COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, 3/28/01 10:30 a.m. - - - BILL 010179 - Authorizing the creation of a loan, or loans, to provide funds for and towards various capital municipal purposes. . . (Full text of ordinance attached hereto.) PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL, V. 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 COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 I N D E X Folasade Olanipekun, City Treasurer. . . . . . 3/28/01 - WHOLE - BILL 010179 P R O C E E D I N G S
Good morning, everyone. This is the public hearing of the Committee of the Whole. Regarding Bill No. 010179. I would ask Mr. Mezzaroba to please read the title of the bill.
An ordinance 9 authorizing the creation of a loan, or loans, to provide funds for and towards various capital municipal purposes, authorizing the Mayor, City Controller, and City Solicitor, or a majority of them, to sell bonds at public or private negotiated sales, setting forth the capital purposes and the amounts for which the proceeds of the loan, or loans, will be expended; providing for the maturities and for other terms and conditions and for the form of the bonds, providing that certain bonds may be redeemable prior to maturity, providing Sinking Funds for the bonds and for appropriations to the Sinking Fund Commission for the payment thereof, authorizing agreements to provide credit or payment or liquidity sources for the bonds and certain other actions providing for obtaining the consent of the 4 3/28/01 - WHOLE - BILL 010179 electors to increasing the indebtedness, the City of Philadelphia fixing a day for holding the election for obtaining such consent and providing for the arrangements for holding such election.
Thank you. Who will be testifying for the Administration? (Witness comes forward.)
Good morning. Kindly identify yourself for the record.
Good morning, Council President Verna and members of City Council. My name is Folasade Olanipekun, and I serve as the Treasurer for the City of Philadelphia. I'm here today to testify in support of Bill No. 010179, introduced on March 22, 2001. The purpose of this bill is to obtain approval from City Council to place a question on the May 2001 primary election ballot. The question being placed on the ballot is requesting an increase in 5 3/28/01 - WHOLE - BILL 010179 indebtedness from the electorate in an amount not to exceed $91,230,000 to fund the City's Fiscal Year 2002 Capital Budget. State law permits the City to increase its borrowing authority by placing a question before the electorate during an election. The City currently lacks sufficient legal authorization to finance its capital projects for Fiscal Year 2002. The loan authorization, if approved, would finance capital projects classified for the following purposes and in the following aggregate amount: 1. Transit: $6,039,000. 2. Streets and Sanitation: $22,821,000. 3. Municipal Building: $27,862,000. 4. Parks, Recreation and Museums: $22,869,000. 5. Economic and Community Development: $11,639,000. City Council's approval of this proposed bill will permit the City to place the loan authorization question on Tuesday, May 15, 2001, on the primary Election Day ballot. 6 3/28/01 - WHOLE - BILL 010179 Enactment of this bill and the subsequent approval of the May 2001 primary election ballot question by the electorate of the City of Philadelphia will permit the City to implement its FY 2002 Capital Budget in a timely manner. Without approval of additional authorization to the City, there could be disruption of the Capital Program related to City services. In order to provide appropriate time to advertise and print the ballot question to ensure that it is placed on the May 15, 2001 primary Election Day ballot, the bill should be enacted by April 5, 2001. To facilitate passage of this bill, we respectfully request a suspension of the rules. And, finally, I've attached as part of my testimony the proposed ballot question requesting the increase in indebtedness from the electorate of the City of Philadelphia. And this concludes my testimony, and I am happy to answer any questions that you may have at this time.
Can you tell us why in the budget it reflects $89,603,000, and I believe you are testifying that the amount would not exceed $91,230,000?
Mm-hmm. Anytime we execute a financing, you have to factor in the cost of issuance, and the difference is 3 percent, which is what we typically factor in as the cost for issuing the financing, which includes insurance of the bonds, the payment for the professionals, and what we call "the soft costs" relating to issuing the debt. So that's the difference.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Madam Treasurer, on of your testimony -- oh, I'm sorry, this is the -- oh, you only have two pages to your testimony. Oh, okay. On a somewhat different issue as a follow-up to some conversations we've since we're talking about bond issues and offerings and the like, you had indicated a little while ago that 8 3/28/01 - WHOLE - BILL 010179 you anticipated a transaction with regard to neighborhood transformation in the amount of, I think at the time, $50 million. Is that -- do you recall that?
It was a range. The total program is $250 million, but the first tranche of financing is anywhere between -- would be anywhere between 50 and 100; the number is still being finessed, Councilman.
Do you mind repeating that. Place the microphone closer to you.
Okay. The neighborhood transformation initiative program, the total size of that, that's going to be 9 3/28/01 - WHOLE - BILL 010179 financially $250 million. The first tranche, or first series of issuance, would be in the range of 50 to about $100 million. That number, I believe, is still being finessed. So. . . That's what I testified prior.
Right. And I guess a couple of questions on that. One, do you know when we'll kind of leave the finesse stage and get to the narrowed-down stage? And, two, it was my understanding, based on previous testimony in budget hearings that there would not only be a number of series, 'cause it's not going to be one $250 million offering, but a series of offerings.
But that within those series, some of the bonds, I believe, would be kind of regular tax-exempt bonds and some might be taxable.
And some may also be private-purpose? Or is that what's in the --
That's within the -- (Unintelligible, parties talking over each other.) 10 3/28/01 - WHOLE - BILL 010179
Okay, that's within the two categories of the (indiscernible.)
So in this first offering, the 50 to 100, we're still kind of finessing the numbers.
Well, it is my understanding that sometime this month that an ordinance will be introduced into Council. To answer the question with regard to exactly the amount, you're probably following the market, and rates have been dropping significantly. And we're taking that into consideration as well as to the scope of the project. And that's also being financed -- 11 3/28/01 - WHOLE - BILL 010179 finessed. And it is my understanding that a complete comprehensive package will be provided to Council sometime after introduction that will have the exact number. I'm somewhat hesitant to even give -- state the number because it's being -- it's --
I mean, you've got a range. And, I mean, 50 to 100 is -- I mean, that's a range.
Now, this package that you're talking about, I mean, is this primarily just the financing package, and will details come with that package as to what the money is to be used for or details of the program or -- I mean --
No. The ordinance is specifically requesting approval to do the financing. Obviously, there will be supporting documentation that talks about the program, which 12 3/28/01 - WHOLE - BILL 010179 includes what the funds are going to be used for. I mean, the ordinance, it will be general, but I believe that Council will be getting information as to the specific dollar line items as to how the first tranche of the proceeds will be allocated. And we would have to do it anyway for purposes of selling the bonds anyhow.
We would have to do that anyway, describe the program in full --
-- when we issue the disclosure document for selling the bonds.
Right. But, I mean, that's in the way that world works.
I mean, that's really more primarily information for the potential bondholders or bond-buyers --
-- than it is so much related to programmatic activities and, you know, you're going to do A and then you're going 13 3/28/01 - WHOLE - BILL 010179 to do B, and then our comprehensive -- I mean, the bondholders are not necessarily interested in the intricate details of how the government functions; they really want to know what you're going to do, what kind of security, and how do I make sure I get my principal and interest.
Mm-hmm, that is correct. They're not interested in the programmatic aspect.
We would be, yes. Do you anticipate that this first offering will be the taxable portion or the --
It will be both. It will be tax-exempt and taxable. So there will be two series: a taxable piece and a tax-exempt piece.
Okay. All righty. Thank you. 14 3/28/01 - WHOLE - BILL 010179
I think I heard you say that Council will be getting an ordinance this month?
Well, it's either going to be tomorrow or. . . (Laughter.)
A package has been transmitted. I don't know when it's going to be introduced. I apologize, but I know that an ordinance package has been transmitted to the Mayor's Office. I cannot honestly articulate whether it's going to be tomorrow or next week.
Suppose this goes on the ballot and assume that we get no ordinances of 15 3/28/01 - WHOLE - BILL 010179 any kind until June, say.
What's the impact of this passing on the ballot? In what state of authority is the City at that point?
Yeah, say we get it on the ballot and it gets adopted by the voters.
Well, if it gets adopted by the voters, we will be able to implement our Fiscal Year 2002 Capital Program, but I'm sorry, I'm not -- I don't quite understand your question, Councilman.
What's the impact of passing this -- putting this on the ballot and having it approved by the voters? Say no 19 ordinances ever come to us.
If no ordinance is -- if an ordinance is not introduced and then subsequently --
Yeah, Councilman, this is for our capital -- 16 3/28/01 - WHOLE - BILL 010179
I understand that. Suppose nothing happens, there are no special ordinances. Is the City able to use any of this money?
The Chair recognizes -- point of order, Councilman Nutter.
Councilman, I may have created a little bit of confusion on the record because I didn't really ask the Treasurer questions that were particularly pertinent to the bill that's in front of us, which is really the ballot question bill. As you well know, we have already passed the City Capital Budget. This is now authorizing a question to go on the ballot for us to borrow the money for our Capital Budget. When I was questioning the Treasurer about bills coming over to us, that was related another proposed borrowing having to do with the Mayor's proposed Neighborhood Transformation Initiative, and the Treasurer was responding to my question about those bills coming over, not this 17 3/28/01 - WHOLE - BILL 010179 particular bill or any bill related to the Capital Budget. So, I mean, if there's anything out there that created any confusion, I apologize for that, but that's what my questions were about. They were not related directly to the Capital Budget bill and the ballot question that has to go with it.
Well, that wasn't what created the confusion, but I appreciate the explanation. I'm just thinking that -- I'm getting weary about reading about all of the legal fees being paid on bond issues, and it seems to me that before there are any more bond issues, we ought to have a third discussion. I don't understand, for example, why the legal fees are as high as they are. I could understand them if we were reissuing bonds for the first time, but now I think largely every provision must be what lawyers call "boilerplate," you know just taking the exact language that was used in maybe ten bond issues earlier and applying it. I'd also like to begin referring the 18 3/28/01 - WHOLE - BILL 010179 question of who gets these bond awards, the so-called white-collar pin-striped patronage. I just think it's about time that bonds are floating all over. I'd like to know who pays. I have a suspicion that it's the taxpayers of Philadelphia that are paying these fees and, therefore, it's obligatory upon us to begin questioning the amounts of those fees. So that I was concerned altogether, but you're saying, Councilman Nutter, as I understand it, that all of this particular question on the ballot is doing authorizing the borrowing of money to finance the Capital Budget.
And it's with respect to those bonds that I am raising the question that before bonds get issued, I think we need some full clarification as to the costs of the bonds, why they're being issued. And also, I would like to, Madam Chair, 19 3/28/01 - WHOLE - BILL 010179 find out whether or not what is occurring to you is that the money procured on these bond sales can in fact be used for sort of any purpose associated with the Capital Program, that there is no 6 effective way of limiting the expenditure of bond proceeds through particular capital projects. Would that be on accurate statement or would it be wrong?
Actually, when the City issues general obligation bonds for the Capital Program, we have to identify the projects. You can't just say -- you can't be general in its application; you have to identify the projects for which the bonds proceeds are to be spend. It's not like a pot of money that you can just pull out and say, I want to do this capital project. The bond proceeds have to be used for projects that are capital in nature and you have to identify them.
I believe that's a part of the budgetary process when the Budget Office sits down and identifies what type of 20 3/28/01 - WHOLE - BILL 010179 projects need to be implemented in subsequent fiscal years.
Well, suppose as a Councilman I'm trying to make nice to Councilman Mariano, and he comes up, after all of these actions are taken, with a need for a recreation center somewhere in the Seventh District, an area or a portion of it that really needs one, but we've never discussed it to this point.
The bonds have been issued, the money is somewhere in -- in some bank somewhere, I assume. Would the Mayor be authorized, through the Recreation Department, to plan that new recreation center and spend money already borrowed for capital purposes for this new project, which has never been discussed in City Council, that is a brain child of a meeting that Councilman Mariano was at in his district with people say their area has been left untouched by the City for many years, and everybody agrees it's a worthy project. Would they be able to use the funds for that, or would it have to wait for a later bond 21 3/28/01 - WHOLE - BILL 010179 issue?
Once again, Councilman, before we can issue bonds for capital purposes, you have to identify the projects. You can't identify the projects after you issue the bonds. So in your analogy in terms of a recreation center wanting to be built or funded after the bonds are issued, it would be pretty difficult, if not impossible, to try to use prior bond funds that have been issued for a project that was thought up or identified after the issuance.
Because that is -- that is not a version that I've ever heard. But I would like to -- we don't have to do it now, Madam President, but I would like to have that issue addressed. I believe that basically once the loans, you know, are obtained and we pass the ordinances, the money goes into a general -- 22 3/28/01 - WHOLE - BILL 010179
And can be used for any purposes associated with that capital fund, that there is no requirement that loans be made for specific projects, but we could deal with that later. But that's the review I'm hoping takes place before the bonds are issued on the capital project. Thank you, Madam President. And thank you for your responses.
You're welcome. The Chair recognizes Councilman Kenney.
Thank you, Madam President. I concur with Councilmember Cohen's concerns over the, as he puts it, "the floating around of bonds out there" and the issue of legal fees associated with that bond work. I would remind my colleagues that one of the tools that we 23 3/28/01 - WHOLE - BILL 010179 could use to kind of rein in that problem sits on the calendar now in the form of Bill 505, which is a campaign finance measure that either passed as is or passed as amended would bring some sense and logic, I think, back to the process of white-collar patronage and professional service fees. And I urge my colleagues that if they have any proposed amendments to that bill or the Administration has any proposed amendments that you forward them to my office, and we'd be happy to do some analysis and see if we can't get a bill 13 we all can live with. But that being said, I also would say that if you look at -- I've been here about ten years now, and if you look at all of the bond issues that we've dealt with over the last decade, you would think that in a city with thousands of lawyers that there are five or six law firms in the City at all, because it seems that there are only five or six or seven of them that get any work in this area. So I concur with your concerns over legal fees and the way in which they're administered. And perhaps that kind of campaign 24 3/28/01 - WHOLE - BILL 010179 finance reform and a look at bringing other law firms in, other minority- and female-owned law firms in, to mentor with some of the larger firms that the City may do better or more to help minority and female law firms in the City than the two or three or four that seem to get all the work over the last ten years. So on two counts I think that we have a way of helping to make the situation better than it is today. Thank you, Madam President.
You're welcome. The Chair recognizes Councilman Clarke.
I have a question that's unrelated to what we're discussing today, but it relates to bonds.
What relationship does the City of Philadelphia have to do with the 25 3/28/01 - WHOLE - BILL 010179 Parking Authority in its issuance of bonds?
The Administration, through the Office of the City Treasurer, facilitates the issuance of debt by all City-related agencies and authorities, with the exception of the Philadelphia Housing Authority, which hasn't issued bonds for as long as I've known it, and when it does, it does it through the Redevelopment Authority. So when any of these agencies are desirous of issuing bonds, you know, they contact the Administration through my office and request the process to begin. As you may well know, I always tell folks the beginning of a bond financing starts with an ordinance. City Council has to approve the financing of any agency, including the City, before it can be done. And it is the Office of the City Treasurer that helps facilitate or begin that process. So by example, if the Parking Authority wishes to issue bonds, they contact the City. We then work on drafting the ordinance, which we then submit to Council for consideration. If Council considers the ordinance favorably, at that point, 3/28/01 - WHOLE - BILL 010179 we will go out and issue the debt, help facilitate issuance of the debt on behalf of the Parking Authority. It is not the debt of the City; it is the debt of the agency in most instances. So in terms of the relationship, we help facilitate the issuance of their debt, particularly bonds.
All right, I'll just speak of a particular case. There were apparently bonds issued to build two or three garages in and around Center City.
I don't think any of them, in fact, have been built yet. Is that debt -- 'cause I'm understanding now that the debt is now due, the first payment is closely approaching. It's called "arbitrage" or something.
Okay, that particular bond (indiscernible) I actually did 'cause I was at the Parking Authority, and that was issued in 1998. We call it "the Rittenhouse bond." It was actually a bond financing. I -- the number 27 3/28/01 - WHOLE - BILL 010179 escapes me, but it included a number of things. The Rittenhouse garage, which has not been built, you're correct, it allows the Parking Authority to issue funds to make repairs on other existing garages, which have been done. And that particular bond financing was guaranteed by the City. What that means is that if for whatever reason the Parking Authority is unable to generate cash sufficient to pay the debt service on those bonds, the City has guaranteed to make up the deficiency. Now, typically, when authorities issue debt, it's their debt. But in this instance, which was under the prior administration, they guaranteed the debt. And you're right, the debt is due.
So do we have the wherewithal to change the nature of the expenditure moving into another garage somewhere else that we anticipate in building, or are we stuck with that particular, in this case, the Rittenhouse garage?
Okay. Well, the offering statement permits for an alternative -- 28 3/28/01 - WHOLE - BILL 010179 it has a provision in there that states that in the event the project for which the bonds were issued for is not viable for whatever reason, that the bond proceeds can be used for another project that is so identified. I do not know what the status of that is, whether or not the project is going to continue, the Rittenhouse project, or whether or not an alternative project has been identified or is being identified. So, yes --
So are we close to -- are we at a point where our first note is due?
I don't have the numbers in front of me, but I believe -- I can get to you when the first debt service is due, I can get that number to you.
Thank you, Madam Chair. 29 3/28/01 - WHOLE - BILL 010179 Madam Treasurer, I missed the part of your response to Councilman Cohen based on his hypothetical, although very well-intentioned, example that he was going to try to possibly fund some recreation activities in Councilman Mariano's district. I look forward to the ribbon-cutting for that particular project. (Laughter.)
But did I understand you to say that you passed the Capital Budget, and the items have already been articulated in the Capital Budget?
And then you passed the question, and that the dollars can only be used for the items that were in that particular Capital Budget?
You said that. So, I mean, I thought that there had been some instances or situations where dollars could either be reprogrammed or made available for other capital uses, although they may not have been detailed in that particular year's Capital 30 3/28/01 - WHOLE - BILL 010179 Budget or even in that bond offering. I mean, we have done some -- I think we have had some situations, including, you know, certainly even the PICA bonds.
Yes. If you look at the ordinance, it's done by category.
So, I mean, you -- it sounds like it would certainly be a whole lot more difficult to use dollars that were in the economic development category for a rec center.
But if it's in Recreation and you have an authorization for, in this instance -- that bill's around here somewhere.
But if you had $20 million in Recreation -- 31 3/28/01 - WHOLE - BILL 010179
-- as long as you don't spend more than $20 million -- I'm just making up that number -- of the 91 on Recreation, you're fine.
Even though that particular project, the -- you know, the Councilman-Cohen-dedicated-to-Councilman-Mariano Rec Center was not in the Capital Budget and had maybe never been talked about in the Capital Budget but you had the authorization and the approval by the voters to spend that amount of money on that particular category, as long as it meets the eligibility requirements, it's a valid project and your own the land, blah-blah-blah, you could do that.
Okay, all right, that's what I thought. All righty. Thank you.
Thank you. Are there any other questions from 32 3/28/01 - WHOLE - PUBLIC MEETING members of the committee? (No further questions.)
Do we have anyone else to testify on this bill? (No response.)
Seeing none, this will conclude our public hearing. - - -
We will now go into our public meeting, and the Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. I move that Bill 010179 be reported out of committee with a favorable recommendation. Do we need a suspension?
And also a recommendation that the rules be suspended so as to permit first consideration at our next session of Council. (Duly seconded.)
It has been moved and seconded that Bill No. 010179 be reported out of committee with a favorable recommendation and also 33 3/28/01 - WHOLE - PUBLIC MEETING a recommendation that the rules of Council be suspended so as to permit first reading at our next meeting. All those in favor will signify by saying aye. Those opposed? The ayes have it and the motion carries. Thank you all very much. (Adjourned 11:00 a.m.) 34 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, March 28, 2001, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE OF THE WHOLE BILL NO. 010179 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter