COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND BEFORE THE COUNCIL COMMITTEE ON FISCAL STABILITY AND INTERGOVERNMENTAL COOPERATION - - - 401 City Hall Philadelphia, PA Monday, 2/11/02 9:58 a.m. - - - RES. 020059 - Providing for the approval by the Council of the City of Philadelphia of a revised Five-Year Financial Plan for the City of Philadelphia covering Fiscal Years 2003 through 2007, and incorporating proposed changes with respect to Fiscal Year 2002, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority. PRESENT: Council President Anna C. Verna, Chair Councilman Michael A. Nutter, Vice Chair Councilwoman Jannie L. Blackwell Councilwoman Blondell Reynolds Brown Councilman David Cohen Councilman James F. Kenney Councilman Brian J. O'Neill Councilwoman Marian B. Tasco - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2/11/02 FISCAL STABILITY INDEX WITNESS: Joyce Wilkerson, Mayor's Chief of Staff...... Rob Dubow, Budget Director................... Thomas Nestel, Deputy Police Commissioner.... 32 Janice Davis, Director of Finance............ 39 Nancy Kammerdeiner, Revenue Commissioner..... 98 Estelle Richman, City Managing Director......122 3 2/11/02 - FISCAL STABILITY - RES. 020059
Good morning, everyone. Thank you for your patience. This is a public hearing of the Select Committee on Fiscal Stability and Intergovernmental Cooperation regarding Resolution No. 020059. I would ask Mr. McPherson to please read the title of the resolution.
Resolution No. 020059, a resolution providing for the approval by the Council of the City of Philadelphia of a revised Five-Year Financial Plan for the City of Philadelphia covering Fiscal Years 2003 through 2007, and incorporating proposed changes with respect to Fiscal Year 2002, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority.
We did receive copies of your testimony on Friday, so if you would like to summarize, it that would be fine, and we will give the stenographer a copy of your testimony 4 2/11/02 - FISCAL STABILITY - RES. 020059 in full. It's your call.
We can go straight to questions or we can -- the testimony -- I'd rather go through the testimony as a way of --
My name's Joyce Wilkerson, Chief of Staff. With me is Janice Davis, the City's Secretary of Financial Oversight and Finance Director, and Mr. Rob Dubow, who's the City's Budget Director. This is the eleventh Five-Year Financial Plan for the City of Philadelphia. It supports the Mayor's five principle objectives and ultimately a better vision for a better Philadelphia. In it, we've attempted to maintain fiscal stability with steady tax reduction, implement the neighborhood transformation and blight elimination program, provide for high-quality education, coordinated social services, and lay the groundwork for business development and expansion. Our goal, of course, is to make Philadelphia a better place to 5 2/11/02 - FISCAL STABILITY - RES. 020059 live. The Administration's ability to implement its agenda is contingent upon maintaining the City's financial health, and the proposed Five-Year Financial Plan achieves the goal under difficult circumstances. The City ended FY 2001 with a balanced budget and a positive five-year-end fund balance of $230 million. This significant fund balance, however, masks the stark reality that the City faces: Slowing growth in tax revenues caused by a national economic recession; Pension Fund earnings that are significantly lower than projected; and an additional $45 million annual contribution to the School District of Philadelphia. That's $225 million over the life of the plan. And we also face possible unanticipated anti-terrorism expenditures. While the plan doesn't call for many of the harsh actions other cities have taken, such as increasing taxes, the City will pursue a number of measures to ensure that it maintains a positive fund balance over the life of the plan. The Administration is committed to maintaining fiscal health with steady tax 6 2/11/02 - FISCAL STABILITY - RES. 020059 reduction. While we're aware the City's high tax burden has served as a contributing reason for suburban flight and slower economic growth, our priority is to make the City more competitive for businesses and residents -- and, yes, that means responsible tax reduction, which the plan continues. But we refuse to put fiscal stability at risk by implementing reckless reductions that we cannot afford. We believe that those who are calling loudest for drastic reductions do so without fully grasping the impact these reductions would have on public safety and our ability to provide basic services to our residents. Instead, the Administration consulted with economists, surveyed local business owners, and tested forecasting models to determine how to implement affordable reductions that will have the most significant impact on the local economy. As a result, with City Council's approval, the City proposes to reduce aggressively the gross receipts portion of the BPT by 50 percent from its FY '95 level, when the reductions began. In FY '03, the City proposes to reduce the wage tax rate 7 2/11/02 - FISCAL STABILITY - RES. 23 percent. 3 percent less in wage taxes than they would have prior to the start of the tax reduction program and a business paying almost 30 percent less in gross receipt taxes than before the program started. Additionally, as the Mayor said in his budget address, and in his speech to the Chamber of Commerce, and as indicated in the Five-Year Plan, if the economy recovers and there are no additional unanticipated jolts to the City budget, we will increase our pace of the rate tax reduction program. This administration will be resolute in its efforts to uncover opportunities to tighten its operations and better leverage economies of scale. I want to reject, however, any notion that City government is somehow bloated relative to our population. This notion is based on a simplistic comparison of staff levels to population size over time and does not factor in changes in demographics 8 2/11/02 - FISCAL STABILITY - RES. 020059 of the remaining population.
Since FY 1965, the City has reduced the number of employees that provide traditional City services by percent. The staff level for all 6 departments providing county service, excluding the 7 Health Department, have increased by 70 percent 8 since FY 1965, including the Health Department, 9 which would skew the numbers because of elimination 10 of the general hospital and privatization of the 11 nursing home. This increase is largely because 12 staffing for county functions, which includes 13 social services and prison operations, are often 14 mandated or tied to joblessness and poverty rates, 15 and, as a result, are more difficult to control. 16 To control the future demands for social 17 services and criminal justice expenditures, the 18 City is making significant investments to transform 19 its roles from supporting the social service needs 20 of poor, independent citizens to eliminating the 21 need for those services. Rather than simply watch 22 prison population and the level of social service needs continue to grow, this administration is committed to investing in prevention programs, including after-school programs, parenting 9 2/11/02 - FISCAL STABILITY - RES. 020059 education, workforce development, and the stabilization of neighborhoods in order to reverse the trend. In addition to long-term efforts to control expenditures, we will continue to consolidate efforts across departments to maximize existing resources for services such as snow removal, truancy prevention, lot-cleaning, information technology procurement and support, housing development, and custodial services. Additionally planning has already begun to ensure that the City takes advantage of the departure of over 1,000 non-uniform employees who are enrolled in the DROP Program, who will be leaving beginning October 2003. We plan to conduct a formal assessment of workloads and functions to determine where departments can consolidate and streamline operations using fewer employees without affecting service delivery. There's been a lot of conversation about neighborhood transformation. I won't go into that; I do think it's important, though, to talk about the school districts. This administration is 10 2/11/02 - FISCAL STABILITY - RES. 020059 committed to helping citizens realize their potential by providing high-quality education and effective social services. These services are critical to the development of independent, productive citizens and stable, healthy families. As a part of the historic partnership with the Commonwealth of Pennsylvania, the Administration is seeking Council approval for an additional $45 million annual contribution to the School District of Philadelphia to help the District achieve financial stability and academic excellence. The increased level of contribution along with the anticipated additional $75 million annual contribution from the Commonwealth is a critical step towards providing the School District with necessary resources. Long-term financial stability for the district and for school districts across the Commonwealth of Pennsylvania, however, remain dependent on statewide tax reform. In FY '03, the plan proposes to increase the City's investment in after-school and youth- development programs by $10 million. Some of these funds will support the expansion of beacon schools, 11 2/11/02 - FISCAL STABILITY - RES. 020059 which are school-based community service that serve as one-time shopping support and activity centers for youth and families. 5 million in FY '03 in community-based parenting education and home visitation programs for new substance-abusing mothers. The City will also allocate an additional $4 million into the expansion of community family centers, which provide youth development and case management prevention services. 5 million to support the expansion of truancy court services and targeted services for children with special needs.
2 million program called "Ready, Willing and Able" that will provide intensive employment training and temporary housing for 70 single homeless men with drug and substance abuse problems and criminal histories. 12 2/11/02 - FISCAL STABILITY - RES. 020059 The City recognizes that the future economic growth depends on the ability to attract and retain businesses. Building on the infrastructure improvements of NTI, the City will effectively leverage existing and new financial incentives and targeted marketing efforts to attract businesses to Philadelphia. The health of Philadelphia depends on the growth of its major industries. The City will pursue projects that support a new phase of hospitality and tourism, building on the momentum of the City's expanded hotel-room capacity and recent opening of the world-class Kimmel Center. The construction of two new stadiums, expansion of the Philadelphia Airport, potential expansion of the Convention Center and development of the Delaware riverfront and other cultural venues attract out-of-town and local visitors to the City. In addition to supporting more established industries, the newly formed Innovation Philadelphia will leverage the area's large supply of knowledge workers and biotech greenhouse corporations through a targeted marketing effort to create a vibrant entrepreneurial environment. 13 2/11/02 - FISCAL STABILITY - RES. 020059 Further, the City is proposing a modification in our tax structure -- that was discussed previously. As we move forward with the ambitious agenda, we must not lose sight of potential challenges that the City faces. A key reason for the City's significant fund balance over the past few years has been strong wage-tax collections, which are tightly correlated to employment levels and extremely vulnerable to change in broader regional and national economies. 8 percent in December 2001, the highest rate since March 1995. From June through November 2001 on a seasonably adjusted basis, Philadelphia lost approximately 2300 jobs. It's unclear how long or severe the current economic downturn will be, and the impact on the rate of the City's revenues has already been felt. 3 percent. The City must be responsible in its revenue projections and brace itself for the compounding impact a recession could have on local criminal justice costs, hospitality and tourism, and other industry 14 2/11/02 - FISCAL STABILITY - RES. 020059 growth, as well as the demand for social services. In July '02, the City also faces interest arbitration with both the FOP and the firefighters union. The cost of collective bargaining agreements covering the City's workforce puts significant pressure on its funds balance, and future agreements are likely to increase that pressure. 6 billion. Under the agreements that were reached 2000, wage increases in excess of inflation and a significant rise in health benefit costs have already substantially increased the City's expenditure over the term of the plan. Since the horrific events of September 11th, the City has incurred a number of unanticipated expenditures resulting from increased security activity, including an augmented police presence, the activation of a 24-hour emergency operation center, heavy deployment of rapid- assessment teams in response to potential anthrax 15 2/11/02 - FISCAL STABILITY - RES. 020059 exposures, and extensive security at the airport and other public facilities. During FY '02, the City will spend approximately $21 million in unanticipated security costs in the General Fund and Aviation Fund. 2 million in unanticipated security costs as of the end of the December 2001 and projects it will incur an additional $15,000 in costs to the Aviation and General Fund every day for the rest of FY '02. The extent to which homeland security costs will have to be borne by the City remains uncertain.
Although the City's fund balances have been substantial over the last few years, it's important to recognize that they have represented a significantly smaller percent of the total expenditures than those of other American cities. 7 percent of total expenditures. 16 2/11/02 - FISCAL STABILITY - RES. 020059 One of the greatest risks for the City is the Philadelphia Gas Works that continues to struggle through financial crises. It's likely that within the next few days, the PGW will in fact seek an emergency rate relief from the PUC. Whether this winter has been approximately 8 percent higher than normal, the company is 9 hemorrhaging revenue, and without emergency rate 10 relief from the PUC, the cash-flow problem will 11 exacerbate. 12 Over the past five years, PGW's been 13 forced to cope with instability brought about as a 14 result of numerous transitions in management, 15 troubled automation efforts, and customer-service 16 practices that have failed to meet consumer 17 expectations. PGW has received partial rate relief 18 from the PUC and is significantly enhancing service 19 quality and is employing fiscally sound strategies; 20 while with City Council's approval, the City loaned 21 PGW $45 million in FY '01, which is scheduled to be 22 paid in FY '03, although it's likely the company 23 will request that the payment be made in August of 24 03 as opposed to the repayment that's currently 25 scheduled for January 03. 17 2/11/02 - FISCAL STABILITY - RES. 020059 The Five-Year Plan, however, does assume that the City will receive $153 million, the 4 annual payments of $18 million, plus the 5 $45 million loan repayment. The 153 would come in 6 over the course of the Five-Year Plan. Against the backdrop of these challenges, the long-term fiscal stability of the City is by no 9 means assured. The plan we submitted to you last week, however, lays the groundwork for stability in an increasingly uncertain world. It reflects the Mayor's rejection of any service cuts or tax increases as a way to balance the budget. Instead, tax cuts will continue and the City departments will be challenged to sustain enhanced municipal services with the level of resources curtailed by circumstances largely beyond the City's control. Despite this challenge, through the plan, the Street Administration puts forward its vision for a better Philadelphia with well-maintained and safe neighborhoods, positive opportunities for youth, exemplary municipal services, and a thriving local economy. Ultimately, all of this is possible only if the City remains true to its commitment to fiscal stability and prudence. 18 2/11/02 - FISCAL STABILITY - RES. 020059
Thank you. Miss Wilkerson, can you explain the Administration's revenue estimates and then comment on the statements that have been made by the City's two fiscal watchdogs, the City Controller and PICA, that your estimates are too conservative.
Mr. Dubow has led the City's analysis and also of the comments by -- and study by Mr. Vignola and the Controller, and I'll ask --
Good morning. My name's Rob Dubow. I'm the City's Budget Director. This year it's particularly challenging doing a revenue estimate since it's the first time in a decade that we've had to do those estimates during a recession. So in putting together the estimates, we worked extensively with economists, we looked at what's been happening over the last year, we looked at what happened the last time we were in a recession, and we looked at our econometric model. Putting those factors together led us to have growth rates that were substantially lower 19 2/11/02 - FISCAL STABILITY - RES. 020059 than last year's growth rates, which, I think, is consistent with actually what the Controller is now saying in terms of their midyear report. Both the Controller's and PICA's analyses of our ability to afford tax cuts were based on last year's plan, so conditions have obviously changed substantially since then. And to be a little more specific on what they said, in PICA's analysis, they said if we merely had the same level of growth in the second half of '03 as we had -- in the second half of '02 as we had in the first half, that we'd have $47 million more in revenues than last year's plan assumed. This year's plan actually starts with a higher base for '01 than last year's plan assumed, so we actually have higher revenues, we're ready for '02, so they don't have the gap that they said was there. In addition, January was a very bad month for revenue collections for us, so it's not clear at all that we'll have the same level of growth in the second half as we had in the first. Now, in the Controller's study, their conclusion that we have sufficient resources for 20 2/11/02 - FISCAL STABILITY - RES. 020059 additional tax decreases, there are a couple of analyses that we would differ with. One, they included about $230 million in supply-side the effects as a result of tax decreases. While we agree there'd be some supply-side effect, we don't think there's a real good way to quantify that, and we think that including that in our projections really would take us back to the kind of forecasts that got us into trouble ten years ago. In addition, when we talked to economists about it, they all said yeah, there will be some sort of supply-side effect, but you really can't include that in your plan. They also had a series of items that they said were grossly conservative on the expenditure side. What they left out, though, was the series of contingencies that we also have. For example, at the point they published their report, we had not made any commitment on School District payments; our plan now includes $45 million in additional payments. And some of the things where they said we were conservative, we just disagree with. For example, one of their assumptions is that we won't 21 2/11/02 - FISCAL STABILITY - RES. 020059 build a new youth study center, and that's one of the Mayor's key priorities. They also said that our health-benefit projections were overly conservative, but their new media report actually has higher health-benefit costs in '03 than we have in our plan. And the final part of their reasoning for why they thought that we had additional capacity was that they thought our revenue projections were overly conservative, but that was based on using the growth rates that we had in last year's plan, which we actually think were too aggressive given what's happened with the economy.
Thank you. Would you explain how the tax benefits to the City from the stadium transaction are factored into the estimates contained in the proposed plan by fiscal year by taxes; for instance, the wage tax and the business privilege tax?
Well, we actually -- we don't have specific revenue amounts in each year that we tie to the stadium transaction. I can tell you, though, without looking at our actual results, one of our strongest areas has been construction, and I 22 2/11/02 - FISCAL STABILITY - RES. 020059 think the reason that's held up is because -- in part, because of what's going on down at the stadiums.
What are the economic benefits factored into the plan as a result of the NTI program since the Administration projected a $47 billion benefit to our economy from this program?
We don't have any revenues projected in the Five-Year Plan as a result of NTI. The Administration was asked, you know, to do that calculation, provided the calculation, but it did not serve as the basis for undertaking the program, nor is any potential revenue part of the City's Five-Year Plan. You know, some of the thinking underlying NTI was, we're currently spending $18, $20 million every year anyway and neighborhoods are slipping away from us. We attempted to use that same revenue stream more strategically, and that was more of an underpinning of NTI than any potential, you know, increased revenue as a result of turning around, you know, the City's neighborhoods and ...
The plan freezes 23 2/11/02 - FISCAL STABILITY - RES. 020059 the wage-tax reductions after FY '03. However, you state that the City will reduce those rates if there are three conditions met, which I will not repeat. What does the proposed plan assume with regard to those three items? And why does the wage-tax growth have to exceed last year's assumed growth rate and not the growth rate in the proposed plan?
-- the recovery in the economy, the recovery in the stock market, and no 15 further unexpected hits to the General Fund.
And allowing the Pension Fund to meet its 9 percent earnings.
Right. We use those conditions because without -- without a return to health in the general economy, I don't think we can afford any more tax reductions. If the stock market has lower-than- expected earnings for our Pension Fund, then we'll have to make contributions larger than those that are assumed in the plan. 24 2/11/02 - FISCAL STABILITY - RES. 020059 And if there are other hits that we don't expect to the plan, that will also put a constrain on our ability to afford tax reductions.
The Mayor formed a Council of Economic Advisors to provide guidance and insight with regard to the City's fiscal policy. Can you tell us who they are? and have they issued any reports?
The members of the Council are Anthony Santomero, the Chairman of the Fed, and --
Santomero. The's the chairman of the Philadelphia Federal Reserve Bank. And Robert Inman, who's a professor at Pen; William Stull, who's a professor at Temple; David L. Cohen, a lawyer; and Steven Sanders, a businessman. One of the conditions that they put on agreeing to serve was that any advice that they give us remain confidential, but they have met often -- we've probably met with them as often as, you know, a few times a month while we were putting the plan together and they've given us invaluable advice. 25 2/11/02 - FISCAL STABILITY - RES. 020059
Can you tell us if they've had any impact with regard to the City's revenue estimates contained in this plan?
And did this group recommend that the wage-tax reduction be frozen after FY '03 and that the business-privilege tax reductions be accelerated?
They had input in all of the decisions driving our revenues and in our decision on what to do with taxes. But, again, we told them that we would not make public any of their specific recommendations.
I think it's more in the nature of conversations back and forth, running ideas by them than it is some, you know, some off, you know, behind-the-scene mini budget bureau that's operating within the City. It is no more than the kind of advice that an administration would seek on a whole host of issues in a very casual way. This, I think, presents an opportunity for the folk on the financial side to call people together and have a conversation drawing on a number of disciplines. 2/11/02 - FISCAL STABILITY - RES. 020059
How much funding is included in the plan for the Economic Stimulus Program?
The budget for those funds is developed by the Commerce Department, and I don't know if Mr. Cuorato is here, but during his testimony, he can talk about it in more detail. There are a number of opportunities that arise during the course of the year in order to consummate transactions. There may be a gap in the financing. The City's used economic stimulus funding in that way. Economic stimulus funds are used to support neighborhood commercial corridors. We can provide a more detailed statement about the proposed expenditures.
And we would like to know what has been the City's return on its investments and also an accounting of these funds over the last three to five years, please Appendix 3, , please explain the rationale for the Police Department's number, as 27 2/11/02 - FISCAL STABILITY - RES. 020059 they appear to go down. And why are they below their FY '01?
The Police Department is losing, I think it's over 700 officers through the DROP in October.
700, yeah, over 700 officers through the DROP. We're assuming that they will --
And will they all be going out at the same time, at the beginning of '03?
Yeah, they all have to leave by October '03, so there's a chance some of them ill leave earlier, but they all e to be gone by then. We're assuming in the plan that we won't be able to replace them all the day they leave and that it will take a couple of years to get us back up to full staffing, so that's why there's that short dip. But if you look, by the end of the plan, we're back up to the position levels that we started out.
When would we be back at the additional numbers that we started 28 2/11/02 - FISCAL STABILITY - RES. 020059 with?
Also on Appendix 3, , explain why the Department of Recreation budget is reduced in the out-years of the plan.
That also relates to the DROP Program. What we've done is assume that for non-union departments, for every three people who leave through DROP, that two will be replaced. We're actually bringing a consultant to work with us and to work with the departments to find ways to do things more efficiently so that those reductions won't result in any loss of service. In the plan, we've shown that as an across-the-board reduction; we actually anticipate that when we start working with the consultant, there will be departments that do more and departments that do less, but that we'll be able to reach the overall goal.
How many employees do we presently have at the stadium complex, and can you tell me what will happen to 29 2/11/02 - FISCAL STABILITY - RES. 020059 them once the stadium is completed?
There are 29 employees at the stadium, and our intention is to reassign them to other departments.
All right. I just want to look at the Police Department again. If we're losing 700 and we're not getting back to where we originally were until '07, that concerns me.
On of Appendix 3, could you go back and explain. I thought you said you were losing the 700 and you expected to replace them over time. On that particular page, you're showing FY '03 proposed uniform police levels at 6909 and then the following year, you're showing 6809.
Right. That's the year the DROP hits. 30 2/11/02 - FISCAL STABILITY - RES. 020059
We anticipate replacing the majority of them right away, but not all of them.
Okay. Could you give us an a year-by-year basis what your anticipated replacement rate is.
Well, it shows here that in '04, we're down 100; in '05, we're down 80; in '06, we're down 60; and then we;re fully restored in '07.
So how many police officers do you anticipate hiring. Seven hundred, you're saying, are going out by the end of June 30, '07; is that correct?
No, I believe the exact 31 2/11/02 - FISCAL STABILITY - RES. 020059 number is -- 503 will be gone by October of '03? 504 by October, and then they continue to leave on a monthly basis.
Okay. And so tell me about the hiring over those years and the size of the various classes, and what will any of that do to the actual number of on-street police officers.
We would -- to get to the '04 number, we would have to hire 400 officers during that year, so that we're down --
How many police officers do we usually hire every year?
You know, I'm actually going to ask Tom Nestel to come up and walk you through that.
Okay. And what do you anticipate the normal attrition rate just -- I mean, don't we -- I know in the past, there used to be the standard 25 officers a month. 32 2/11/02 - FISCAL STABILITY - RES. 020059
The attrition rate, I think, used to be about -- was it a month? But that 4 rate's going to change because we'll have had this 5 big reduction in workforce and will have a grouping 6 of people leaving at once. 7 So, for example, I think you've already 8 seen a reduction in your attrition. 9 DEPUTY COMMISSIONER NESTEL: Yes. 10
Okay. Well, I know 11 the Deputy Commissioner's going to explain it all, 12 but it might be helpful if you could kind of lay it 13 all out in writing the number of people in the DROP 14 Program, the number of people leaving through 15 normal attrition, the number of people you expect 16 to hire each fiscal year by class. 17 Now, how many people did you say we 18 normally hire every year? DEPUTY COMMISSIONER NESTEL: Councilman, Thomas Nestel, Deputy Police Commissioner. Normally, we hire 240 per year.
Okay. DEPUTY COMMISSIONER NESTEL: And in Fiscal '03, we are going to be able to hire some additional people to offset what happens to us in 33 2/11/02 - FISCAL STABILITY - RES. 020059 Fiscal '04. In Fiscal '04, we will lose a total of 504 people to the DROP. On that first day, we will lose 289.0
What do you mean "on the first day"? DEPUTY COMMISSIONER NESTEL: The first day that people must leave, which is October 1st --
Right. DEPUTY COMMISSIONER NESTEL: -- of '04. We have 289 people leaving that day.
Right. DEPUTY COMMISSIONER NESTEL: Then each month in the rest of that fiscal year, we have numbers leaving, for a total of 504 that year.
Okay. What I'm also trying to understand, though, is if your normal hiring is about 200 officers a year, how are you going to hire 400 officers in a year? What's the capacity of the Academy? DEPUTY COMMISSIONER NESTEL: We have looked at different ways of accommodating people at the Academy, and with the number of classrooms that we have and the instructors that we have, we can handle 400 a year. In fact, in this coming fiscal 34 2/11/02 - FISCAL STABILITY - RES. 020059 year, we will be hiring that many, so we'll have a little bit of an edge going into the DROP.
Mm-hmm. And Personnel's prepared to deal with the additional applications and testing and everything that goes with it? DEPUTY COMMISSIONER NESTEL: Yes, sir. As a matter of fact, the new test is being administered within the next couple of weeks, and we will have a fresh list to start with, and we're working very closely with Personnel.
How many officers are considered as a part of the on-street police presence today? DEPUTY COMMISSIONER NESTEL: The on-street police apprentice is about 88 -- somewhere between 80 and 85 percent. 59 percent are in Patrol, there's another 10 percent in Special Patrol, we've got another group in Narcotics, but total on-street is in the 80 percent category.
And what would you expect it to be over the next couple of years based on all of this activity? DEPUTY COMMISSIONER NESTEL: The 35 2/11/02 - FISCAL STABILITY - RES. 020059 Commissioner has districted us to look at all of our support units to see if we can consolidate any positions, how many additional people we can get out into the streets. But we will have, as Mr. Dubow said, over the course of the DROP Programs, we will have over 700 officers leave. So we've got to do whatever we can to get additional people on the street.
During that same period of time, what do you expect your normal attrition rate to be? DEPUTY COMMISSIONER NESTEL: Normal attrition, again, should be about a month, or 15 240 a year. Last year, it was 23.5 a month. The 16 year prior to that, it was 18, or 17 and a half. 17 But normally, it's just about 20 a month, 18 I think, is what we'll see, in addition to the 19 DROP. 20
So what's the total amount of officers you expect to leave, or some of those officers who would be a normal part of the attrition rate, are they also in the DROP Program? DEPUTY COMMISSIONER NESTEL: Some of those officers are also in the DROP Program. We built 36 2/11/02 - FISCAL STABILITY - RES. 020059 our hiring schedule on a 20-a-year leaving in addition to the DROP.
Twenty a month leave, you mean. DEPUTY COMMISSIONER NESTEL: Twenty a month, I'm sorry. And we watch that very closely and then adjust our class sizes based on the number who have actually left.
So between the DROP Program and the normal attrition rate, including the fact that some officers would be a normal attrition rate but are now probably going to be counted as a part of the DROP Program, what's the total number of people in the course of the next fiscal year you would expect to have to hire? DEPUTY COMMISSIONER NESTEL: This coming fiscal year?
Fiscal '04. DEPUTY COMMISSIONER NESTEL: Oh, Fiscal '04. Fiscal '04, at this point, we're planning on hiring 240 people.
I think you don't want that to be your final answer. 37 2/11/02 - FISCAL STABILITY - RES. 020059
All right, you understand why I said that. DEPUTY COMMISSIONER NESTEL: Yes, I do, sir.
All right, thanks. That was just an add-on to your ... I'd like to go back to both some of the testimony and some of the answers. I was intrigued with regard to the response about the economists and their involvement in assisting Finance and the Budget Bureau. Tell me a little bit again about the nature of their role and either the agreement or the understanding about their work and the public aspects of it.
The council was appointed by the Mayor to provide the City with additional resources to assist in its consideration of issues. It is not a formal body; it meets in more of a collegial style and people talk through issues. 38 2/11/02 - FISCAL STABILITY - RES. 020059 You know, they look at all aspects of the economy. And Mr. Dubow can talk in more specificity about the kinds of issues that they've been asked to look at. Mr. Santomero and others have positions in addition to serving on the Council of Economic Advisors that would constrain their formal, you know, advice-giving, and so it's not the formal structure, you know, where you have reports issues; it's much more of an informal, you know, opportunity for the City and various parts of the City to bounce ideas off of -- to, you know, to hear about best practices. To hear about, you know, other things that we might want to consider. And I think it's the kind of relationship that's proven to be extremely helpful for the City to get this extra, you know, guidance Do you want to ...
Yeah, just a couple of examples. They gave us advice on projections for tax growth, they gave us advice on tax structure.
But ultimately, it's the City's call. I mean, it's the City's call on what, you know, the revenue projections are going to be. Janice, you want to...? 39 2/11/02 - FISCAL STABILITY - RES. 020059
I'm Janice Davis, Director of Finance. They give us a forum and a board to bounce some of our ideas off of. We looked at projections for revenues for the coming year and asked how those seem to them and then got feedback: Yeah, they're conservative; no, you look like you may be a little aggressive. So it gives us a sounding bored, and it serves more of a sounding board than as an official board that gives us advice or recommendations.
Well, I appreciate that. I mean, this was publicly announced with, I mean, a certain bit of fanfare, as if it was going to be this more formal entity. Obviously, the individuals who were named are well-known to many of us and, I mean, I guess we were just, as a part of the general public left with the impression that there was somewhat of a more formal aspect to all of this, given some of the names that are involved in all of this.
I mean, there was a big public announcement about this. 40 2/11/02 - FISCAL STABILITY - RES. 020059
That's right, but we did not mean to convey in that announcement that it was a formal -- you know, they review and, you know, give their imprimatur to any budget or projection. I mean, it's not -- It is not that; it is more of a resource available than it is any kind of, you know, formal part of, you know, the City's process of trying to construct a budget.
Right, I understand that. I didn't necessarily expect them to put a Good Housekeeping Seal of Approval on it. But, I mean, basically what they're asking for is to be rather publicly announced to be able to give advice or get information back and be the sounding board, but at the end of the day, they wish to be a private or have whatever their advice or recommendations are in a confidential fashion, so they wish to be private people giving advice and recommendations to the public but then not to have to respond to any questions about it?
Well, I think that, you know, that, to some extent, distorts the relationship. The Administration sought the --
I don't know what the 41 2/11/02 - FISCAL STABILITY - RES. 020059 relationship is so I don't mean to distort it.
That's right. The Administration sought people out and asked them to serve as a resource. I don't think that they convened as a group wanting to have a unique role in the City's development of its budget or consideration of its finances. We sought them out because we thought that these were individuals that could provide a resource to the City. And, you know, I think it is unfair to them to characterize, you know, them wanting to, you know, have special role and then, you know, they're wanting to -- you know, insisting that everything be private. I think that, you know, is enact and does not in fact reflect the nature of the relationship.
Councilman Nutter, may I ask a few follow-up questions?
I don't recognize any of the names as reflecting the interests of the general labor movement, which has a very strong and 42 2/11/02 - FISCAL STABILITY - RES. 020059 very much vested interest in the health of the City. And so I wonder whether you're excluding the building trade, which seems to be recognized by the Mayor. Is there any general labor representation to give the views of working people on economics and on the budget?
Not as part of the Council of Economic Advisors. Those aren't the only people from whom the City solicits input. As my testimony indicated, when the City was considering what to do with the tax reductions, the one thing that was done was surveying businesses. We seek a lot of input from a lot of different places; it's not just the Council of Economic Advisors that provides input to the City's consideration.
Well, why would the labor movement not be recognized as a major force in determining economic issues for involving the economic health of the City?
I think the labor movement is. This was a -- they were not invited to participate, though. 43 2/11/02 - FISCAL STABILITY - RES. 020059
Well, I raise the question because it's common knowledge that the labor movement feels completely excluded by the Administration, except for the building trades, and I think it ought to be entirely -- and in matters involving the City, it seems to me representation of the City's labor force would be vital in helping to determine the economic direction of the City. And if this informal relationship exists, it certainly seems to be it ought to include representatives of the labor organizations representing City employees. They're the most knowledgeable people, they're people that are very active in many civic groups, they represent the thinking of the public as well as (inaudible), and I think it's very important that they be included. Thank you, Councilman Nutter.
You're welcome, Councilman, thank you. On of the testimony, I just wanted to go through a couple of quick items and then get further into it. You mentioned that the plan does not adopt many of the harsh actions that other cities have had to implement, and then later on 44 2/11/02 - FISCAL STABILITY - RES. 020059 talk about that "we will reduce the cost of providing services." Can you tell us what some of those harsh actions were and what cities did they take place in?
We've actually done a survey of other jurisdictions, and Mr. Dubow or Miss Davis can step through those.
Yeah. We can actually give you copies of this. The overview starts with New York, but I'm going to skip New York since it's kind of a special circumstance. L.A., for example, is looking at options that have 3, 5, 7, and 10 percent reductions in expenditures. Chicago eliminated about 500 positions and called for a 5 percent reduction in across-the-board expenditures.
Yes. The Houston stuff we have was from before 45 2/11/02 - FISCAL STABILITY - RES. 020059 the Enron thing, so I'm assuming that that's going to change. In Detroit, they announced a percent 5 across-the-Board spending reduction. They sold about 50 million in city land.
Our proposed spending reductions over the five years -- really the DROP reduction is about 55 million.
No, I was speaking in response to -- you talked about a couple cities with across-the-board spending reductions. What was the --
Oh, the 1.5 percent personnel reductions; that's not across the board, it's just in personnel. In addition, actually what some departments did is made the case that they couldn't afford those reductions not impacting service, so for several departments, the cut was actually restored.
Recreation, the library, fire, 46 2/11/02 - FISCAL STABILITY - RES. 020059 police. And I also want to give you this. There's a table in the back that gives a checklist of what cities did.
Okay. And how are we reducing the cost of providing services?
We plan to bring in a consultant to work with us and to work with specific documents to look at all of our business processes and to see how they can be made to work more efficiently.
And what do you expect those reductions to be in the next fiscal year? How much do you expect to save?
We actually expect to start saving in '04, so we don't really expect anything in '03 because we want to give time for ourselves, departments, and the consultant to work through those issues to figure out the best way to achieve those savings. And we've also -- I mean, there are a 47 2/11/02 - FISCAL STABILITY - RES. 020059 couple of examples of thing we've done. For example, both the Library and Fleet have already looked at the way they do things and have figured out ways to reduce staffing without impacting their services.
I think another example is with the whole homeless system, the City currently pays to keep people in shelters, and at the same time, we have a public housing resource that's underutilized. And, you know, under Managing Director Richman, they've begun unprecedented conversations with the Housing Authority that will result in substantially lower City costs to support something as, you know, as essential as shelters. And so we think that there are a number of ways the City can be more strategic, with the end point being savings for the City's General Fund. And we're going through -- the Mayor currently has monthly meetings with clusters of departments, and they've actually been very helpful meetings. We've had an opportunity to talk about what it is that we're doing and ways that we can deliver services more efficiently. And, you know, it's through that -- those 48 2/11/02 - FISCAL STABILITY - RES. 020059 conversations, you know, consideration of more strategic ways of using the City's resources that we think we're going to be able to deliver better services more cost effectively.
And we've really taken, I mean, a whole new approach to our delivery of social services because that really is the area with the fastest growth in our budget. We have a much more coordinated approach to delivering services and an approach that is much more focussed on prevention. So that there may be short-term bumps in expenditures to get the prevention services in place, but in the long term, the demand for our services should go down based on our prevention efforts.
Okay. Madam Chair, I just have a couple of last questions in this particular area. So again, Mr. Dubow, you're saying that you're not necessarily expecting any reduction in the cost of services in '03, you are anticipating getting a consultant to help going forward, but you have provided a couple examples, and if you could 49 2/11/02 - FISCAL STABILITY - RES. 020059 in the response portion of all of this, if you could lay out a larger schedule of what you expect in Fiscal '03 in terms of the response to that particular statement that you're going to reduce the cost of services by department, I'd be interested in that.
Okay. And when we say we're not reducing services in '03, that's just in relation to the DROP, but we'll lay out for you, you know, a more detailed schedule of the savings we anticipate over the life of the plan.
You confused me by your last statement. I mean, I understand that's your role.
I said that in response to what was said, which is that you're not expecting any cost-saving reductions in '03.
Yeah. And we have the 1.5 percent Class 100 reduction for departments, 50 2/11/02 - FISCAL STABILITY - RES. 020059 and I told you there was some departments that we excluded from that and --
Right, but the savings that start in '04 are the DROP savings. Departments will have to figure out ways to achieve savings to accomplish the 1.5 percent reduction in '03.
In the fourth paragraph toward the bottom of the testimony, it says, "We will reduce the cost of providing services."
And I'd like to know what those cost reductions are, whatever you anticipate in 03 and then going forward in 04. I'm just asking you the question based on the testimony.
What was the City's 51 2/11/02 - FISCAL STABILITY - RES. 020059 population in 1965?
About 2 million, I think. It may be a little higher, somewhere in that range.
Okay. What's the significance of the reference? Why is FY 1965 a reference point for comparison between the number of people working for the government, the type of services that were provided? That was 37 years ago; what's the relevance?
It's really in response to analyses that have said the City should have fewer workers now than it did, and '65 is a year that people have picked to say to us, Look, you had more people then --
That people have said to us, You had a higher population, and people have cited 1965, for example and said, You had a higher population then, so you should have fewer employees, 'cause there are fewer people living in the City. And our response to that is, Yes, there are fewer people, but the demographics of the City 52 2/11/02 - FISCAL STABILITY - RES. 020059 have changed, so that it's a city that has a higher demand for services, and that if you look at where our increases in staffing have been, they've been in areas that reflect that increase in services. So, for example, in the Department of Human Services is an area with a large increase in staffing. And in general, the biggest part of those increases has been in areas that are traditionally county services, services that other cities don't really have to provide.
Do you have an analysis by department over those years of what the staffing levels were?
Thank you. The Chair recognizes Councilwoman Tasco.
On of the 53 2/11/02 - FISCAL STABILITY - RES. 020059 introduction, you talk about seeking $12 million from PICA on a Special Indemnities Fund. What is the likelihood of getting that money and would you have to pay it back?
No. That -- that -- to answer the second part first, no. That's money that PICA borrowed back when they did deficit financing bonds. It turned out that the projected deficit for which they borrowed was not as large as had been anticipated, so there were additional funds that did not have to be used for the deficit reduction. So we asked PICA whether we could use that money to pay off indemnities claims that related to a quirk program to eliminate a backlog of open cases. They agreed to that, but we never used all of the funds, so there's about 12 million left there. Those are the funds that we'll be asking for. We'll ask PICA to let us apply those two indemnities costs 'cause those are essentially the kind of costs that they were originally intended for.
So that would go for indemnities costs. 54 2/11/02 - FISCAL STABILITY - RES. 020059
Earlier, we talked about the gross-receipts tax, and the President asked you about the Council of Economic Advisors and their involvement in developing this plan. I notice on of the introduction, Dr. Robert Inman of the Wharton School at the University of Pennsylvania has shown that if this tax were eliminated, the increased revenues from other taxes that would result from greater business activity would lead to a net increase in overall City tax. He's a part of the economic advisors. Was that a formal request that you asked of him, or did he do this study on his own and share it with you? An what is he talking about in terms of revenue from other taxes?
This was based on a study that he did apart from his work on the Council of Economic Advisors that was actually published before he became a member of the Council. What he's saying is that the tax, the gross-receipts portion, is such a disincentive to businesses that if it were eliminated, more businesses would come into the City and businesses 55 2/11/02 - FISCAL STABILITY - RES. 020059 that were here would be more likely to have more employees, and that because of those increases in employment, you'd have increases in wage tax; you'd have increased economic activities, so there'd be increases in sales tax; (indiscernible) buy homes, so there would be an increase in property taxes. So there would just be a range of benefits is what his paper says.
Well, through the years I've been here, most of the discussion has been on the elimination of the wage tax and that the wage tax has been the deterrent of businesses moving into the City. Now, if we stop the effort to lower the wage tax and go into -- and try to eliminate the gross-receipts tax, how does that balance out? They're both onerous taxes, and so which is favored more by the businesses, the gross receipts or the wage tax?
They are both onerous taxes, and I think businesses would be happy if they were both gone, but we can't afford to do that. One of our -- a piece of our rationale for focusing on the gross-receipts portion of the 56 2/11/02 - FISCAL STABILITY - RES. 020059 business-privilege tax is that it's a smaller tax than the wage tax and we can make a much bigger dent in it for the same number of dollars. So although both taxes have a negative impact on the economy, we can get rid of a larger portion of the gross-receipts tax with the same amount of money.
On of the program, there's a discussion about PGW. What would be the impact in 2003 if that $45 million doesn't come back to the City, and what is its prospect of PGW having the ability to repay the 45 million?
I can talk a little bit about the prospect, and then Mr. Dubow can talk about how it impacts the plan. You know, when the loan was made initially, our commitment was to repay the loan in January 2003. The company has not received the rate increase that it had asked for. And in addition, weather -- particularly this winter -- has been approximately percent warmer than 23 normal. As a result, the company's revenues are 24 down. 25 We plan on coming to City Council and 57 2/11/02 - FISCAL STABILITY - RES. 020059 asking that the payment be extended until August 2003. We are currently, though, taking a look at exactly what's going on. This winter is having a devastating impact on the company and other utilities. It is likely we will be filing for an emergency rate relief from the PUC in response to the financial, you know, cash flow in particular crisis at the company, but we're formulating that, and so we will be taking another look at exactly when we'll be able to make the $45 million payment. I believe the plan anticipates the repayment in FY '03, and I don't know at this point that we'll have to deviate from that. Our intention is still to repay in FY '03. It may be later in the year than we had initially thought.
It would create a big hole in our budget, and we would have to, you know, go back and look at ways to close that gap. It's one of the reasons, when we talk 58 2/11/02 - FISCAL STABILITY - RES. 020059 about our inability to do larger-scale tax reductions, it's looking at contingencies like that one that pose a significant threat to our future fiscal health.
What would be the options to fill the gap; have you thought about that?
We have not had any real discussions about that at this point.
In the Renewal Community Program, what was the process for selecting the communities that were proposed to be funded?
A lot of the process included meetings. There were public notices, meetings. We had meetings with Councilmembers soliciting input. There were conversations with the Commerce Department. We took a look at where we currently have economic development going on, looked at neighborhood where we thought the kind of benefits the program creates would be most helpful. A large part of the selection was driven by the criteria set out by the federal government. Unlike some other programs, the selection was based 59 2/11/02 - FISCAL STABILITY - RES. 020059 entirely on a scoring system that was developed by the federal government that reflected unemployment rates, level of poverty. The higher the City scored on those indices, the more likely it was that we would be able to compete successfully. And so, in drawing the lines, sometimes there were neighborhoods that we would have wanted to have included but did not include because the unemployment and the poverty indices were not high enough. Another factor that we had to take into account was, what were the current boundaries of the Empowerment Zone. A city cannot be both an empowerment -- have both an Empowerment Zone and a Renewal Community designation in the same area, and so we would have had to have given up the Empowerment Zone designation in order to include certain neighborhoods we might have wanted to include. We were not able to do that without also impacting Camden. Camden, as you recall, was part -- by state Empowerment Zone, Camden was part of that. Camden was not interested in consenting to our giving up the Empowerment Zone designation. 60 2/11/02 - FISCAL STABILITY - RES. 020059 So in drawing the lines, we looked at poverty, we also looked at where there's currently an Empowerment Zone designation, and we came up with the lines that were drawn. And, you know, it had to be contiguous, so there might have been areas in your district -- for example, I know you were interested in Logan. In order to get up to the Logan neighborhood, we would have had to have picked up so many communities that were not as distressed that it would have jeopardized the overall success of the application.
Okay. I think that's it for right now. I have some more, but I will wait.
All right. If I can, I would just like to go back to PGW. Does the Administration believe it can alter the due date of the loan without amending the ordinance granting the loan?
Then why wasn't that request part of the budget package?
It perhaps should have been. We were focused on coming to the 61 2/11/02 - FISCAL STABILITY - RES. 020059 Administration with a package of PGW proposals. We can submit the request to amend the $45 million in order to put it in sequence with the budget.
Councilman Cohen, I believe you wanted to be recognized.
Because we'll be receiving it in '03, it owe to the budget, and that's why we didn't do it as part of the budget. We do recognize that the ordinance needs to be amended.
And when do you think we would be receiving that request?
Our plan was to try to respect, you know, the normal practice that we not bring additional legislation to City Council while the budget is under consideration. We are, you know, and so we were looking at, you know, something later on, you know, towards, you know, March sometime. We are, as I indicated, having to take another look at what's going on at the gas company. It's likely we'll be requesting emergency rate 62 2/11/02 - FISCAL STABILITY - RES. 020059 relief, and it may be appropriate to accelerate the request to the PUC but also a request to the City Council to consider a restructuring of the $45 million loan.
Can you tell us, what's the status of the Administration's study concerning the sale of PGW? and when will it be shared with Council?
We have not finalized -- in addition, we're looking at whether or not it's possible what those issues might be, we're looking at some of the underlying legal issues, also trying to get a better understanding of what that process might be. Any sale transaction would have to be considered by the PUC, the SEC, and others, and we're nearing the end of pulling all of those pieces together. We're also trying to get a better understanding of the impact the sale might have on our ability to stabilize the company's finances. In the short-term, our ability -- what we do know is that if we were to announce an intention to sell the company, we would no longer be able to access 63 2/11/02 - FISCAL STABILITY - RES. 020059 the tax-exempt bond market, and that plays a big parts in the City's ability to undertake its capital program, the pipes, the L&G facility. It also plays a part in our cash flow, addressing our cash-flow needs. And so we're trying to better understand how some of these factors come together. We have -- I keep putting out these days, I don't want to do that again, but we intend to share it with Council when, you know, those pieces are completed. I don't have a specific date, though.
Thank you. The Chair recognizes Councilman Cohen.
Thank you, Madam Chair. In consideration the various options with PGW, are you considering what to do with the senior citizen rates, what to do with the low-income budgets? Are you giving consideration to how those benefits for Philadelphia citizens may be retained? 'Cause I notice nothing's said about that in your consideration
We're looking at all of those factors. You know, we don't have a sales 64 2/11/02 - FISCAL STABILITY - RES. 020059 transaction structured. You know, we haven't -- we don't have a term sheet. We're not that far along in our consideration. But those -- how those factors play into the operation of the company and how they might impact a sale are factors that we're taking a look at so that when decisions have to be made, we'll have a better understanding of the impact of the senior citizen discount and the low-income program.
I might also suggest, what happens to the workers for PGW? I think they're all very important considerations, and I'm wondering who you would involve in considering those factors.
What we're trying to do is develop enough information so that we can make good decisions. You know, we don't have a recommendation yet, but I think all of the factors you talk about are factors -- and I think we'll have some understanding of how they play into a decision to sell or what we might get if we were to sell the company.
Well, that's the reason I raised earlier the question of general labor 65 2/11/02 - FISCAL STABILITY - RES. 020059 representation on this Committee of Economic Advisors, because I think it's a part of the conversational informal mix that seams to represent the way in which they work. I think it would be very important to have these factors continually in the mind of everyone. For example, why was the decision made to increase the rate of reduction of the gross- receipts tax, something we all would like? But why was that done in a way which seems to indicate the Administration says, We're going to have to stop the wage tax reductions? On the surface, it appears clearly again as another indication that we want to help business people, but ordinary citizens of Philadelphia, workers, we're going to ask you to suffer and not take advantage of -- and I admit they're minuscule deductions, but it sends a wrong signal, it seems to me, to Philadelphians that the wage tax is going to remain static and not be reduced after year 2003, but that the gross-receipts tax is going to have a double amount decreased in its rate.
One of the reasons that reducing the gross-receipts tax was attractive to 66 2/11/02 - FISCAL STABILITY - RES. 020059 us was because studies have told us is that it will increase the number of jobs in the City, and we thought that was a bigger help, you know, for people than anything else, providing a tax cut that provides jobs.
Well, you know, jobs is the same thing the President always talks about, but we forget that there are people that live in the City that have concerns. Yesterday, I happened to be in West Philadelphia on another matter and I spoke to a number of people. They were very concerned about the school situation. They were concerned about why and they raised the question with me, Why is the wage tax not continually being lowered? They at least recognized that that minuscule reduction indicated an interest in the people of Philadelphia, and that was being pushed aside again in favor of a business venture. So I'm indicating that I think there have to be representatives in the mix of those who are advising the Mayor or who are adding to the discussion that there have to be a mix of people who represent the interest of ordinary Philadelphians. 67 2/11/02 - FISCAL STABILITY - RES. 020059 Incidentally, how do you put together the Five-Year-Plan and the budget? Who do you talk to? What's the process? Because none of us have a chance to be -- to have our thoughts considered. And I haven't found any normal Philadelphians who've ever said that they had a chance to consider. They wondered where the budget and the Five-Year-Plan come from. What's the process?
Let me just say one thing briefly about the commitment to the average person in the neighborhoods. I think this administration has made unprecedented investments in the neighborhoods and in the average citizen of Philadelphia. The Neighborhood Transformation Program, the investment in eliminating blight is without precedent. We've made unprecedented commitment in trying to invest in after-school programs for children. We're asking that City Council support an unprecedented commitment to public education in Philadelphia. So I think it's unfair to say simply because we have projected a slowdown in the reduction of the wage tax that there's no 68 2/11/02 - FISCAL STABILITY - RES. 020059 commitment. At some point, you have to make decisions about reducing the revenues and supporting services, and what the administration did was decide to take the revenue -- the resource we have available to support tax reduction and do something real as opposed to what everybody acknowledges is simply a symbolic gesture. It was not an easy decision. I think, as Mr. Dubow indicated, we look forward to reaching, you know, the point with our economy that we can move forward with a wage-tax reduction which more closely resembles what we had intended, but because of the contingencies that are out there, we didn't feel comfortable doing that this year.
I didn't want to get into a general discussion of all of the things of the Administration, like in the schools, whether or not taking away control of the Philadelphia school system from Philadelphians and turning it over to a state with no guarantees of increased money, the idea of having the State increase our taxes for schools while taking away control. You know, they're debateable issues as to whose interests are 69 2/11/02 - FISCAL STABILITY - RES. 020059 being served. What I'm indicating is that in a very simple thing that has an impact on people's paychecks, to see that the wage-tax reduction gets stalled while the gross-receipts tax is being cut more substantially than the wage tax ever was in any one year I think sends the wrong signals, and what I'm urging is not so much criticizing what's being done, but urging greater participation of people who know the needs of Philadelphians in this whole budgetary process. That's the reason I ask you, how is it put together? How do you get all of the decisions made? Who are the people that make those decisions? What is it the Council of Economic Advisors plus the Mayor? Who did that?
In the end, it's the Administration that makes decisions, but one of the things that we made sure we did this year was to go around and talk to Councilpeople. And before we went into the final stages of preparation, we did meet with almost every Councilmember. And one of the things that came through loud and clear was recreation, parks, L&I were all priorities. 70 2/11/02 - FISCAL STABILITY - RES. 020059 And if you look at the budget, in places that did not take cuts, in places where they were restored, those were places that were held harmless. That, in part, was based on our talking to Councilmembers.
I think we also conducted citizen surveys that provided a lot of information to the Administration on an annual basis, and I don't know how long it's been going on. We've been surveying the residents of Philadelphia who will tell us, you know, where we need to do better, where we're doing good work, and that helps inform the budget process.
And one of the things that survey has shown is that people have become consistently more satisfied with the service that we provide. And it also -- one of the things that we asked in the survey was, What's most important you to you? And we look at that in deciding where our resources should go.
Well, I raise that issue about involvement because I'm stunned by the fact that neither the Five-Year Plan nor the budget makes reference to specific problems that concern 71 2/11/02 - FISCAL STABILITY - RES. 020059 lots of Philadelphians that deal with the economic health of the City. There have been highlighted as recently as this past weekend the horrific effect of parking-rate increases throughout the City, the question of why is Philadelphia the only major city whose renewal rate at the Convention Center is so low? I understand it's down between to 9 percent, while other major cities have renewal 10 requests at the 40, 50, 60 percent market. Why 11 does it cost so much to build a home in 12 Philadelphia so that there is practically no normal 13 home-building operations, single homes in 14 Philadelphia? 'cause as soon as you build them, the 15 market price is cut almost in half. 16 There's no attention to those problems, 17 which, it seems to me, the City Administration can 18 take vast steps to produce. 19
Well, actually, later on 20 in the week, perhaps we can have testimony about some of the construction-cost issues. We've been working with the Reinvestment Fund to take a real careful look at that. The Administration continues -- the Mayor directly is involved in trying to address some of 72 2/11/02 - FISCAL STABILITY - RES. 020059 the issues that have our repeat convention business as low as it is. Those are extraordinarily important issues for the City. You know, we have committed to the tourism industry that resolving the challenges at the Convention Center are of paramount importance, and we continue to work on that. You know, I think the Administration acknowledges that, you know, any talk about, you know moving on to a new phase of Convention Center, I mean, you know, we've got to straighten out some of the issues that prevent our tourism industry from flourishing right now. And I think the factors that you talk about all contribute, and we're working to address those.
Madam Chair, I'll hold other questions to give a chance to other members of the Committee or other Councilmembers.
Certainly. The Chair recognizes Councilman Kenney
On the survey -- you had mentioned that there were a number of surveys and ongoing kind of contact with people in the community and with Councilmembers about the budget process. Has there been any attempt to talk to or to survey or to get input from the 68,000 people or so that have left the City in the past decade? Did we do -- I mean, Rob had indicated that there's, you know, some service issues that people feel better about the services they're receiving. I mean, while I understand everybody keeps on trying to do their best, it seems to be an unending flow of middle-class taxpayers and upper middle-class taxpayers out of the City. Have we ever done any research or inquiry into what exactly it is that people are upset about and why they seem to be going out of this city faster than any other major city in the country?
I don't know of any. I'd have to check with Commerce, but I don't know of any. But I understand your point.
Don't you think, you know, just realistically, it would make sense to 74 2/11/02 - FISCAL STABILITY - RES. 020059 talk to the people who left?
I mean, I've lived in the City 43 years and, I mean, I like the City and I don't want to leave the City, but the people who've actually left it are the ones that we really need to find out what the reasons are they left it, what the services are that they haven't received that they're receiving in the suburban community that they're living in now. I assume, number one, probably is the condition of the schools that, we all agree, needs to be improved and are deplorable. But also, tax rates, the type of services they demand for their taxes. 'Cause I know in the testimony here, it's quoted as saying that -- and it's in bold that "The City will continue to enhance Philadelphia's quality of life by further strengthening municipal services and public safety to make the City an even more desirable place for employers and residents." In the -- at least in the testimony, I see a lot of increase in amounts of money being spent on programs that seem to deal with mostly poor or more people in need, and certainly that's a good 75 2/11/02 - FISCAL STABILITY - RES. 020059 thing to do, but what do we do to enhance the desirability of middle-class transitional -- people who are able to transition out of the City, what do we do for them?
I, like Rob, don't know of anything that we've done to, you know, survey or poll those who've left the City. I think that we have a sense that, you know, and there are a lot of studies that indicate that education is critical, that it, more than perhaps any other factor, impacts people's decisions on where they want to live. I think that one thing that is also interesting to note that it's not just the City, that the Commonwealth also is not flourishing and that the Commonwealth, as a whole, probably needs to take a much harder look at what's going that has its growth lower than some of our neighbors' growth. But we have not surveyed people who have exited the City.
I guess, at first blush, what seems to me to be a pretty bad formula for stemming the flow of population in that we 76 2/11/02 - FISCAL STABILITY - RES. 020059 acknowledge that there's an expanding needs-based group out there that needs additional services, and we acknowledge within your testimony the increasing shrinkage of middle-class taxpayers who have left the City. If we keep on continuing to see to the needs -- and rightfully morally so -- to the needs of the poor, while in some ways not even researching what the needs of the middle class are and they continue to leave, isn't this a self-fulfilling prophecy of defeat at some point in time, coupled with the fact the one tax, I guess, that gets the most attention, the one tax that is the most aggravating for people is that wage tax, because I know -- I'm teaching at Penn now, it's my third, fourth semester, and a lot of these graduate students at Penn say to me, you know, I wouldn't even think of staying in the City because I'm not paying that wage tax. I'm not allowing the City to take that bite out of my paycheck and not return services that I expect. So in the end, while we're all trying to hold on and keep things from falling apart, isn't 77 2/11/02 - FISCAL STABILITY - RES. 020059 the basic philosophy of this whole process one that's self-defeating and that we will continue to fund the needs of the poor, we will continue to not -- maybe not ignore, but not really know what the needs of the middle class are, and we'll all acknowledge that people are living the City and that the group of poor people is getting bigger and the budget's getting larger, but it's not going for services that tend to attract or retain middle-class and upper-middle-class taxpayers. It seems like a bad formula altogether.
That's part of the reason that we really have changed our approach to the services that you've described for the poor, that we've moved toward more preventive services that we hope, in the long run, will reduce the demand for those services and that will have a different set of needs and make those -- what you describe as "poor" more middle-class members of our tax base.
Well, anecdotally, I could tell you of the -- and I've said this before, for the last ten years, I guess, that the group appears -- and it's certainly only anecdotal. There's a peer group that I grew up with who, many 78 2/11/02 - FISCAL STABILITY - RES. 020059 of them, no longer live in the City. Not one of those people every said to me -- and they always apologize when they leave because of my position, they always feel like they owe me an apology and an explanation as to why they're leaving town. Not one of those people ever said to me, You know what? the blight in this city is driving me crazy and I have to get out. They have said that the taxes are driving them crazy, that the schools and the condition of the schools are driving them crazy, that the lack of City services when it comes to the recreation facilities -- as a matter of fact, I'm involved with an athletic group in South Philadelphia that you may be familiar with, the people at Edward O'Malley Athletic Association complain to me that they're embarrassed when they have to have suburban kids come into our neighborhood to play on a field Fourth and Shunk that is practically a dust bowl compared to some of the conditions of the fields that they go and play in in the suburbs, and they're actually personally embarrassed by the condition of some of our facilities. So, I guess, are we concentrating on 79 2/11/02 - FISCAL STABILITY - RES. 020059 something that's not going -- like, for example, NTI, that's not going to keep that middle class in the City anyway?
Well, first, I reject, you know, that resources -- you know, the implication that resources are being, you know, invested to support the poor. I think that if you look at the kind of investments that we're talking about, we're talking about investing in the children of the City; it's reflected in the after-school programs that are happening that cross the City as a whole, not targeted to specific neighborhoods. I think that if you look at the tree-trimming programs, if you look at the vacant lot cleaning, it is not accurate to say that those are invested or directed at poor people in Philadelphia. We are trying to grow the City in a very balanced way, have crafted a neighborhood transformation program that for the first time provides resources for neighborhoods that are not traditionally served. And so we have resources that will be going into the far reaches of Northeast Philadelphia. NTI has plans being 80 2/11/02 - FISCAL STABILITY - RES. 020059 developed -- has planning going on for the reclamation of the North Delaware. A lot of that involves creating market and upper-income housing in Philadelphia. So I think what we've tried to do is in fact have a fairly balanced approach to supporting the Philadelphia neighborhoods and the residents of Philadelphia. I think the $45 million that the Mayor has committed in support of public education is a commitment to trying to firm up education and reverse some of the -- some of what's going on with the public school system. So we've tried to be balanced, and I don't think it's accurate to say that it's focused simply on one aspect of Philadelphia's population.
Well, it seems to be the portion of the budget that's growing larger than any other section of the budget. I mean, whether it's morally (inaudible), it seems to be the only portion of the budgets that's growing.
If you look at these resources, there are not a lot of federal resources that support children in Philadelphia's 81 2/11/02 - FISCAL STABILITY - RES. 020059 neighborhoods. They're not part of the tax base that's going to support those children. You know, and then Mr. Dubow also talked about some of the other costs or county costs that the City in fact cannot --
Wouldn't we all at least agree here today that people continue to leave the City in alarming rates, even over the last two years? I know it's not just a two-year phenomenon, but over the last then years that citizens at a regular and alarming rate continue to leave the City, and these are the people who use less services and have the capacity to pay for the provision of those services that we need here, and that that trend is continuing.
Okay. When do we expect, with all of these efforts that we're putting forward, that trend to either stop or reverse?
I don't have a specific time for that. I think that we are beginning to -- you know, I think that all is not doom and gloom in the City of Philadelphia, that if you look at some 82 2/11/02 - FISCAL STABILITY - RES. 020059 of what's happening, some of the development that's happening, the west bank along the Schuylkill, you'll see that you'll have growth in the middle upper-income housing market. What we know is those aren't people who are simply relocating within Philadelphia, that despite all of the things going on in Philadelphia, we have people coming from outside Philadelphia to live in Philadelphia, that we fact are retaining some of the young people who are coming out of our universities. Part of the Administration's Innovation Philadelphia program is targeted at trying to work, identify people, let young people know that Philadelphia is a good place to live, and so we're not rolling over, accepting, you know, what probably has been a 40-or 50-year trend, not a 10-year trend. We are working to aggressively begin turning those things around. It's not going to be a short-term enterprise. Philadelphia didn't decline over the short term, and so we're not going to see magical numbers appearing in the short term, but I think we have committed to a long-term approach: Our commitment to the schools is 83 2/11/02 - FISCAL STABILITY - RES. 020059 long-term, our commitments to the neighborhoods is long-term, and our commitment to rebuilding the economy is long-term.
Well, I have no 6 argument that the area between Spring Garden and South, for example and River to River is doing quite well, and we're all happy for that, and thank God that that's doing so well because if it wasn't, I think we'd be in much dire straits than we are today. It's the other areas of the City that represent those people who are middle-class, working-class people who maybe can't even afford to move, but decide that it's time to go and are willing to take on a larger mortgage and more expenses and a commute rather than to continue living in the City. Let me ask you about the tax freeze, proposed tax freeze on the wage tax and the acceleration of the gross-receipts tax, which, I agree with you, is an extremely onerous tax and needs to be changed -- it needs to be eliminated if possible. When you do the computations of the end of 84 2/11/02 - FISCAL STABILITY - RES. 020059 the reductions in the wage tax and the acceleration of the gross-receipts tax, aren't we in fact increasing the revenue $50 million over what would have happened if we had continued the small reductions in the wage taxes and accelerated the gross-receipts tax? Aren't we in fact having $50 million more to use than we would have if we continued to reduce the wage tax even in small amounts?
Yes. And we've said all along that one of the reasons we're doing this is the combined impact of the slowdown in the economy, the failure of the Pension Fund to meet an earning rate because of what's going on in the stock market, the increased contributions to the School District. That combination of events made it impossible for us to continue the same level of tax reduction we had last year. We've also said that the economy rights itself if our earnings rate goes back to the 9 percent and there are no other unexpected hits to our General Fund, that we'll put that 50 million back into tax reduction.
Why does PICA 85 2/11/02 - FISCAL STABILITY - RES. 020059 disagree? I think we can do both.
PICA was basing its analysis on last year's plan, and they said if we simply had the same amount of growth in the second half of '02 as we had in the first half, that we'd have excess revenues the numbers that were in the plan. We -- actually partially over last year's plan. We already have more revenues in this year's plan than were in last year's plan. We also think that it's not -- it's certainly maybe not even likely at this point that we will duplicate the first half of the year. January was a very bad month for wage-tax collections. We think in part some payments that usually would have been made in January were made in December, so that our first-half numbers looked higher than they really were. In fact, when you look at wage-tax collection for the first seven months of the year, they're actually down 0.3 percent.
Just one issue 86 2/11/02 - FISCAL STABILITY - RES. 020059 relative to the courts system. Obviously, this city-county problem that we have as opposed to cities like Pittsburgh and other cities in the country, I guess the court costs is probably one of the major issues surrounding -- that and human services.
What efforts has the City made to continue or to expand the negotiations with the State over the issue of the court takeover. I know some incremental changes have come about as a result of that, but what is going on, who is meeting with State officials or with the legislature to deal with the issue of total court takeover and the relieving of that economic burden on the City of Philadelphia?
I can't report on that in detail. In connection, however, with trying to identify additional revenue for the schools, you know, there's a laundry list of things that the Administration put on the table, and I believe that was one of them. I am not in a position to talk about that 87 2/11/02 - FISCAL STABILITY - RES. 020059 in specificity. But that continues to be one of those issues that is a sore point, I think, is probably conservative.
Nothing's politically easy in Harrisburg vis-a-vis Philadelphia, but don't you think at some point that discussion of courts and other types of law enforcement costs may be an easier discussion with Harrisburg as opposed to schools, schools being such a hot-button relative to the real estate tax burden that people throughout the region pay to their schools and some of the misunderstandings and arguments that the City makes about full funding for its schools, would it not be better to maybe pursue a less controversial way of relieving the City of the burden paying for things it shouldn't be paying for and using that money then to go over to the schools, almost like using the courts as a way to disguise where the money's going to go, and that's to improve our schools?
We've been engaged in those very conversations, looking at what other costs, City costs, are supported the State and perhaps supplementing those as opposed to public 88 2/11/02 - FISCAL STABILITY - RES. 020059 education. So those talks are ongoing.
I mean, are there people specifically identified or appointed by the Administration to continue these conversations?
We've been working with -- (indiscernible) is just one of our lobbyists in Harrisburg. There have been direct conversations between the Mayor and the Governor around those kinds of issues. The courts continue to be one of those difficult points.
Making it more difficult, I guess, with the change in power structure there too, I guess.
And I appreciate the accommodation, Madam Chair. Just one issue. Mr. Dubow, do you think I'm ever going to get any feedback from my offer on negotiations we've been having on the Rainy Day Fund? And tell me about what you think about the Rainy Day Fund; do you think it's something that we should have that would be beneficial to the City, and am I 89 2/11/02 - FISCAL STABILITY - RES. 020059 going to get any information back anytime soon? 'Cause I got this bill languishing on the calendar, that I think even though we're having difficult financial times now, I think it's really when the time we should do it, and although hindsight's 20/20, we probably should have done it when we were fiscally better off, but I don't think it's ever too late to save money for difficult circumstances. And I also think it might even give us a better attitude coming from the rating agencies in New York if we were to put some money aside, as we've been discussing. What's the potential of that ever happening?
We'll give you a formal response on that. Also, we should say that when we talked to the rating agencies when we went through, I guess this, was about two months ago, they looked at our fund balance as though it were a Rainy Day Fund, and provided us the same kind of cushion.
That conflicts somewhat with the testimony we had at that expansive hearing on the Rainy Day Fund. 90 2/11/02 - FISCAL STABILITY - RES. 020059
They were pretty strong that they liked it and they think it's a good idea and they smile upon such action.
They also made it clear to us that they like our fund balance and they like the cushion that that gives us, but we'll get back to you with a more formal response.
I appreciate that. Thank you.1 Thank you, Madam Chair.
Thank you. I just have a few more questions. The plan assumes approximately $55 million of savings by not replacing all of the City employees who retire as a result of the DROP Program. How many employees are we talking about?
330 not being 91 2/11/02 - FISCAL STABILITY - RES. 020059 replaced.
There are 1,000 who are leaving, and we're assuming that 330 of those 1,000 are not replaced.
Can you identify where the savings will take place? Who will make the determination as to which employees will be replaced and who will be asked to?
We are undertaking a process in which we are going to work with a consultant to work with departments to find ways for them to operate more efficiently in order for us to achieve those savings. What we've committed to Councilman Nutter is that we'll give a written schedule of how we anticipate that will happen.
Who is the consultant, and what timeframe are we giving the consultant?
The consultant is Parente Rudolf (ph). They are starting in March and are going to spend about eight months working with departments, which should give them time to be through the process before next year's budget process starts, and that's when we're counting on 92 2/11/02 - FISCAL STABILITY - RES. 020059 achieving the savings.
Can you explain why the Administration has chosen to pay the $45 million differently in FY '02 than in FY '03 to the schools?
We don't have sufficient time in this year to do it as a part millage transfer. They wouldn't derive the benefit, and that's why we're choosing to do it as it originally had been proposed for 01.
Well, who makes the determination as to whether or not this city is protected from Act 46 on the millage transfer?
We are not going to do anything until we know that we do have Act 46 protection. So anything that we did from a millage standpoint would probably be contingent on the fact that Act 46 protection were in place.
Do we have any indication as to when that determination will be made?
No. We are working through that process with the Governor. Conversations are going on now about the exact form 93 2/11/02 - FISCAL STABILITY - RES. 020059 that that might take, but that continues to be a major concern of the Administration as well. We remain committed, you know, to attempt to put in place the program that the Mayor and, you know, the Governor agreed to but, you know, those conversations are still ongoing.
If the determination is made that the millage transfer is not protected and it reverts back to the City, how do we meet the Charter requirement of a balanced budget? The revenues will exceed the General Fund requirements by $25 million.
The way the ordinance is structured, there would be no transfer but -- there would be no millage transfer. We would then seek to amend the budget to include that money as a contribution to the School District.
I'm sorry. I was somewhat distracted; I did not hear your response. Mr. Dubow, do you mind repeating?
Yeah, The response is, we would then seek to amend the budget to include the 94 2/11/02 - FISCAL STABILITY - RES. 020059 $25 million as a transfer, a cash transfer to the School District.
I'm sorry. Thank you, Madam Chair. When would you do that? I mean, let's take a timeline here. Let's assume that we pass the budget, at least as we're required to, by May 30th, all right?
The State legislature does or doesn't do and this example does not do what you want. We've passed the budget. Let's say their budget process goes past June 30th, our budget goes into effect July 1, and you don't get the Act 46 relief, don't we have a budget out of balance?
Well, at that point, the budget that you passed was balanced, and we're in the fiscal year and there's a change in estimates, which happens during the course of every fiscal 95 2/11/02 - FISCAL STABILITY - RES. 020059 year. I think the question really is, what happens if during the budget process we find that out?
Because if we're assuming at the time you pass the budget that we're going to get that protection, then the budget we'd be passing is structured, which is balanced, if we found out during the course of the year, which, I thin, is the scenario you gave me, that we're not going to get that assurance, we're essentially changing an estimate, and we'd have to wind up doing a transfer ordinance to get the money over, but it would be outside the budget process 'cause we'd be done by then.
Why don't you talk about this in the context of some of the timing of these different scenarios.
Well, I guess one scenario which we talked about is, we don't know what happens by the time we're through our budget, and you pass the budget the way that it's structured now. 96 2/11/02 - FISCAL STABILITY - RES. 020059
In that case, you know, you've passed the balanced budget under the assumptions that we're using. The second which we've talked about also is, we don't --
That's right. The second is that we find out during the budget process that we're not going to get assurances. In that case, we could amend the budget and take out the millage transfer, which is the way the ordinance is actually structured.
You're still in a timeframe that's prior to June 30th?
Yes. Prior to May 30th, while we're still going through the budget process.
Now, our revenue projections would go up million. We'd ask to amend the 23 expenditure side to increase our contribution to 24 the School District by 25 million, and then it 25 balances. 97 2/11/02 - FISCAL STABILITY - RES. 020059
And we find out in July, for example, that we don't get the assurance? In that case, we're really through the budget process.
Right. But we have set a millage rate which goes into effect July 1, correct? (Nancy Kammerdeiner comes forward.)
Rather than taking the question yourself, you sucked Miss Kammerdeiner into getting up to the table.
You know, anybody who walked up to me at that point, I would -- (Laughter.)
Let me recommend to all of the operating departments, unless you want to be at the table under inappropriate circumstances, do not come over to Mr. Dubow and offer him any advice. You too will be commenting 98 2/11/02 - FISCAL STABILITY - RES. 020059 on things that you know nothing of. (Laughter.)
Miss Kammerdeiner clearly knows what she's talking about with regard to taxes. Please identify yourself.
Nancy Kammerdeiner, Revenue Commissioner. The taxes are on a calendar-year basis, and the millage transfer that's before you would transfer the millage for calendar 2003 and so it wouldn't take effect until January 2003.
It's for the beginning of the tax year 2003, if I'm not mistaken, in terms of the way the language of the ordinance is drafted.
Okay. So you're saying that you have until December 31, '02 to make a change?
We actually send out those bills in December of 2003, and so payments do come in in December of 2003 for tax year 2003. 99 2/11/02 - FISCAL STABILITY - RES. 020059 There may be some legal impediments to making a change after it's been established. That's something that I can't answer to.
2003. You would be putting it in place for calendar 2003.
So the millage transfer that's in this budget, you're saying, goes into effect in January of 2003.
For the 2003 tax year, any assessment for the 2003 tax year.
December of 2003. We get the assessment certifications -- (Ms. Kammerdeiner confers off record with colleagues.)
Oh, I'm sorry, yes, I'm sorry. I've got my calendar years mixed up. 100 2/11/02 - FISCAL STABILITY - RES. 020059 In November of 2002, we will receive from the Board of Revision of Taxes the assessed values for properties for calendar 2003. We use that as the basis for calculating the tax, and the bills are actually mailed in December of 2002 for 2003.
Okay. And what are -- what if any tax implications are there to -- you've listened to the scenario place. If you change the millage rate now for the next calendar year, whatever happens with the State happens, if we don't get the relief that we're seeking, we then have to amend the budget and change the millage rate back. Tell me if there are any tax implications to citizens as a result of any of those changes.
Since the total amount that's being billed to the taxpayer is the same under either scenario, they would be paying the same dollar-amount. It's the allocation that we make internally between the deposits to the City and the deposits to the School District that would be affected by the millage change. So as far as the taxpayers are concerned, the gross amount that they would be taxed would be 101 2/11/02 - FISCAL STABILITY - RES. 020059 the same no matter whether the millage transfers or not, since we do a combined bill for the City and the School District.
Okay. So your testimony is that there is no implication.
Not to the taxpayer. There would be an implication internally in terms of where we deposited the funds, and we could make adjustments to that after the fact if we were legally obligated to do so.
Okay. And as a result of any of this, would anyone read this as a tax hike?
No, no. There is no increase in the tax rate for the property tax. There's really no increase now. There's no increase in the property tax rate.
Okay, all right. I'm 102 2/11/02 - FISCAL STABILITY - RES. 020059 sure we'll come back to this particular area. Thank you, Mr. Dubow.
What's the difference with respect to our responsibility to continue to pay the additional $45 million if we pay it through a contribution from the General Fund as against the transfer of millage? If it's repetitive, if it become repetitive because it's a payment by the City, what difference will it make in the impact?
There's an interpretation of Act 46, which is the State takeover act --
-- that says that you pay the larger contribution that you've made over the preceding three years, but it treats millage differently from how it treats contributions. Actually, the way Janice always talks about it is, one is green money and one is yellow money. So the 45 million in contribution would all be green money, and the million in millage transfer would 22 be yellow money. They combine all your different 23 types of money into one pot, so they would say you 24 did 45 plus 25, so that's 70, and then our ongoing 25 conviction would have to be $70 million. 103 2/11/02 - FISCAL STABILITY - RES. 020059
And what happens when you put a hotel on Park Place? (Laughter.)
Our preference for doing in 10 millage runs to -- number one, it provides greater 11 security for a bond issue, and the rating agencies 12 have said that their deficit financing would be 13 enhanced to the extent that it was supported by 14 millage. And then we get additional credit for 15 millage as opposed to a contribution of a grant. 16
I'd like to ask the 18 Budget Director to explain again the difference. 19 Frankly, I did not understand why there's a 20 difference. First the Budget Director. 21
Stay away from the 25 colors. 104 2/11/02 - FISCAL STABILITY - RES. 020059
Okay. When the State looks at the contributions that you've made to a school district, they treat cash contributions as separate from millage. So even if you do -- and they look at the highest amount you've made over the preceding three years for both. So they'll say, You made 45 million in cash this year, so from now on, you always have to contribute 45 million, no 10 matter what you do in the future. And then in the next year, if we reduce that tax contribution to 20, to do a $25 million millage transfer, they'll say, Wait a second, you have to do million in millage 'cause you've done 15 that once, and you to do 45 million in cash because 16 you've done that once. So in total, you have to 17 add $70 million. 18
Well, that's what we would say 21 about Act 46. It is funny math. 22
That's why we're actually -- I 23 mean, that's one of the reasons that we're asking 24 for relief from provision, and we think we have a 25 decent chance of getting that relief because it is 105 2/11/02 - FISCAL STABILITY - RES. 020059 funny math, it doesn't make a whole lot of common sense.
Right. And one question while we're on that one. The million 6 that would go for bond payments -- 7
25 million for the bond 9 payment to clear up the deficit, how many years 10 would it take us to pay that bond off? 11
A 30-year bond. Isn't 13 that a huge amount of money to pay and get so 14 little, just the clearance of the current deficit 15 when structurally it appears, unless something 16 happens that hasn't happened yet, there ought to be 17 new deficits coming up? 18
I think that, you know, 19 anytime you do a deficit financing, you, over the 20 long term, do incur a larger cost. The situation with the School District is unprecedented, and we understand that in the long term, the solution probably rests with restructuring how the Commonwealth as a whole supports not just this district but school 106 2/11/02 - FISCAL STABILITY - RES. 020059 districts across the Commonwealth. What this strategy attempts to do is keep our schools open, and we attempt to avoid further deterioration of what's going on in our schools while the long-term strategy is being put in place. And it's -- that's what it is. But I think you're right. Anytime you borrow over the long term, you pay more.
But may I suggest that maybe it would be wiser and certainly much less expensive to continue the deficit for a couple of years while we try to work out a long-range -- it seems a wasteful thing to take $25 million a year in tax money and dump it into bankers' hands for interest payments for which we get nothing, we get no improvements in the schools, it doesn't (indiscernible) for the benefit of the kids, but it does use up enormously valuable and scare City resources.
I think -- you know, and Janice has been involved with this more closely. I mean, at some point, you know, the deficit just can't grow indefinitely, it compromises the ability to, you know, keep the schools open or even to open 107 2/11/02 - FISCAL STABILITY - RES. 020059 them for a new school year
I don't think Act 46 left the City many options. We were faced with finding a way to impact that deficit without suffering a greater loss of revenue to the City. And when we were faced with perhaps providing 75 million into perpetuity. The 45 million with million of it 9 going to deficit financing was at that time, and I 10 think still remains, a good compromise. 11
But wouldn't we 12 have to get the approval of the State legislature 13 for the 30-year bond issue? I thought we could 14 only go out for bonds for ten years. 15
There needs to be an amendment 16 to the Local Unit Debt Act -- and I know I probably 17 have that totally confused. And my understanding 18 is that the SRC will be working with Harrisburg to 19 get legislation sometime in March because it will 20 be needed in March in order to issue bonds for May, 21 when they need the money. 22
Councilman, I'm 23 sorry, I didn't mean to interrupt you. Please 24 continue. 25
That's all right. 108 2/11/02 - FISCAL STABILITY - RES. 020059 My name is David Cohen and not James Carville, but it seems to me that we've got to recognize that Govern Schweiker is a lame-duck governor not elected by the people, his term expires this year, and it would seem to me, just looking at the objective facts, he is not going to have nearly as much influence with the legislature as the newly-elected governor who comes in office in the beginning of next year. Therefore, it seems to me to be very unwise and politically just makes no sense at all to take an action this year to put us in hock for a 30-year bond. The next governor, whoever he is, will be in a much better position to bargain with the legislature and to get their support in any program that he works out with the City, but this governor is a very weak person because he has no real influence with the legislature, he was no factor during the years of the Ridge Administration, and his term expires at the end of the year. So he makes a wish in his statement in his budget address, and that's probably going to be the end of it this year because everybody politically says let's wait till the next governor comes in, he may 109 2/11/02 - FISCAL STABILITY - RES. 020059 be here for eight years, whoever he is. That's the reason I make the suggestion that I think it an unwise decision this year to commit the people of Philadelphia for the next 30 years to a bond issue for schools, where the payment represents not smaller classes or better teachers or better technology, but interest payments on a short-term deficit, when we can see, unless there are statewide changes in the State formular, there are going to be very much more increased deficits ahead in the years to come. Thank you. And if you any opinion on that, I'd like to hear it, or I'd just like to just ask you to consider that and have the Administration reconsider that particular approach.
Thank you. The Chair recognizes Councilman Nutter
Thank you, Madam Chair. Mr. Dubow, let's go back for one moment to the tax discussion we were having earlier and some of the scenarios. 110 2/11/02 - FISCAL STABILITY - RES. 020059
That might be a good thing. I did take particular note that I think on a couple occasions in response, before you got the good advice of Miss Kammerdeiner, you made particular efforts to talk about the combined tax rate, and I know that you choose your words very carefully, and so because you kept talking about the combined rate, that obviously means that there are some distinctions that are made in the separate rates. So let's walk through this, and you'll just lay it out.
Under the proposal in the tax ordinance, the rate on the City side would go down, the rate on the School District side would go up by an equal amount.
Right. And if we were unfortunate and you do not get the Act 46 relief that has been discussed earlier, and we go into the next fiscal year, and you have to come back and make an amendment to the budget and change the 111 2/11/02 - FISCAL STABILITY - RES. 020059 rates back, is that not in fact at that moment, under our City Charter, a tax increase on the City rate?
We have to ask the City Solicitor. I understand your question.
I'm not talking about the combined rate. What I'm saying is, the City rate is going to be one thing at this moment, you cannot increase tax rates in a current fiscal year. And I understand that you want to combine them. They are separate rates, and they will be changed, and if you have to change them back, you will be increasing the City tax rate in the current fiscal year after July 1, if this scenario plays out.
All right. You had made mention of two consultants, one of whom was named, the other who was not, and I just wanted to keep track. This was in a discussion a little 112 2/11/02 - FISCAL STABILITY - RES. 020059 while ago about personnel levels and making some -- this was all in the reduction of services -- I'm sorry, the reduction in the cost of services discussion a while ago.
That's the group that's working with us on the analysis of how to achieve savings resulting from DROP, that's the DROP consultant.
All right. And earlier today, there was discussion about the hiring of some other consultant to assist us either in this area -- or were you talking about that entity and --
I think maybe I got confused. I only remember talking about this consultant.
I think it's 300,000. 113 2/11/02 - FISCAL STABILITY - RES. 020059
Total cost of the contract, okay. All right, thank you, Madam President.
Thank you. I just had two questions. I want to go back to Councilman Kenney's concern about why people move out of the City, and representing an area that's just across the street from Cheltenham, we do see a number of the people from the Mt. Airy/West Oak Lane area who do leave and move across to (indiscernible). One of my favorite departments that I -- we find ourselves as District Councilmembers working with is the Department of L&I. And is there in this new budget an increase for staffing for L&I? Because, you know, I have a deep appreciation for all of the departments of the City -- the Police and the Fire -- but L&I impacts -- what they do impacts on the quality of 114 2/11/02 - FISCAL STABILITY - RES. 020059 life on people of the City on a day-to-day basis, and one of the problems we do have is the effort to deal with enforcement of L&I problems, because I've had, you know, people tell me, I just can't stand my neighbor who won't fix her fence or clean out her lot and nothing is done. And she say, I'm going to sell my house, I gotta get out of here 'cause I can't stand the trash, I can't stand the dogs, I can't stand the unsanitary condition of my neighbor's yard, I can't stand people growing vegetables in the front yard, and I can't stand this and I can't stand that. And so -- but then we just don't have enough people in the L&I Department for this enforcement and then to continue to make the enforcements stick.
During the budget process, L&I asked for additional inspectors to enforce a new fire suppression law, that request was granted, so there's funding for that. They asked essentially for restoration of the 1.5 percent cut so they could maintain their level of housing and fire inspectors, and that was also granted. So they got most of what they asked for in the budget process. 115 2/11/02 - FISCAL STABILITY - RES. 020059
I think some of what we have to do, though, is make better use of the resources that we do have, make better use of the technology that can be brought into the Department to allow it to function more efficiently. I don't think it's simply an increase of dollars or people into the Department, but I think we recognize that this is one of those critical departments that has to be linked more closely with what else is going on in neighborhoods with what the Law Department is doing. And so we're working on that. One of the things that, hopefully, will happen in the short term is a real focus on trying to get technology into the Department. It's still extremely labor-intensive. Simply, you know, once reports done out and the community getting it back in, transcribed. I mean, it is a system that's not functioning as it ought to. And so we're going to be spending time taking a much harder look at that, in part, because it is a critical part of any neighborhood transformation initiative. It's not just tearing down buildings, but it really is getting a handle on the conditions in neighborhoods. And L&I has to 116 2/11/02 - FISCAL STABILITY - RES. 020059 function in a more strategic way in order for us to do that.
Do we see light at the end of the tunnel? I mean, are you really planning on working with their technology and computer system?
Yes. They've had a request in. I think we now, in part with the new CIO, have the capacity to really take a project from beginning to end. I think that we have a clearer sense of how they link up with some of the other departments. And, you know, we think we've identified funds to enable L&I to get the technology that it needs. It probably lags behind a lot of other departments in coming up to speed with technology. And so we recognize that as --
Yeah. And there's been training. The Law Department has been doing additional training for L&I -- I forget exactly when it started, but helping the inspectors trying to do some cross-training of inspectors so folk aren't just skilled at one kind of inspection but 117 2/11/02 - FISCAL STABILITY - RES. 020059 can do a number of kinds of inspections. When L&I testifies, they'll be able to provide more detail.
The other thing is, we talk about Philadelphia being a city and a county. Are we getting the adequate reimbursement for services from the State for our county responsibilities? Do we have to provide much of our City General Fund dollars for services that we provide that are county functions?
I think there are a couple of answers to that. In terms of the Department of Human Services, for example, we have a very high reimbursement rate: We're actually paying about 10 cents on the dollar. So in terms of those services, we are well-reimbursed. If we look at the several picture of our State funding, we don't do well compared to our competitor cities. It's one of the things that puts us at a disadvantage; we get less money from our state than other cities get.
I think it really has to do 118 2/11/02 - FISCAL STABILITY - RES. 020059 with the State's approach to funding the City, compared to other states' approach to funding their cities.
Have we talked to our legislative delegation about that?
Thank you. The Chair recognizes Councilman O'Neill.
Just, I guess, a follow-up, similar to the last question of my colleague. Mr. Dubow, if you could get me the county costs for Philadelphia and compare it to the Allegheny County expenditures budget?
But also to the extent that you can find out -- I'll find out on my own if you can't -- the level of poverty in both counties.
Okay. I can tell you that in terms of income and property assessments, that we do worse than they do, but we'll get you that.
I mean -- and we've talked privately. I think it's the argument that 119 2/11/02 - FISCAL STABILITY - RES. 020059 we've never made that is costing us the most money with the State of Pennsylvania, and we might want to turn back the county to them since we're only doing it as their agent. Thank you.
Thank you. Can you tell us what amounts, if any, are included in the plan for the payment of Parking Authority loan guarantees? What are the specific guarantees the City is paying on and what's the status of those projects?
It's about 2.5 million. I'm looking for the exact number. It's for two projects; one is Walnut West and the other is Eighth and Market. And we actually had to make a payment on Eighth and Market, I think it was, a couple of weeks ago; we paid about 1.4 million.
No. In terms of the status of the projects, I believe the Parking Authority has determined, I think, at a board meeting that it will pay the developer in order to reacquire the Eighth and Market Street site. It 120 2/11/02 - FISCAL STABILITY - RES. 020059 then intends to make some improvements around -- on the site and perhaps do surface parking on the site. It will have to come back to City Council, I believe, in order to change the plan that was proposed in the bond financing, but I believe that that is its short-term plan for the site.
Okay. In the Mayor's budget message, he did mention about the possibility of expansion for the Pennsylvania Convention Center, and I notice that that is not in the Five-Year Plan.
To answer your last question first, the two garages, the total about is about 4.7.
The Administration believes that it's probably -- that it is important to expand the Convention Center. There is not a plan to fund the financing. There are preliminary conversations going on with the Commonwealth of Pennsylvania, and that is something that we would 121 2/11/02 - FISCAL STABILITY - RES. 020059 have to take a look at how it is the City might participate in some kind of financing. But it has not reached that point. But I think what we wanted to signal in the Five-Year Plan is a continuing commitment to the tourism industry and that we can't leave it at midpoint, that the center needs to grow if in fact the rest of the investments we've made in the industry are going to be realized. But we would to reopen the Five-Year Plan and figure out how we are going to afford that, if it comes about. It looks like it's possible.
Thank you. Are there any questions from any committee member? The Chair recognizes Councilwoman Brown.
Thank you, Madam President. I have a quick follow-up question with regards to the dollars for the after-school investment. The testimony on , third paragraph, indicates that there's a $10 million investment. Does that include federal dollars or are those all City dollars? 122 2/11/02 - FISCAL STABILITY - RES. 020059
And the beacon schools, that's a relatively new phenomena for our city, correct? (Witness comes forward.)
I'll ask the Managing Director, Estelle Richman, who's taken a new interest in trucks and snow removal.
I am Estelle Richman, City Managing Director. And I can show you pictures of my trucks now rather than my grandchildren. (Laughter.)
But in any case, no, Philadelphia has had a prototype beacon program here that was run here by Congreso for the last couple of years. This, however, is a major expansion of that, and we will have, I believe, 11 new beacon programs starting up in, around the 1st of March.
1st of 123 2/11/02 - FISCAL STABILITY - RES. 020059 March.
You'll tell me if I should wait till we hear from DHS with regards to evaluation protocols and that kind of thing. Since it is new, we want to be certain that those dollars are used to the maximum.
Yes, the DHS testimony and actually some of the testimony that will be presented under social services will cover our quality assurance efforts, not only for the beacon schools, but also for the rest of the after-school programs.
And they will be managed under the supervision of DHS or the Department of Recreation?
The after-school program is really seen as a joint initiative around social services. So no one department has sole responsibility. It's our way of being able to integrate the services so that we can really make sure they're very accountable. And the beacon school and the after-school programs work closely with the Office of Child 124 2/11/02 - FISCAL STABILITY - RES. 020059 Policy, the Safe and Sound Program, the Recreation Department, the Behavioral Health Department, and the Department of Human Services.
Okay, then. Thank you. That concludes my questioning.
Thank you. Any other questions from members of the committee? (No further questions.)
Thank you all very much. Is there anyone else to testify on this resolution? (No response.)
Seeing none, the committee will stand in recess until Wednesday, February 13th at 9:30. Thank you very much. (Proceedings end at 12:15 p.m.) - - - 125 CERTIFICATE I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia's meeting of the Council Committee on Fiscal Stability and Intergovernmental Cooperation of Monday, February 11, 2002, are contained fully and accurately in the stenographic notes taken by me upon, and that this is a true and correct transcript of same. RE: Resolution No. 020059 _______________________________, Josephine Cardillo Registered Professional Reporter and Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)