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