You say over here that there might be an overstatement of more than $85 million?
That's what we're talking about, yes. That's what goes in, correct.
Right, okay. Go ahead, go ahead, Madam Chair. 321 12/1/00 STADIUM BILLS HEARING
Thank you. Are there any other questions? The Chair recognizes Councilwoman Brown.
On this topic of stadiums -- and I haven't had a chance to read this word for word, but what I'm gathering from your comments is that this document primarily speaks to an assessment of if we were to do stadiums. Would that be a fair -- if we were to do stadiums, what the reality, the pros and cons would be.
Yeah. I mean, I'm sitting here, I guess, assuming that the only viable option is to do two new stadiums. We do not do the analysis of what if we didn't do anything and we have the status quo, what that may cost us.
Okay, that's 322 12/1/00 STADIUM BILLS HEARING exactly where I was headed.
And I think you heard some testimony yesterday from Mr. Hankowsky about if we don't do anything, what it will cost us.
Have you had a chance to provide us the balanced view?
We didn't -- we didn't go that way but I -- I felt, on behalf of PICA, that what we should state here is, you know, looking at the economic model that was submitted, the Arthur Anderson report, we had questions about some of the assumptions. And if -- and if the transaction was based on the Arthur Anderson report, all I want Council and the Administration to look at is that there is a potential impact on the general fund, even given the Arthur Anderson numbers, all right.
And that we're looking at this transaction during the 30-year life of the 323 12/1/00 STADIUM BILLS HEARING bonds.
We're not, you know looking you know beyond -- and Mr. Montgomery testified that he has every intention, you know, of keeping the stadium modernized and extending the term and not look for a new facility. In which case, if you extend the term and you have revenues coming and you don't have the expenses, you're going to have a better transaction. But we're not going that far. We're stopping at the year 2031, when the last bond has matured.
Okay, then. In the Arthur Anderson report, and now I'm speaking purely from memory --
-- which can be a mistake. It speaks to after Year 2010, if you look at the various columns, in terms of benefits and yield to the City --
-- those numbers of zero. 324 12/1/00 STADIUM BILLS HEARING
Okay. And here's where my staff's analysis differs and, you know, we've had discussions about this, you know, during the course of the hearing is that what I'm alluding to -- I'm not saying that we're not going to get the revenues that have been reported but what the argument -- the position has always been is that after the year 2011, all the revenues are new revenues. And what I am saying is that after 2011, we're still going to get the revenues, but in the meantime, we've lost those Vets Stadium revenues that went to the general fund and that these new revenues have to be netted against the revenues that could be available had the status quo continued.
And, again, reasonable people differ about that analysis. You know, you'll hear -- you could hear testimony, after I 325 12/1/00 STADIUM BILLS HEARING leave or from other people, saying that it's not fair because if we don't do anything, the teams will be gone in 2011. And I'm saying you're right. But if the teams are gone, the revenue going to the general fund is gone. And then to say if you have two new stadiums that's making up for that revenue, that that revenue is exclusively new revenue. I'm saying it's not new revenue because you should take out the revenue that you've missed from not having Vets Stadium there before you know before you know.
At all so. Let me go back to Madam President's original question: Are you for or not for the building of new stadiums?
I personally think that's the -- we have to build new stadiums, that's what I said. You know, having that scenario, two new stadiums in a sports stadium district with all the other stuff is truly priceless.
And that, you know, we could argue over the numbers, whether I'm right, 326 12/1/00 STADIUM BILLS HEARING whether Arthur Anderson's right, whether the City Budget Office is right. All I'm suggesting to you, the members of City Council, Madam Chair, is that we don't believe that the numbers are revenue-neutral, that there will be -- that there will be a cost to the general fund, but we're also saying that the money will be there to pay the costs, but that's viewing this transaction without looking at the other obligations that the City may have over the years --
But I'm keeping the School District out, you know, only because all the indications are, they're saying except for the 15 million which is in the five-year plan, the 45 million this year is a one shot, and we'll be able to deal with that issue off of the City budget next year. 327 12/1/00 STADIUM BILLS HEARING
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam President. Mr. Vignola, have you been able to review some of the numbers associated with recent wage settlements with both the municipal workers unions and the recent school teachers' settlement and what those settlement numbers do to the five-year plan? I know you've mentioned PGW. I don't know if you've mentioned the loss of the PURTA, the public utility real estate tax.
And there's also in the five-year plan listed $60 million in unspecified cuts, which are obviously unspecified. What is your opinion as to what the wage settlements have done to the five-year plan?
The five-year plan that this Council passed in March and that PICA 328 12/1/00 STADIUM BILLS HEARING approved the wage settlements, for want of a better word, blew it out of the water. But I think we all knew that would happen. But since that time --
Because they had zero in the plan for wages and we all knew that the public employees weren't going to get zero, nor did they deserve to get zero, but that's what the plan had and that's what we passed because everybody felt that you had a bargain from an even playing field so you don't give anything away before you're going to the bargaining table. Having said that, Councilman, what we have gotten from the City Finance Department, from the Budget Department are revised numbers for a five-year plan that show revised revenues that also show that where the five-year plan that Council passed, the Mayor signed, and PICA reviewed and approved had a cumulative deficit at the end of June 30, 2000, last fiscal year, of a $175 million surplus.
Of 150 million. It turned out to be $144 million more, or 295. So that changes all of those numbers.
What would be the number, without taking any of the wage settlements, PGW, School District one-time payment, everything on the debit side of the ledger what's the surplus? What is the surplus that we started with at the beginning of the year 2000? What surplus was left to us by the Rendell Administration?
It's halfway through. Their last full year, which was halfway through the term was, $205 million.
What were the additional undervalued revenues that became evident we were going to get that we didn't anticipate?
It's not so much expenditures but basically last year, we had a great holiday season.
Employment went up, so we ended up with a number of $95 million more than the Rendell cumulative surplus.
Now, if you factor in the cost of teachers, municipal workers, PGW, the PURTA loss, and the $60 million in unspecified, and then factor in what you believe to be the hit to the general fund on the stadium issue and then the projection on the blight initiative, have we met or surpassed the $300 million number?
Given the new -- but given the new revenue projections, you know --
The fifth year of 331 12/1/00 STADIUM BILLS HEARING the five-year plan revised gives us a fund balance to the positive of how much? I mean, I know this is not an exact science. It should be, but it's not, and I know it does change, but there's got to be a ballpark as to where we are.
I'm going to try to do that, Councilman, if you'd bear we with me for one second 'cause, unfortunately --
Rob -- Mr. Dubow is inching his way towards the table. (Mr. Dubow comes forward.)
Is it 44 million, Rob, 44.3? (Mr. Vignola confers with Mr. Dubow off the record.)
The ending fund balance -- you know, I think Mr. Dubow has more recent numbers than yesterday.
Yeah, well, it's the same as in your testimony -- in Mr. Vignola's testimony, he mentions 65 million.
That includes the 332 12/1/00 STADIUM BILLS HEARING unspecified target budget reductions. So if you take those out --
-- which is the sheet that you have, it leaves you about 6 million.
That's 6 million, including the items that I've mentioned.
Now, in the hypothetical event, and I guess this is partly what you do, Rob, and partly what Joe's responsible for doing, is kind of that forecasting issue. I know the Administration at this point won't admit it, but I think everybody's kind of come to the conclusion that the $45 million to PGW most likely -- or there's a strong chance that we might not see that money again, or all of it or a portion of it.
I mean, we're still assuming that we're going to get paid that $45 333 12/1/00 STADIUM BILLS HEARING million.
I read it in the chart, I see it in there. Look, I have a gut feeling we're not getting it back. In the event that Harrisburg doesn't do what the Mayor had hoped the governor would do as a result of the contract settlement by fixing the formula for the funding of the public schools, we're still stuck with a considerable hole that somebody's got to fill. And who would that who might that be?
Obviously, that's something, if that comes up, we'll have to deal with it.
It falls -- but it falls ultimately in the last case scenario to us, 'cause it's our school system our kids.
In the worst-case scenario, that's a possibility, yes. I understand where you're going, and let me --
This is what I'm saying to the owners of the teams in trying to explain why this is such a did have decision. 334 12/1/00 STADIUM BILLS HEARING
All of these things -- and some of them we don't even know what they are yet. I don't know what the hit to the general fund's going to be on the debt service for the blight initiative. I don't know if you do, if you know or don't.
We have actually in the five-year plan that was approved, there's million a year for debt service on the blight 12 bonds. 13
And, Councilman, because 14 it's -- it's worked its way through a couple, you 15 know, a couple months of the fiscal year, by the 16 time it's ultimately borrowed for the first year, 17 it won't even be that, so that is correct. That's 18 why you see in some of notes that I make, they 19 don't talk about the blight issue as being out 20 there if it's at $250 million.
Before you make 335 12/1/00 STADIUM BILLS HEARING that comment, I have one last comment. The stadium issue as we've discussed it here today is not one of my major concerns. I mean, if Mr. Vignola says it's 17, the City Controller says it's and then revised it down 7 to 12, you guys say it's 5, they are minimal 8 numbers -- 9
In the five-year 15 plan, I'm more worried about everything we've 16 discussed, plus the possibility -- plus the 17 possibility that we may have a downturn in the 18 economy. 19
Let me say at the time we approved the plan, including this target budgeted reductions, we ended '01 at $5 million.
Now if you include the target budget reductions, we're at 65. All of these risks were there back in January. I mean, we've built up a little more of an ability to deal with them, but I agree with you that if you all of these things go wrong, we have major problems.
The School District settlement wasn't there, the PGW --
The risk was there. Oh sure, that risk was there; it was identified in the five-year plan.
The decisions, which were in some ways unilateral decisions, to give -- and, again, Council approved it and I voted against it I voted against, to give PGW the 45 million, the end results of the settlement on the teachers' contract was not something that everyone was involved in. I mean, these are decisions that are being made on the fiscal future of the City in a short window of five years. I'm not as concerned on the out-years of this deal on the stadium 'cause I start to see some money; I'm more concerned in the next three to five years as to where we're going to be at the 337 12/1/00 STADIUM BILLS HEARING end of that period.
Oh, I agree that there are a number of threats that pose really, really serious concerns about the plan period.
And in this budget cycle, I would suspect that we're going to be looking at imposing some budgetary discipline --
-- in order to segregate some of these dollars so that we have the ability to fall back on a cushion --
That's exactly what we're doing. As you know, we're starting our plan process and that's exactly what we intend to do.
Thank you. Are there any other questions from members of the committee?
You say some worrying things over here -- and I think Jim was alluding to some of them -- in which you say, and I believe you were answering that counter to the (unintelligible), the City continues to increase its fixed long-term debt, and then you add -- and one of the things I think Jimmy added was the aspect of we don't know yet the debt in terms of the blight bonds issue that will come down.
Okay. And he said -- Mr. Dubow just said $20 million, right?
So can you project, you know, how we're reaching our debt limit, the impact that it will have? And then you say that if we continue this way, we will have to -- at what point do we cut services or raise taxes? Could you abound on that?
Yeah. Councilman, I'm not talking about the GO debt limit. What we are talking about is during the -- during the last 339 12/1/00 STADIUM BILLS HEARING three to four years, we saw the amount of borrowing, the debt dollar amount of the City decreasing. This past year, we have seen it increase. And what I'm concerned about is that this amount of borrowing will continue to increase, notwithstanding any GO debt limit, because we have revenue debt from various sources, whether it's the revenue stream of the Water Works, PGW, airports, transactions such as this through, you know, through PAID, through the borrowing arm of PIDC. That long-term debt will increase. As long term debt increases, that's a contract, that's a contract with the bondholders, and you must pay that. So that number becomes a larger percentage of the general fund operating budget each year, thereby putting pressure on what monies you have, given that over half the general fund budget deals with wages and fringe benefits, over what portion do you have discretion over, and if that -- if that number gets smaller and smaller, then you have to -- then you have to make a decision, Well, we can't provide the level of 340 12/1/00 STADIUM BILLS HEARING services that we want so we have to start cutting down because we're under, unlike the federal government is, State governments and local governments are under a balanced budget, and we have to balance our budget every year.
And then the next statement that you make in your presentation is that -- and there's a tendency, and there has been a tendency during these hearings, in essence to sort of isolate the stadium question as to -- as to make it seem as if this really has nothing to do with the overall aspects that are happening in the City, and we -- we are -- our failure to look at the whole aspect. Like you say, PGW, blight, Board of Education, all of the other problems that are increasingly coming about. And if NASDAQ and the stock market keep on that dive, there will be a presumptive slowing down of the economy that will have unknown impact on our revenues.
You know, that is a concern. I think in every report that PICA has issued, at least since I've been there, is always talking about the effect that the national economy has on the City of Philadelphia, and I always say 341 12/1/00 STADIUM BILLS HEARING that cities like Philadelphia across the nation, large cities, are impacted by a slowing of the national economy first and are the last to respond when the national economy starts to grow. And so it is a concern.
And you haven't taken into consideration the very big possibility that the general urban policies of George Bush may be a part of the problem that will not be benefitting us in the foreseeable future, if he gets to be president.
Well, I'm very myopic. I'm not looking beyond December 2nd now.
I'm looking towards January 21st and I'm getting very concerned because that has to be read into the equation, 'cause the last eight years were very different from the previous eight years in terms of federal assistance to the City of Philadelphia.
I don't disagree with 342 12/1/00 STADIUM BILLS HEARING that, sir.
Thank you, Madam Chair. Can I have Rob Dubow again, please. (Mr. Dubow comes forward.)
Because of a prearrangement between yourself and I, you had asked that late in the day, you wanted to have another opportunity to be up at the witness table because of your intense enjoyment of it. Could you -- (Laughter.)
Things are more like they are today than ever have been before.
That's prophetic. 343 12/1/00 STADIUM BILLS HEARING You handed out a sheet yesterday, which, if you can believe it, amongst all of this paper, I can't seem to find. But can you relatively quickly explain this fund balance issue with regard to the --
There are two sheets of papers that were passed out over the last couple of days.
One that looked at the impact of the stadium deal and one that looked at items creating major changes in the fund balance.
Right now, I have items creating major changes in the fund balance. I do remember seeing that piece yesterday, which was stadium-related. Can you -- what happens during these first five years to cause that problem? This is the -- if I could also ask more officially, unless you've already distributed it, I read about the 344 12/1/00 STADIUM BILLS HEARING Finance Department report about this $22 million. I have not seen that report. Has that been distributed?
This 5.8 million is an update to that, and I can tell you what changed from the earlier version. The debt service numbers were reduced because when we actually -- we gave that out in some briefings a few weeks and we said the debt service numbers were preliminary and we were going to be working on them. And one of the things we realized that is in the first set of numbers, we didn't assume any interest earnings on the proceeds. We went back --
And so we went back and said, yeah, of course, we're going to earn interest 'cause we have a relatively long draw schedule. And with those interest earnings, the debt service costs came down. And that's the difference between the 22 and the 5.8. 345 12/1/00 STADIUM BILLS HEARING
Okay. As you're talking about interest earnings, with regard to the $10 million payment out of the bond proceeds for the capital fund for the Eagles stadium, when is that payment made, who holds the dollars, and where do the interest earnings from that go?
Councilman, just to make sure -- I was coming up -- that I got the question right. Your question dealt with the $10 million capital reserve, and when does it go in and who gets the interest earnings and who holds it?
The projection in the financing plan for the transaction is that we would borrow that amount next calendar year '01.
That's correct, that's correct. 346 12/1/00 STADIUM BILLS HEARING
What we've been looking at, Councilman, is we will probably not borrow 304 at one time. It's more efficient. And this part actually deals with Mr. Dubow's why are the final numbers 5 million impact on the five-year plan or 6 million. It's because what we've been doing, as we've been trying to do a few other things, is perfecting the actual when we're going to issue debt, how much interest earnings we can make on the that debt on arbitrage before we have to use the funds.
And those numbers have been perfected enough now that we have a better sense of, you know, what's the exact cash flow of the transaction. So we would do a borrowing in '01. And as part of that borrowing, it would include a borrowing, the $10 million capital reserve. It would earn interest. The interest would accrue to the reserve. So it benefits --
I'm sorry. The 10 million will be a part of next year's -- 347 12/1/00 STADIUM BILLS HEARING
I think we've been looking at late second, early third quarter. (Confers with Ms. Orfanelli off the record.)
And July. The borrowing that has the 10 million in it. I see Mr. McPherson kind of scratching. It's not -- we'll have do a piece of borrowing earlier for like the T-Warehouse acquisition.
So this is the 10 borrowing roughly in June. That's a borrowing 348 12/1/00 STADIUM BILLS HEARING that would include the wrap-up of acquisition and site work related to the Eagles project and I think the beginning the site work related to the Phillies project.
That's basically what 9 we've agreed to. I mean, that was a part of the 10 discussion about when we would have various dollars coming into the transaction. We would then put it -- it would ago in an interest-bearing account. I believe it is yield-restricted 'cause it's done on a tax exemption basis, you know, with the arbitrage. And so there's this capital reserve account. The interest earnings stay in the account so they do --
I think -- I'm actually not sure what the mechanical legal answer is. I think it actually is our account. It's held by the trustee who's controlling the funds for the construction. I think the nominal owner is PAID, 349 12/1/00 STADIUM BILLS HEARING as we are the owner of the facility.
And it's available to the Eagles for, you know, for capital needs in the building when it opens.
So it could be called upon within a year or two of the facility being opened?
I think I mentioned earlier that the interest stays in the account.
Well, it -- in other words, the interest makes the account worth $10,500,000 and then there's -- 350 12/1/00 STADIUM BILLS HEARING