well as changes to the savings assumptions associated with the pension obligation bond. And at the time, the Mayor suggested that the economic outlook at that point, in September, suggested that the situation could get worse, and what we quoted at the time were reports from the September 3rd Federal Reserve Bank review of economic conditions for the 12 district banks, what's known as 16 10/21/08 - FISCAL STABILITY - RES. 080603 the Beige Book. And at the time, we were saying that the national economy was softening and that the Philadelphia economy, one of the districts of the Federal Reserve, was indeed showing softness in a number of areas of economic activity. On , as you know, we then -- the Mayor then, subsequent to that announcement in October, made a second announcement saying that based on the information that we had and based on what we were seeing in the market turmoil at the beginning of the month, that our view was now that the change in that shortfall had moved to a range of between 650 and 850 million. The primary causes of that were the original 450 million that we described on September 11th, as well as further losses that we were beginning to see in our existing taxing sources. Most notably, our transfer tax, real estate transfer tax, was, through the first quarter of FY09, performing at 17 10/21/08 - FISCAL STABILITY - RES. 080603 almost nine percent less than the budget projections and we were beginning to see a slowdown in sales taxes, which through September 30th of this year, the first quarter of FY09, was about two percent less than we had anticipated. In addition, we were saying at the time that we had increased concern that the emerging recession would be severe and result in further revenue contraction as we moved forward. I thought it would be illustrative to talk a little bit about one of those major taxes. I won't spend a lot of time on this, but I'll try to walk through it clearly and quickly. The FY09 receipts for transfer tax highlight what we're facing with respect to the economy. Our transfer taxes are at significant risk. Through this morning -- we did a check before we came over here. Through this morning we have approximately $6 million in receipts; 18 10/21/08 - FISCAL STABILITY - RES. 080603 that is, through more than half of the calendar month. Our estimates to make our FY09 numbers suggest that we would have to have close to million in real 6 estate transfer tax receipts through the 7 end of the month. It's our view at this 8 point that we will have a very tough time 9 making that estimate. If that's the case 10 and that trend continues for the balance 11 of the year, which is increasingly 12 likely, we are likely to have a rather 13 significant erosion in the transfer taxes 14 for this year. And if we were to then 15 take that out through the rest of the 16 Five-Year Plan, we would see 17 approximately a $105 million reduction just to the base adjustments, not including any subsequent growth projections, to the transfer tax. And what I'd like to do over the next four slides very quickly is walk you through a little more sort of analysis of what's going on with our transfer taxes. 19 10/21/08 - FISCAL STABILITY - RES. 080603 What you see on is a review of what's happened to transactions.
The transfer tax is the result of three items that function in tandem. One is the tax rate, the second is the number of transactions, and the third is the value of those transactions, the actual sale price. This chart shows you that through the last two fiscal years on a quarter-by-quarter basis, when you compare the quarter to the same quarter a year before, we have been showing dramatic drops in the number of transactions that we are recording that form the basis of our transfer tax, with the most notable and most recent experience being almost a percent drop 20 in transactions for the final quarter of 21 FY08, which ended on June 30th. 22 On , we've tried to get 23 a handle on what's happening with prices, and you'll see a somewhat confusing story here. We believe that condominium prices 20 10/21/08 - FISCAL STABILITY - RES. 080603 have actually been climbing over the balance of the last two years, but that single-family homes, row homes, detached homes throughout the City have actually started to show a decline in prices over the last two quarters, with a significant decline in the fourth quarter for FY08. Moving to , while condos are performing very well with respect to the single-family homes, based on the number of transactions, the condos only represent about nine percent of that activity. Ninety-one percent of that activity is the residential single-family homes. And if you then do a weighted price based on that, what you see here is that for the fourth quarter of FY08 prices are actually flat, and that moves in tandem with the Office of Federal Housing Enterprise Oversight indicators for Philadelphia. They have a monthly and quarterly indicator for prices for homes in the Philadelphia region, and their indicator in the last quarter, in 21 10/21/08 - FISCAL STABILITY - RES. 080603 the last couple of months, has actually started to drop for the first time in many years. So, finally, on , what does that mean? Well, what it results in is an actual decline in our receipts on a quarterly basis, with a rather severe quarterly drop for the last quarter of FY08. , where are we today? Where do we think we are today? Current national and international forecasts suggest that the recession has already started. The information that we're receiving from a number of sources, whether that's the Bureau of Economic Analysis, the Bureau of Labor Statistics or other official keepers of statistics, will have a lag associated with them, so there will be some time. I think the most recent information that we received was a loss of about 159,000 jobs for the month just ended reported by BLS at the beginning of October. 22 10/21/08 - FISCAL STABILITY - RES. S. economy on a quarterly basis, as well as the Blue Chip consensus, which tracks about 70 estimates of economic growth, suggest that for FY09 the likely estimate of growth is approximately a half a percent. If you then break that into subsequent pieces or components of that, they are suggesting that we will see contractions in the economy, actual slowdowns in the economy, over the next nine months. And the question now is exactly when that will start and how severe those contractions will be. While the CBO estimates that were released in September -- that's their most recent estimate since the January estimate -- now reflects slower growth, even those estimates are not current, because they do not include any of the turmoil, any of the economic activity that occurred at the beginning of this month. 23 10/21/08 - FISCAL STABILITY - RES. 080603 The Federal Open Market Committee's most recent estimates were from June and published in July. They anticipate releasing new estimates of the economy at the end of this month when the Federal Open Market Committee has its meeting October 30th to set interest rates.
And you can see from the chart on the right the actual estimates have actually declined, and you're seeing that the Blue Chip estimates are down in the blue from 2009 and are now approaching the lower end of the scale of the original Federal Open Market Committee. It's also, I think, important, some of the news that you're hearing, I think the most telling, from my perspective, was a poll that was done by the Financial Times, yesterday's newspaper, with respect to a number of former Federal Reserve Governors, including the Vice-Chairman, Alan Blinder, who is a Professor at Princeton, 24 10/21/08 - FISCAL STABILITY - RES. " Moving to , in addition to what's happening in sort of the underlying growth, there is the issue of what's ensuing and what the impacts will be of additional turmoil in the credit markets. The losses suffered in FY08 that we described for September 11th we believe will cost about $150 million for the reasons that are listed there. Again -- and I can't emphasize this enough -- those impacts were in advance of what happened in early October where we saw some extraordinary and, in some cases, unprecedented drops in the markets. That has had an impact on us directly and immediately. Our interest earnings have now declined, and we believe that that will reduce revenues by about $29 million over the Five-Year Plan. Just to give you a sense of 25 10/21/08 - FISCAL STABILITY - RES. 080603 that, Benchmark Three-Month Treasury rates typically trade in the three to five percent range. Last year, 2007, they were at three and a half. They are almost 350 basis points, hovering somewhere between half a percent and one percent in the last week or two. What does that mean for our estimates moving forward for our revenues? On , we have now adjusted our current revenue forecast as of this month. Using the current Blue Chip consensus economic forecast, we are using a half a percent GDP growth, and that ripples through our estimates of revenues moving forward. 7 percent forecast for national personal income growth for the next year; that housing prices drop, but they only drop by five percent for the next year; and 10/21/08 - FISCAL STABILITY - RES. 080603 that overall the economy performs slightly better in the recession than the nation as a whole. These new assumptions are listed to the right in the box, and as you can see, there's a rather significant decline in our revenues and revenue growth through '09, which has two impacts. One, it adjusts our base downward significantly and leads to lower growth in the out years. The combination of those changes, we believe, has reduced our revenues by approximately 653 million over the life of the Plan. Turning to , we've also been entertaining and looking at alternate estimates. As many of you have seen and read, there's a lot of uncertainty surrounding the economy and its performance. So we've been trying to take a series of sensitivity estimates here to get a sense of what the ranges might be. If you were to make some 27 10/21/08 - FISCAL STABILITY - RES. 080603 significant adjustments to those assumptions, the underlying economic assumptions, and basically suggest that the personal income growth for the City performs slightly worse than the national economy and that housing prices drop by ten percent as opposed to five percent, which is at the low end of the scale for most of the major markets in the United States, and that we perform more or less the same in every other aspect of the economy, the national economy, that we would generate probably another $200 million of losses on the revenue side, and those estimates are represented on the right-hand side in that box. Moving to , as you know, the Mayor provided you with a range early October of 650 to 850 million. We believe we are now closer to the high end of that range. 5 million over the five 28 10/21/08 - FISCAL STABILITY - RES. 080603 years of the current Five-Year Plan. 5 million shortfall for FY09.
It's important to keep in mind that at the beginning of the Plan, we had a surplus of approximately -- a fund balance of approximately 117 million. That means that for the Plan, we've had a $200 million plus change in the first year. Somewhat more detail of that is provided on . 5. Obviously that suggests that we do nothing to correct it, which is not what we are doing, and I'll talk about that in a moment. On , I think the uncertainty that is enveloping any ability to understand what's happening in the economy, any ability to get a good handle, a good grip on what's happening with revenues is very important to 29 10/21/08 - FISCAL STABILITY - RES. 080603 underscore here. This current range may worsen over the coming weeks, if not the coming months. The impact of the credit turmoil is still to be played out. That's another source of uncertainty. The beginning of the worst part of the recession is unknown. It could happen this month; it could happen next month. There is a debate about the length of the recession, whether it will be a short recession lasting two or three quarters or something longer, and in some instances there are estimates that it could be significantly longer than the current estimates. And then we do not know what the impact on businesses and unemployment and employment will be. Prior recessions have offered little guidance. I have gone back to look at the performance of the Philadelphia economy in the 1972, '74, '82, '90 and 2001 recessions, and my sense is that they're going to provide us with very little guidance moving forward, in large 30 10/21/08 - FISCAL STABILITY - RES. 080603 measure because the most severe recession of those in the last quarter century was the 1982 when the City was much more of a manufacturing-based economy as opposed to a service and professional service-based economy that it is today. So it's very hard to gauge what those impacts might be moving forward. On , as you know, the Mayor has stated that the Administration is taking proactive steps to rebalance the FY09 budget. We're not waiting to take action. We are not approaching this with an across-the-board reduction, but looking at reductions in programs, everything is on the table. That includes program reductions, it includes changes in services, and it includes the scheduled wage and BPT tax cuts that have been included in the FY09 Plan. It's also important to note that we are not alone in this. Almost every other major city, state government is facing this. And if you look on 10/21/08 - FISCAL STABILITY - RES. 080603 and 27, we tried to give you a flavor of what other large cities in the United States are facing as they work through this. 2 billion gap and anticipates losing 165,000 jobs. That number has changed dramatically. I think about a month to six weeks ago it may have been half of that number. Los Angeles is anticipating a $406 million FY09 shortfall. Chicago, 469 million. Houston has not announced major budget cuts or layoffs, but they are concerned about oil prices on the economy. Phoenix is looking at a $250 million shortfall and they have provided targets to their departments of between 15 to 60 percent. San Diego on is looking at a $43 million gap. Baltimore has not announced a gap, but they're still going through their projections. Boston has 32 10/21/08 - FISCAL STABILITY - RES. 080603 not announced a shortfall, but is looking at a series of steps and has actually postponed a planned borrowing of $600 million for their capital improvements. Washington recently announced a $131 million gap for FY09, and Atlanta, $140 million gap for their General Fund in FY09. Finally, on , I think it's important to recognize there are two continuing risks moving forward. Economic growth could be worse than projected in this presentation. It's very hard to gauge that at the moment.
And the continued volatility in the credit and equity markets increases pension liability and further destabilizes the world economy, which could have all manner of impacts on us. That concludes my presentation. Thank you, and I'm happy to answer questions.
Somewhat depressing. 33 10/21/08 - FISCAL STABILITY - RES. 080603
I'd like to, first of all, recognize that there are other members present at the Committee hearing. The Council President has joined us, the Majority Leader Tasco has joined us, Councilwoman Blackwell. Councilwoman Quinones-Sanchez has also joined the Committee hearing. I'd just like to ask you a couple of questions, and I know there are a number of questions from members of the Committee. One, first, when we talk about the projected $300 million drop in the BPT collections, is there a particular sector -- because this is somewhat dramatic both in the timing and the scope of the amount. Is there a particular sector that we can look to as possibly having reductions in revenue that we need to be looking at to possibly stimulate that particular sector?
Councilmember, I have not looked at all of the returns. I 34 10/21/08 - FISCAL STABILITY - RES. 080603 actually in the last month and a half pulled the returns for the top 50 payers on the BPT for the last two years to try to get a handle on that. I don't have a good answer. At the moment, I would tell you it looks across the board, but I'm trying to see if there are patterns. And at the moment -- I'll have to do an extract working with the Revenue Department to look at something broader, but at the moment, it looks like it's across the board.
As a result of that, the reduction in wage taxes, is that as a result of the reduction in business privilege tax; therefore, people are probably getting laid off or there's not hiring as a result of that slowdown and, therefore, the wage tax is going down?
Councilmember, one of the things I tried to do was exactly that, to try to match up BPT 35 10/21/08 - FISCAL STABILITY - RES. 080603 returns with wage tax returns, and the mix is a little different. The top 50 wage taxpayers are a little different universe than the top BPT payers. But right now it's hard to tell. The top wage taxpayers are a universe of education and medical institutions, government institutions and a sprinkling of private institutions, and in some cases, particularly in the privates, you are seeing lower returns to us on the wage tax side. And so we've been watching that. It's not dramatically lower, but it's slightly lower on a quarter-by-quarter basis. So we're trying to watch that, but we'll have to do a little more analysis to get in depth on that.
Are you making any assumptions for the possibility of other government entities, particularly the state reduction in revenues to the City of Philadelphia, in your assumptions as we move forward? 36 10/21/08 - FISCAL STABILITY - RES. 080603
Councilmember, as we have been looking at our plans to try and address this particular shortfall, we have kept front and center the prospect that the federal government is looking at a sizable increase in its budget deficit, as is the state government, and that that will have an impact on a range of payments to us, most notably in the medical and welfare -- health and welfare area. We're particularly sensitive to medical assistant payments and Medicaid payments and how that will roll down. We don't have any hard data to estimate what that is, but we are trying to plan somewhat for that, but it's been difficult. But you're absolutely right. If they make reductions at their level and that rolls down to us, this will be significant.
One last question before I turn it over to the Committee members. In the earlier 37 10/21/08 - FISCAL STABILITY - RES. 080603 testimony -- and correct me if I'm wrong -- at the budget hearing you talked about -- I think we had this conversation about some concerns about the projections, that we use essentially the Congressional Budget Office indicators. Are we now not going to do it? Are we going to use a more conservative indicator, since apparently they were a little optimistic, more optimistic than we should have been?
Well, I think in fairness to them, I think they and everybody else were a little optimistic, because I think the Federal Reserve in their estimates actually produced a range that had higher growth estimates for GDP. But your point is well taken, and to that, what I am pulling currently are International Monetary Fund estimates that are done quarterly, the Organization for Economic Cooperation Development, which also includes a forecast for the United States. Those are also done 38 10/21/08 - FISCAL STABILITY - RES. 080603 regularly. We have subscribed to Blue Chip economic indicators, which has 70 of the top forecasters in the United States and they produce a consensus forecast. I'm looking at the Congressional Budget Office estimates that were produced in September. And, quite frankly, I'm looking at our receipts, along with my staff, particularly my Deputy, Peggy VanBelle. We're looking at that daily, because we're trying to get a good handle on what's happening.
I'd like to say good morning, but it doesn't sound like we're having one. A couple of things. One, a lot of people, including yourself, suggest that Philadelphia may be a bit different in receiving some of this downturn from the recession based on us being now a service economy as opposed to an industrial economy. I've had a couple of 39 10/21/08 - FISCAL STABILITY - RES. 080603 meetings with large institutions in my district, major employers, schools that really don't want to go on the record today about the nature of their problem, but some of the things that we can anticipate is that they are going to be impacted, based on the fact that one institution lost close to 30 percent of its portfolio, 30 percent, and are negotiating with the holders of their stock portfolio to try to reduce some of that, if in fact they stay with them. Donors, givers, people who provide scholarship information are already alerting them that there will be a reduction in their giving and, therefore, the amount of scholarships that will be available to young people and, therefore, the amount of slot seats available within their institutions, which means reduction in staff and reduction in wage payers to our coffers. So even though we are an industrial economy, the pebble that hit 40 10/21/08 - FISCAL STABILITY - RES. 080603 in the center of the pond will ripple differently on the City, but may ripple and -- have you had any discussions with these large institutions yet?
Councilmember, that's a very good point, and, no, we haven't had conversations, but I'll tell you, Finance attended a roundtable with the Federal Reserve hosted by the Pennsylvania Intergovernmental Cooperation Authority this past Friday and there were economists from a number of the large economic and government data sources in the Philadelphia area, and we had a conversation about this particular thing, which I think is particularly pertinent given a Business Week story that has run in the last week or so suggesting that Philadelphia, because of its concentration of medical and educational institutions, is somewhat, quote/unquote, safe from the recession. We have concerns about that for the very reasons that you have described in terms 41 10/21/08 - FISCAL STABILITY - RES. 080603 of endowments have been -- I can't think of a better word -- hammered in the last couple of months. That will put pressure on the ability for those institutions to continue their plans. And if there is indeed a rollback in terms of federal support for Medicaid, medical assistance and that range of institutions' income streams, then it's conceivable you will see some contraction in the hospital sector here. So I think your point is well taken, that we need to be cautious in watching those sectors, because if we have some difficulty there, we'll notice it.
So at some point are we going to have a roundtable with some of our larger non-profits to find out how it will trickle down to them?
The second 42 10/21/08 - FISCAL STABILITY - RES. 080603 question I would have is, I saw the largest welfare check ever issued to Wall Street recently. Is there going to be a re-thinking of CDBG allocations for urban areas, and has there been discussions with our congressional delegation about whether or not in fact there would be relief coming from Washington or parts nationally?
Councilmember, I'm not aware of those discussions. I do know that part of the economic plan that Senator Obama has mentioned included two potential forms of assistance to state and local government. One was sort of a lending facility; another was some form of an aid package. I've been trying in the last week or so to get further detail, but I don't have that now. But with respect to discussions with other congressional representatives, I'm not aware of that.
Okay. So as we brace ourselves, we need to kind of 43 10/21/08 - FISCAL STABILITY - RES. 080603 coordinate the relief effort almost as if this were Katrina or something like that. So from the federal standpoint, if there is going to be some relief, we as a municipality need to be figuring out that option as well.
Finally my question would be, as we look to the bond markets for capital and as those markets seem to be less healthy than they were three months ago, can you tell me a little bit if in fact, for example, the Youth Study Center, which I understand was relying on some dollars, bond dollars, bond proceeds, to do the new facility, somewhat in the neighborhood, I'm going to guess, 98 million, was it? How is that impacted and does that impact the timetable?
There are three issues that we're looking at over the 44 10/21/08 - FISCAL STABILITY - RES. 080603 next few months. One is the new Youth Study Center, one is borrowing for our basic infrastructure needs, and the third is our cash flow borrowing. Each of those could be affected by what's going on in the market in one of two ways. One is if the markets stayed frozen like they have been over the last month, we may not be able to borrow at any rate. So we may have to push back when we do those issues, which could create a severe cash problem for us. The second and what looks more likely, given what's been happening in the market more recently, is that we would be able to issue those, but at a higher rate so that our costs would be higher. So that's probably the more likely scenario, that we would get hit with higher costs for our borrowings.
Thank you, Councilman. 45 10/21/08 - FISCAL STABILITY - RES. 080603 Councilwoman Brown and then Councilman Goode.
Mr. Chairman, I have a meeting in my office. Could I be allowed to ask a short question first?
Thank you. Just a short question. In the Budget and Brief for Fiscal Year 2009, on you talk about initiatives, snapshot, what's new in the Plan for 2009. How will all that you've presented today affect these new programmatic plans and investments?
We are going through a process of trying to figure out how to keep our Five-Year Plan in balance with all of the things that are happening 46 10/21/08 - FISCAL STABILITY - RES. 080603 to the economy, and as part of that, we're reviewing everything that we do, all of our expenditures, all of our revenues to try to figure out how to get ourselves back into balance, and literally everything that we do and everything on that page is on the table for changes because of what's been going on with the economy.
Thank you. Thank you, Mr. Chairman, and thank you, Councilwoman.
I'd like to follow up, if I may, on Councilman Clarke's question regarding the reality that there will be reductions coming from the state, and I'm curious to know what plan of action does the leadership across government have in mind with regards to 47 10/21/08 - FISCAL STABILITY - RES. 080603 bringing employees along and helping them understand that some of the decisions that are forthcoming may have little or nothing to do with the City's financial state but in every way tied to financial decisions happening at the state level?
In the process, Councilmember, in the process of looking at our options, we are trying to gauge where we might have to be if we receive a significant reduction, and I will tell you that that planning process is still early. We're still looking at that. Because we don't know -- and I don't think the state or the federal government know, to be honest, the size of their particular problems, and ours could shift depending on what they do -- it's really hard to gauge that now. But I think your point with respect to information to employees and communicating what's happened and how some of this is -- how most of this is part of a much larger picture that is 48 10/21/08 - FISCAL STABILITY - RES. 080603 national and global has to be done, and we'll take that back.
That's precisely my point, because just as we have informally in our offices asked questions and not been sure, this grid really presents a picture in a real tangible way that at some juncture down the road, I'm of the view that employees deserve that same level of consideration. On you talk about and you say everything is on the table, including program reductions, changes in services, and I recognize that this is a work in progress, so if you're not ready yet to elaborate on that, that's well understood. Might you have a formula that you've discussed that will in some way drive how you make decisions in those areas or some strategy that you will use so that there's, in some ways, equity across the board in how you proceed with program reductions and/or change in 49 10/21/08 - FISCAL STABILITY - RES. 080603 services?
Councilmember, in the process that we have been engaged in for the better part of two weeks, maybe a little longer than that, we've actually taken up that specific question about the equity of what we're doing and the impacts across, and I'll tell you that right now we're in the process of trying to gauge what that is for some of the proposals. We're sensitive to it, very sensitive to it. We are also very sensitive to the fact that we have to balance that with also trying to balance this budget, and that's proving challenging, and you understand that. So we're cognizant of that. We're trying to factor that into the changes that we're making in services and reductions or that we're proposing to make in programs and services, but it's not finished yet and we're still going through it.
Okay. 50 10/21/08 - FISCAL STABILITY - RES. 080603 Lastly, you say on one of these pages we cannot look to recessions in past years. We can look to best practices in other municipalities of similar size to see how they are approaching what is a universal national problem. So where is that in the thinking of the leadership across government?
Councilmember, we have canvassed and are continuing to canvas pretty much every one of the top 25, 30 cities in the United States. The list that I showed you here, those two pages --
-- we actually have a much longer list consisting of what they are actually doing in terms of the size of reductions, the type of reductions, the number of changes to their services, to employees. We have a very lengthy list, and not surprisingly, it runs the spectrum of options. 51 10/21/08 - FISCAL STABILITY - RES. 080603 So we're keeping -- and we're looking to see what other places are doing, and in the meetings that we're having, if you were there, you would see us asking questions like, Well, what is this city doing or what are other cities doing or what have other cities been doing in this. So we're trying to stay on top of what our colleagues, if you will, are doing across the country.
Thank you for your testimony. Thank you, Mr. Chairman.
Thank you, Councilwoman. Councilman Goode and then Councilwoman Tasco.
Thank you, Mr. Chairman. Let me first commend the Chairman for his new focus of this Committee. I think it's not only timely in terms of the crisis right now, but actually reviewing the budget several 52 10/21/08 - FISCAL STABILITY - RES. 080603 times a year I think actually would be helpful to both the Administration and Council and the constituents and taxpayers. Over my years here, I have often become frustrated by the fact that we see departments for only one time a year and they come here and testify for an hour or two or more and then they're gone, and at the end of the day, our oversight is somewhat gone, except for holding hearings, but in all actuality, most of our oversight is gone within that one- or two-hour budget hearing. With that being said and the fact that this Committee will review budgetary and fiscal responsibility matters more often, we don't know how many twists and turns this economic crisis is going to take, because it's a global economic crisis. But aside from review and aside from hearings, I don't think we want to be in a position where we're making, quote/unquote, major decisions too many times over the next 15 53 10/21/08 - FISCAL STABILITY - RES. 080603 months. We would make those decisions as often as needed, but how many times do you anticipate our having to make major policy decisions over the next months? 6 I ask that because of the high 7 level of anxiety that all of us are 8 feeling and the fact that we should not 9 have to come back and revisit decisions 10 because, to be blunt about it, those 11 decisions were not tough enough. 12
I mean, our goal 13 obviously is like yours, to limit the 14 number of times we have to do that. We 15 are trying as we go through this process to actually go beyond the 841 and a half million dollars that we've showed you today, because we think like you, that it's going to get worse. So we're hoping that it's not -- we don't have to do this again in a month. I can't say that we won't have to do it again over the next year and I can't say if there's some sudden surprise three weeks from now that we won't have 54 10/21/08 - FISCAL STABILITY - RES. 080603 to come back, but we are trying to avoid that.
I won't mention the scenarios under which it might happen, but we won't be coming back four times hopefully.
I mean, we will be coming back. I thought what your question was, when we come back to do the Five-Year Plan, for example, will most of the things that are painful choices have been made now as opposed to then. That's what we're trying to do.
For example, we're in a fiscal stability hearing now, which is part of a new process for this Committee. We will have a budget process that will include the Five-Year Plan. Beyond that, there are other decisions that must be made that are major decisions that affect this city. I can anticipate that it may require a third time. So the question is, what are 55 10/21/08 - FISCAL STABILITY - RES. 080603 you foreseeing in terms of process for us outside of this Committee process in terms of how many times we'll revisit this issue?
Well, I guess there are a couple answers. One is, obviously there's the budget process. There's this Committee process, which I think we've talked about doing every quarter. So we'll at least keep you up to date every quarter. And then the other part, which is less easy to predict, is when there are substantial changes that require modifications to our Plan, we would come back to you and we'd want you to be apprised of that and be involved in those processes. But because of what's going on in the economy, I can't give you a number of whether that's one time or two times. I mean, we're obviously hoping to limit that, but I don't think that we know that answer.
56 10/21/08 - FISCAL STABILITY - RES. 080603 Councilwoman Tasco.
Oh. Councilman Green stepped out for a moment, so I'll take advantage of the moment. We -- I won't say we, but the Administration has negotiated contracts with the municipal unions, one-year deals, and we will shortly -- and I'm assuming that there are ongoing discussions about the longer-term contracts. In your assumptions and your projections, has any of that been factored into your Five-Year Plan as it relates to any potential increases in benefits or increases in wages or decreases in both of those?
I mean, what we did in this year's Five-Year Plan which was different from earlier plans is, we actually included a number for what health and benefit increases would cost 57 10/21/08 - FISCAL STABILITY - RES. 080603 over the five years, and that number is about $400 million. So in kind of our base case, that's the assumption we have for increases.
That was based -- no. That was based on what we thought we would do over the five years.
Right. We have not -- in looking at our base assumptions, we haven't changed those projections.
And in those -- and I know you don't want to talk about negotiating in this particular forum.
Let me try it a different way. In terms of the one-year costs of the contracts, they came in right around where we had budgeted them. So we haven't modified, in looking at our 58 10/21/08 - FISCAL STABILITY - RES. 080603 base here, we haven't modified that yet.
Okay. So I'm trying to ask this question without telegraphing your union negotiations.
But there is -- and I'll put it to you like this -- there is a concern by members of the rank and file City employees based on a number of things, history, based on some of the reports we hear in the newspapers, that the way you cut expenditures in government -- and this happens throughout federal, state, municipal -- is that you reduce your employees or reduce your employee benefits, and I believe we actually have a couple of representatives from the unions here today to voice some concern with respect to that. So if you're saying here today under the current scenario that -- and I understand that this is a very volatile situation under the current projections 59 10/21/08 - FISCAL STABILITY - RES. 080603 that you have before us -- you're anticipating holding forth what you had earlier projected.
The projections you show show the size of our gap. Those projections don't change our $400 million assumption. But these are the projections before we take any corrective action.
Okay. Vice-Chair. You must defer to the Vice-Chair. COUNCILMAN DiCICCO: Thank you.
Councilman DiCicco. COUNCILMAN DiCICCO: On and 16 you identify the real estate transfer tax and you cite that condo prices are rising. Obviously there are more sales of condos. I think you're suggesting that condo sales are up 60 10/21/08 - FISCAL STABILITY - RES. 080603 compared to --
Councilmember, all of the sales across the City are dropping. That includes some of the condo sales. The prices of condos because they've gone up have basically helped to stabilize that drop from being worse. COUNCILMAN DiCICCO: Would you happen to know -- and if you don't have it now, would you supply the Chair with the number of condo sales in the last fiscal year and the average price?
I can get that for you. COUNCILMAN DiCICCO: Thank you. I don't have any other questions, Mr. Chairman.
Do you see the increase in the downward spiral of the sales and residential housing in Philadelphia, do you think we've reached 61 10/21/08 - FISCAL STABILITY - RES. 080603 our peak point or do you further project lower sales?
Councilmember, that's tough to say. If you looked at the largest markets in the United 7 States, you will see on average a price 8 drop over the last 18 months or so that 9 is approaching 20 percent. We're not 10 included in that particular database. 11 It's a database provided by Standard and 12 Poor's. 13 If you looked at the Office of 14 Federal Housing Enterprise Oversight, 15 their price activity for us is starting 16 to stabilize and drop ever so slightly, 17 and I think what will determine what 18 happens for the next six to 18 months is 19 how much inventory there is out there 20 currently, what happens to people's incomes and their ability to support purchases and mortgages, what happens to the credit markets and the ability to make mortgages available to people. If all of those things are different than 62 10/21/08 - FISCAL STABILITY - RES. 080603 they were six months or months ago, then it's conceivable we'll see some further deterioration, but at this point it's hard to predict, and what's been somewhat surprising to me is that we have held up prices this long in the teeth of what is probably the worst housing recession in at least the post World War II history of the United States.
It's not particularly low yet, but as the year goes on, it gets lower and lower. We generally -- our cash amount generally goes down until we get our property taxes and our business privilege taxes. So you'll see that going down, and a month and a half from now, two months from now 63 10/21/08 - FISCAL STABILITY - RES. 080603 it will start to get low.
How do you compare our current cash balance to prior years?
Our cash balance this year looks similar to the way it did earlier in the decade, 2002, 2003, but it is much lower than it was last year and the year before.
And I guess part of the other -- I mean, that is a cause for concern and we are spending a lot more time focusing on cash this year and looking at ways to manage it to slow down our cash outflow over the next few months so that we don't get to a position where we're dangerously low.
Real briefly, I know Councilman Jones had a question. With respect to our cash flow, earlier in your testimony you indicated our ability to go in the market to borrow money that would essentially provide cash 64 10/21/08 - FISCAL STABILITY - RES. 080603 flow. Understanding that we have a cash balance of approximately 300 million, is there a realistic change that if the market continues to go down, that our ability to access money for our cash flow could be at a point where we were, I guess, a decade and a half ago when we were rushing to the banks to cash our checks because we believed our checks were going to bounce?
We're not near to that point yet. If we can't do our cash flow borrowing, we would get -- I mean, maybe not to that point, but we would get to a point where we would have serious concerns about how low our balance would get.
Let me ask you this question, then I'll turn it over to Councilman Jones. We have recently seen the State of California essentially go hat in hand to the federal government to ask for relief, and I think that we were experiencing or anticipated 65 10/21/08 - FISCAL STABILITY - RES. 080603 experiencing an inability to pay for government. I guess basically are we going to get in line?
Well, the California case is probably kind of a good example of how this has worked. They wanted to do a $7 billion cash flow borrowing, and when they first tried to do that, they just couldn't get to market and they said that they were going to go to the federal government. Eventually they were actually able to sell, I think, about 4 billion worth, and that got them through their cash needs. So they wound up not going to the feds. And that's the process we've seen with a number of borrowers, that it takes them longer than they expect and it costs them more, but they eventually are able to get into the market.
We can get back to you on that. I mean, it was higher than 66 10/21/08 - FISCAL STABILITY - RES. 080603 they would have paid last year.
So are we taking the position as a city that we're not at the point where we need to possibly entertain such a scenario where we can actually look to the federal government for some assistance in any of these categories that we find ourselves?
In terms of cash, no, we're not there. We are in the process of trying to get our trans done, and we're getting our ratings this week. We got one of them last week. We get the other this week. Once we've done that, then we can go to the market, and then we'll have a better sense of how realistic it is that we'll be able to sell our notes at an acceptable rate.
Is there any other category locally that we think we could possibly need some assistance from the federal government? And I'm asking these set of questions because it seems like the national bailout is 67 10/21/08 - FISCAL STABILITY - RES. 080603 changing every day, and some of the things that were put in that package, that initial package, frankly speaking, were quite amazing. I only wish that some of our local elected officials on the federal level would have gotten some of those earmarks for the City of Philadelphia.
One area that seems like it would be logical, given our needs, is kind of basic infrastructure, investment in infrastructure, and that's one of the things that they're talking about. One of the things that hasn't been talked about, which would also be very helpful, is if they did some kind of help for municipal and state pensions, because pensions in general have been hit hard over the last couple of months, and ours has been hit hard, too. So that would be another area that would seem to be a good fit.
Okay. I promise my last question before I turn it 68 10/21/08 - FISCAL STABILITY - RES. 080603 over to Councilman Jones. With respect to pensions, you assume the pension obligation bond, the growth on that was what? What did you --
We assumed that the pension obligation bonds would not be issued for basically two years. We've put them in the 2011 budget, and we assumed a lower savings. We had originally assumed about 50 million in savings. We assume about 35. So the assumption is that by that time, the market will have settled down.
I mean, are there any indicators that -- is this more wishful thinking or is there an indicator that the market will in fact --
Well, I mean, part of the reason that we're waiting -- that we have it pushed out to 2011 is, we thought that assuming that next year would be clearly wishful thinking, but if there's -- if this is a year and a half problem, which seems to be what some of 69 10/21/08 - FISCAL STABILITY - RES. 080603 the forecasts are, then a bond issue at the end of that period doesn't seem like it's just wishful thinking.
Thank you, Mr. Chair. Whether you talk about a household or a government, there's a couple of ways to balance the budget. One is increase -- or reduce costs. The other is increase revenues. We have had conversations with you, and I want to state for the record that those conversations have been forward thinking and in the spirit of cooperation. So I'd like that to continue. And I appreciate the fact that we are not Washington, DC and that we're not approaching this in a partisan manner versus executive versus legislative. We're looking at all hands on deck and all of us cooperating. Yesterday three of my 70 10/21/08 - FISCAL STABILITY - RES. 080603 colleagues introduced recommendations for revenue enhancement. One of those recommendations was a -- raised the issue that the Commonwealth of Pennsylvania actually reimburses the City of Philadelphia's departments, dozens of them, for exact costs that they incurred that were mandated by the Commonwealth of Pennsylvania. That process currently is done through paper, physical checks to the tune of $250 million approximately annually coming from the Commonwealth to the City of Philadelphia. We've done some modest estimates on what it costs us annually by way of lost checks, physically just missing, lost in the mail, lost on someone's desk, but also lost interest payments from the time that we get an approval from the Commonwealth to the time it actually winds up in the bank, and I've shared -- and the only reason this is now, it's not a question of grandstanding, it just was delivered just 71 10/21/08 - FISCAL STABILITY - RES. 080603 now. And it is astonishing, astonishing to me and I would believe based on some of the stuff that we are looking at right now where we have and we estimated somewhere in the neighborhood of days 7 delay. I'm looking at, by department, 8 somewhere's upwards of 30-day delays in 9 the time it is approved to the time it is 10 actually cashed by departments. This is 11 a report generated by the Commonwealth of 12 Pennsylvania. And we have to look at the 13 low-hanging fruit first before we even -- 14 and I know we have to fight this battle 15 on a number of fronts. We have to look at what's coming, but we have the ability right now to turn the spigot off or at least turn the spigot on to overnight interest payments to us by low-hanging fruit that doesn't cost us anything. So I would urge you, the Administration, to consider some of these things in an urgent manner before we move down the road too far and have to make even more drastic cuts, because those 72 10/21/08 - FISCAL STABILITY - RES. 080603 costs, the meter is running as we speak. And just to give you a couple of them, I have a document here that says that to the Department of Public Health, we had a $434,000 check, that it took, from the time of approval to the time it wound up in the bank, 30 days. I have a number of these, whether we talk about the Police Department, the Office of Housing and Community Development. I have a quarter of a million dollar check here that it took ten days for us to get into the bank. And with technology today, overnight transfers, I don't understand why we're still using Fred Flintstones' Pony Express to get money into the bank.
Well, we agree with you. We are looking through every avenue for generating revenue, for collecting revenues more aggressively, and we appreciate the fact that you set up the meeting with people from the state to help us with this process, and it's 73 10/21/08 - FISCAL STABILITY - RES. 080603 something that we want to move on.
Okay. Because we have the information here I'm going to share with the Chairman.
Thank you, Mr. Chairman. First of all, I also want to thank you for holding these hearings. I think it's very important for us to get together and to provide oversight and review the budget at least on a quarterly basis, and I want to thank you for pulling this together.
I really 74 10/21/08 - FISCAL STABILITY - RES. 080603 appreciate the presentation you gave us today. It's very thorough. I think as you discussed, hopefully we're going to take a very conservative approach to the situation; in other words, plan for a rainy day and hope for the best rather than the other way around. To that end, I think it's important to clearly define the scope of the problem, and I'm not sure we've done that. And I just wanted to turn to 23, if we could, and go through a few things and let's make sure we're -- the scope of the problem is clearly defined so we know what the bogey is in terms of the revenue that we have to come up with or experiences that need to be reduced. I don't see increased interest expense in the potential negative adjustments. Is that something that's in there?
For the sake of clarity in some of these, we rolled them up together into categories just to get 75 10/21/08 - FISCAL STABILITY - RES. 080603 everything onto the page. But I can pull that out for you in a different display if you're interested.
Actually, I'm sorry. It is here. It's economic downturn interest.
No. We'll get you the number on increased interest cost. That line looks at lost interest earnings.
Okay. The other thing is, am I to understand that reductions from the state are not part of this billion dollar number?
That's correct. We do not know what the size or scope or timing of that would look like.
And in terms of the schools, which obviously are important for our future, even though we 76 10/21/08 - FISCAL STABILITY - RES. 080603 don't control their expenditures, we do contribute to their revenue through our taxes. They had a $35 million shortfall, I think, this year. Is that number included in the potential negative adjustments?
No. I mean, our assumption is that they will close that gap, and from my understanding, they are working on that.
And when you look at the long-term increase in funding from the state for the schools, that was dependent upon the state having a balanced budget and other criteria had to be met in order for the School District to get the extra funding that the Governor put in the education funding for the next -- I think he rolled the extra money in over four, five or six years. I don't remember the time. But it's the life of our plan. If the state is experiencing problems, that funding, which is 77 10/21/08 - FISCAL STABILITY - RES. 080603 significant to the School District, is in jeopardy. Is that included in the potential negative adjustments here?
No. Like I said, we don't have additional funding for the School District in here.
I don't have that. You're talking about the remaining debt capacity? I don't have that with me. We can get back to you on that.
Could you give us a debt limit by year based on what you think property assessments will be citywide over the Five-Year Plan?
Okay. If we aren't able to issue a pension obligation bond, right now we're looking at a billion dollars; is that correct?
I'm not sure what you mean. 78 10/21/08 - FISCAL STABILITY - RES. 080603
The savings from POB, you have -- if you look at the number under Fund Balance after Potential Negative Adjustments.
Assuming that we are unable to do a POB in terms of looking at the worst case and hoping for the best.
Well, I think it's reasonable to budget for it, but not to budget for it within the next couple of years.
In terms of the loss in the pension fund in '08, that will increase our MMO for FY09 --
No. I'm sorry, 79 10/21/08 - FISCAL STABILITY - RES. 080603 I'll let you finish.
It is. That's the first line, Failure to Achieve Pension Savings and Earnings Reduction. It's in there.
And how much of that 51 million is an increase in the MMO?
I think over the five years -- I don't know it by year. I think over the five years it's roughly a $120 million increase.
So if we are unable to issue the POB in FY11, the MMO, assuming the market stays roughly the same through the end of this fiscal year for the pension system, we're probably 80 10/21/08 - FISCAL STABILITY - RES. 080603 looking at an additional $30 to $35, $40 million increase in the MMO in those years?
If the market stays where it is or doesn't go up significantly, given the eight and three-quarters.
That's possible. We've actually asked the actuary to give us a kind of mid-term valuation, to do the valuation earlier so we can see what that would look like.
Okay. So could you provide the Chair with that information also?
And Increased Property/Parking Tax in terms of potential positive adjustments, could you explain what that line is?
What those lines are, Councilmember, is, we've made 81 10/21/08 - FISCAL STABILITY - RES. 080603 adjustments based on what we received in FY08. Both the parking and the real estate tax performed at higher growth rates than we had anticipated. And to date on the parking, we're still seeing that growth in spite of what's happening in the economy. And so we have included those adjustments into the base because the base is now larger moving forward.
Okay. Well, I do want to say that we met with you last week and went through some of the things that we proposed, and I appreciate you sitting down with us. I look forward to trying to be proactive to work with the Administration to help resolve this budget crisis, and we have -- I have a few more things that I'd like you to consider as you put together the Plan. I'll just run through them real quick.
Would this make it like the freshmen 18 if you had three more?
In fact, I 82 10/21/08 - FISCAL STABILITY - RES. 080603 have more. 3
Review 5 collections policies. We give up -- and 6 many of these come from Curtis and Maria 7 also. 8 Review collections policies. 9 We give up a lot of money owed to us by 10 collection agencies. 11 Increase parking meter rates. 12 I know that's something you guys are 13 discussing, but that can provide School 14 District shortfalls if we don't take it 15 into our General Fund. I think it's something we ought to move on immediately. Negotiate discount rates with PECO. I believe that some of our rates on poles and other things are a per pole basis, et cetera, rather than being meter --
I'll get you 83 10/21/08 - FISCAL STABILITY - RES. 080603 the list.
Negotiate better terms for leases of City-owned property to SEPTA; review City office space needs to identify savings, including by moving departments from leased space in privately owned buildings to City-owned buildings; join cooperative purchasing program, which allows state and local governments to purchase information technology and other goods under federal GSA schedules; explore joining existing purchasing collectives in Philadelphia, such as the one that exists for Penn, Drexel and other universities; issue an RFQ inviting private industry to make a business case that the Water Department sewage treatment can be a money-making venture through generating raw materials -- through generating energy through the raw materials. There should be state funding for this given the Governor's $850 84 10/21/08 - FISCAL STABILITY - RES. 080603 million initiative in this area. Issue an RFQ to explore revenue, creating opportunities related to hydrogen-generated fuel, including -- and this is Councilman Jones' idea -- using existing utility infrastructure to transmit the same. Let's sell our surplus property in Public Property. In Baltimore they have something called the SCOPE Program, which allows realtors to make proposals to the city for city-owned property by putting a list of all those properties available on the Internet and promising realtors a fee for making a proposal. We can increase the speed at which our abandoned properties get sold. Ask businesses and our institutions to pay real estate taxes early. Many times it's in escrow already. And also for institutions to make PILOT payments early so that we have less of a lending need towards the end of the year when cash is tight as we're 85 10/21/08 - FISCAL STABILITY - RES. 080603 waiting for them to come in. By collecting the revenue early, the City has to borrow less money. Try to meet the Street Department's goal of increasing the residential recycling rate from to 8 percent and avoid disposal fees from -- 9 would go to 8.1 million. I know that 10 this is not currently in the Five-Year 11 Plan. 12 Review licenses and fine 13 structures in light of the recent change 14 to state law. We can now charge a max of 15 1,800 versus 300 for many things. So if 16 you look at violations for L&I, et 17 cetera, we can increase our fines over 18 the $300. And explore public-private partnerships. I recently made a proposal to the Fairmount Park Commission to have some private person come in and renovate Northwestern Stables. It would have saved Fairmount Park $750,000 that it has spent in its capital program. And 86 10/21/08 - FISCAL STABILITY - RES. 080603 there's many opportunities to do things like that. That is it. I'll get you the list. Thank you.
Thank you, Councilman. Anyone else have questions for these members of this particular panel? (No response.)
Can one or both of you stay around? Because I'm sure there are going to be some other questions as we proceed.
Right now I'd like to call up the next panel. Ms. Cathy Scott from District Council 47. And I believe we just got a call from District Council 33 that Mr. Matthews has 87 10/21/08 - FISCAL STABILITY - RES. 080603 an emergency and cannot be available today. So we'll hear from Ms. Scott. (Ms. Scott bringing up testimony.)
You don't have to do that. We have people to do that. They're not in the union, but that is their job responsibility. Thank you.
-- members of the Oversight Committee and other members of City Council. My name is Catherine Scott, President of AFSCME District Council 47, which represents the administrative, professional and technical workers and first-level supervisors of the City of Philadelphia and the First Judicial District. Thank you for the opportunity to provide testimony on the crucial matter of reduced revenue which the City is 88 10/21/08 - FISCAL STABILITY - RES. 080603 presently experiencing. Our union believes that the City does not need to act precipitously cutting services, which are needed more in a time of crisis. The City entered this year with a sizable fund balance available for appropriations, approximately $174 million. Any reevaluation of services needs to factor in the possibility of an economic stimulus package for state and local governments which Congress may be considering now or with a new Administration in Washington. Hopefully information will be forthcoming about relief for local governments in the next month. Our members believe that there are some areas of the City budget which could reap savings. Presently, the City contracts out significant professional work. 2 million in portions 89 10/21/08 - FISCAL STABILITY - RES. 080603 of the Health Department if the work had been done by City employees. Every personal services contract should be evaluated for cost savings and moved to the City doing it through City employees. The City should emphasize applying for more grants so that services which are now paid out of the General Fund could be paid by grants. While it is a good start for the Administration to hire one person dedicated to seeking out grants, much more staff and attention needs to be devoted to this area. We would suggest that the City consider significantly increasing its Payment in Lieu of Taxes, or PILOT program. As non-profits, especially hospitals and universities who do not pay taxes, increase their real estate holdings, the real estate tax base shrinks, placing more of the tax burden for both the schools and City services on the remaining real estate which is taxed. Non-profits need to recognize their 90 10/21/08 - FISCAL STABILITY - RES. 080603 commitment to the City and their home communities. The projected increase in the Mayor's Office from over $5 million to over $7 million and the Managing Director's Office from million to 8 million are areas for review since the 9 operating departments are the departments 10 which provide direct services to the 11 public. 12 Our union believes that revenue 13 increases are the answer to this problem. 14 City Council must rethink cutting 15 business taxes, especially the gross 16 receipts tax, and institute methods such 17 as allowing business to deduct their 18 gross receipts tax from their net profits 19 tax so that we give tax relief to those 20 who really need it and encourage 21 businesses to stay in Philadelphia. 22 I would also like to add to my testimony. It is not here, but listening to the questions from you, Councilman Clarke, about the contract negotiations 91 10/21/08 - FISCAL STABILITY - RES. 080603 over the Five-Year Plan, I would like to point out that the $400 million that was budgeted over the Five-Year Plan is not just for wages, but it's also for benefits, which includes pension payments and healthcare payments. And listening to the Finance Director this morning talk about this year's costs being within what they budgeted, it is important to note that there was no increase in healthcare for District Council 33 or District Council 47 and actually a decrease in the amount that was paid to the Fraternal Order of Police, as well as the firefighters. And we have a history of the City meeting the minimum monthly obligation for pension and we know that part of the reason that the City is in the circumstances that they're in today is because the pension payments were so underfunded for many years.
So we think that there are significant issues that come up in the question that you raised, and we 92 10/21/08 - FISCAL STABILITY - RES. 080603 certainly would not look toward four years of either stagnant healthcare payments or reductions in healthcare payments, because, of course, that would affect the benefits that people receive. So we think that that really is an area that needs to be focused on also as we go through the budget and look at it. So I thank you for the opportunity to testify today, and I am happy to take any questions.
There have probably been extensive studies -- and I know you can provide them -- that weigh contracting out versus in-house services. And generally what has been some of the findings in most of those? 93 10/21/08 - FISCAL STABILITY - RES. 080603
Well, on the whole, we believe for the services that my union provides, professional services, that it is much more expensive to contract out that work. You are paying a much higher hourly fee than you are paying for someone who is working in-house, even when you factor in the benefit costs of healthcare and pension. And I think that part of the problem with contracting out -- and I know frequently this is seen as self-serving. I would like to sort of take this more to the macro level than talk about individual things, because I think that there are policy decisions that drive contracting out that are just flawed policy decisions. For example, one of the reasons that most of the physician work in the City and the health clinics is contracted out is -- the argument is, well, the City is not competitive in its salaries. When the new Mayor came, when Mayor Nutter came in and he looked at the salaries for 94 10/21/08 - FISCAL STABILITY - RES. 080603 cabinet-level people, Managing Director, et cetera, he saw that the salaries were not competitive with what he would be able to do to get someone that he considered to be competent. He didn't say, Oh, the salary isn't competitive, so I'm going to contract out the Managing Director's Office and the Finance Director's Office. He raised the salary. And it just seems like there are foolish ideas about how contracting out -- you move to contracting out if you're not competitive salary-wise. Pharmacists, I think this is a very good example. Our union went through pay appeal after pay appeal. We did multiple pay appeals to get the pharmacist salary to be competitive. The City, because they couldn't hire pharmacists, was paying $525 a day for a pharmacist. Now that we have gotten the salary competitive and they are actually able to hire pharmacists, they're saving a lot of money. 95 10/21/08 - FISCAL STABILITY - RES. 080603 So that's why we're saying we think that the contracting out, especially for professional services, which is what I'm talking about, needs to be evaluated, looked at, why is this work being contracted out and is there something that could be done to bring it in-house. I think there are just a couple of examples of where it's the easy, maybe the lazy, maybe not the best way to get work done, because you still have to have doctors and pharmacists in the health centers, and that's why we're suggesting that the professional -- contracting out professional services should all be looked at to determine if it could be done cheaper.
Equally, has there been an analysis to look at how we dispense overtime and what the equilibrium point is when we should just go ahead and hire another body?
I don't think that 96 10/21/08 - FISCAL STABILITY - RES. 080603 analysis has been done, but, I mean, one of the things that we see is, some of our members work incredible amounts of overtime. Not because they necessarily want to do it, but because they have to do it because there's nobody else to do the work. And I know there are analyses that are done where there's a tipping point, and beyond that point, not only are you hurting your work staff because you have people doing dangerous jobs that are tired, they're not as alert, so your health and safety problems go up, but also it becomes much more cheaper to hire a person who is a new employee.
And, finally, I guess I would ask to reach out from this legislative body like we're reaching out to the executive branch, that we all come to the table in good faith and all come to the table with ideas for cost saving, and I think probably the best source of those ideas are the people who actually do the work. 97 10/21/08 - FISCAL STABILITY - RES. 080603 So I'm asking that the union actually do a roundtable to discuss ways we can cost save and ways that we can reduce our expenditure and increase our revenues.
Actually, that's a very good point. This Administration has been very open to that. Yesterday I met with the Managing Director, the Finance Director and City Solicitor. We had a very, I think, good meeting. I had the opportunity to make significant suggestions about what we see as cost savings, and I think that the follow-up by them is impressive.
Ms. Scott, it's good to know that we're all in this together and, yeah, we have different viewpoints of the problem, but we recognize that it's a problem.
Thank you, Councilman. 98 10/21/08 - FISCAL STABILITY - RES. 080603 Ms. Scott, the response, I guess, to the earlier testimony about my questions on the budget or projected budget as it relates to the workforce, can you -- and you gave some interesting statistics relating to what the proposed contract calls for or revenue set-aside for that proposed contract. Can you as an addendum just add that to your testimony later on and just forward it over to us so we can attach it to what you submitted?
Thank you. Any other questions by members of the Committee or Councilmembers of this witness? Councilman Green.
Thank you, Mr. Chairman. Thank you, Ms. Scott, for coming in and testifying today. Councilman Jones asked the 99 10/21/08 - FISCAL STABILITY - RES. 080603 question I told you last night I was going to ask you, but I think it's very important to note that over the years, the union has been a participant in creating cost savings for the City many times, especially when we had the Productivity Bank, and I wonder if you could spend a minute discussing that and then also talk to us about whether or not you regularly sort of poll the members of your union for ideas or how they come to you and whether maybe we should put a formal process in place for recommendations from members of your union.
Thank you for that question, Councilman Green. I think that the loss of the Productivity Bank is really something that the City should reconsider. One of the things that we have done with the Redesigning Government initiative that we had and unfortunately is really not functioning right now because I think that the resources were 100 10/21/08 - FISCAL STABILITY - RES. 080603 not put into having staff on the City to be able to do Redesigning Government initiatives, that is where the real input from department and membership happens. Unfortunately, the structure of how revenue flows is that when departments save money -- there's very little incentive, if any, for departments to save money, because if they save money, it doesn't stay with them, it goes into the General Fund, and the Productivity Bank was one of the ways that departments could draw on funds that would take them through a period of time in order to do an initiative than in the long run would save the City significant money. And so I think that it would be good to revisit that and start Redesigning Government initiatives. At the present time, the way we get feedback from our membership is, we do it through our union leadership. We have meetings with the members. We have stewards who do shop meetings with the 101 10/21/08 - FISCAL STABILITY - RES. 080603 members. They make suggestions for how to better produce whatever work they're doing. But the Redesigning Government initiative, unfortunately, is really not functioning now, and I think if the City went back to that, there would be a lot of opportunity to save in departments by streamlining operations and having people work in a more efficient way, especially being able to develop -- it's so important to have the City management involved in it, because frequently saving money requires cross department cooperation, and that is something that is not happening if it's limited to just within departments.
Thank you, Ms. Scott. Thank you for your testimony. Oh, I'm sorry. Councilman Jones.
Before you go, Ms. Scott, just a point of 102 10/21/08 - FISCAL STABILITY - RES. 080603 information on your last idea and issue. Does that include that RFP grant-writing group that you mention that might be utilized to go after dollars outside of the General Fund to attract resources here? Is that a part of that think tank?
No. That has not -- unfortunately, I think what's happened, when the City -- the City used to have a central grant-writing unit, and when that dissipated, most of that function, I think, got reverted to departments or departments felt that they needed to do that and so they created their own positions.
Well, some departments. Not all departments. And I think therein lies the problem, because it appears that departments are looking 103 10/21/08 - FISCAL STABILITY - RES. 080603 for their particular stream of funding as opposed to looking on the broad perspective of what funding there is out there. So I think that having it centrally located in the Finance Department or something that would specifically go after grants would be a really good initiative for the City to undertake, and we would certainly be very happy to cooperate in doing something like that.
Well, I want to take you up on that. Mr. Chairman and particularly within this body, as we start to look at opportunities that present themselves, I know, having sat on the other side of that table, that there are a lot of dollars that we leave on the table because we don't have a concerted effort by way of an Administration to go after it, and I absolutely think that working with the labor, working with the 104 10/21/08 - FISCAL STABILITY - RES. 080603 Administration and just knowing where some of these dollars can be found, those are dollars that can help to supplement some of the things that we do every day in a municipality. So if we go after clean water dollars at the federal level to deal with some of our Water Department issues and infrastructure development issues, I think that that can help us in the long term.
Thank you, Councilman. Thank you, Ms. Scott. Our next panel briefly, we have Dr. William Dunkelberg from Temple University and Dr. Ed Schwartz. (Witnesses approached witness table.)
Good morning. 105 10/21/08 - FISCAL STABILITY - RES. 080603
I'm William Dunkelberg. I am a Professor of Economics at Temple University, former Dean of the business school there and Chief of Commerce for the National Federation of Independent Business, which, of course, has me checking on the status of a couple hundred thousand firms every month to see how the small business sector of the economy is doing. It produces about half of the private sector GDP, so it's pretty important, and, of course, it's not on Wall Street, so nobody pays much attention to it up there, but it is pretty important. I listened this morning to the testimony from the Mayor's Office. I thought it was excellent, comprehensive 106 10/21/08 - FISCAL STABILITY - RES. 080603 and appropriately concerned and conservative. So I'll just try to amplify a few things around that. We did have some good news this morning. The leading indicators, the index of leading economic indicators, actually turned up. Six of the ten components were positive. That's the first time in six months that it has turned up, and, of course, that tells you about economic activity out there six to 12 months, but it's nice to see that that part has turned around. The key to what's going to happen to the economy, I think, of the next six months is really dependent -- will really depend on the consumers -- that's you and me -- spending money. I had dinner downtown last night. There's certainly a lot of the money being spent in the restaurants here. You can't get into them. But that can change, of course. So about 70 percent of the GDP 107 10/21/08 - FISCAL STABILITY - RES. 080603 is the consumer. The consumer has misbehaved for a couple years now, which has driven the economy. The savings rate went all the way to zero for a year and a half; that is, we spent every dollar of our after-tax income, saved nothing. The savings rate did go up to about two percent in the second quarter and it will probably go up a little bit more here. That's good news in one way, but the other -- the bad side of that, of course, is it means lower retail sales currently. And it takes a while when the consumer puts money in my bank -- I am the Chairman of a little bank, too, so I do that. When they put money in my bank, it takes me a while to get that money into the hands of a small business person, who is then going to buy equipment or do something to put the spending stream -- put it back into the spending stream. That period can be pretty slow. So we're looking at, I think, a pretty slow period where the 108 10/21/08 - FISCAL STABILITY - RES. 080603 consumer is just not going to be providing a lot of economic oomph to the economy. There is one other good thing that's happened. As you've all noticed, I'm sure, oil prices have fallen dramatically. Looking at the national economy, we kind of use the rule of thumb about $4 billion in a tax change for every dollar the barrel price of oil goes down. So we've gone from 140 down to, say, 70 or 80. So let's say 140 down to 80. That's a huge decline. Sixty dollars times four billion is the $240 billion tax cut, meaning the money is staying here in our pockets and not going over to other political entities or private entities who are taxing consumer spending. So that will be a break there that will certainly help us. The big weakness for the overall economy is manufacturing. A lot of that is driven by the fact that we're not buying any cars. One of the reasons 109 10/21/08 - FISCAL STABILITY - RES. 080603 we're not buying cars so quickly right now is that the leasing companies figured out they can't predict the price of a car three years from now, so they stopped making leases. And a lot of consumers enjoyed renting their cars for three years rather than trying to amortize the loan. So that certainly didn't help. So the manufacturing sector is weak. The most recent Beige Book report that the fed put out showed that manufacturing is pretty weak right here in our area as well, although we don't make too many cars here.
The other is construction. The most recent numbers we had for housing starts nationwide was 700,000. Two years ago we were building them at a two million annual rate. We built a million or two too many houses. We have nobody to live in them. House prices are falling as a result. And that's basically going to continue, because the only way you can solve that is to get 110 10/21/08 - FISCAL STABILITY - RES. 080603 more players. It's kind of like musical chairs with a million extra chairs. We may move around a little bit, sit down in a different chair, but it will take population growth and foreign buyers and baby boomers to become multiple homeowners to really kind of get rid of this. In the meantime, we're under-building substantially, because we need about a million three units a year to handle household formation and destruction where we take units out of the stock. So if we're building 700, we only have a million three kind of in the City saved, you can see that if we do that for a year or two, we can get rid of the excess houses. Actually, it won't take that long because most of the excess houses are in Florida, California, Arizona and Nevada, and so they're going to have trouble for a long time, whereas around here I noticed that the most recent Prudential report on house price declines was really pretty much modest 111 10/21/08 - FISCAL STABILITY - RES. 080603 and activity has really picked up. In some areas, things aren't too bad. So we'll get back to building houses a little bit sooner here in our region than we will in the rest of the country. So that will be good news there. Consumer optimism, of course, went into the tank along with Wall Street. Wall Street is in a depression. They're going to fire a lot of people in New York, but that's probably -- that's the way it goes. They had a good time. Hopefully they saved some of that money, but I don't think they did. But in any event, that's certainly going to happen. Not hurt us so much here. My NFIB Optimism Index has increased for two months in a row now. So it's a ten-component index, much like the Michigan's index, because I did that for five years as a graduate student, so I kind of copied it. I do it for the small businesses. But that's up for the last few 112 10/21/08 - FISCAL STABILITY - RES. 080603 months, and hiring plans are edging up. That's really a good sign as well. So those numbers are looking a little bit better for the national economy. I don't know if we're going to be in a recession or not. We wait for the National Bureau of Economic Research to tell us whether or not we're in a recession years later, because the data get revised. But certainly it's a very weak economy, and I think your report from the Mayor's Office accurately represented kind of where we stood on that. It's very regional. Recessions always are regional. If you go down to North Carolina around Raleigh and those areas, they're doing very well, but Florida and California are probably in recession as we would kind of think of a recession. They're not doing very well. Clearly, Detroit and that area is not doing well at all. That's kind of the automobile manufacturing part of the 113 10/21/08 - FISCAL STABILITY - RES. 080603 economy. We, as was pointed out, I think, by several individuals, are very lucky. We have kind of a recession-resistant economy here, which is good, because it's education, it's medical, it's pharma, it's professional services like lawyers and insurance and all those kinds of things. The services sector isn't really showing a lot of down pressure at the moment. S. economy has turned down, and that's very good for us, because that really is our strong point. So we won't surge back. When the automakers start making autos again, they'll get a big spike. We won't enjoy that spike, but we will enjoy steadiness that really, I think, makes life a lot better, especially for you, ladies and gentlemen, who have to plan and manage the budget and keep the City running.
So it will 114 10/21/08 - FISCAL STABILITY - RES. 080603 look okay there, I think. See what else I wrote down in here. A lot of the things -- a lot of us are worried about what's been going on in the stock market. Yes, the 401(k)'s are looking lower. Yes, the funds that universities and other institutions are holding certainly have a lower market value today, but that happens all the time. So look at 50 years. The nice thing about the market is, it goes like this and you have -- the blips are there. This is a big blip, but we've seen these blips before and we go through them. So I think the long-term prospects for having your money invested in America is pretty good. I think the valuation that the current stock market puts on this company called America, Inc. with $14 trillion in revenue is too low. It's a good time to buy if you have any cash, and cash is really one of the interesting issues we have to worry 115 10/21/08 - FISCAL STABILITY - RES. 080603 about. You had a good discussion about the borrowing issues. I think the fed and the Treasury have probably done enough to make sure that we will be able to fund cash needs and so on so that we won't have a serious problem. The Gubernator did find a way to fund his tax anticipation notes in California without borrowing from the government, I think. So the markets will start working again. But it's certainly been a very stressful month or two, and it will probably be less stressful for the rest of the year, but the economy will be pretty slow. So that's my quick take on kind of where we are and what we can expect. We're lucky to be, I think, in the kind of economy we have. And I don't know if more tourists will come here now with the slow economy, but with gas prices cheaper but still expensive to go overseas, maybe we'll get a little help from that piece 116 10/21/08 - FISCAL STABILITY - RES. 080603 of our economy as well.
A little more optimistic. It's good to hear. Doctor, real quick, a quick couple of questions. Our housing starts, as you indicated in your testimony, is obviously one of the more significant problems in our economy. Recently, I guess this past week, the Treasury inserted about $125 billion in the nine largest banks, I understand, and I think a part of that -- and correct me if I'm wrong -- was that they were essentially encouraging -- there was an interesting show I heard with the CEO of Wachovia -- not Wachovia, I'm sorry, Bank of America, and I understand that Mr. Paulson told them they had to take the money regardless as to whether or not they needed it. And I think a part of that was that they were to put money back on the market, understanding that the standards for lending practices is going to be much higher. And one of the 117 10/21/08 - FISCAL STABILITY - RES. 080603 individuals indicated that they thought that it was a possibility that money would start flowing for new housing starts and for mortgages in the late part of the first half of next year. Is that analysis overly optimistic or is it more realistic? Because one of the problems, as you heard in our testimony, was our reduction in our transfer tax, which we've been basically living off of the last couple of years, and we're hoping that we can get more money out there.
Right. Well, housing starts in our area are down as well. Not as seriously as they are nationally, because they just aren't building in California and Florida, for example, and we are building here. So the housing start numbers aren't falling as far here, and that's very good news. On the employment side, although employment growth is flat, it's not falling for both New Jersey and Pennsylvania. So we've been pretty 118 10/21/08 - FISCAL STABILITY - RES. 080603 stable on the employment side. Our unemployment rates are lower than the nation, and that's good. Those are all the kinds of things you need to have to have a housing market. I think we feel that mortgage credit isn't as available now as it was last year, and that's because last year there were no underwriting standards. If you had a pulse, you could get a mortgage. And the reason people made those mortgages like a Countrywide or whatever it is, that they could sell them to Fannie Mae and Freddie, so all they did was collect the fees and that's how we kind of got into trouble. So mortgage lending has to be tighter than it has been in the last couple of years, and that does mean fewer houses will be sold, and so the transfer tax can't be expected to be as good as it was in '07 or '06, because there was an unprecedentedly high and too high number of houses being transacted and now we've 119 10/21/08 - FISCAL STABILITY - RES. 080603 got to try to figure out how to get rid of them. So, unfortunately, since the fed made it so -- the fed and Treasury made their move two weeks ago, mortgage rates are up about 50 basis points, about a half a point. They're still not bad historically. Six and a half isn't bad. Anybody who can do 80 percent down and so on and so forth can get a mortgage today.
Sorry. That would be a heck of a deal. I'll give you a mortgage any time with 80 percent down. Twenty percent. Thank you. If you can do 20 percent down more or less, you can get it -- and you have decent credit, you can still get a mortgage today. But all the other kind of stuff, you can't do interest only, you can't -- it's really hard to get even variable 120 10/21/08 - FISCAL STABILITY - RES. 080603 rate mortgages now without still putting a significant amount of money down. So it's going to improve for us. You'll see it get better over the next six months probably. So you can expect some improvement in the transfer tax, because there will be more activity here, but some of the things aren't working anymore, like the Ritz Carlton condos. I don't know what's going to happen with those. You can get a lot of tax there if somebody would buy them, but that's not happening.
So do you think with the insertion of the 125 billion, that money will be made available to builders? Because one of the things -- and I know Councilman DiCicco, because we represent similar districts that have experienced a significant amount of new housing starts in our district, and I know Councilman Jones in parts of his Council district, the market rates have dropped 121 10/21/08 - FISCAL STABILITY - RES. 080603 dramatically, and when we talk to developers, they said, Well, I'm not going to build now, I can't get money. I have a block and a half from me and he was supposed to be building 50 townhouses and he said he's gone to six different banks and can't get any money to build. Do you think that this 125 billion insertion will kind of free up some money for the --
No. And the reason is that there are too many already there. So I can give a builder really cheap money, whatever, but just because you get a good deal on the money doesn't mean you're going to build the housing units if you can't sell them, and right now there's just too many on the market.
Not so bad here as other places. So the banks are going to look at that and say, I'm not going to fund the construction of these 122 10/21/08 - FISCAL STABILITY - RES. 080603 things because there's nobody to buy them yet. So we have to really clean up the over-supply that we created over the past three or four years before we can really see that kind of building really come back. Now, again, regionally -- I just got an e-mail from somebody in Raleigh who said that market is hot, the houses are all selling. So there are differences, and we'll not be as bad as, say, Cape Coral, Florida, which was ground zero for the single-family housing bust, or Miami or whatever. But it's still going to be -- that injection of funds really the banks are using to just make their capital side look stronger. It's probably not going to generate the kind of lending activity we were hoping it would. But, again, the issue is what are you going to lend them money for. Probably not to build houses for a while.
Okay. 123 10/21/08 - FISCAL STABILITY - RES. 080603 Straight answer. Thank you. Councilman Jones.
Yes. Thank you, Mr. Chairman. One of the things that you mentioned was the slowing, delay of new construction in the housing market. In your expert opinion, these condos that we maybe jumped the gun, overbuilt, are they going to shift to rental opportunities, and how will that affect -- if people aren't qualified to buy homes, does it move them to a renter's market and, if so, how does that work?
Well, it could. What usually happens is, the best thing to make people more qualified to buy them is have the price come down. So you see major declines in prices. And we probably are cursed with a few too many condos. I think when I led off at RealShare Philadelphia last year, I made the comment that I thought I knew everybody who could afford $2 million 124 10/21/08 - FISCAL STABILITY - RES. 080603 condos and they already lived here in them and I didn't know who was going to buy the rest of them. So if we lowered the price, that obviously makes them more affordable. They can also be rented as well, and that's what a lot of the excess homes do, is they move into the rental market. So if you look at the rental vacancy rate nationally, that's running around ten percent. So it's higher. And that, of course, again, with everybody trying to rent these houses that they built but now can't sell -- the flippers ran out of flippees here -- that's putting downward pressure on rents as well. So it makes the market work a little bit better.
Thank you. COUNCILMAN DiCICCO: Any other questions for this witness? (No response.) COUNCILMAN DiCICCO: Mr. Schwartz. 125 10/21/08 - FISCAL STABILITY - RES. 080603 Thank you, Doctor. Thank you very much.
My pleasure. I'm going to address a question that I was pleased to hear many of you ask, and, that is, the relationship between what's happening in Washington and what's happening here and what might happen in Washington in a couple of weeks, because it's like we're living in two different countries. So I've got a longer narrative, as I usually do, but I will summarize, because you usually want me to. Let's start with the stimulus package that you've mentioned. This was being discussed sometime ago by Barney Frank and Nancy Pelosi. Even before it hit the press, I called Pelosi's office and talked to them about it. It does in fact call for $150 billion to be invested in new initiatives in this country to improve the economy. To give you an idea of the magnitude of that, the Community 126 10/21/08 - FISCAL STABILITY - RES. 080603 Development Block Grant nationally is $5 billion. That's all. So $150 billion is not chump change. You asked the question of Rob Dubow how might this benefit Philadelphia. I agree with him that the part of infrastructure improvement, which is an absolute priority in this program and one that Governor Rendell has been pursuing, can certainly benefit the capital budget in the Streets Department. I'm not quite clear how that necessarily benefits our operating budget. But if the mayors and others went after an additional possible recipient of that; namely, the Community Development Block Grant, then the benefits would be considerable. Because while the Block Grant cannot be used to replace existing City services, at least 15 percent of it under the current regulations could be used to enhance City services in areas where they're being neglected and, by definition, save money. 127 10/21/08 - FISCAL STABILITY - RES. 080603 So that this is an extraordinarily important development. And while we're talking gloom and doom in the City, we are not alone. That gloom and doom is all over the country, and it has become a national issue, and that even President Bush and Bernanke today suddenly come out and say, Well, yeah, we may be for it, indicates how much traction that proposal currently has in Capitol Hill. And whether it passes in December or they have to wait until January, I know from the conversations I've had, there have been very serious discussions going on between the Obama campaign, the Congress as to getting this done. So we need to think very hard and quickly about what we want done, along with cities all over this country who are facing the kind of crisis that we are facing now. That's the most immediate relief. But the gloom and doom we're 128 10/21/08 - FISCAL STABILITY - RES. 080603 hearing is not immediate relief. It's over a five-year period. That's where the figure of $450 to $800 million deficit goes in. Let me give you a point of comparison. Between 1993 and 2000 during the Rendell years, the amount of federal investment in this city annually increased by a half a billion dollars; that is, in the year 2000, we were receiving $544 million from the federal government in just three areas, in housing and in law enforcement and in social services, like health and human services. Three areas. 5 billion more in federal support than you can anticipate on the basis of the previous administration at that time. So now we have gotten used to 129 10/21/08 - FISCAL STABILITY - RES. 080603 hoping that they don't cut us too badly, because that's been the reality over the last eight years. We've seen the Community Development Block Grant go from $72 million to $52 million, the total elimination of the COPS program and all sorts of other federal initiatives that have dropped. 5 billion overall, but that includes a lot of stuff that does not benefit the City directly. Now, where can we look prudently at possible benefits that the new Administration and the Congress might bring? There are two I'd want to point out.
One has to do with the Philadelphia Prisons, which I've discussed several times in this Council going back five years, and the other has to do with homelessness. Right now the projections in the budget, our budget, for the Prisons call it to rise from $218 million in 2008 to $251 million in 2014. When I started 130 10/21/08 - FISCAL STABILITY - RES. 080603 testifying here about this a few years ago, that budget was at $186 million. I will say if that is the reality five years from now, this city will have failed. That is failure. This is a projection of fiscal failure. Now, reentry at this point has become a national priority. It is a priority for the likely new Administration, who is proposing a Prisoner to Work program parallel to Welfare to Work. It is reflected in the passage this past year of something called the Second Chance Act, in which our Senator Arlen Specter, a republican, took a leading role and which conservative republicans, like Sam Brownback, are also on board. So there is an enormous opportunity now, not only because of Philadelphia but because this is a problem throughout the country, of generating a sizable reentry program that could significantly reduce the number of 131 10/21/08 - FISCAL STABILITY - RES. 080603 people in prison by reducing the number of people who commit crimes. The parallel is Welfare to Work. Welfare to Work in fact when it started, Philadelphia had 67,000 households on welfare. Today we only have 30,000 households on welfare. Welfare to Work generated as much as $320 million in additional support from TANF over the last five years. And even when the City -- when the state shifted state and federal money to support this, there was still $89 million of federal money there. And when you look at the City budget, the one area in which federal government has some meaningful investment is $30 million that helps support the youth programs run by the Health and Human Services. So I am saying to you that in the immediate year, there will be an opportunity for a demonstration project or two that the City is well equipped to go after that could bring sizable 132 10/21/08 - FISCAL STABILITY - RES. 080603 resources in it, and anyone who is planning over the next five years in the Prisons needs to be planning on reentry, as this Administration is. And that alone could save $70 to $100 million. The other has to do with the homeless. Thirty-eight million dollars is currently in the budget for the homeless, and five years from now $38 million is still in the budget for the homeless. But we are pursuing a blueprint to end homelessness. So how is that blueprint yielding a fiscal result? Now, it's a little hard to do what I'm suggesting now in an environment in which the national Administration has been relentless in its effort to eliminate City housing programs. But that ends, and the Community Development Block Grant, the funding for rental rehabilitation, the support for public housing modernization, we have a commitment from the likely President that they will restore all of that money. 133 10/21/08 - FISCAL STABILITY - RES. 080603 So the question is not just how do we build houses or rehab public housing. It is how do we make that work to reduce the number of people who are homeless in Philadelphia and thereby reduce the number of dollars that we spend on this. When I started in City Council 350 years ago when we had little statue huts, there was no budget for something called the homeless. It wasn't necessary. Within three years in the 1980s, now we suddenly have thousands of people lying in the streets and $35 million is now being spent on homeless shelters. But Wilson Goode, Sr. instructed Jane Malone, our first homeless czar, in that second term to reduce the number of people in the shelters by 300 a month, and she did. And where did they go? Most of them ended up in public housing. We had to fight to get public housing to accept them. That seems to be taking place now.
134 10/21/08 - FISCAL STABILITY - RES. 080603 But they did, and that needs to happen again. And I would say that if we can't reduce the needed support for homelessness by $20 million a year over the five-year period, if not immediately, then I would say that's also a failure, because the blueprint is supposed to end homelessness. Now, those are two areas in which I am really familiar, in reentry and in housing. In every area there is a strategic discussion that needs to take place as to how proposed federal policy which is likely to happen can benefit this city in tangible ways. In Mayor Nutter's platform last year, even under the previous national Administration, there was a small annotation that somebody had done a study showing that Philadelphia was losing up to $500 million in federal grants every year. I never could figure out who did that study, but some other people seemed to be aware of it. And that's under an 135 10/21/08 - FISCAL STABILITY - RES. 080603 Administration that was cutting funds. This has to be as relentless a strategy as it is to figure out who gets thrown out of work and what groups get unfunded and how the suffering can be distributed in an equitable way. So my recommendations really at the conclusion -- and you'll see the data that I've provided here to back it up -- I think that first the Mayor needs to immediately get together with the other mayors, as he does, and a major concerted effort here and nationally needs to be made to get the Community Development Block Grant added to the stimulus or something specifically oriented to local governments. There are other things that are in fact being applied to state governments. I don't know how -- relating to Medicare and Medicaid. I don't know whether they may benefit us, but at the very least, local government should be part of that package too, and I think they can be. 136 10/21/08 - FISCAL STABILITY - RES. 080603 Secondly, I think that we need to have a meeting between the Mayor and our legislative delegation to talk about not only these immediate priorities, but what our longer term, six-month priorities need to be for the next fiscal year. There needs to be working out the strategy for a reentry plan and the strategy for an expansion of public housing so that it can accept the homeless. You know, it's hard to kind of break out of an old habit. We've gone through seven or eight years in which every year we wonder how badly we're going to be cut, and it's understandable that in this environment, that's what we think. And particularly when this fiscal crisis was first confronted about a month ago, perhaps it wasn't as clear as to what is likely to happen in two weeks as it is now, and obviously we need to wait two weeks to see where we are. But if 137 10/21/08 - FISCAL STABILITY - RES. 080603 present trends continue as it were, then we have to see that as much of an opportunity as we currently see our fiscal crisis as a permanent disaster. It is not and it need not be. It wasn't in the 1990s when the Clinton Administration invested significantly in the cities, and we can well be heading back to an era like that again. Thank you.
Thank you both for your testimony, but you talked about connect the dots in such a way on both sides of the ledger. So I'm going to try to just narrowly -- because I did hear everything that you said and I do agree with most of what you said. Not just where we are, but how we get to where we need to be.
But a couple of them that I honed in on. One, you 138 10/21/08 - FISCAL STABILITY - RES. 080603 were talking about the possibility of a friendly presidential Washington Administration, God willing and the creek don't rise and the polls don't shift. But what we were talking about is possibly some help coming from the federal government by way of restoration of CDBG cuts that we've grown used to anticipating, and for us to kind of figure ways to reduce homelessness, if I understood you correctly.
Which was reduce our obligations and some of our expense side of the ledger in doing so. One of the other things I'd like you to focus in on, though, is some of the -- it is my anticipation that the way we're going to work our way out of this might also be infrastructure repair. And these are non-exportable jobs. These are localized jobs. These are family wage-supporting jobs that we can use. We have, I think the last estimate was, over 139 10/21/08 - FISCAL STABILITY - RES. 080603 300 bridges, trestles in the state of constant disrepair in the City and region and that these funds might be used to begin the restoration process. I also understand we are ten years behind in maintenance in those kinds of bridges, and I can't understand why, but that is in fact true. One other area that I want you to actually respond to, both of you, please, green jobs, green economy, something that is near and dear to Councilwoman Reynolds Brown. Is that going to be, in your estimate, some of the area of opportunity, if you would, for reviving this economy?
I have two answers to that. First of all, both of these; that is, infrastructure and green jobs, are going to be major new initiatives of the federal government 140 10/21/08 - FISCAL STABILITY - RES. 080603 that will help us. No question about it. It's the top priority of everybody, and they're there. Just yesterday as I was writing this, something came out from the Philadelphia Workforce Development Corporation, some sort of a conference that's being held on the potential for green jobs. And obviously that will help deal with our economic situation and create areas of a new economy. The infrastructure funding will do the same. The reason I didn't focus on those as much is that it's harder for me to see how they have a direct impact on the City budget as currently defined as opposed to just the broader economy. I'm not sure at this moment how much, for example, of the infrastructure money would go into the operating budget of the Streets Department as opposed to the capital budget. I think some probably could, but I just didn't know enough about it. I also couldn't figure out, for 141 10/21/08 - FISCAL STABILITY - RES. 080603 example, whether the green jobs and some of the climate change initiatives would provide new federal support for recycling, and that, too, would certainly benefit the City. I think what you're suggesting, though, is sort of what I said, we need the kind of analysis that you've just asked for and that I've just tried to do applied to every area of the City. I don't know much about the health issues. My wife knows a lot about it, but I don't. The City's Health Department, there again, that's the other area in which federal money plays a part, Medicare payments. So I think we need to do this throughout.
Point of information. I think I heard also Ms. Scott from the unions talk about how we need to kind of join at a table from our varying perspectives to see in this adversity some of the opportunities that arise, and if in fact we have a different 142 10/21/08 - FISCAL STABILITY - RES. 080603 Administration -- we're definitely going to have a different Administration, but one that might be a little more city friendly, and if in fact how do we benefit directly from that.
Absolutely. And let me also just stress one aspect of what I focus on here. The biggest area of City expenditure has to do with destructive behavior. We spend 40 percent of our money on the police and the criminal justice system. You look over at DHS and that's a lot of destructive behavior. And we are left holding the bag in ways that other cities aren't, because, as you know, Philadelphia's county and city are contiguous, so unlike Chicago, which has Cook County, or Los Angeles, which has a much broader Los Angeles County, that is the administrator of the programs to address these things with a much higher local revenue base is a terrible problem for us. So that to me the relentless 143 10/21/08 - FISCAL STABILITY - RES. 080603 effort to reduce destructive behavior and to create constructive behavior is by far the most cost-saving initiative that we can pursue. And those are initiatives that the federal government historically has supported and, to some extent, the state government has supported. So that has to be, it seems to me, as much a strategic vision as how many cars are we going to tow today, because that's important, and every little bit of savings -- I appreciated the recommendations that were made by our three new Councilmembers. I think that's important. But there's big, big bucks here. And if we were to wake up tomorrow and the federal government or the state government took over the Philadelphia Prison, just took it over outright and decided to pay for it and do that, suddenly we have just gained $233 million a year. That's a billion dollars over a five-year period. Deficit gone. So look at those things and see 144 10/21/08 - FISCAL STABILITY - RES. 080603 what we can do. And imagine if we could wake up five years from now and say not only that we were saving this money, but there was not only fewer crime -- less crime, but fewer people committing crime, that there were more people living in houses and not abandoned. Now, I haven't even gotten into schools and some of the other areas where, again, I don't know exactly what the federal proposals will do for our local School District and whether that benefits us, but you can bet that this is something that we ought to be thinking about now, how it can, so we can be fighting for the things that would be of greatest benefit to us.
I'd just make one comment on waste cuttings. Remember, one man's waste is another man's income. If you're hiring too many people, it may be wasteful from our budget point of view for the City. But on the other hand, 145 10/21/08 - FISCAL STABILITY - RES. 080603 they have income and they're spending it. And so it kind of gets to be interesting. On the construction side, you said how did we get ten years behind. There is, I think, a simple proposition, and, that is, you don't get -- it's harder to get reelected to office by just fixing things, because it's not really visible, until the bridge falls down. And then, of course, everybody says, Oh, my goodness, what happened. New Orleans is a great example where lots of money that should have been spent on building up the system to prevent the waters from coming in was spent on kind of more obvious things where you could get your picture taken. It's a tendency to spend the money in the wrong place and it's very difficult. And so you get behind on these kind of things. Were we to get a chunk of money to do this, there would be some benefit to the budget in a sense. If it created jobs like we would hope, 146 10/21/08 - FISCAL STABILITY - RES. 080603 then you get some money from that, but not a lot. So I think you're basically right, but it would certainly help some. And certainly we need the repairs, but the lags are very long. Typical recession, even '80, '82 kind of period where it was like under a year, by the time Congress says, Let's spend quadra-zillion dollars on this, they call up Mayor Nutter and say, You've got $10 million, he then has to get contracts out for bidding, and then by the time that happens and people are actually working, it's over. I mean, thank goodness. And we hope that this will be the same kind of a pattern. So it doesn't mean you shouldn't go for it, because we need it, but we shouldn't count on it, I think, as a way to help us out in the short term. From the budgetary point of view, it wouldn't really help us a lot. But let's get all we can get and let's get busy 147 10/21/08 - FISCAL STABILITY - RES. 080603 fixing things up, because you're right, we are behind.
I would say that if the proposal I'm suggesting for the Community Development Block Grant -- and the Speaker indicated that was there -- were adopted, that would have an immediate impact. It would be able to fund a lot of things that might be cut and it would be able to be used in certain areas that would be equivalent. And, in fact, ironically, the position the President is taking, which is the public works over time is too long, this would be a far faster alternative, and it's the one in fact that the Clinton Administration used when they initiated their stimulus package in the early '90s. That's what they used for it. They had proposals come in from all over the country related to CDBG and it was expanded to meet that, and it paid for rec centers and various other things here in the City. 148 10/21/08 - FISCAL STABILITY - RES. 080603
All right. Thank you. Gentlemen, I want to thank you very much.
Thank you. I'd like to call the next 149 10/21/08 - FISCAL STABILITY - RES. 080603 panel. Stan Shapiro, Phil Lord, Andre Butler and Jonathan Stein. (Witnesses approached witness table.)
Terri Falbo will be joining us from the National Organization of Women. Good morning, Chairman Clarke, members of the Oversight Committee and other members of City Council. My name is Stan Shapiro and I'm here as Coordinator of One Philadelphia. One Philadelphia is a network of advocacy groups and individuals that has worked for the past four years to oppose the notion that tax cutting is a panacea for all that ails us. The current budget crisis vividly supports our argument. In the past, we have argued that 15 years of annual tax cuts have done nothing to solve the acute problems that the City faces: growing poverty, overcrowded, understaffed schools, growing homelessness and a broken 150 10/21/08 - FISCAL STABILITY - RES. 080603 healthcare safety net. Countering that stark reality, we have heard faith-based arguments touting the magic of the marketplace. In essence, these arguments have claimed that if we supply businesses with more cash in the way of tax cuts, their profits will grow and everyone will prosper. And even tax revenues will grow rather than narrow, because expansion of the tax base will outstrip the impact of lowering rates. Until this year, some of the growth forecasts have been realized. But what we've said about this phenomenon is now clearly proven. When the national economy grows, so does the Philadelphia economy and tax revenues. When the national economy declines, so does the Philadelphia economy. Local rates just don't matter. org, you will find a variety of studies that further back up that reality. And here is some more reality. 151 10/21/08 - FISCAL STABILITY - RES. 080603 Businesses will not prosper unless they can sell their products or services, and they cannot sell their products or services to a public that is poor and getting poorer. If businesses make money, they can pay their tax bill. If they do poorly, lowering tax rates will not help. All of this results in a simple bottom line: Programs that lift working people and the poor cannot be sacrificed in order to fund tax cuts. Tax cuts enacted last year will cost the City some $700 million over the next ten years, and that is without computing the additional losses caused by a declining economy, strangled by a city unable or unwilling to support its schools, infrastructure and supply of decent housing. So we say this to the Mayor and to City Council respectfully, please spare the austerity. Instead, freeze the tax cuts. Use a tax cut pause to rethink the entire tax structure and then impose 152 10/21/08 - FISCAL STABILITY - RES. 080603 rates fairly. Let's have an income tax instead of a wage tax, and let's structure the real estate tax fairly so that the poor and those living in gentrifying neighborhoods are protected. Exempt the working poor from the income tax just as they are from the state income tax. On the business tax, let's look at a variety of options. First, let's remove the special treatment for banks, utilities and securities firms. As we've seen all too clearly at a national level in recent weeks, these classes of companies have done nothing to justify unique preferences. Second, let's structure the tax so that it favors local and small businesses. Let businesses deduct their gross receipts tax against their net income tax, as Cathy Scott suggested. That would reward businesses for staying in Philadelphia and let companies like Coors and Sony, not located here, 153 10/21/08 - FISCAL STABILITY - RES. 080603 continue to pay. In addition, we must demand that our state government treat our city government fairly. It is unconscionable that the Legislature still refuses to fund our courts, despite the Supreme Court's ruling that it must do so. The state must pick up a bigger share of other county costs as well. Finally, I think we need to confront the issue of what are the appropriate programs and services that a city, Philadelphia in particular, must fund and which ones should be considered, quote, discretionary, unquote.
It is commonly suggested that maintenance of streets, police and fire protection are normal city services that must be funded and that such things as housing, healthcare and job programs are services that should be funded by other governments. While I agree that this is true in an ideal world and, as I've said, the state should pay more, it is not true 154 10/21/08 - FISCAL STABILITY - RES. 080603 that this distinction makes sense in Philadelphia in 2008. The City pays for jails and courts. Those expenses are largely driven by the hopelessness of so many of our fellow citizens who live extraordinarily difficult lives. Putting the demands of simple justice aside, unless this city confronts the root causes exploding our prison population, balancing the budget will be increasingly challenging. There is simply no basis for cutting back any services which help poor people stay on their feet if we are going to solve the City's fiscal problems. And one more thing, as Ed Schwartz elaborated in detail, we will have a new President soon who hopefully will actually care about cities. Let's not starve ourselves with cutbacks now before the rescue arrives. Thank you for hearing me today, and I'm happy to answer any questions. 155 10/21/08 - FISCAL STABILITY - RES. 080603
Thank you. We're going to allow each of you to testify first and then open it up for questions.
Good morning, Chairman Clarke and members of the Oversight Committee and members of City Council who are here. My name is Phil Lord. I'm the Executive Director of the Tenant Union Representative Network, which is a tenant advocacy and service organization here in Philadelphia, and we see thousands of tenants every year who face eviction and substandard housing, and we're here today to testify on behalf of One Philadelphia and ask the City to reconsider its proposal to reduce the gross receipts tax and to cut corresponding City services. Trickle down has never been a credible economic theory, but it has long been a covert political strategy. It 156 10/21/08 - FISCAL STABILITY - RES. 080603 basically states that if you give tax breaks to big corporations, the result will be more jobs and economic prosperity for everyone. Even though economic analysis and the most recent census have confirmed that this is untrue, the myth lingers. We have just ended the economic period of the most tax breaks for the rich, the most deregulation, the most cutbacks in fundamental economic programs, and the results are in. We have increased poverty, increased joblessness, deteriorating education, and the list goes on. Only now in the midst of an historical presidential election and a record-breaking economic meltdown has the public discourse caught up with common sense. Trickle-down or supply-side economics is slowly giving way to its logical counterpart, bubble-up economics. Our country is perhaps the richest and certainly the most powerful in the world, yet infant mortality 157 10/21/08 - FISCAL STABILITY - RES. N. S. ranked last. I would like to suggest that it's not because we lack our funding or because we have more irresponsible people. It is because we do not care enough to help those who really need it. Housing is fundamental. You cannot hold down a job without a permanent address. You cannot eat nutritiously and affordably without a kitchen in which to cook your own food. You cannot convalesce from illness without a roof over your head. Children in shelters suffer academically. What is needed is more affordable housing, more homeless prevention and more code enforcement. We cannot do these things and cut taxes at the same time. Every day at TURN we see the 158 10/21/08 - FISCAL STABILITY - RES. 080603 tragic results of trickle-down policies. We see rising homelessness as there is less money each year for affordable housing. We see communities deteriorate as housing code enforcement diminishes. We see record foreclosures on homeowners and, yes, on rental properties too, creating a hidden homelessness. We see exploding utility prices. And while national and local attention is focused on banks and homeowners, we must recognize that renters are also victims of the current financial crisis. Forty percent of Philadelphia are renters, and many tenants who have faithfully paid their rent for years suddenly find that the money they've been paying to the landlord is not going to the mortgage company as expected and they're facing eviction. Many homeowners just pretend to be homeowners in order to qualify for low-interest mortgages and then turn around and rent out the properties. 159 10/21/08 - FISCAL STABILITY - RES. 080603 Tenants who do not open the mail of their landlord are surprised when the sheriff comes out and tells them they only have a short time to move. What will attract business and jobs to Philadelphia? Superficial tax cuts that have little effect on a company's bottom line or a city with an educated workforce, affordable housing for employees, clean streets, decent healthcare and recreational facilities and reduced crime? One Philadelphia believes it is the latter. Bubble-up economies reflects the economic human rights notion that we all have basic needs that must be met for us to be productive and contributing members of our society.
It starts with the premise that we are all in this economic boat together, and if we are to grow as a society, as a city and as a nation, we ignore each other's basic human needs at our peril. If one of us is denied healthcare, the disease can 160 10/21/08 - FISCAL STABILITY - RES. 080603 spread. If one of us is uneducated and unemployed, that hopeless person may take from us and be a burden on others. If one of us is hungry, it is a shame upon all of us. Rather than give money to the wealthy and hope they find ways to help the poor and unemployed, let's spend it directly on where it would count most. No more tax cuts. Keep and expand necessary city services for our city. Thank you.
Good morning, Chairman. Good morning, Council. My name is Andre Butler and I am on the Board of Directors of an organization called the Philadelphia Unemployment Project, and I've testified before this body previous times. I'm privileged to come here, always under adverse circumstances. Nevertheless, I'm always privileged to be here. Our organization deals with 161 10/21/08 - FISCAL STABILITY - RES. 080603 basically what it says. It does its best to advocate for the underprivileged. The first thing we believe is important is jobs, obviously. After that, we help people who need help with their mortgage, unemployment compensation. We also advocate for various issues that help the regular people. We were just in a fight for healthcare that will not end, but it just -- unfortunately, we didn't get it passed in Harrisburg, but the fight isn't over. So that's what we do. And we're part of One Philadelphia. We've been a part of it for about four or five years. And it's interesting to listen today to testimony ahead of me, because Dr. Dunkelberg, who is somebody who I respect but have always been at odds with, everything is so optimistic with him, but the reality is, the people today are scared. People are absolutely scared. 162 10/21/08 - FISCAL STABILITY - RES. 080603 I work at three different jobs and one of them laid off ten people Monday morning. We do papers. At 5:30 every morning we deliver papers. Ten of my colleagues were told 5:30 that morning, You no longer have a job. At 5:30 on a Monday morning. Companies are scared because they don't know -- they don't have the money to pay their employees. People themselves are scared because they don't know whether they're going to be able to pay their own mortgage or their own rent. So everybody is scared now, and that's why we're concerned about -- because if we continue to go on the path that we're going and looking at all the service cuts, who does that really affect? It affects the average person that is just trying to make a living day to day. I was watching one of the post debate analysis, and one lady made it very simple. She said, The Americans have one eye on the President race and 163 10/21/08 - FISCAL STABILITY - RES. 080603 one eye on their pocketbook. And that's where it is, because they don't know how much money is in their pocketbook to pay their bills for the very next week. They do not know. And this situation, if you're going to look at continuing to fund tax cuts which are affecting the have's and implement service cuts affecting the have not's, what do we really have? Businesses are not going to be able to sell their wares to nobody. Remember, our population is dropping. Let's not forget that years ago we had -- we were the fourth largest city in this country. We're now the sixth largest city in the country. Remember, last year Phoenix, Arizona passed us. We're continuing to drop people every single year. And you're not going to be able to get that base to return if we continue to go down the path of looking at service cuts, social service cuts, and continue to look at tax 164 10/21/08 - FISCAL STABILITY - RES. 080603 cuts for the ones who can really -- as President Obama said one time, the ones that haven't asked for it and really don't actually need it. So we need to have a more focused and a really more strategic look at what we're doing here. Let's also not forget one of the main proponents of tax cuts, Brett Mandel, said on one of his recent websites, We should slow down these tax cuts. They need to be slowed down in this particular situation to try to get some fiscal stability to the City. So we need to keep those things in mind. You say everything is on the table. Everything should not be on the table. There are certain circumstances here that my colleagues said here that should be looked at and not that they need to be -- there are certain things that should not be on the actual table.
So we're here to advocate for the average person, the one on whose back the economy of this city really actually 165 10/21/08 - FISCAL STABILITY - RES. 080603 builds, and that's the average person who is fighting day to day to keep a job and protect his or her family. And we hope this Administration and this Council takes a look at that. Even me myself, I work at a catering -- I'm a part-time caterer. I went to a job -- this is how bad the economy is. m. m. I got a call from my boss asking me, Do you want to work -- leave Camden, go over to King of Prussia, pull an all-night shift for me at the King of Prussia hotel, come back on a Sunday, do an eight-hour shift with me at another King of Prussia hotel. I'm thinking to myself, I'm going to be dead tired, but I need this money. So people are out here with no 22 sleep just trying to make ends meet. So I'm hoping this Administration and this Council keeps the regular people, the ones -- the low-income, bottom-level 166 10/21/08 - FISCAL STABILITY - RES. 080603 people in mind when you do what you're doing to try to help this City out. Thank you.
Thank you. Sir, did I hear you said that Brett Mandel recommended a slowing of the tax --
You heard correctly. I saw it on one of his recent things he wrote on one of his websites. He recommended slowing down the tax cuts.
Times must 167 10/21/08 - FISCAL STABILITY - RES. 080603 really be bad. Okay. Thank you. Who is next? Mr. Stein?
Good afternoon, Chairman Clarke and Councilpeople who are here. I'm Jonathan Stein. I'm general counsel at Community Legal Services and also a former member of the Philadelphia Tax Reform Commission. I think we heard from the City people this morning that they said a mantra or this generalization that all things are on the table, but I think the "all things are on the table" generalization doesn't really speak to really the more difficult issues we have to grapple with, which is what are the priorities for the City in dealing with a budget crisis. And I think the very first thing that should be the order of business is to freeze the tax cuts. Before you make cuts in City services that we know are important for people's lives and for businesses who depend on 168 10/21/08 - FISCAL STABILITY - RES. 080603 City services to provide a quality of life and the infrastructure that allows business to thrive, we should take a very sane and rational step of saying let's freeze. And it could be a temporary freeze, for those who are really zealous about the value of business cuts, but let's, for the sake of fiscal stability and integrity, put a hold, a two-year, one-year, two-year hold on any tax cuts until we get a clearer picture of what the City's fiscal future will be. This is not a radical step. We had a republican governor named Mark Schweiker, who people know as the President of the Greater Philadelphia Chamber of Commerce now, who when he faced a downturn recession a few years back, 2001, 2002, as Governor of Pennsylvania, one of the first things he did was stop and put on hold major corporate tax cut and phase-out of the capital stock and franchise tax. It was on the chopping block to phase out. That 169 10/21/08 - FISCAL STABILITY - RES. 080603 was put on hold in the face of the fiscal reality of the state budget being in the red. And I think we could learn from a republican pro business governor to say we should do the prudent thing now and freeze the tax cuts that are in motion as we speak. For those who are that enamored about tax cuts as growing business, one of the lessons that Professor Robert Lynch taught us in his review of tax cuts across the country that city and state governments have poured out there in the billions of dollars over years is that you have a very lethal cocktail for business growth when you combine tax cuts for businesses and service cuts. And those two things, which would be continuing here or happening here if we allowed the tax cuts to continue and we have service cuts, which seems like they're rather inevitable, that combination is clearly one that is not -- doesn't help business at all or business 170 10/21/08 - FISCAL STABILITY - RES. 080603 growth at all. I think when we have a freeze or a temporary freeze, if you want to call it, it can give us pause to really look at our tax structure and revisit the tax structure, because I think there's been so much either misinformation or lack of information about tax policy in the City, and I think part of it is the fact that City Administrations have not been very forthcoming with who pays taxes. And I think Councilwoman Sanchez's disclosure ordinance/bill is a step forward to really bring some transparency and sunshine on our tax system. Instead of it being in closed cabinets in the Finance Director or Budget Director's Office, people on Council and the public should have a much better idea of who is paying a variety of taxes, including the business privilege tax. If you look at the gross receipts tax, which I know has been 171 10/21/08 - FISCAL STABILITY - RES. 080603 knocked as really awful tax and is on the skids for being eliminated, one would see that the largest businesses in Philadelphia, not small and medium-sized businesses, pay the great proportion of the gross receipts portion of the business tax.
It's a tax that if you're a big company, like Sony or Budweiser or Coors beer that is not going to set up a headquarters here but will do business in Philadelphia, that's the only tax that that multi-national or national business that's outside the City and won't locate here pays. So one has to really see whether eliminating a gross receipts tax across the board is worth giving multi-million-dollar tax breaks to businesses that profit from the Philadelphia market, but have no 22 employment or corporate presence here. And I'm not saying what the Council should do, but I think a tax pause, a tax freeze could at least allow 172 10/21/08 - FISCAL STABILITY - RES. 080603 us to revisit this area and say if we really want to help a start-up business, a small business, can't we fine tune some of our tax policy to achieve that end. Do we need a tax cut for Wal-Mart? When Wal-Mart accountants take their business privilege tax cut and send it back to Bentonville, Arkansas, can we really say that that's helping business in Philadelphia grow and employ people? So I think these are valid questions to raise. The wage tax can be revisited. The idea of a city income tax replacing the wage tax is an idea that has never really been seriously looked at. The Tax Reform Commission began to study it, but then became a low priority for the Commission because it had other priorities than looking at things like reforming the wage tax or closing tax loopholes that Mr. Shapiro spoke to. I mean, we have entire businesses, insurance, banking, securities, that either pay no or very reduced business 173 10/21/08 - FISCAL STABILITY - RES. 080603 tax and, in that way, discriminate against other businesses who pay a business tax, because state law has given them a break for years and no one in the City has revisited that area and say is that fair to other businesses. So what I'm saying is, the bottom line is, I think we should avoid service cuts to the City. There are ways of perhaps dealing with waste and efficiencies, and I know a number of Councilpeople have put forward that the City says they're going to look at carefully, but I think we have to take a very prudent and rational step and say let's freeze these tax cuts right now, the City can't afford them, and let's use that opportunity to really revisit this area for the future. Thank you.
Thank you. One more individual and then we'll open up to questions, and I believe Councilman Green would like to ask 174 10/21/08 - FISCAL STABILITY - RES. 080603 Mr. Agostini a question or two and I believe that Mr. Agostini would like to respond to some of the comments made by this particular panel.
Good afternoon, Chairman Clarke, members of the Oversight Committee and other members of City Council. My name is Terri Falbo and I am the Secretary of the Philadelphia Chapter 11 of the National Organization for Women, NOW. I also work on a volunteer basis with many ex-prisoners and helping people to find affordable housing. NOW is a member and supporter of One Philadelphia, and we support the request of One Philadelphia that the City reconsider its proposed gross receipts tax cuts and the corresponding City service cuts. Cutbacks in City services, whether they be for education, healthcare, housing or employment related, will disproportionately affect women. And I can say from the work that I do on a volunteer basis that we don't 175 10/21/08 - FISCAL STABILITY - RES. 080603 need cutbacks. That will just make our City worse. We need expanded City services. So we don't think that -- even though we know the projection for shortfalls in the budget is there, we do think that instead of automatically then going to tax cuts for the gross receipts tax cuts and the cutbacks in City services, instead the other ideas that were raised by many of the presenters here and some of the Councilpeople also should be what the focus is, and that we can and we must do better. No tax cuts. No gross receipts tax cuts, and no City service cuts.
Could I have Mr. Shapiro come to the table, along with Mr. Agostini. (Witnesses approached witness table.) 176 10/21/08 - FISCAL STABILITY - RES. 080603
Of course I'm not going that pass up this opportunity for another step in this public policy discussion. I will start by saying that let's say for the sake of argument I agree that we should freeze BPT cuts for two years.
According to the chart that I have here, I believe the amount would be 11.9 million in Fiscal Year '10, 21.1 million in Fiscal '11.
So, in other words, we would save less than one percent. In fact, probably less than one half of one percent.
So part of 177 10/21/08 - FISCAL STABILITY - RES. 080603 what you realize by looking at those numbers is that the BPT cuts were already back-loaded. In other words, we were already slowing ourselves into the BPT cuts, and for that reason, if we freeze them for two years, it's almost as if to say who cares, because no one was getting a major cut over the next two years anyway.
Well, we're not suggesting -- and I don't have access to obviously all of the budget resources that the Administration does, all of the forecasting resources, all of the access to --
But I'm agreeing with you. I'm saying let's freeze them for two years. If we freeze them for two years, we save about $30 million over two years, which is less than probably half of one percent of total revenue. We back-loaded the tax cuts on purpose to ease our way into them. So if we freeze them, the issue is 178 10/21/08 - FISCAL STABILITY - RES. 080603 whether there should still be a long-term schedule or not. Because I'm trying to figure out -- first I'm starting with a point of agreement. We're agreeing --
-- that we should consider freezing them for two years.
Now we're also agreeing that it's a drop in the bucket if we freeze it for two years, it's not going to make that much of a difference. So now let's have a discussion about what should happen after those two years.
Okay. What we've said is, we think we ought to use the pause as an opportunity to reexamine the structure of tax cuts going forward, assuming that after the two years --
So you're 179 10/21/08 - FISCAL STABILITY - RES. 080603 not talking about pushing the schedule back two years?
I'm just asking what you're talking about. Are you talking about pushing the schedule back for two years?
No. Our preferred solution is to use the pause to restructure the back years, to not implement the tax cut the way it is now structured in the code. Our preference would be if we --
So you're not talking about freezing it for two years. You're talking about basically --
-- eliminating business privilege tax cuts until we decide what we're going to do with the business privilege tax cuts.
I think it would 180 10/21/08 - FISCAL STABILITY - RES. 080603 be perfectly prudent to simply freeze the tax cuts for the first two years, if I could finish the thought.
Leave the back end of or push those cuts back, structure them the way they are but postpone the inception for two years, but during those -- but not look at that necessarily as a final step, just as the enactment of the inclusionary zoning ordinance last year was not the final step, but use that period of time to reexamine the structure of business taxation and, in fact, all taxation in the City, which could use a substantial restructuring to make it more fair, more progressive and hopefully more robust to bring in more revenue in a fairer way.
We agree again. So let's say we freeze the tax cuts for two years. Over the two years that we freeze the BPT cuts, we consider 181 10/21/08 - FISCAL STABILITY - RES. 080603 other ways to make the tax structure more progressive, and let's say we are lucky enough to get that type of legislative support from Harrisburg, and we are being very hopeful in that regard. Are we then focused on making Philadelphia still competitive in terms of business tax structure?
Competitiveness, frankly, in business tax structure, according to the research that we've looked at, is not a main factor in growth or in reducing poverty, and actually rather than talking about growth, we would rather talk about reducing poverty, that unemployment or employment is an interesting statistic, but a 25.1 percent poverty rate is a much more pressing statistic. So we don't really find that a competitive, quote/unquote, tax structure is the main ingredient in reducing poverty. We think that spending for social programs, for schools, libraries, recreation centers, 182 10/21/08 - FISCAL STABILITY - RES. 080603 employment, ex-offender programs, the range of things that are now threatened by these budget difficulties, increasing those, maintaining those are more important to making the City what it ought to be.
In our last discussion on this issue we talked about job loss over the last several decades. Do you believe that business tax structure has anything to do with the job loss that we've experienced over the last couple of decades?
If it does, it's a secondary factor to the fact that our schools are overcrowded, that our neighborhoods are run down, that we have a welfare program for young males which is incarceration and that the City has very deep social problems which need to be solved.
Is that also what contributes to the unemployment rate?
Okay. Interesting that you state that, because in your testimony, at the beginning of your testimony you seemed to state otherwise, that as the national economy goes, the local economy will go.
In terms of local policies that can impact that. I mean, there's no question that the major gross determinant of what happens in cities --
But did you make a statement that as the national economy goes, the local economy goes? Was that your statement?
That is correct, but if we're talking about local policies that have -- that's the -- that would be the headline. In terms of the sub-headlines as far as -- which I'm elaborating on now, because I was trying 184 10/21/08 - FISCAL STABILITY - RES. 080603 to keep my statement down to two pages. As the local -- in terms of what we can do as a local government to influence that at the margins and also not so incidentally just make life better for our citizens, it's far superior to add to the social service safety net than it is to make marginal reductions or even gross reductions in business tax rates.
The question at hand is, are you still sticking by the statement that as the national economy goes, so the local economy goes? Are you sticking by that statement?
The latest data that I have from the City Controller's Office on unemployment rates is for the month of July. Information was released in August. Can you tell me what the unemployment rate was for the United States?
For the United 185 10/21/08 - FISCAL STABILITY - RES. 080603 States in July?
It's around -- I think currently it's 6.1 percent. In July, it may have been --
It was 5.7 percent. Can you tell me what it was for the region?
It was 5.6 percent. Can you tell me what it was for the City?
It was definitely a couple points higher. It has been a couple points higher for the last couple of decades. It was 7.4 percent. So do you stick by your statement that as the national economy 186 10/21/08 - FISCAL STABILITY - RES. 080603 goes, so the local economy goes?
There's been a persistent two point difference in the unemployment rate over the last several decades.
Right. But as the national employment rate goes up, so will the local rate go up. And as a national -- even though there's a margin that continues, which goes to the point that the national economy and the local economy are pretty much tied to each other, there is a gap, but given -- but the fact that there's a gap --
There's a persistent gap. The fact that there's a 187 10/21/08 - FISCAL STABILITY - RES. 080603 gap is not proof in any way that that gap is caused by business tax rates as opposed to poor schools, inadequate housing, impacted poverty and the variety of other social ills that we have in this city. And we argue that it is the variety --
But you would agree that there is definitely a gap between national economic performance and local economic performance and regional economic performance and local economic performance?
Do you also agree that there is a connection between the unemployment rate and the poverty rate?
Councilman Green. 188 10/21/08 - FISCAL STABILITY - RES. 080603
I just had had a point of information, and, that is, the savings that were mentioned in Mr. Shapiro's testimony would actually be less, because revenue assumptions have declined significantly with respect to the BPT. Therefore, the percentage savings or the percentage of the tax deduction will also go down. So the dollar amount will be down by several million dollars.
Well, we don't have -- I don't have the benefit of the latest projection. I'm glad to have that updated, but I just suggest that the failing to pause and just leaving the tax cuts --
It wasn't really a question there, Mr. Chairman. That was just a point of information.
Could I comment? If I could just make a brief comment. My concern is -- no?
Let him 189 10/21/08 - FISCAL STABILITY - RES. 080603 talk.
Yeah. That leaving the tax cuts in place, according to earlier estimates, over ten years would cost some $700 million. So unless we pause them and reflect on the direction of which we're going, even if that 700 million is now less than 700 million, we're talking ultimately about real dollars. So it seems to us that this would be a good time to pause and reflect on the direction in which we're going.
Since he wanted to comment, I have one more question. 190 10/21/08 - FISCAL STABILITY - RES. 080603
This is, I guess, in the personality of my freshman colleague, Mr. Jones. How often is a broken clock right?
Thank you, Councilman. Councilman Green, you had some -- first of all, are there any other questions of the witnesses in this panel? (No response.)
Councilman Green, you had some questions for Mr. Agostini?
Yes. Very quickly. Thank you for staying around and listening to this. I appreciate your time. I know it's precious right now. So thank you.
The question really relates back to the chart on 23, and what I wanted to do was try to really define the worst-case scenario so that there's a clear definition of it on the record. We talked about school funding and other stuff, and you're going to provide us the information with the increased interest costs, which is not a part of this chart. But leaving those two things aside even, I was just wondering whether this chart on follows the scenario on or the 192 10/21/08 - FISCAL STABILITY - RES. 080603 scenario on with respect to revenue assumptions.
On . So that means if we add that $200 million to the fund balance after potential negative adjustments, we end up with $1.2 billion as a worst case before interest costs, and then if we assume that we can't do the revenue obligation bond, which is already in that top number -- pension obligation bond, sorry, that would mean that we have the MMO increasing in '11, '12, '13 potentially as a result of losses this year. So let's assume that's a billion-dollar loss this year between the eight and three-quarters and a half a million loss in the market. That would be another $30, $35 million a year. So we're looking in the Five-Year Plan at another, conservatively, 120 million in MMO payments if we can't do the pension obligation bond. So it looks to me like 193 10/21/08 - FISCAL STABILITY - RES. 080603 the worst-case scenario before interest expense increase is around $1.32 billion. Would that be an accurate way to look at this?
Councilmember, let me respond to that in two ways. To the more immediate about adding the assumptions and the change in assumptions on , the 197 million to the bottom line here of the 841 million --
No, no, Steve. I'm adding it to the -- I'm looking for the worst-case scenario, so I'm adding it to the fund balance after negative potential adjustments.
So if we could just answer that question before we get the answer.
If you'll allow 194 10/21/08 - FISCAL STABILITY - RES. 080603 me to get there. The $200 million we would in our projections add to the 841. The second approach to this, you and I and many others, we could sit here for hours, as we have been doing in MSB and in this building, contemplating a range of assumptions. And that has been part of the challenge in this, is that none of the assumptions you have just raised are out of the realm of possibility. They are all possible scenarios. And what we have tried to do is stay within what we think is likely, given data, evidence, what we know to date. I'm not going to say to you that we have encapsulated this and so it is this number. It could get worse. And so we've been very cognizant of that. And, yes, there are a number of scenarios we could draw up that would make it worse, but right now this is where we think we are.
Okay. But 195 10/21/08 - FISCAL STABILITY - RES. 080603 based on the numbers you have provided today to us, the worst-case scenario, assuming we don't have the pension obligation bond and increased MMO payments as a result in '11, '12 and '13, is above $1.3 billion?
I don't think it's that high. I'm not comfortable with that assumption on the MMO payments.
Well, assuming it's eight and three-quarters and we've lost half a billion this year, which we have lost more than that year to date. Let's hope we'll make it up. With that as the assumption, because obviously assumptions underlie every number here, it's 1.3 billion plus; is it not?
Councilmember, it's conceivable it could get that high, but right now this is where we are. But I'm not going to sit here and tell you, no, that couldn't happen.
But we're at a billion adding the 200 to the 841 from 196 10/21/08 - FISCAL STABILITY - RES. 080603 the difference between Pages and 21, and we're at a billion two if we don't have -- based on your own numbers, we're at a billion two, worst-case scenario, assuming the market recovers and we have no increase in MMO. Can we agree on that?
If you don't 10 have the POB as you were assuming, that's 11 105 million, plus the 200 million roughly 12 from the scenario provided on , 13 and now you're at about 1.15 billion. 14 And I'm not trying to parse it. 15
I'm just 16 adding here 1,003,541,000 plus 200 17 million, the difference between and 21, that's - 19
I think we would 20 both agree given the magnitude of what we're talking about, 50 million or so, we're pretty much in the same area.
So what's the worst-case scenario then? 1.2 billion? 197 10/21/08 - FISCAL STABILITY - RES. 080603
Councilmember, I really can't say. I mean, I will tell you that all of us are anxious about what could unfold in the economy.
That's fair enough. Just to come back to Councilman Goode's comments earlier, I'd like for us in this process to plan for the worst and hope for the best. So as we come in, let's have a plan that looks at that scenario and has a plan for it and not just have us cutting things slowly over time. I think we have to --
Councilmember, we would agree that that would be a prudent approach.
Thank you, Councilman. Mr. Agostini, thank you so much.
You're welcome, 198 10/21/08 - FISCAL STABILITY - RES. 080603 Councilman.
The next and last panel, I'd like to call up Donna Anderton, Sherrie Cohen, Pat DeCarlo, Amy Dougherty and Shelly Yanoff. (Witnesses approached witness table.) MS. DeCARLO: Donna Anderton had to leave two minutes ago.
I'm sorry. Give her my apologies. Thank you. Please proceed.
May I start? Thank you. Good afternoon. I started with good morning. I am Shelly Yanoff and I am Executive Director of PCCY, the region's major child advocacy organization. Thank you for holding this meeting. It's long, but it's important. I won't underscore that we're in troubled times. There's no doubt that the Mayor, the Administration and each of you want to help Philadelphia's children 199 10/21/08 - FISCAL STABILITY - RES. 080603 and families, and you have done so. But we are at a time and a place that put many at risk. We are here today to urge that you continue to support the programs and services that tens of thousands of kids and their families need and rely on in Philadelphia. They make the difference between a city with hope and one that has none. We do not deny that the decisions before you are serious and difficult, but we want to remind you that there is a heavier cost to postponing some things than others. While postponing tax reductions in the face of an unprecedented economic crisis would probably not have severe impact, postponing needed services would. A child is only 5 or 6 or 12 or 14 once. If his library is closed, if her family support program becomes unavailable, if their after-school program is not opened, if their health center cuts its evening 200 10/21/08 - FISCAL STABILITY - RES. 080603 and weekend hours, the costs are very high, the impact very severe. We urge you to make sure the programs that support communities that enable parents to work, knowing that their children are at staffed and safe recreation centers and after-school programs, that have health centers that are open and available in the evenings, the only times they can get there, and on weekends, they must remain open. The City and its schools have had many programs in the past that disappeared temporarily and are never seen again. We can't let that happen again. Thus, we urge you to make sure that the 31,000 kids who rely on the health centers for healthcare are open and well functioning when they're needed, that the after-school programs for more than 50,000 youth continue, that the recreation centers continue to offer opportunities to reduce crime and build communities for thousands of families 201 10/21/08 - FISCAL STABILITY - RES. 080603 across the City, and that the libraries continue to be beacons of hope, open to help kids read and learn and stay safe. These are just beginning steps. We urge, of course, that the City continue its extraordinary work in fighting lead poisoning, that we work to improve the collaboration between the City and its schools, that somehow we continue to offer home visiting to fragile families to keep them out of the child welfare system. There are many new, important and exciting steps that we want to urge you to take in the next several years, but for now we want to leave you as we began, thanking you for your past support and urging that you build support and maintain a safety net, a safety zone, a lifesaver for children and families in Philadelphia. Thank you.
You're welcome. 202 10/21/08 - FISCAL STABILITY - RES. 080603 Please proceed. MS. DeCARLO: Good afternoon. My name is Patricia DeCarlo. I am the Executive Director of Norris Square Civic Association, a neighborhood-based development organization in North Philadelphia. I do not have as happy or hopeful news as Sherrie here does.
Shelly. MS. DeCARLO: Shelly. NSCA takes pride in being the single most important force in turning the Norris Square neighborhood around from a drug-infested needle park in the badlands to a reasonably safe community of neighbors in North Philadelphia that struggles against incredible odds to raise and educate healthy children. This time last year, I think later on, we were informed that the Beacon program at Hunter School was being closed, the Beacon program at Julia de Burgos was being closed and the Beacon 203 10/21/08 - FISCAL STABILITY - RES. 080603 program at Visitation was being closed. All three Beacon programs are in the eastern North Philadelphia community, which is generally known as the Latino district. This happened as a result of a requirement that $20 million in deficit spending be made up, and so that community bore a heavy burden. The Beacons in --
You said $20 million in deficit spending by the City? MS. DeCARLO: This was the whole debacle with the City --
The Safe and Sound? MS. DeCARLO: -- Safe and Sound, and so it closed down the Beacons. The Beacons in more well-off communities in the City of Philadelphia were kept open. The ones in the more distressed 204 10/21/08 - FISCAL STABILITY - RES. 080603 parts of the City were closed. We met with Deputy Mayor several times and informed him of the impact that this has had, the closing of three Beacons all in one single community, and he assured us that he would look into it and would get back to us. That summer, this summer, after much deliberation and analysis on the part of the City, the City announced that it was shutting down all of the AVRP center-based programs. These were comprehensive programs, after-school programs for what were the most at-risk youth in the poor communities, kids who were truant, who were in the juvenile delinquency system, who had parents on drugs or incarcerated, so the kids that are on the verge of tipping over and going into criminal behavior. All center-based programs were closed. What we were told -- the Youth Worker program was kept. What we were 205 10/21/08 - FISCAL STABILITY - RES. 080603 told was that we should send the youth, the children in the Youth Worker program for evening activities and afternoon activities to the Beacon programs. Well, I raised my hand and said, What do we do? There's no Beacon. We'll get back to you. I'm still waiting. So the Latino community has no 11 Beacons, no center base, no evening activities for any youth, crispy or otherwise, at a time when drug corners are merging, taking over each other's corners and doing gunfire in the middle of the afternoon. Three o'clock in the afternoon, half a block from our child care center we now have more gunshots than I have ever seen, and I've been there 20 years. So the economy is working its mysterious ways, but if we all remember, when we -- it's the economy, stupid. It gets violent when folks get hard up, harder than they're willing to take. 206 10/21/08 - FISCAL STABILITY - RES. 080603 That's not doing well in the community. So besides AVRP, we were then told that the curfew centers were not going to be closed, they were going to be consolidated. Out of 11, they cut seven. There are four curfew centers. The one in the Latino community in the Lighthouse was closed. The closest curfew center is in Frankford. So I then remember listening to the gentleman with the budget on prisons and juvenile justice. I don't think we really want a recipe of locking people and imprisoning as our solution to an economic problem that's getting worse in our poor neighborhoods. So I ask you to consider when we're looking at budget cuts, that we don't continue to do budget cuts on the most fragile in our community, in our cities and push more and more people into the brinks of crime and juvenile delinquency. It's not healthy for anybody. 207 10/21/08 - FISCAL STABILITY - RES. 080603 We talk about housing. We're concerned about the overbuilding of condos. Si. I kept looking and I say, Who is going to fill up all these condos with $2 million condos and $1 million condos? In the meantime, the real estate market went up and poor people have been left homeless. Poor people can't afford the rents anymore. So we need to invest and build housing for low-income families, rental and homeownership. We need to do programs that have sweat equity so that poor families who come into those houses have an ownership stake in them because they're painting them, they're putting part of the work in it. They're a lot cheaper to do, it keeps people employed and it keeps us from getting a larger and larger homeless family that we can't afford to have in this city. When we cut programs for children, we're not only leaving children out in the streets where they're not 208 10/21/08 - FISCAL STABILITY - RES. 080603 safe, we're also leaving unemployed youth who are tutors and youth counselors.
We're leaving unemployed parents who work in those programs, and we are exacerbating already serious economic conditions of the poor. So you already know we've already been cut, we've already been slashed, those that can ill afford. So I put together four strategies, because I heard you talk about strategies of what we do. I think that we need to think about growth, not about cuts. But they have to be strategic. So, number one, shift to programs and activities that do things that diminish worse results. Example: You have a housing counselor program that you should all be very proud of. It's the only one in the country to prevent foreclosures. So we invest money in housing counselors that help people who are facing foreclosure so they can negotiate in court and not lose their 209 10/21/08 - FISCAL STABILITY - RES. 080603 homes. If you didn't invest in that program, you'd have a bunch of people losing their homes and a bunch more that are homeless. So you need the same kind of program with children. If you have programs for children so they're off the streets, for youth so they're off the streets, so they're doing productive activities, they're engaging in worthwhile activities, you won't have that much violence in the street, because they're engaged. If you don't do anything, all you're doing is spending more money on police to lock them up. Not a real healthy way of spending money. Number two, things that produce positive economic results. Invest in jobs that train and hire the youth. The winter is coming. It's around the corner. Train youth to do energy audits, to learn about weatherization. They can go into their own neighborhoods, once they've learned. It doesn't take that 210 10/21/08 - FISCAL STABILITY - RES. 080603 long to do it, trust me. I've learned. And we put youth in their community to help weatherize homes for seniors, for low-income families. You're getting them to do productive, serious activities. They're learning skills that they can use in the future, and we may be able to get into some of these greening jobs that the Governor has set money aside for. PGW might be interested in looking at what they can do. Eliminate/reduce activities that have a negative impact on low-income families that are entrepreneurs or trying to. Example: L&I continues to go after folks in low-income communities, You don't have this permit, you don't have that license. This is not the time for permits, for licenses, for charging people fines. It's the time to encourage people to set up businesses. A young man in our neighborhood who fixes cars and tries to sell them and, therefore, doesn't have the tags 211 10/21/08 - FISCAL STABILITY - RES. 080603 isn't being helped when the police come and tow away the car. So let's think in terms of what are things we can help to encourage low-income families to engage in business and not penalize them because they don't have some tag or another or some permit or another. Fourth, do an analysis of the state and federal funding not accessed by the City and what we have to do to access. One real clear example: There's a program called CCIS. It is a state subsidy for parents who work that helps them pay in early childhood and after-school programs. But in order to access CCIS, the program has to be licensed. So we at Norris Square have licensed programs. We have the highest unemployment rate of any of the communities in the City, so that doesn't get us a whole lot of anything, except that we put the extra effort that we're licensed. But communities with high 212 10/21/08 - FISCAL STABILITY - RES. 080603 employment rates should be required within three months, four months to get licensed and/or lose their funding. Because parents who work, all they do is pay a small co-pay and then all this additional dollars comes into the programs, and then you can shift your dollars over to programs that need it more.
But if we look at the state and federal funds that are there that are not being accessed, we get creative, we can really work them into places that need it more. Thank you. You have a challenge in front of you. One last one. I'm sorry. Increase funds, don't decrease, increase funds into low-income housing development with the sweat equity. Tax credits are being lost at the state level because of the bond market, and HOME dollars aren't going to be there. So Philadelphia is going to lose that housing because they can't make up that financing. We need to 213 10/21/08 - FISCAL STABILITY - RES. 080603 figure out how to get that financing back in place so that we don't lose those tax credits and that low-income housing. Somebody needs to meet with the people. WCRP was funded for the tax credits that just came back, the City. They're not going to be able to do the tax credits because the HOME funding won't be there. So it's to start looking at those areas so that you can bring back money and help those that are going to need it most and, at the same time, grow the economy, not cut the economy. Thank you.
Good afternoon. Thank you for letting me speak with you today. I'm Amy Dougherty, Director of the Friends of the Free Library of Philadelphia. And bear with me. I do not have written testimony, but I do have some main points that I'd like to briefly go over with you. Clearly, this is an 214 10/21/08 - FISCAL STABILITY - RES. 080603 unprecedented fiscal crisis internationally and nationally in the City. I've changed my thoughts and testimony about times sitting here, 6 because, first of all, because I've 7 learned a lot. I've gotten a lot of new 8 fiscal information. But also I think 9 that what I'd like to do is talk about 10 turning this crisis into opportunities 11 and talk a little bit about some of the 12 problems we have in terms of education 13 and some of the assets that we have. 14 I'll just briefly go through 15 this. You've probably heard these 16 statistics before, but I just want to 17 mention them here. 18 Twenty-five percent of 19 Philadelphians live in poverty. 20 Forty-five percent of working adults are out of work and not looking for work. Fifty percent are without home computers, and more than two of three jobs require higher literacy levels than many Philadelphians have. Forty-five percent 215 10/21/08 - FISCAL STABILITY - RES. 080603 of Philadelphians are high school dropouts. Seven out of ten inmates in the State of Pennsylvania are illiterate. And statistics show and studies show that children who grow up without a book-rich environment fall behind in 5th, 6th grade and never catch up and add to the dropout rates going forward. But what we do have is 53 library branches. Wherever you live in the City of Philadelphia, there's a library within two and a half miles from where you live. And what I would like to do is take the fiscal crisis and use it as an opportunity to go back and look at what the mission of the Library is and what the Library actually does. The Library is actually in the business of education, children and adults, transitioning workers, future workers and current workers. That is what the Library does now, and it will continue to do that if we keep funding levels up. In fact, increase funding. 216 10/21/08 - FISCAL STABILITY - RES. 080603 So if we can look at some targeted programs, a continuation of open hours. In fact, increase hours. In the neighborhoods in Philadelphia where crime and poverty are the highest, library hours are the shortest.
In many of the neighborhoods where crime and unemployment and illiteracy is the highest, library hours are the shortest. There are nine communities, nine libraries that don't have any evening hours. Have not for a decade. Kensington is one of them. Haddington is another. So when we look at library hours, when we look at services, what we need to do is look at the opportunities. We've got 53 buildings. We've got staff, almost enough staff to provide education for current workers, transitioning workers, adults now, adults in the 217 10/21/08 - FISCAL STABILITY - RES. 080603 future. And education equals job training, anti-crime, job readiness, literacy programs. When I say "literacy," I'm talking about reading literacy and computer literacy. Let me give you an example of a missed opportunity and what I mean by targeted programming. There are three Gates Computer Labs in three libraries in the City of Philadelphia. One in Oak Lane, one in Pascallville -- actually, four. One in Pascallville, one in Lillian Marrero, which is in the heart of North Philadelphia, and one in Kensington. So the Library got a donation of hardware and software, but what the Library doesn't have is program money. So we've got computers, computer programs sitting idle, and we have got an enormous number of residents in these communities who are computer illiterate. There's something wrong with that picture. So I think that what I would 218 10/21/08 - FISCAL STABILITY - RES. 080603 like to reiterate today is that libraries equal education. Education equals jobs. And when the economy turns around, which it will, we want Philadelphians to be ready, we want our children to be ready, and we want our current workers to be ready. I think that what we really need to look at is not simply -- I came in here thinking what I was going to ask you for was if the Library has to take cuts, let it be equitable throughout the system, and two hours later I've completely turned around my answer. MS. DeCARLO: Thank you.
My ask is what we need is libraries to stay open more than they are now. We need every branch to have evening hours and every branch to have Saturday hours. But what I did give you, and you should have gotten a copy of it, is the basic mission of the Library. And the next piece is where libraries are 219 10/21/08 - FISCAL STABILITY - RES. 080603 based on income brackets of those communities, and you will see how many, at least a third of those libraries, are where income levels are below 50 percent, meaning -- excuse me; meaning that 50 percent of Philadelphians living within the poverty level. I think that we need to be careful. I don't want to get into this conversation and I don't want the City, I don't want the Mayor and I don't want City Council to say who is more deserving of library services, who is more deserving of educational services. Does Chestnut Hill need it more or less than Southwest Philadelphia? I don't want to divide the City that way. I don't want to divide residents that way. It's not productive and it's not helpful. There's one more thing I wanted to point out, and, that is, most schools in the City of Philadelphia do not have libraries. If they have libraries, they have severely outdated books and 220 10/21/08 - FISCAL STABILITY - RES. 080603 materials. MS. DeCARLO: They don't have librarians.
And they don't have librarians. The Library basically functions as the City's school system's libraries, educational. Go to any library in the afternoon. It's loaded with kids. Go to any library in the morning and it's loaded with seniors and transitioning workers. Go to any of the libraries that are open in the evening, again loaded with transitioning workers and students, adult students and young students. I just want to tell you one brief story and then take any questions that you might have. My husband, who works for Fairmount Park, was trying to set up a meeting in the Haddington Library area, 60th and Girard, for a community group that was working on a community park, and he suggested the library. Well, why don't we have the 221 10/21/08 - FISCAL STABILITY - RES. 080603 meeting at the library. And the person he was working with said, Well, the library is not open in the evening. Our library, Haddington, is not open in the evening. And he said, Well, okay, how about Saturday? And she said, It's not open on Saturday either. So he said to her, Well, when do you go to the library? And her response was telling. She said, I don't. So here we have, you know -- here we have 53 buildings staffed. The hours weren't working for three-quarters of that community, so they were shut out of those kinds of educational opportunities. That is -- I can go on and on. I am not going to. I thank you for your time, and I'm happy to answer any questions you might have.
Thank you. 222 10/21/08 - FISCAL STABILITY - RES. 080603 Ms. Cohen.
Good morning, Councilman Clarke and members of the Oversight Committee. My name is Sherrie Cohen and I am a member of the Steering Committee of One Philadelphia. As we can all see from the federal government's reaction to the financial market meltdown, what matters most in a crisis is political will. Political will was summoned in Washington, DC to save Wall Street, and political will must be summoned here in Philadelphia to save Main Street. We should all demand it, and One Philadelphia is demanding it today. I thought I was going to be on the One Philadelphia panel, you see. One Philadelphia objects to the process and premise that City services must be sacrificed. The process by the Mayor's Office should be participatory. Forms should be held throughout the City to ask Philadelphians in all 223 10/21/08 - FISCAL STABILITY - RES. 080603 neighborhoods for their priorities for budget cuts before cuts, if any, are determined. The premise for cutting City services is also at fault, as has been stated repeatedly today, because it is so important. S. cities. More than percent of our 11 people live in poverty and more than 37 12 percent of our children live in poverty. 13 That is double the rate -- more than 14 double the rate in the state and more 15 than one and a half times as great as the 16 national average. 17 The deepening recession will 18 further harm our most vulnerable 19 residents and plunge more of them into 20 poverty. Also, as the economy weakens, 21 the need for City services will increase 22 as residents lose jobs, income and health 23 insurance. 24 Cutting services to our City's 25 most vulnerable citizens must be the last 224 10/21/08 - FISCAL STABILITY - RES. 080603 step the City takes, not the first. First collect taxes from the businesses who owe them. Hire additional audit staff in the Revenue Department. They generate up to ten times their salary in revenue for the City. Second, the tax cuts enacted last year for the business community should be paused, as has been discussed. Over the next ten years, these tax cuts would cost the City some $700 million. Third, let us raise more revenue by instituting a fair and equitable tax structure. Our City's wage tax should instead be an income tax for all to pay. Now we single out wages for taxation, but not the income of those more affluent who enjoy intangible wealth from stocks, bonds and capital gains. I would like to hear an estimate from the City Budget staff of how much the people of Philadelphia have been losing each year due to our unfair tax structure. Raising money as we have been 225 10/21/08 - FISCAL STABILITY - RES. 080603 from the people who have the least of it is illogical at best. The best-off 4 percent of Americans make more than the 5 remaining 80 percent combined. Soaking 6 the middle classes just doesn't yield 7 much revenue compared to modest taxes on 8 the rich. Fair taxes are essential to 9 adequate funding of City services because 10 they tax those who have the most to give. 11 As the Institute on Taxation 12 and Economic Policy reports, low-income 13 Pennsylvanians pay a much greater share 14 of their income than middle income and 15 high-income people. 8 percent. The economic crisis is a human rights issue. The lives of our fellow Philadelphians are at stake. That is the central premise of One Philadelphia, that 226 10/21/08 - FISCAL STABILITY - RES. 080603 the City's budget is a moral document, that our City budget must be a human rights budget, one that places people, human needs and human rights, first. We urge the Mayor, the Administration and City Council to adopt this human rights framework and not cut services to our most vulnerable residents. This is 2008, the 60th anniversary of the Universal Declaration of Human Rights.
The Universal Declaration, crafted under the leadership of Eleanor Roosevelt in the aftermath of the Great Depression and the Second World War and signed by the United States, declares that everyone has inalienable political and civil and economic and social rights. Governments have obligations to respect, protect and fulfill those human rights, which include the right to an adequate standard of living, the right to housing, the right to education, the right to freedom from 227 10/21/08 - FISCAL STABILITY - RES. 080603 hunger, the right to freedom from poverty. The government's obligation to fulfill human rights requires that governments take appropriate legislative, administrative, budgetary, judicial and other measures towards the full realization of human rights. We will not stay silent in the face of this financial crisis if Philadelphians living in poverty are asked to bear its burden. Thank you.
Good afternoon. My name is Perfecto Lasenski (ph). I'm testifying on behalf of Nicholas Torres, President of Congreso de Latinos Unidos. Unfortunately, Nick was not able to attend. He had prior commitments. And I would like to thank Councilman Clarke and Councilwoman --
Bring that 228 10/21/08 - FISCAL STABILITY - RES. 080603 mike a little closer to you.
I was just stating we would like to thank you and Councilwoman Quinones for the opportunity to express our viewpoints on the essential services that ensure our communities move forward. Congreso has been providing high-quality human services in eastern North Philadelphia for over 30 years as part of our mission to strengthen Latino communities through social, economic, education, health services, leadership development and advocacy. During this time, Congreso has compassionately served tens of thousands of people with education, employment, health and supportive services. In July of 2007, Congreso launched a focus strategy, understanding that only through the attainment of education credentials and/or workforce competencies can an individual have sustainable impact and, therefore, become 229 10/21/08 - FISCAL STABILITY - RES. 080603 financially independent. At the core of our strategy is the philosophy that financial stability will serve as a catalyst for improved health and safety. In Philadelphia, the Latino population has increased by over 70 percent since 1990 and now comprises ten and a half percent of Philadelphia's total population. Latinos in Philadelphia have the lowest median income of any ethnic group at $20,460, with over 70 percent of Congreso's clients reporting an annual income of $10,000 or less. In addition, approximately 50 percent of Latinos in Philadelphia are unemployed or not in the labor force. Among Latino youth, the outcomes are worse in the City. A recent study indicates that only 40 percent of Latino youth in Philadelphia public schools graduate high school on time. With many of our adult clients earning less than $10,000 annually, most 230 10/21/08 - FISCAL STABILITY - RES. 080603 are only able to live day to day, without much hope from moving their families out of poverty. Our young people face similar challenges, with many of our young Latino youth -- many of our young Latino youth have dreams of attending or graduating from college, but are unable to do so when faced with the reality of community, family and financial constraints. While some adults and young people are able to get connected to career opportunities or make sacrifices that enable them to attend college, for the majority of individuals, career opportunities do not exist, and the sacrifices are too large to make their dreams a reality. Nevertheless, there is a great interest in motivation among individuals in our community to pursue their education and employment opportunities. Out of a survey of 411 clients enrolled in Congreso's primary client management 231 10/21/08 - FISCAL STABILITY - RES. 080603 model, of those who responded, more than 56 percent expressed an interest in continuing their education. Undermining our efforts are the reductions in many of our service contracts. About a year ago we eliminated the Calle Americana CareerLink because the system placed a freeze on hiring, resulting in key staff not being replaced, which undermined the infrastructure of the initiative. In the winter/spring of 2008, we experienced the reduction of many youth development opportunities provided through the Beacon centers and after-school programs as a result of the Safe and Sound and the City of Philadelphia needing to reduce their deficit spending. In the summer of 2008, we experienced further reductions as a result of the child welfare system shifting from cost reimbursement to fee-for-service contracts. And recently our maternal, infant and child health 232 10/21/08 - FISCAL STABILITY - RES. 080603 safe contract was eliminated due to a 40 percent reduction in City funds, forcing the City to reduce from five to two contractors. Finally, our preventative health contract with the Department of Health was just reduced by 50 percent. These reductions were on top of the few preventative services that existed to assist individuals and families with their immediate needs before they fall into crisis.
We understand that programs and organizations need to adapt and shift according to changing priorities. However, these program reductions were not accompanied with new investments better aligned with current priorities. As a result, most of our residents will not be served through the provision of essential services. It is expected that other providers who are funded by the government will provide services to our 233 10/21/08 - FISCAL STABILITY - RES. 080603 community residents. However, we know this not to be the case. For example, our residents didn't travel or weren't provided language-appropriate services by the CareerLink on Spring Garden before the opening of Calle Americana CareerLink. Knowing that clients continue to walk through our doors to receive the services, we also understand that they aren't now traveling to the Spring Garden branch. These reductions will also reduce any gains that we've had over the years. As a result of these reductions, without new investments, we're going to start playing witness to more families falling into economic crisis. Our adults, despite their willingness to work, currently do not have an avenue into the workforce. We expect to see truancy increase within our neighborhoods as a result of families being forced to focus their most pressing needs of food, shelter, safety and dealing with social 234 10/21/08 - FISCAL STABILITY - RES. 080603 stressors. We expect that current health disparities to increase because most preventative initiatives have been eliminated. Our families will arrive at hospitals and health clinics with diseases that could have been prevented and would cost the system much less. So, again, we understand that programs and organizations need to adapt and shift according to changing priorities, but program reductions within communities need to be accompanied with new investments that are better aligned to current priorities. Investments in communities today determine the outlook of Philadelphia tomorrow. Thank you for your time.
Thank you for your testimony. Councilman Jones and then Councilman Green.
Thank you all for your testimony. May I ask a question, is there a recurring theme that 235 10/21/08 - FISCAL STABILITY - RES. 080603 some of these cuts potentially are economic discrimination in some neighborhoods? Is that what I'm hearing, that the poorest neighborhoods -- make it plain -- that the poorest neighborhoods are getting the larger cuts?
Well, you could say, Well, you should look at the information I just gave you. I should. I think that -- I wouldn't say that. I would say that there are -- I would say that many of the neighborhoods that suffer from -- that are poor are going to be hit, but not all of them. So not all of the poor neighborhoods with those living percent under the poverty 18 level are being hit, but many of them 19 are. 20 So I wouldn't say that it's 21 specifically economic discrimination. I 22 wouldn't say that at all. What I would 23 say is that my understanding of what -- 24 and these were proposed cuts that the 25 Mayor rescinded. So the Mayor's 236 10/21/08 - FISCAL STABILITY - RES. 080603 Office -- and we appreciate and applaud that he did that, but I know that they are looking at better ways to obviously cut the Library budget. I don't think there are any good ways or any possible ways to cut the Library budget. I think it's probable that one of the ways that this decision was made on which the proposal was made on which branches to cut had to do with where the staffing is now. I think that -- so if we want to get into some specifics, I think this is an opportunity to look at in a positive way the agency that is the Library and make some determinations of where the staffing is, why it is and figure out a way to make it equitable and more possible for all Philadelphians to have access to the amazing resources that our great Library has to offer.
I can't speak to whether or not it's economic discrimination, but I do know that the neighborhoods that need the help the most 237 10/21/08 - FISCAL STABILITY - RES. 080603 are the poor neighborhoods. So they are going to feel it the most when you cut these after-school programs, Beacon programs. And it seems to be that they were cut first in the poorer communities. So they'll feel it first and they'll feel it longest.
Ms. Cohen? I understand the situation this municipality, like other municipalities, like other branches of government are going through, but as we make tough decisions and as we provide prudent measures to reduce our exposure and deficit, that we should not have a system that over-penalizes or, as you well put, one community against another, that they be equal and that they be fair and that they be across the board. And we're going to -- I'm going to urge my colleagues here to keep an eye towards that, that we do things in a fair manner that does not disproportionately by intent or by impact any one community 238 10/21/08 - FISCAL STABILITY - RES. 080603 over another. Thank you, Mr. Chairman.
Thank you, Councilman. I know you didn't ask me this question, and I think the definition of "discrimination" is probably what caused some pause with respect to the response by the panel, but the sheer nature of the way the government is structured is that those most challenged communities tend to be most dependent on government. So when there are cuts in expenditures by government, it's going to hit those communities that are the most challenged and tend to be the most low-income neighborhoods. That's the way it happens. One of the things that as we move ahead I would like to see the government do is to, as they prioritize issues, focus on the core functions of service delivery by government, because that is in fact something that 239 10/21/08 - FISCAL STABILITY - RES. 080603 everyone -- everyone in the community needs to have their refuse, their trash picked up, everybody needs to have water service, everybody needs to have all of the things that these service departments are, from my position, are mandated to provide. And as we move on -- and the Administration will essentially be the entity that will propose the cuts -- we looked at some of the other issues, but I am concerned that because of the fact that the lower-income neighborhoods are more dependent on government, that when these cuts are made, it will impact those who least can afford reductions in services and government expenditures. The first cuts that were made by this Administration, as we heard today and we knew earlier, were cuts among programs that service extremely challenged neighborhoods, the cuts in adolescence and youth violence reduction programs, Beacon schools, things of that nature. We were told during the course 240 10/21/08 - FISCAL STABILITY - RES. 080603 of the briefings that there were going to be programs put in place that took the place of those programs that were going to be eliminated. We were somewhat skeptical at the time of those briefings, and what I've heard from a couple of the individuals today, that our skepticism was well founded, because people didn't automatically -- those individuals who most needed those services didn't automatically go to the newer programs and in some cases those new programs weren't even created. So I just want to say that we're going to be looking as a body very, very strongly and with a level of detail that I suspect you think we should as your elected officials as we move forward. This is a strong Mayor form of government. As witnessed in past years in Administrations, we can appropriate whatever we want to appropriate, but if the Mayor decides not to spend it, we 241 10/21/08 - FISCAL STABILITY - RES. 080603 can't make him spend it. But we hope as we move ahead in some of these decisions, that we can adequately represent all of you, all of the citizens across the City as it relates to making sure that we continue to make our communities whole. So I just want to thank you for your testimony. I know Councilman Green, you had a question. Please proceed. I just wanted to get that out there.
Yeah. It's more of a point of information. I appreciate everything that everybody had to say in the testimony today and share the goal of moving to a progressive tax structure, but I think it's important for a few points just to be clarified for the record. The first is that Philadelphia as a municipality can't solve its fiscal crisis by taxing rich people, because unlike a nation where there's very little places to hide, it's very simple for 242 10/21/08 - FISCAL STABILITY - RES. 080603 people to move from Philadelphia County to Montgomery County, Bucks County, et cetera, and if we look to do that to solve our problems, there wouldn't be any wealthy people left in Philadelphia. As a proportion of wealth to poverty in this city, it's not impressive compared to the rest of the country, and the burden can't just be on Philadelphia. We're a city that's basically on a slow path downhill, and that's been the case for years. The only chance 14 we have to get out of our problems are 15 help from the federal and the state government. Our schools are $1 billion underfunded. We can't do a thing to help our children and to help people in poverty unless we can properly educate them. We don't have -- there are so many fundamental problems. Our infrastructure, we can't afford to repair the infrastructure that's ten years old right now. There's no way we're going to get the money for that in the near 243 10/21/08 - FISCAL STABILITY - RES. 080603 future. The solution for us comes from banning together with other cities and lobbying the federal and state government for long-term solutions for people in poverty that are nationwide that will disproportionately have a positive impact on cities, because there's a lot of pockets of poverty in cities like Philadelphia, and that needs to be one of the number one priorities of us working together with the Administration in terms of getting that message out there. Thank you.
I'd just like to make a response briefly. I mean, there are studies that show that areas where there is a higher rate of taxation for individuals where people know that the funds are going to an improved educational system, an improved infrastructure, that people have been 244 10/21/08 - FISCAL STABILITY - RES. 080603 willing to pay those taxes when they know exactly what it's going for and that it is making a difference. So I wanted to respond there to that point, Councilman. And to Councilman Clarke, as to your earlier comment, I mean, my hope would be that with the human rights framework, the cuts could be made -- the least cuts could be made to the communities most in need. I think that's what an equitable approach would involve.
Well, we will know, I think, in approximately two weeks what the proposals are, and I guess we're all asking everybody to hold on, because I have a feeling it's going to be somewhat brutal. But, unfortunately, the national economy has accelerated the problems that were coming down the pike to a large degree. But as your elected representatives, we will do the best we can to get us out of this problem. I'd like to thank you all, thank everybody for coming in and 245 10/21/08 - FISCAL STABILITY - RES. 080603 testifying. The Committee on Fiscal Stability will stand in recess to the call of the Chair. Thank you all very much.
Thank you for holding the hearing. (Committee on Fiscal Stability and Intergovernmental Cooperation adjourned at 2:15 p.m.) - - - 246 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on October 21, 2008, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)