00001 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, 1/29/01 10:35 a.m. - - - RES. 010020 - Approving Phillies lease and development agreement between Phillies and PAID. RES. 010021 - Disapproving Phillies lease and development agreement between Phillies and PAID. RES. 010022 - Approving Eagles lease and development agreement between Philadelphia Eagles Limited Partnership and PAID. RES. 010023 - Disapproving Eagles lease and development agreement between Philadelphia Eagles Limited Partnership and PAID. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL, Vice Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 00002 1/29/2001 - COMMITTEE OF THE WHOLE I N D E X Janice Davis, Director of Finance. . . . . . . 5 Kenneth Trujillo, City Solicitor . . . . . . . 9 6 Wm. Martin, Esq. (Representing Administration) 21 7 Marilyn Cutler, Esq. (Representing PAID) . . . 54 Charles Hardy, Esq. and Tyler Wren, Esq. . . . 111 (Representing South Philly Residents) David Montgomery, President, Phillies. . . . . 136 David L. Cohen, Esq., Phillies Counsel . . . . 143 Robert B. Sklaroff, MD, Private Citizen. . . . 193 Michael Sklaroff, Son of Robt. Sklaroff. . . . 195 Tina Nelsen, CEPA. . . . . . . . . . . . . . . 208 00003 P R O C E E D I N G S
Good morning, everyone. This is a public hearing of the Committee of the Whole. Just last month, City Council passed, and the Mayor signed, ordinances providing for the development of a new football stadium and a new baseball ballfield park at the South Philadelphia Sports Complex. In particular, Bill No. 000721-A authorized various transactions between the City and PAID necessary for the development of the new Eagles football stadium, and Bill No. 000722-a authorized various transactions between the City and PAID necessary for development of the new Phillies baseball ballpark. As part of Bill 17 000721-A, City Council approved a document entitled "Eagles Lease Terms" as the basis for the Eagles agreement with PAID for the lease and development of the new football stadium. Section 8 of Bill No. 000721A provided that the leases with PAID must "conform in all material respects" to the Eagles lease terms approved in Bill 000721-A, and it may contain such other terms and conditions as are not inconsistent 00004 with that document. Bill 000721-A further required that a copy of the Eagles lease be filed with City Council, and City Council would then have ten days to approve or disapprove the lease. Bill No. 000722-A contains identical provisions with respect to the Phillies lease terms and approval of the Phillies lease and development agreement with PAID. On January 21, 2001, copies of the Eagles and Phillies leases were filed with City Council. Therefore, City Council has until February 1, 2001 to approve or disapprove these leases. The purpose of this hearing is to take testimony as to what action Council will take. We will hear today from representatives of the Administration, PAID, the Eagles, and the Phillies, and we will then hear testimony from the public. Please note the limited purpose of this hearing. The purpose of this hearing is not to debate again whether new stadiums should be built or where new stadiums should be built. It is not 00005 the purpose of this hearing to debate whether the City should assist in the financing of new stadiums or the amount of such assistance. Those matters were debated at length in a series of public hearings held in November and December, when Council considered the stadium bills, and those issues were resolved as far as this Council is concerned when Bill No. 000721-A and 000722-A were approved by the Council and signed by Mayor on December 28,2000. The sole purpose of these hearings is to hear testimony as to whether Council should approve or disapprove the Eagles and Phillies leases; and, in particular, whether those leases conform in all material respects to the Eagles lease terms and the Phillies lease terms, which Council approved as part of Bill No.'s 000721-A and 000722-A. I implore the members of the public who wish to testify today to confine their remarks to that issue only. Before we begin the testimony, I would ask Mr. MacPherson to please read the titles of Resolutions No.'s 010020, 010021, 010022, and 00006 010023.
Resolution No. 010020, a resolution approving the Phillies lease and development agreement between the Phillies and the Philadelphia Authority for Industrial Development for the Phillies baseball ballpark project. Resolution No. 010021, a resolution 9 disapproving the Phillies lease and development agreement between the Phillies and the Philadelphia Authority for Industrial Development for the Phillies baseball ballpark project. Resolution 010022, a resolution 14 approving the Eagles lease and development agreement between the Philadelphia Eagles Limited Partnership and the Philadelphia Authority for Industrial Development for the Eagles football stadium project. Resolution 010023, a resolution 20 disapproving the Eagles lease and development agreement between the Philadelphia Eagles Limited Partnership and the Philadelphia Authority for Industrial Development for the Eagles football stadium project.
Thank you. 00007 I believe our first witness this morning would be the Finance Director. (Witness comes forward.)
Good morning. I'm sorry we kept you waiting. Thank you for your patience. Kindly identify yourself for the record and proceed with your testimony.
Good morning. I'm Janice Davis, the Director of Finance for the City of Philadelphia. As directed by the Mayor of the City of Philadelphia, I reviewed the sublease and development agreements between the Philadelphia Authority for Industrial Development and the Philadelphia Eagles Limited Partnership and the sublease and development agreement between PAID and the Phillies. Both documents reflect the financial terms presented in the documents labeled "lease terms," which were previously submitted to the Council, amended and attached as exhibits to Bills No. 000721-A and 000722-A. There are no 23 financial commitments or risks contained in the leases that are not included in those terms sheets. 00008 Thank you for the opportunity to testify.
Thank you. So your testimony indicates that the leases are in conformity with the terms sheets adopted by Council?
Thank you. Are there any questions from members of the committee? The Chair recognizes Councilwoman Blackwell.
I was curious as to why we were approving leases between PAID and the 00009 team rather than between the City and PAID.
The leases that are on the table are those leases between PAID and the team. Any agreements between PAID and the City, I think, -- and I'll have to defer -- were previously approved.
Our next witness is the City Solicitor. (Witness comes forward.)
Good morning, Madam President. Good morning, members of Council. My name is Ken Trujillo. I'm the City Solicitor. Council President, on January 26, 2001, I sent to you a letter and I am pleased to be here today to confirm that, as you know, on Monday, January 22, 2001, acting under Bills 000721-A and 000722-A, the Philadelphia Authority for Industrial Development, or PAID, filed with the Chief Clerk of City Council copies of what has been known as the "Eagles lease" and the "Phillies lease." I have reviewed the Eagles lease and the 00010 Phillies lease, and I also relied upon briefings about both leases which I've received from other members the City's Law Department and outside counsel, which is working on behalf of the City and on behalf of PAID. These reviews and briefings have focused on, among other things, the extent to which the Eagles lease and the Phillies lease are consistent with documents entitled "lease terms," which were previously submitted to Council, amended, and attached as exhibits to Bills No. 13 000721-A as to the Eagles and 000722-A as to the Phillies. Based on this review, I confirm to you that the Eagles lease and the Phillies lease conform in all material respects to the terms and provisions of the Eagles lease terms and the Phillies lease terms respectively. They do contain other terms and conditions that are not inconsistent therewith. I also believe that the Eagles lease and the Phillies lease do not materially increase the legal risks to the City beyond those contemplated by the transactions set forth in the respective lease terms and 00011 accompanying ordinances, except for the creation of certain contingent liabilities; for instance, liabilities for the City's willful negligence or gross misconduct in certain circumstances, which are not uncommon in large-scale commercial transactions to which the City is a party and in commercial transactions of the size and complexity of the stadium projects. I'm happy to answer any questions.
Thank you. Are there any questions from members of the committee? The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Mr. Solicitor, I've listened to your testimony. I thought I heard you say that there were no terms that were inconsistent with, I assume, the terms sheets that were a part of the legislation that we passed, and then you went on to say that there were other terms and conditions. Did I misunderstand your testimony?
I believe my testimony was that there were no material terms that are 00012 inconsistent with the ordinances which were previously passed.
Let me look at what I was reading, Councilman. I believe that I testified that the Eagles lease and the Phillies lease do not materially increase legal risks to the City beyond those contemplated by the transactions set forth in the respective lease terms and accompanying ordinances, except for the creation of certain contingent liabilities. Then I went on to describe the kinds of contingent liabilities.
Okay. I may have misheard you. I thought I heard you say that everything that we had done back in December and the things that are here today are consistent with those things but that were other things that were not a part of the December transaction, which are also in the document or the attachments in front of us today. Did I misunderstand you?
I believe you 00013 misunderstood me. I confirmed that the team leases conform in all material respects to the terms and provisions as were passed in December of last year.
Thank you. The Chair recognizes Councilman Goode.
Thank you, Madam President. The Finance Director said that we approved leases between the City and PAID, and I'm assuming that was done by ordinance 722-A. On what date was that approved?
'Cause the resolution states "approved December 28, 2000."
That's not the way the resolution reads, though. It says, "Whereas City Council, by Bill No. 000722-A, approved December 28, 2000. . . "
All right. If the date in the resolution is wrong, that can be amended, I assume?
I have a copy here. Thank you, Madam President. I have a copy. The bill was signed by the Mayor on December 28th. That's the day that the bill takes effect. And so I do not believe that there's an 00015 inconsistency with the resolution.
I understand. If you were looking at the "approved December 28 2000," that reflects the date that it was signed by the Mayor, not the date that it was passed by this Council.
So it's written wrong. It's a mistake the way it's written.
I don't believe it's a mistake. It's just that the approval date reflects the final approval; that is, the signature date by the Mayor.
I guess the question I was really getting to is not really about that date, but how amendable is this resolution?
It's difficult for me to answer that question unless I see a specific amendment before me. I believe that it is fairly restricted. This is -- as Madam President indicated, this hearing and the review of this Council is -- is fairly narrow in scope. And that is, the resolutions are to either approve or to disapprove the subleases, as 722 and 721 reflected. So it's difficult for me to answer that in a broad sense unless there's some specific --
But the resolutions are amendable based upon action we took in December if it's consistent with the action we took in December; is that correct?
Councilman, again, I would -- if there is an amendment that would be offered, I'd be happy to look at the particular amendment. I would prefer not to answer that question in a vacuum.
I have some questions about the operation -- about the leases around the oversight committee. Who's prepared to testify to that?
On the specific terms of the leases, I believe Mr. Martin will be testifying on that.
Are there any other questions, Councilwoman? Thank you. The Chair recognizes Councilman Cohen.
Mr. Trujillo, isn't it a fact that if all of the parties were to agree, everything could be amended?
If all the parties -- this Council's powers are fairly broad with respect to the resolution.
I'm not talking about this Council; I'm talking about an agreement by all of the parties -- the sports teams, the Mayor, and City Council. If all of us were in 00018 agreement, we could change anything; isn't that a fact?
Well, I don't think so, Councilman. I believe that the ordinances constrain the extent to which any changes can take place with respect to these leases.
I believe that the ordinances that were passed by Council in December constrain what can be presented with the lease and the subleases that are being presented today.
But if all the parties agreed, wouldn't it be possible to even redo those ordinances?
I can't comment on who would be there to complain. I suspect that if this Council wanted to undertake a legislative process that included --
But that's not my question. My question has nothing whatever to do 00019 with the legislative process; it has to do with basic contract law in the United States. The parties to a contract can, unless third parties' rights are being injured thereby, the parties to a contract can always change it.
Well, Councilman, the parties to a contract can always agree to whatever they want to agree to.
You're absolutely right there. That does not mean that this Council will have or will approve that which is agreed to.
Well, I have not suggested that. All I've suggested is that if all the parties were to come to an agreement on terms and conditions, whatever they may be, or the existence or nonexistence of ordinances, all of that would be changed.
I can tell you that on the general question as to whatever parties can or cannot agree to whatever they want, the answer to that is yes. The enforceability of that is quite another question.
All right, thank 00020 you. Thank you, Madam President.
I would just like to follow through on that if I may. Wouldn't the ordinances have to be amended? So we would have to take the ordinances back to amend them; they could not be amended under a resolution.
No. And, Madam President, that is why my response is, You and I can agree to do whatever you and I want to do, but that doesn't mean that it's enforceable.
Thank you. Are there any other questions of the City Solicitor? (No further questions.)
Good morning. Kindly identify yourself for the record for the record and proceed with your testimony.
Good morning, Council President Verna and members of City Council. My name is William F. Martin. I am a former member of the City's Law Department and am now an attorney in private practice in Philadelphia. I represent the Administration regarding the sports stadium development project. I'm here today to testify in support of Resolution 010020, approving the Philadelphia Phillies lease and development agreement submitted to City Council pursuant to Bill No. 000721-A; and in support of Resolution 010022, approving the Philadelphia Eagles lease and development agreement submitted to City Council pursuant to Bill No. 000722-A. The Administration does not support Resolutions 010021 and 010022 and respectfully requests that City Council not approve them. I am joined today by Marilyn Cutler, who is an attorney representing the Philadelphia Authority for Industrial Development. As you're 00022 aware the City Solicitor Ken Trujillo and Finance Director Janice Davis are available today to also answer questions that may arise from my testimony that are appropriately directed to them. There are also representatives here today of the Philadelphia Eagles and Philadelphia Phillies, who will be available to answer questions as may be requested by members of City Council. 's 000721-A A an 000722-A to authorize the underlying lease and financing structure necessary to proceed with the expansion of the Sports Stadium District in the construction of a new baseball park for the Philadelphia Phillies and a new football stadium for the Philadelphia Eagles. The underlying leases between the City and PAID contemplated that PAID would enter into a lease and development agreement with each team, specifying the details of the transaction. " " The bills provided that lease and development agreements must be filed with the Chief Clerk, and the City Council shall have ten days from the date of filing to approve or disapprove the agreements. The agreements were filed on Monday, January 22, 2001, and the ten-day period conclude on February 1, 2001. As you are all aware, each team is on a very tight schedule in order to meet their planned opening dates of 2003 for the Eagles and 2004 for the Phillies. In light of the limited time, the parties their intensified efforts to complete the drafting of these agreements immediately upon passage of the bills, continued intensive discussions through the holidays and came to closure a bit more than a week ago today, when the agreements were filed with the Chief Clerk and distributed to the Council President. Although discussions were intensive, they were a at all times within the limits placed on us by City Council and the approved terms sheets. As you have heard, the Finance Director 00024 and City Solicitor have each reviewed the agreements and agreed that they are consistent with the terms sheets adopted by this body and have not in any way expanded the City's investment, as contemplated by the bills. In addition to memorializing the agreements, the City's been required to pursue acquisition of certain parcels in order to maintain the teams' critical pass schedules. The team purchased the Acme warehouse site last week and has entered into an agreement in lieu of condemnation for the T-Warehouse. We have concluded preliminary negotiations to relocate the Jetro cash-and-carry business to the Acme property and expect to finalize this transaction shortly in order to make the property available for demolition by the Phillies late this summer or this fall. The Eagles expect to commence demolition work almost immediately upon taking possession of the T-Warehouse, which is expected to occur within the next 30 days. With respect to the agreements, please note that each includes time periods within which various conditions must be met for the transaction 00025 to proceed. In both cases, these include items that will require further action by City Council.
In particular, the Administration expects to come before this body with proposed bills to close Tenth Street, amend the existing Veterans Memorial Stadium lease, and to amend the existing agreement between PAID and Spectrum Area Limited Partnership as regards parking arrangements for the sports complex. As you may be aware, the City has been sued by several groups and individuals requesting injunctive relief to the City from proceeding with the transaction. Without further comment, I would like to state simply that the City believes the suit is without merit and expects to be in a position to proceed with financing shortly, shortly without material damage to the Eagles' and Phillies' respective critical pass schedules. In closing. I would like to reiterate the several benefits of this transaction circumscribed by the terms sheets and included in the lease and development agreements. These documents unequivocally require each team to play in their respective stadiums for 30 years from 00026 opening day. They require each team to make certain tax payments to the City and School District of Philadelphia, and include donations of $1 million each team annually for the Children's Fund and $375,000 each annually to the Special Services District throughout the lease terms. Furthermore. The City is ridding itself of operational responsibility for Veterans Stadium upon completion of the new stadiums and limits its exposure to only potential Board of View risk on property acquisition. The increased efficiencies of an expanded sports complex will benefit the surrounding community and the addition of two world class facilities will result in a complex that is unique in this country. The Administration fully supports the agreements, and I would respectfully request that City Council approve each agreement either by resolution or simply by letting the ten-day period lapse. I would happy to answer any questions that Councilmembers may have at this time.
I believe there are a number of Councilmembers that would 00027 like to ask some questions. I would like to start with them. Can you assure us, Mr. Martin, that the leases are in conformity with the terms sheets adopted in Bills 721 and 722?
Yes, Madam President. As we were negotiating the leases with the teams, that was the touchstone of our efforts, to make sure that they were consistent with the terms sheets, and we have concluded that they are.
Thank you. The terms sheet requires the approval of an affordable seating plan by both the State and City; the leases provide that whatever plan is acceptable to the State shall be acceptable to the City. Doesn't that lease language essentially override the terms sheet requirement of an approval process by both the State and the City?
No, I do not believe it does, Madam President. The lease contemplates that the affordable seating plan will be reviewed and approved, consistent with the requirements of the Commonwealth. These requirements were embedded in the statutory requirements imposed by 00028 the Commonwealth in connection with the Commonwealth grant, and we're comfortable that their requirements will be appropriate for the City, and as appropriate, representatives of PAID and the City will be in dialogue with the Commonwealth's attorneys regarding what they will anticipate from the teams.
Mr. Martin, can you tell us, why do Phillies get the proceeds from salvage remains of the Vet since the Vet is City property and the City is paying most of the demolition cost?
Mrs. Verna, when we structured the transactions, one of the benefits to the City was that we are imposing upon the teams respectively the obligations to fully complete certain site development work at their risk based upon a certain allocation of cost, which is an allocation which is being made by the team. So the Phillies, for example, are undertaking broad ranges of obligations in the area north of Pattison Avenue to demolish, to build parking, to prepare that site as anticipated 00029 by their plans. And one of the sets of obligations that they are undertaking is the demolition of the Vet. While there has been a number allocated for that, it is the Phillies who have the risk if that number is exceeded. In connection with that, a determination was made that since the City -- it was questionable whether the City wanted to undertake an obligation to remove the debris, to go through the debris to determine what was salvageable. So we thought that it was most efficient to allow the Phillies to have both that risk and the potential benefit of salvage value.
Please explain the status of conditions, precedents set forth in the leases. Specifically, have financial commitments been made at this time sufficient to meet the parties' obligation under the lease? Particularly, what is being done to close the $53 million gap?
There exist a number of conditions in the lease, including, as you point out, the condition relating to the conditional contributions, or "the gap," as you referred to 00030 it. We have continued discussions, not only with the State, which, as most people are aware, has committed -- the State's committed at this point $10 million of additional contributions and has held open to the City its willingness to entertain other possibilities to the extent that may be necessary. There are other parties that the City has been in dialogue with, both private and quasi-public. We're not at this point able to identify the parties, out of consideration for their respective processes. We are encouraged by the feedback that we have received, both in the private party and from the other party. We believe that all, or close to all, of the additional contributions will be forthcoming to allow the project to proceed. We believe the numbers will be identified, we would hope, in the next 30 to 45 days, with specificity. And the Mayor has confirmed to me, and we have confirmed to the teams throughout, that no portion of the additional contributions will come from City funds, that this is a 00031 tradition to proceeding that will not come from City monies.
I phrased it that broadly because we think it's a broad description. It's -- the City Council staff from time to time has suggested to us that there could be approaches which would be inconsistent with the commitment which has been made, and the commitment is intended to be a broad one. It won't be City money either directly or indirectly being used to fund this gap.
Thank you. You also indicate in your testimony that a bill will be forthcoming to amend the Vet lease?
Yes. One of the conditions to the transaction is the amendment to the Veterans Stadium lease required by the fact that the teams will be leaving, that we have to anticipate what will happen with those facilities during the transition period, and we have not negotiated those provisions with the teams at all. 00032 And it's our expectation that very promptly, after we conclude this process, that we will be in negotiations with the teams, and we'll be back in front of this body shortly, seeking its approval for Vet lease amendments.
So you don't have an answer to the following question: Assuming the Eagles vacate Vets stadiums prior to the Phillies, how will the Eagles rent obligations be affected? We don't know at this point in time.
Is approval by major league baseball needed for this deal to go forward? If so, what is the status of the approval request?
There is a condition for major league baseball approval. That process -- the approval of the -- there's two questions, both the question of the approval of the lease and sort of a broader approval of the transaction. The lease has been subject to informal review by major league, and major league baseball, 00033 through the Phillies, requested certain changes in the negotiating process. Some of those we were able to address, some of them we had to say no, and major league baseball accepted those answers. But I do believe the formal approval is still forthcoming.
Thank you. I have several other questions, but I know many of my colleagues want to be recognized. So I'll just ask this question for now: Eight million dollars of the $53 million gap is dedicated for the purpose of demolishing the Naval Hospital and building parking on the site; yet the lease provides that the City has an obligation to perform that work, whether or not the $8 million is forthcoming. Doesn't that mean, contrary to the terms sheets, that the City may have to provide some portion of the missing $53 million, namely, $8 million for Naval Hospital clearance and parking?
I don't believe that the conclusion you suggest is required by that language. As I indicated previously, the 00034 additional contributions and the provision of those monies are a condition to the teams' obligation and to the City's obligation to proceed. Until those monies are received, or perhaps until the teams waive some portion of the requirement that those monies be provided, PAID and the City will not allow these transaction to proceed. So it is intended that the Naval Hospital site will be demolished, that the interim parking will be provided, and that it will not come from City funds.
And how soon do you see the hospital being demolished?
It is our schedule that the demolition and construction of parking will occur by November 1, 2001.
Thank you. I have other questions, but I don't want to dominate this. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. Could you, based on the new leases, the 00035 working relationship that the Administration has, the Recreation Department will have, the role that they will have with these new facilities will obviously affect the current employees at the Veterans Stadium. Could you please for the record just let us know how the Administration and Recreation Department plans to deal with the current workforce at Veterans Stadium? I believe there are 35, 40 people associated with the Veterans Stadium at this time.
Councilman, I'm not sure of the exact number, but you're right that, unlike today, where City employees are responsible for the ongoing maintenance of the facility, once the new buildings are complete, it will be employees or representatives of the two teams that have that responsibility. This issue was raised informally last week, and contact was made with Managing Director Joe Martz, and Mr. Martz confirm that the employees -- or currently, the Recreation Department employees who work out of the Vet, that their jobs will not be at risk because of this changeover from the public Veterans Stadium to the 00036 private baseball and football; but rather, consistent with the union contracts for those who are unionized, and otherwise for those who are not unionized, other opportunities will be made available to those individuals within City government, either within the Rec. Department or otherwise as appropriate with their skills.
Thank you. Thank you for that. Thank you, Madam President.
You're welcome. The Chair recognizes Councilwoman Miller.
Okay, thank you. And Councilman Ortiz's light is on. Would you please push the button. 00037 Councilwoman Tasco?
Yes, just a follow-up on that question. Has there been a plan developed that could be shared with us relative as to what will happen to those City Recreation Department employees?
Councilwoman, I'm not aware of a specific plan. And as Councilman Rizzo indicates, the number is relatively modest: it's a few dozen. I'm not aware of there being a specific plan in terms of where they would be utilized within the City government. Certainly they're insisting positions will be needed, presumably at least through the end of the 2003 baseball season, so you're probably talking at least until September or October -- for the minimum, September or October of 2003, there's going to be a need for the City employees down there. But I do not believe that there's a -- I'm not aware yet of a specific plan for reallocation of those managers.
Okay. What will the recruitment mechanism to reach the goals in the lease for the union OIC and apprenticeship 00038 program? There are goals outlined for minority participation; what is the mechanism to reach those goals?
Councilwoman, as I'm sure you're aware, both with the terms sheets that were approved in early December, in the first of the terms sheets that were approved in early December, there was an economic opportunity plan applicable to both the baseball park and the football stadium, which was attached as an exhibit to those terms sheets. Consistent with the requirements of the terms sheets, those plans have now been incorporated as exhibits respectively to the Phillies and Eagles leases. And in each of the documents, there is an Exhibit A to the economic opportunity plan, which specifies economic opportunity procedures for identifying subcontractors and employees. I think that to the extent it is -- you're seeking more detail about the recruitment process, that may be a question appropriate when the teams' representatives come up.
Okay. Well, can 00039 you answer the questions about the oversight committee?
Well, the oversight committee. . . The oversight committee is called for in each of the economic opportunity plans.
Well, how will they be -- who will make the appointments?
I believe it will be a collegial decision by the teams, by PAID, and also with the assistance of Greater Philadelphia Urban Affairs Coalition, who's going to be the monitor as to each of the plans.
Okay, you don't have any details of how that committee will operate?
I think you may want to consider asking representatives of the teams.
Thank you, Madam President. What's the scope of the new negotiations with the teams?
Councilman, your question would suggest that the negotiations -- are you -- is this as to Veterans Stadium? I'm sorry, I was assuming.
The scope of the new negotiations following, say, if there's final approval here. You talked about new negotiations with the teams and you've indicated that there's been no work done on that new negotiation yet; what in general will be the scope of those negotiations, what are they intended to cover?
My earlier reference, Councilman, was to the anticipated amendment to the Veterans Stadium lease.
And we need to anticipate in that document how the lease needs to be amended in response to the fact that there is going to be 00041 an early termination -- an early departure of the teams. There is not an existing scope because we have not yet commenced those negotiations.
Have the teams indicated any specifics that they want the City to reconsider? Or to change?
There have been -- we have made a purposeful effort not to get into that.
We have purposefully not gotten into the Veterans Stadium lease issues because we thought that it was more essential to conclude the lease discussions as to the new -- as to the new ballpark and the new stadium. Each of these documents have a variety of conditions which need to be satisfied. We have a Veterans Stadium condition. We have had someone undertake the responsibility of commencing a first draft, which is still to be reviewed by the City team and has not yet been shared with either the Phillies or the Eagles.
(Inaudible.) As of now, has there been anything in the existing lease that was about to become new with respect to 00042 the superboxes? Has there been any discussion at all with respect to that?
That issue we've sometimes in shorthand refer to as the "flip," and we have not had discussions about them. And, in fact, we have affirmatively made the point to the teams that there are no commitments on that issue at this time.
I raise it specifically 'cause I was a member of the Council at the time that issue came up and that was very specifically --
I'm sorry, Councilman, you're going to have to speak into the microphone. The stenographer cannot hear you.
Thank you, Madam President. I raise this issue because the payment to the City of the superboxes, the Vet estimated to bring in $6 million of revenue annually to the City was the major selling point by Mayor Goode to the Council on the ground that the contract with the teams was backloaded but that the time would come, and we have arrived at the time when the 00043 City would receive substantial income from the stadiums. Now, has there been any -- any commitment by the City in any way to change those terms?
There was a case approximately ten years or so ago, maybe a little longer, in which the Pennsylvania Supreme Court referred in an opinion on an ethics matter in which the position of the City Council was being sustained. The Supreme Court referred to the fact that there are certain powers that the City Council has which are not subject to delegation. There have been other cases in which the Pennsylvania Supreme Court has ruled that the State legislative body is unable to delegate certain powers. Is there any such concern on the part of the City with respect to the one thing this very limited review that the ordinance provides that City Council may have in which City Council is not free to exercise under the terms of the original ordinance its judgment to bring about 00044 amendments but must vote up or down the lease agreements. Is there any concern at all on the City's part that this may constitute an illegal delegation of power by the City Council?
Madam President, the Councilman asked a question which I think is probably more appropriately directed to the City Solicitor. Would it be appropriate, if he's still here, to ask whether the Solicitor would --
Well, you were a top and very respected member of the City Solicitor's Department. If I recollect, at times you've been the acting City Solicitor. Would you have any --
Thank you for that characterization, Councilman. My opinion is that the approach that was utilized by Council in the early December ordinances, which were passed, is consistent with existing State law that the approach -- the up or down approach, which you're suggesting Council faces, is a result of ordinances which Council passed. I think it's also worth pointing out that the leases, which are the subject of the review here in the leases between PAID and the teams 00045 normally would not require any approval of this body; but, rather, the approval by resolution was a requirement developed by the early-December ordinances. So, no, I don't believe that Council, as it has acted in early December and is acting now, is doing anything which is contrary to existing law.
Are you -- are you, in your role as an attorney, concerned by the fact that this is a transaction in which there are four different leases that at times the City plays the role of the landlord, at times the City plays the role of a tenant in these leases, and that this very complicated, and maybe arcane, system has been worked out, I'm sure, by very competent attorneys, but it indicates that the deal is extremely complex, extremely questionable, may be so arranged to avoid the application of laws of the City that might other apply? Does that cause any matter of concern?
I would agree that you described it as complicated, which I would agree. I would disagree with your characterization as 00046 questionable. The approach that has been utilized in this transaction is not inconsistent with approaches that have been utilized previously by the City in transactions where it's utilized its economic development authority. The creation of PAID by State statute, I think, anticipates uses of the type which is contemplated by this transaction. There have been, as I noted in my opening statements, there is pending litigation. Certainly we, in the structuring of the transaction, the potential claims that were raised in the litigation were contemplated, and we are confident that the litigation is without merit, and the transaction, as structured, can proceed. But I'm also confident that through the effort of people working on behalf of the City, people in the Law Department, attorneys on behalf of PAID, that this transaction's been structured in a way to properly protect the interests of the City and properly protect the interests of PAID.
But has there ever been any transaction that has approximated the huge sums of money involved in this transaction, 00047 where this kind of arrangement's been made with leases and -- I was going to call them counter- leases, they're not so defined, but there are four sets of leases, I understand, involved here, leases from the City to PAID, leases back again, and I think there's another leaseback to PAID. It seems to me that legal precedence, if any, have not dealt with this issue. And as far as I know, the lawsuit that has been filed to date does not include the question of unlawful delegation of power by City Council. I'm not certain of that, 'cause I haven't studied that lawsuit thoroughly as of yet, but it seems to me that that's the question that's not been raised as yet. Does Council have the right, for example -- Council would normally feel in a transaction of this kind that it has the right -- in fact, the obligation -- to review every aspect of every final lease agreement. Yet Council itself agreed that its own review would be limited. I think that might be questionable. And in fact, Council went beyond that by passing the most basic ordinance soley on a laundry list of 00048 what are the terms and conditions, some of which there can be questions as to whether they've been fulfilled, but the question also be raised that the Council had that power. And you say you have no concern about those issues?
I'm confident that the transaction has been structured in a way that is consistent with State and local law and that the current lawsuit would be defeated. And if there were to be additional litigation based upon the types of concerns that you've articulated, that the transaction would withstand that type of attack.
And there are going to be bonds that are to be issued in connection with financing by various parties to this agreement, to these series of leases; is that not a fact?
And in the prospectus in those bond issues, will there be requirements with respect to putting forth the issues that have been raised by critics who claim 00049 that there are questions about the validity of the actions taken by Council? Would that have to be referred to in those bond issues?
There would exist a requirement of disclosure of any pending litigation.
And what is the feeling of the -- if you know it, of the bond authorities with respect to the effect of those disclosures on the saleability of the bonds and with respect to the interest rates those bonds may require?
As to the commercial paper issuance, which is anticipated during the month of February, we continue to review the litigation and prepare changes to the bond documents to reflect the litigation. We're comfortable that that aspect of the financing will proceed without interruption, and we believe that it will proceed without impact upon the interest rates on the paper. The circumstance that we're facing here is not dissimilar to one that occurred in the early '90s in connection with litigation that was 00050 raised by Mr. Weiner against the Convention Center transaction. And in that case, while the litigation was pending prior to its final adjudication by the State Supreme Court, the Convention Center Authority was able to proceed with the financing of that transaction.
Are you troubled by the fact that even in the -- what's generally referred to as the "prime lease," and as I wind my way through these leases trying to figure them out and have developed my own -- maybe it's my own numbering system, I would call that "lease no. 2 of the 4," in which the City is the tenant, not the owner in lease no. 2, there is this clause in that lease agreement. It says that -- and it's Section 19.15(d), as in David, of the Eagles prime lease between the City and PAID and states that the City and PAID can enter into amendments to that lease, quote, without the consent of any other parties in order to quote, add to the covenance and agreements of the City herein contained or to surrender any right or power herein reserved to confer upon the City, end quote. 00051 In simple language, that seems to me to say that at any time, without ever coming to City Council, new agreements could be entered into, old agreements could be changed by the parties at any time without notice to anybody, certainly not to Council and without any action by Council. Now, do you agree or disagree with my interpretation of that clause? And if you disagree, then tell me how it's limited in any fashion.
I think that the relevant limitation is in the leaseback lease agreement, which is sort of the next sequence of the documents between the City as landlord and PAID as tenant, where we provide that the Authority will not amend the lease -- it will not amend the team leases in a way that would materially affect the obligations of the Authority, without the prior written consent the of the City acting through City Council. And we believe that the structure, as adopted, allows for the transactions which are contemplated by the team leases and by the terms sheets and protects the City from amendments to the lease structures, which would materially 00052 increase any obligation to the City.
Well, if that's the interpretation, why isn't that language made clear in this prime lease? Why do you need another separate agreement to limit something -- why do you need lease no. 3 to indicate how lease no. 2 is limited? Why is that limitation in lease no. 2 itself?
Thank you. Mr. Mart, is someone's there who apparently knows the answer? Can he or she come to the witness table and respond.
Councilman, your prior reference was to which section? I'm sorry.
My prior reference was to section 19.15(d) of the Eagles prime lease, in which the City is the tenant to further identify the particular lease. If you're numbering and my numbering don't agree, I wanted to make clear which lease it was. It's the lease in which the City is the tenant.
The section which -- which 00053 relates to amendments was, I believe, crafted to -- because the lease structure that you've described is being relied upon to some extent by the bondholders and also by the teams in ensuring that their rights are as they anticipate by the sublease agreements that we're reviewing today, this amendment, or this language, indicates that while PAID and the City can enter into amendments as between themselves, it is limiting the right to enter into such amendments so that it does not impair the security of the lenders. So I don't see this section as materially increasing -- either posing a risk to the City because of actions of other parties. I mean, it's -- as you were mentioning earlier, most agreements allow that the parties can amend, as between each other, and that's what this is saying, except putting certain limitations upon that amendment, right.
Well, what you're saying, it seems to me, is that what we have are today's version of the leases, but we don't know what tomorrow's version might be, because Council is obviously a necessary party to the -- all of 00054 these transactions. And what you've just said is that the parties may at anytime change those agreements. And yet, we're told that this is the final agreement. And I know of nothing that requires -- if these agreements change, I know of nothing that currently requires this matter to come before the Council again.
Excuse me. You're going to have identify yourself for the record, Marilyn.
Okay. I'm Marilyn Cutler, and I've acted as counsel to PAID during these negotiations. Councilman Cohen, I think you're citing Section 19.15, which deals with amendments and which has been specifically written to discuss those circumstances under which there may be changes made that affect the rights of -- or the security of the holders, and those are the people who have certain rights under the bond indenture, because the complex set of leases, or the structuring of the deal that you referred to 00055 earlier, is in fact to allow the financing to proceed through PAID's issuance of notes and bonds. The section in 19.15 talks about those circumstances, and I think you can see at the introduction of the section that it states that it's specifically only for the following purposes; and, therefore, limits the circumstances under which there can be changes made that may affect the holders, the people under the bond indenture. The beginning of the sentence talks about the parties agreeing to an amendment. As you're well aware, the City of Philadelphia is a party to this agreement, and because the City is a party, it would have to agree to any amendment, and since these documents were approved by City Council, the documents that we have here that were approved in December, City Council would have to approve any material change to the documents that, in fact, had been voted on in December. So to the extent you are asking us whether you are adequately protected and whether you would have an opportunity to see any kind of material change to these documents, I believe that 00056 19.15 allows you, and in fact requires, that that approval would come back to you.
Well, it would be a little bit reassuring, at least with respect to this particular issue, if there were an opinion of the City Solicitor basically stating that if there are any material changes which affect the existing basic terms and agreements to which the City's a party, that if there are such changes, that they have to come back to City Council for approval. Because as I read it, that's not the case now. And further, what I'm concerned about is there's a wide area of interpretation as to whether or not this is in fact a material change and is it the kind of change that would have to come back to City Council. I would prefer to see an opinion stating clearly, without all of these reservations, that if there are any changes, that they have to come back. Because, otherwise, I just think Council has, you know, shorn itself of the power to protect the taxpayers here, to whatever extent there is still any room for protection of taxpayers. This clause seems to me to be a threat to, you know, the most basic rights 00057 of taxpayers. So I'm going to be requesting that. Now, Section 1 of Bill 721 states that the City must "pay all obligations of PAID as required under the Eagles leases." Couldn't this provision added to the provision I mentioned previously allow or require the City to provide additional financial support beyond what has been agreed to for this deal? And I would ask in that answer to tell us what the absolute financial requirement of the City is. What is the maximum that the City funds directly or indirectly, as has been referred to in the previous answer to some question, I think of Councilwoman Tasco, what is the absolute, final liability of the City in this transaction?
And that assumes, of course, that we will have gotten an opinion from the City Solicitor saying that there can be no 21 changes without things coming back to City Council, because if you can make changes, then you can change entirely the City's obligation without ever coming back to City Council. So that's why the City Solicitor's opinion would be needed in 00058 the first instance to establish a base figure, whatever that figure is, and now I would ask you for that base figure as to the cost to the City. And that, of course, does not include the annual interest payments; that's another matter. But the basic initial dollar cost.
Councilman, first, I'll go back to the question that you posed at the beginning of your series of questions having to do with how -- how Council is to receive comfort, that there's not incremental obligations that will be imposed upon the City beyond what's being approved here. And I guess there's two thoughts, and I'll get back to the numbers in a second. We believe that it is clear that the subleases which were presented are consistent with the financial obligations that were included and presumed by the financial presentations made back in December by Mr. Hankowsky regarding what the City has to put into the deal. Beyond that, again, the leaseback lease agreement between the City as landlord and PAID as the tenant indicates that the Authority is not permitted to amend the Eagles lease or the Phillies lease in a way that 00059 would materially adversely affect the obligations of the Authority as landlord without the prior written consent of the City acting through City Council. So in terms of the City's obligations, what exists is what is embedded in these documents, period. And it can only be added to through amendments, which would require the consent of the City acting through City Council. In terms of the numbers, the numbers that were presented to Council back in December indicated that the bond issue, which is contemplated by this transaction, will be $304 million, that the present value of the future operations and maintenance obligation which is being incurred vis-a-vis the Eagles under the Eagles lease is $90 million. So you have 394 (304+90=394), and the only potential unknown, which I tried to reference in my opening statement, would be in the event that land acquisitions were not completed amicably and went to the Board of View. And if the Board of View imposed acquisition costs, those costs theoretically could result in the cost to the City 00060 exceeding the 394 number that I've just described.
The Acme warehouse, you indicate the transaction has been completed. Does that mean that's one that will not go to the Board of View?
No, Councilman, to the contrary. Let me describe that. The agreement with Acme was that an amount was paid to the current owner by agreement.
By the City. And in the event -- the owner retained the right to challenge the valuation before the Board of View. So the essence of the transaction was that the owner was not fighting the condemnation or questioning the condemnation act, but was reserving the right to challenge the valuation. So there is potential risk associated with the Acme site before the Board of View.
Thank you. You say other than. . . the estimated 00061 cost of land acquisition, which I assume is included in that bond figure of 304 million?
Yes. There is a number of between 90 and 100 million which is included as a component of the 304 for land acquisition. There is also a contingency for the benefit of the public of PAID within the 304 -- not a contingency relating to construction overruns because, as we made the point, those construction overruns are the obligations of the teams, but we have included a contingency for potential overruns on cost acquisition to the extent those two components are exhausted and additional amounts would be imposed by the Board of View. That would be -- if you're asking what the universe of potential risk to the City? that is the only one which is not subject to specific limitation here as we speak today, and that was the one that was also identified by Mr. Hankowsky in his testimony in December.
Well, let me refer 00062 your answer back to what Miss Cutler said a few moments ago. Can this City Council rely on the fact that if, except for that one contingency of land acquisition costs, that if the costs were ever to exceed the $394 million figure as outlined by you as the cost to the City, that there would be action to refer back to City Council for approval of whatever element caused that change?
Councilman, to answer your question, it's -- yes, it's hard for me to envision where PAID would secure the money to do anything beyond the levels that we've talked about here today. So, I mean, there is authority to borrow the 304. The City has its ongoing operations and maintenance cost. The Board of View exception, I think, was scoped out specifically in the ordinances that were already approved. Beyond that -- beyond that, I don't see how PAID would have access to funds to do anything more. It couldn't rely upon its lease with the City because that is limited by --
It asks for an extra 00063 appropriation from City Council.
Would the City have the power, in your judgment, to waive any of the requirements? For example, many of us take some small solace from the fact that there's going to be a million dollars for each of 30 years from the teams to the Children's Fund, for example. Could there be a waiver by PAID or the City of those payments without there being action by City Council to approve it?
Because there's language in the lease that talks about waiver.