There are a number of efforts going on. There are some efforts with respect to public funding. There are efforts with respect to private funding. The Mayor's effort is a committee 3154 Budget - 4/12/05 made up of business and civic leaders, and we are looking primarily at an approach that would engage the entire region in a funding effort to support all of the arts and culture organizations.
And on the City of Philadelphia side of this and the people involved, who are they?
I would... If you'll give me an opportunity to check, I'd be happy to see if those people are willing to let me provide their names.
It's a private effort that so far has not been identified publicly, and I think the individuals involved need to be allowed the opportunity to let us know if they choose to be identified that way.
Okay. Maybe not 3155 Budget - 4/12/05 a list of names but just that it was going on. This is... This is an effort that's been reported publicly but the effort is private? Is that the way this works?
I meant that it's not an official commission or task force of the Mayor, so that we don't have permission from the members to release their names.
Okay. Okay. Let's put the names aside. What is the kind of the sum and substance of it? I mean, what's -- what is the effort?
We've been looking at a variety. First of all, the group is comprised of people who are business and civic leaders who have some track record of commitment to and passion for the arts. So, that was the basis on which we identified the participants. And we've been looking at a variety of privately funded efforts that have been going on around the country, things like United Arts Funds, for example, or an 3156 Budget - 4/12/05 endowment campaign or a workplace effort. And we have been studying the success of the various efforts that have been going on in other parts of the country, trying to decide what we think will work here in Philadelphia and in this region.
We would hope that we would have something in place by sometime this summer because our hope and expectation is that we might even be able to get something in place by the end of the year.
Okay. And this involves representatives from the other four counties?
Okay. Okay. And will you need anything with regard to action by the City Council?
Not that I can 3157 Budget - 4/12/05 anticipate at this point.
Okay. And is Council involved in this particular effort?
We have actually no 14 elected officials, other than the Mayor, who participates.
Okay. So, I mean, the decision was made that there would be no elected officials involved. Is that...
No. I think that really it was hoped that what we would be doing is spurring private philanthropy, private giving. It stemmed from the notion that there is a perception in some quarters that Philadelphia is not raising the amount of 3158 Budget - 4/12/05 money for the support of arts and culture that we are capable of doing. And the notion was, how can we galvanize this, how can we expand it so that we can get private philanthropy raised to a different level.
Do you think any of the private philanthropic efforts are in any way affected by the very public demonstrations of some amount of withdrawal of City support for art and culture? Whether it's the elimination of the Office of Art and Culture or the proposal to eliminate funding from the city-owned Art Museum or proposed cuts last year in the art and culture fund -- or cultural fund, rather, or restrictions, in terms of hours of use of libraries or the closing of recreation facilities? Do you think any of that might cause concern in the private philanthropic community, that would at least cause a person to ask a question, why should I as a person of some means continue to contribute money in 3159 Budget - 4/12/05 the City when the City itself is withdrawing its support?
I think that's a good question. And obviously some others have asked it as well. But quite frankly, I have not seen that at all. I see just the opposite. There's been a fair amount of discussion at the meetings about the fact that all public funding, Federal, state and local, all local -- all public funding for arts and culture organizations is being reduced. And in fact, the whole objective here is to see if we can get the private community to step up because the arts and culture organizations are so important to our City. They're so important to our citizens. And we hope that by this effort we will gain more support within the private community: The foundations, the corporations, and individuals who care about these organizations will step up and provide greater support than they have in the past.
Well, I 3160 Budget - 4/12/05 understand that. But what is your perspective on any impact that the withdrawal of public funding for these entities could possibly have on the incentive or the inspiration by those who are inclined to make their own contributions? I mean, is there no relationship between the City support for art and culture and private support?
I think that there are obviously a number of people who are affiliated with the organizations that are facing the most immediate impact of the cuts, to be very concerned about it. But I do think that in the final analysis, the discussions that I have heard -- and I can only speak to the things I've heard -- have not turned on the issue of the City's funding as any kind of disincentive to giving. It's just the opposite. People are talking about how we can encourage the private sector: The foundations, the corporations, and the individual -- wealthy 3161 Budget - 4/12/05 individuals in this community, to provide more support for our arts and culture organizations.
Well, I mean, I appreciate your answer. And I won't -- I'll try to move on and not be too torturous about this. But, I mean, based on your response, at least from a theoretical standpoint, if we played this out to its illogical conclusion... I mean, if you're not willing to at least acknowledge some proportional relationship between public funding and private funding, and if you're now saying that even in the event of reduced City funding, that somehow the private sector is energized and inspired that much more to give, then the illogical conclusion of that is, if the City withdrew all of its support for these many institutions, those of a philanthropic nature would stumble over themselves in an effort to throw more money at these organizations. Right?
No. I think you're 3162 Budget - 4/12/05 making a conclusion that doesn't fit with the comments that I was trying to make.
Well, I established a premise, that it is an illogical playing out of the facts. I mean, Madam Secretary... I mean, you may want to avoid the harsh reality, but -- And again, you're only speaking from what you've heard. So, in some of my conversations, it is -- it just has no basis in fact, that a person who is inclined to give is automatically that much more inspired to give to something that the public sector, owner of many of these institutions and facilities, the logic would say, if we don't want to support them, why should I, the person with my own private dollars, put money into that, when I have many other people chasing after me for other, you know, worthy causes, whether here in Philadelphia or anywhere else across the country? I mean, you cannot --
I think you're positing a premise that I was not intending 3163 Budget - 4/12/05 to create.
I wasn't saying that any drop in Federal, state or local funding is the source of any inspiration for giving. What I'm saying is that it is not standing as an obstacle to people --
-- feeling encouraged and inspired to give at higher levels.
Okay. Lastly on this particular topic, is it your experience that for those who are inclined to give, are they more inclined to give for capital projects, as opposed to operating costs?
I think an initial reaction to any kind of fund raising is that it's easier to get people to part with their money to give -- make their gifts, when they have something specific, like a capital project, or a commission, or a specific program at a museum than general operating support. And that's exactly why we are now 3164 Budget - 4/12/05 engaged in this effort to provide some higher level of giving specifically targeted to general operating support.
Okay. I'm sure we'll revisit this particular topic. Earlier there was some discussion -- I think it was raised by Councilwoman Tasco -- with regard to the contracting process. And I believe specifically there was some discussion with regard to P.I.D.C. and professional services contracts. Is there someone at the table who can respond to those types of questions?
Okay. What would you estimate to be the amount of professional service contracting at the organization?
The total contracts in 2004 were a little bit more than $4 million.
Okay. What was your overall spending in 2004? 3165 Budget - 4/12/05
All right. But that includes, I'm assuming, staff and...
Yeah. That's our operating budget. It does not include the $4 million of contracts.
All right. But you think $4 million was for professional services contracts?
Okay. Is there a formalized process for the awarding of professional services contracts?
Basically, we go through a competitive process, in which we go out and select a number of -- go through a preliminary selection process, in which we generate a list of candidates, and then go through a normal competitive bidding process. Early in that process we sit down with MBEC and get their input, in terms of the minority and women-owned business elements of it. And frankly, when we make our selection, we review that with them as well.
Okay. Has that process ever hampered your ability to get things done?
No. I mean, I would say that all -- that is the standard process. Not every contract falls under that process but it's the majority. And it does not hamper our ability to operate.
What types of contracts would not fall under that process? 3167 Budget - 4/12/05
Well, in some cases where we're selecting, perhaps, a law firm or a provider -- either a provider that is -- that is sort of a generic provider of service or one that's very specialized, we may not go through a selection process.
Okay. Can you provide to the Chair a listing of all of the contracts that you let last year?
I think we provide that routinely to the City. I'd be happy to.
Okay. I assume that has the name of a company that received the contract, the amount, and what the nature of the contract was?
Okay. That would be great. Thank you. 3168 Budget - 4/12/05 Thank you, Madam Chair. Madam President...
I'm sorry. I'd like to recapture the 34 seconds that I was given by Councilman Rizzo.
If Councilwoman Tasco has no objection to it, I don't.
Thank you. The issue was raised earlier about the company that made the recent big announcement. And again, Councilwoman Tasco asked a number of questions about that. The response seemed to revolve around, I guess, a certain comfort level, that since the City apparently received more in wage tax revenues than the City expended in the attraction of the company. And what was that amount? How much did the City...
$1 million investment and $2.2 million in wage tax revenues.
So, $1 million. 3169 Budget - 4/12/05 I mean, the $1 million investment, that was cash?
I don't mean to correct the Commerce Director, but I think it was $2 million economic stimulus. And it was a soft loan, with the idea that it was going to be forgiven over a ten-year period, in accordance with... Well... Oh, I'm sorry. Okay. It effectively -- Yes, it's the same. But I stand corrected myself. I apologize. $1 million. It was a UDAG funding and $1 million was economic stimulus. And they were both structured in the form of a... I'll call it a soft loan to American Business Financial Services, with the understanding that if they maintained the employment levels for each year, percent of the loan would 19 be forgiven, and over five years of course 20 the whole loan would become a grant. So, that was kind of the structure. And, I mean --
Yeah, they only 3170 Budget - 4/12/05 lasted a couple of years. And they went out of business, obviously. I'm not trying to say this was a great deal. I'm saying we're all very, very disappointed that they went out of business. I am, I guess, grasping for a rationale that says that the $2.2 million worth of wage taxes that were received by the City was good, was incremental and was positive. And if that can be used to rationalize having lost $2 million, so be it. But it's bad news. I mean, I'm not trying to turn this into anything but making the best of a very bad situation.
So, we've got a $2 million investment, and we got about $2 million in wage tax. So, it's pretty much a wash.
And that doesn't -- Excuse me for interrupting, but just to expand, that doesn't take into account, of course, the incremental use and occupancy tax and the business privilege tax which were also incremental. 3171 Budget - 4/12/05
Right. I understand. Use and occupancy goes to the School District, right.
But you made mention of a twenty percent reduction per year if they stayed for ten years or five?
And then over ten it was just completely forgiven as a grant.
What happens to the part that was not forgiven, since they didn't...
Basically, the part that was not forgiven becomes a debt that they owe us. And we will enter -- get in line with the rest of the creditors and do our best to recover as much of it as we can. And we're not particularly optimistic.
That would 3172 Budget - 4/12/05 probably be the correct posture. All right. So, as we've gone further into this, I mean, you're not necessarily taking the position that $2 million in, pretty much $2 million out, it's kind of a wash, not a bad thing.
This was the biggest attraction deal in years and they 13 went bankrupt. How could it get any worse? 14
And what's the 15 impact or have you made any estimate of what 16 is the impact now of this having happened, 17 with regard to all of the personnel who are 18 now unemployed? 19
I'm not sure 20 there's an easy answer there. They're 21 unemployed. They're looking for jobs. I 22 know that the Philadelphia Workforce 23 Development Corporation, for example, is very 24 engaged, in terms of trying to assist in that 25 placement process. 3173 Budget - 4/12/05 I believe there's some out placement -- private out placement ongoing as well. But it's a difficult situation and one that, obviously, we hope the economy, generally speaking, will be able to absorb these employees.
Two last questions. What do we know now that we didn't know then?
Well, I would certainly say what we know now relates to what Councilwoman Tasco was referring to earlier, that this was an operation that may not have been what it appeared to be. And obviously, not to sound at all glib, that's the risk we always take. And most of the time we're happy to say we're correct, and maybe this time we were not.
And is there anything to be taken out of this situation, as we might approach the next business that we either want to attract here or retain here? I mean, what's the lesson? I mean, from a pure business standpoint, what's the 3174 Budget - 4/12/05 lesson learned here?
Yeah. I mean, I think from a pure business standpoint -- and once again, I don't mean to sound at all self-satisfied or congratulatory -- but I think being aggressive and being professional in underwriting these loans and looking to the kind of collateral that gives you -- gives one some kind of support in a worst-case scenario is what was done here, and what definitely has to be done and not compromised in the future. This is a worst-case scenario. Rarely do you live through one of these. We are in the process of doing that.
You're welcome. The Chair recognizes Councilwoman Tasco.
Let me just follow up on that for a moment. You said 3175 Budget - 4/12/05 that their loan was collateralized by the building. Did they own the Wanamaker Building?
No. There was $30 million worth of investments were made by the company in their tenant improvements at the Wanamaker Building. Approximately $18 million was funded through the City and $1.6 million from the state. Of that $18 million, $16 million of it went to the landlord. The landlord of the Wanamaker Building was the borrower, and the landlord provided the building that they owned as collateral. So, only $2 million of the $18 million was provided directly to American Business Financial Services.
But we still -- The building owner still owes us $16 million?
Still owes us $16 million and is current on their debt, and indicates that they will continue to pay it. And once again, if they don't, we always have the recourse of essentially foreclosing on 3176 Budget - 4/12/05 the building.
Let me ask this question. And it may sound strange. What motivated them to leave Bala Cynwyd, where the employees did not pay City Wage Tax, did not -- they did not pay Business Privilege Tax, to move to Philadelphia?
Well, I mean, I think in any competitive situation there's obviously a number of elements. I think here probably the -- a primary one was the fact that the chairman and his wife, who also worked at the company, lived in the City. They live, I believe, in Center City. And we always understood that was a primary driver in the equation. And then, obviously, we were as aggressive as we could be because at the time it was a very desirable target. And I'm sure that was part of their decision as well. Certainly that's what they told us.
Okay. Thank you. I want to go back to the Commerce 3177 Budget - 4/12/05 Director. Ms. Naidoff, I want to go back to this Economic Stimulus Fund. Could those funds be used for neighborhood projects if one so desired, those who make the decision?
It's possible that they could be used for neighborhood activity?
On your... I'll come back to that. I have some questions that Councilwoman Miller asked me to ask you because she had to leave for a meeting. And... But she wanted to ask me to get in writing: What are the services does MBEC provide? What services does P.C.D.C. provide? And what do they do together in commercial corridors? I think she wants to know: Is there a collaboration between the two or do they work together or what is the responsibility of one group and what is the responsibility of the other group? And she would like that 3178 Budget - 4/12/05 in writing.
Also, what new businesses have come to Philadelphia? And where are they located as a result of the activities of P.C.D.C.? What new jobs have they -- or businesses have they generated for the neighborhoods?
I guess that's all I have. Thank you, Madam President.
Thank you. Are there any other questions or comments from members of the committee? Seeing none, I thank you very much. Thank you. This committee will stand in recess until tomorrow, Wednesday, April the 13th, at 2:30. (Hearing concluded at 5:30 p.m.) 3179 CERTIFICATE I HEREBY CERTIFY that the proceedings and evidence are contained fully and accurately in the stenographic notes taken by me upon the public hearing of The Philadelphia City Council, taken on April 12, 2005, and that this is a true and correct transcript of same. _____________________________ DAVID A. DEIK, RPR and Commissioner of Deeds (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)