Committee Hearing, April 22, 2010

COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FINANCE - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, April 22, 2010 1:20 p.m. - - - PRESENT: COUNCILWOMAN MARIAN B. TASCO, CHAIR COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN WILLIAM GREENLEE COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN BILL 100093 - An ordinance authorizing and directing the Mayor of the City of Philadelphia (the "City"), on behalf of the City, to enter into, execute, and deliver an agreement with the Philadelphia Housing Authority to broaden and make more efficient housing opportunities... BILL 100129 - An ordinance authorizing the City Treasurer, on behalf of the City, to enter into an agreement with Wachovia Bank, N.A. for provision of payroll banking services... - - - 2

Good afternoon. I'd like to call the Committee on Finance to order and note we have quorum in the presence of Councilman Greenlee, Councilman Goode, Councilman Kenney and Councilman DiCicco. Would the Clerk please read the bills that will be heard today.

Bill No. 100093, an ordinance authorizing and directing the Mayor of the City of Philadelphia (the "City"), on behalf of the City, to enter into, execute, and deliver an agreement with the Philadelphia Housing Authority to broaden and make more efficient housing opportunities and related services administered by the Philadelphia Housing Authority and existing within the City; and specifically, which will make additional units of affordable housing available to City residents, under certain terms and conditions. Bill No. 100129, an ordinance 25 authorizing the City Treasurer, on behalf 3 4/22/10 - FINANCE - BILL 100093, etc. of the City, to enter into an agreement with Wachovia Bank, N.A. for provision of payroll banking services to the City, under certain terms and conditions.

Thank you. We will now hear Bill No. 8 100093. Do we have someone here to testify on this bill? (Witness approached witness table.)

Proceed.

Good afternoon, Chairwoman Tasco and Committee members. I am Clarence Armbrister, Chief of Staff to Mayor Michael Nutter, and I am here today to present testimony in support of Bill 100093. This bill authorizes the Mayor to enter into an agreement with the Philadelphia Housing Authority to broaden affordable housing opportunities. Specifically, this bill will extend a current agreement wherein the Philadelphia Housing Authority has agreed 4 4/22/10 - FINANCE - BILL 100093, etc. to provide 500 additional units of transitional housing available to City residents in exchange for the City's willingness to waive fees for various construction licenses and permits. This one-year agreement expires May 27, 2010. Let me provide some background for you. In 2008, Mayor Nutter announced a comprehensive plan to reduce homelessness, which has resulted in 1,200 new units of housing being made available for homeless men, women and children in Fiscal Years 2009 and 2010. Through a partnership with the Philadelphia Housing Authority, individuals who are ready for discharge from behavioral health residential and treatment programs can transition from these programs to independent living with the City's service support. Families can move from transitional housing to permanent homes. This partnership was executed in a prior Memorandum of Understanding between the City and PHA as of April 9, 5 4/22/10 - FINANCE - BILL 100093, etc. 2009, with a term of July 1, 2008 through June 30, 2009, in which the Philadelphia Housing Authority supported the City's commitment to eliminate and/or reduce homelessness in the City by providing 500 housing opportunities while the City continued to provide supportive services and to exempt the Philadelphia Housing Authority from certain licensing and permit fees. In May of last year, the parties entered into another one-year agreement with the same terms, which expires May 27, 2010. So far, this current arrangement has provided a total of 239 housing opportunities, with 129 families being housed, while 110 vouchers have been issued to 104 individuals and to six families. In a joint effort to continue the City's goal to end homelessness, the Philadelphia Housing Authority and the City now desire for a multi-year arrangement, which will extend the current partnership until June 30, 6 4/22/10 - FINANCE - BILL 100093, etc. 2013 and shall provide 500 or more additional housing opportunities per year. This arrangement will help the Philadelphia Housing Authority with the development of certain properties as the City is agreeing to waive certain licensing and permitting fees but, at the same time, will help to achieve a major goal, which is to create permanent and subsidized housing to reduce homelessness. Our partnership will also help to foster our mission to assist individuals and families move toward independent living and self-sufficiency. I appreciate the opportunity to testify before you today and believe that this arrangement is a small price to pay given that we are attempting to provide additional housing opportunities that dovetails into the Administration's overarching goal to eliminate homelessness in Philadelphia. Thank you for your time this 7 4/22/10 - FINANCE - BILL 100093, etc. afternoon. I would be happy to answer any questions.

Thank you. Any questions from members? Councilman Kenney.

Thank you very much. Mr. Armbrister, do you know would the Housing Authority own the properties?

Excuse me?

Would the Housing Authority own the properties or how are they distributed? Are they rented? Are they sold?

These properties are often owned by PHA, but also there are opportunities through vouchers as well.

Now, these are existing properties or properties that will be developed?

These are existing properties. 8 4/22/10 - FINANCE - BILL 100093, etc.

So they're setting aside a certain portion?

Yes.

What kinds of fees and licensing?

Some of the fees deal with the properties that they have under development. So it could be a water fee. They're listed in the agreement. I don't think I have it in front of me here, but they're listed in the agreement and they're very specific to development fees that they would go over --

Now, are those fees paid now?

Well, not now because we have an agreement currently to --

Prior to the agreement, were they paid?

Well, interestingly enough, what we found in our research is that there had been an 9 4/22/10 - FINANCE - BILL 100093, etc. informal arrangement in which there was an understanding that certain fees would be waived, and we thought it more appropriate to reduce that to a formal agreement. So we sat down with the Commissioner of Licenses and Inspection, with the folks at PHA and agreed on a set of fees. So now it's been reduced to writing. So there was some informal arrangement prior to us reducing it to writing.

Does that include real estate taxes also?

Real estate taxes?

Yes.

No. 19

Real estate taxes are paid by PHA?

I don't know if they're paid, but this agreement has no effect on real estate taxes. It deals primarily with fees that they would incur when they go down to License and 10 4/22/10 - FINANCE - BILL 100093, etc. Inspection to get permits, pull permits and things like that.

Okay. Thank you.

You're welcome.

Councilman Greenlee.

Thank you, Madam Chair. I just had one question. Just so we're clear, so this agreement is exactly the same, except it will be a three-year agreement? The terms are exactly the same?

Yes, the terms are exactly the same. The only change is the amount of housing that might be available. So it extends to 500 or more, and that's subject to the ability of HUD to approve the amount of housing that the PHA can divert to the City.

But the whole issue of waiver of fees is the same 11 4/22/10 - FINANCE - BILL 100093, etc. as existing now?

Exactly.

Thank you. Thank you, Madam Chair.

Is someone here from PHA?

We have a representative from PHA here, yes, we do.

I'd like to ask a couple of questions.

Of them?

Yes. (Witnesses approached witness table.)

I'd like to recognize Councilwoman Blackwell and Councilwoman Blondell Reynolds Brown who have joined the Committee. Would you state your name for the record, please.

My name is Robert Archie. I'm a partner at Duane Morris and we're counsel to Philadelphia Housing 12 4/22/10 - FINANCE - BILL 100093, etc. Authority.

You may not be able to answer this question, but I wanted --

But sitting with me is Diane Rosenthal, who is a Chief Financial Officer of Philadelphia Housing Authority.

Okay.

She may be able to answer it.

Okay. As you talk about the number of housing that you're to provide, it says 500 houses per year. Are these homes currently in your inventory, or how many houses do you have for transitional housing? Identify yourself for the record.

Diane Rosenthal, Assistant Executive Director for Administration, Philadelphia Housing Authority. Today we have approximately 13 4/22/10 - FINANCE - BILL 100093, etc. 14,000 public housing units and 17,694 housing choice vouchers.

The people who are deemed to be homeless are basically given a voucher. So to address your question, they can take that to a private homeowner and utilize that voucher, and the federal government will pay the homeowner directly the rental. PHA itself has a housing inventory or stock, so they could use those housing vouchers for PHA existing houses as well.

So let me get this straight. Back to Councilman Kenney's question about taxes, because the home is owned by an individual, that person pays the real estate taxes?

Yes.

So their real estate tax is paid for the ones where --

If it's a private homeowner, that private homeowner --

They get a 14 4/22/10 - FINANCE - BILL 100093, etc. voucher to go to that property --

They pay rent. The homeowner then pays the real estate tax. There's no exemption for a private homeowner.

Okay. So you said that there are 14,000?

Public housing units.

And then in addition you have 17,694?

Housing choice vouchers.

Okay. Thank you. The Chair recognizes Councilwoman Blackwell.

Thank you very much. Thank you, Madam Chair. As all of you know, I'm on the PHA Board, one of the Commissioners, and we did meet yesterday and we talked about this issue and that it formalizes, as Clay Armbrister has said, an agreement 15 4/22/10 - FINANCE - BILL 100093, etc. that existed since Rendell was Mayor, and then former Mayor Street agreed to it and then this Mayor wanted to formalize it in this way. But this agreement has existed for many years.

Okay.

Thank you.

Councilman Kenney.

No. 13

Your light is on. Anyone else have questions? (No response.)

Thank you very much for your testimony. Do you want a suspension of the rules? Mr. Armbrister, would you like a suspension of the rules?

Yes, we would, Councilwoman. Thank you very much.

Okay. We will now hear testimony on Bill 100129. 16 4/22/10 - FINANCE - BILL 100093, etc. Ms. Catherine Paster. (Witnesses approached witness table.)

Good afternoon, Councilwoman --

Good afternoon.

-- and members of the Committee. I am Cathy Paster. I'm the First Deputy Director of Finance for the City of Philadelphia, and I am here to testify today in support of Bill No. 14 100129. Bill No. 100129 will authorize the Office of the City Treasurer, on behalf of the City, to enter into an amendment agreement with Wachovia Bank pursuant to which Wachovia will continue to provide payroll banking services to the City. Bill No. 060387, as adopted by City Council, required that the City Treasurer conduct an RFP process to select a City payroll depository and required that no contract would be 17 4/22/10 - FINANCE - BILL 100093, etc. executed until it had been approved by City Council. An RFP process was conducted, and the City approved the original contract in June 2009 pursuant to Bill 7 No. 090352. The City and Wachovia entered into a contract for payroll banking services for an initial term of July 1, 2009 to June 30, 2010. The provisions of that contract required City Council approval of any amendment to add additional terms. Bill No. 100129 will authorize the Office of the City Treasurer to amend the contract to add an additional term of July 1, 2010 through June 30, 2011. This concludes my testimony and I'm happy to answer any questions that you may have.

Thank you very much. The Chair recognizes Councilman Goode.

Can we bring 18 4/22/10 - FINANCE - BILL 100093, etc. representatives from Wachovia to the table.

We'd like representatives from Wachovia to come to the table, please. (Witnesses approached witness table.)

Would you please state your name for the record.

My name is Shelley Metz-Galloway --

Speak into the mike, please.

Shelley Metz-Galloway, Vice-President.

And?

Stephanie Wall, Senior Vice-President.

Councilman Goode.

Good afternoon.

Good afternoon.

We met on 19 4/22/10 - FINANCE - BILL 100093, etc. Monday and had a long what I hoped would be a fruitful discussion. I'm not sure how fruitful the discussion was. You are aware of the questions I will ask, so we'll just jump right into it. The first is, is Wachovia involved in any interest rate swap deals with the City of Philadelphia?

The answer is yes.

Can you describe what the deals that we're involved in?

There's a -- the value of the swap with Wachovia is $90 million. That is -- it's part of a swap related to the Water Department. It's a $180 million swap, and right now 90 million is with Wachovia, 90 million with Merrill Lynch, and in anticipation of the Water Department's upcoming bond seal, which will be in the summer, the City as well as the Treasurer and Water are currently looking at that deal now to see what's the best way to proceed. 20 4/22/10 - FINANCE - BILL 100093, etc.

Will the City pay Wachovia any money in the interest rate swap deal this year?

I don't know the answer to that question. I know that, like I said, it's under review right now in terms of how we would proceed and what it would cost.

Are we losing money on the swap deal? Are we paying more money than we're getting on the swap deal? (Witness approached witness table.)

Here come the suits.

I'm sorry. I'm Julius --

Would you identify yourself for the record.

My name is Julius Coursey. The swap hasn't become effective yet. It was what's known as a 21 4/22/10 - FINANCE - BILL 100093, etc. forward-starting swap, and its effective date is actually August of 2010, August 1 of 2010. So up to now, there have been no payment obligations under the swap.

So we have not lost any money under the deal?

That's correct.

And we do not anticipate losing any money on the deal?

The City, as I think Cathy mentioned, is evaluating how it will proceed in anticipation of the effective date of the swap, and they may in fact decide to leave the swap in place or to terminate the swap. That decision and the level of interest rates at the time will impact whether the City makes money on the swap, loses money on the swap, what-have-you.

Okay. Thank you.

You're welcome.

Sir, 22 4/22/10 - FINANCE - BILL 100093, etc. before you leave, would you identify yourself clearly and where you're from?

Sure. I'm sorry. My name is Julius Coursey and I'm with Wells Fargo Securities, a subsidiary of Wells Fargo Bank.

Thank you.

I'm sorry, Madam Chair.

Come back, sir. Councilman Kenney.

Just so I understand the process, what does that have to do with Wachovia?

Well, Wachovia and Wells Fargo are entered into a merger.

Right.

And so Wachovia Bank was the original counterparty with which the City entered into that swap, and through the merger, Wells Fargo Bank is now obligated on anything that 23 4/22/10 - FINANCE - BILL 100093, etc. Wachovia Bank had obligated itself on.

Why would you guys do a swap if you weren't going to make money?

I'm sorry?

Why would you do a swap if you weren't going to make any money?

I didn't mean to suggest that we did a swap.

Why would anyone, not just you, why would anyone consider doing a swap if you didn't make money on the deal?

We do swaps as a way to help our clients hedge a particular risk; in this case, the risk of future increases in interest rates and the impact that they would have on your borrowing costs at the time that you do a new money deal.

So you're saying --

So what we do is, 24 4/22/10 - FINANCE - BILL 100093, etc. we make a market through swaps. We're not -- what we're really doing is helping our clients hedge a particular risk, and through doing so, we are making a market and so there is a spread.

So come August 1st, the City will determine whether or not they're going to pay more money by encountering future higher interest rates as they would encountering a swap?

The City will make a determination as to whether to leave the swap in place and issue floating-rate debt. The swap is a swap that's designed to hedge floating-rate debt.

So what you're saying is, if the swap stayed in place, it could potentially cost the City money, but potentially not as much as it would incurring new debt later on? Is that accurate or no?

The City intends 25 4/22/10 - FINANCE - BILL 100093, etc. to issue new money debt to the tune of approximately 180 million for water and wastewater purposes, and this swap was designed to hedge that future issuance. And the City's decision point before the effective date of that swap will be are we better off terminating this swap and selling fixed-rate bonds at current interest rates at the time that they do it presumably in August when the swap is effective, or are we better off using the swap rate as our hedge and issuing floating-rate debt.

Okay. All right. Fine. Thank you.

Can someone from Wachovia explain what they believe the requirements are under The Philadelphia Code with regard to fair lending and community reinvestment?

As it relates to the ordinance --

Would you identify yourself, please. 4/22/10 - FINANCE - BILL 100093, etc.

I'm sorry. Stephanie Wall, Wachovia Bank. As it relates to the ordinance 5 requirement in the City of Philadelphia?

Yes.

It is my understanding that annually it is due by June 30th, that all City depositories submit their community reinvestment goals for that year. It is required. It's sent to the Treasurer's Office and it's due by June 30th.

And in addition to that?

If -- well, as relates to the lending study; is that your question? The lending study that is completed -- that is on a year lag -- we as a depository are required to submit a strategic plan that talks to the discrepancies or the disparities in the lending study as it relates to the year that it was --

So has 27 4/22/10 - FINANCE - BILL 100093, etc. Wachovia been required to submit a strategic plan in the past?

We have.

And what disparities were found in past lending studies?

I'm sorry?

What disparities were found, disclosed in past lending studies?

The most recent lending study that was just completed in final form was on the lending year for 2008 and -- would you like us to talk specifically to what were the queries that came out of that lending study?

I'm asking where you fell below the bar in terms of lending performance within the study, in what areas. It's a very simple question.

I'd like to at least -- well, I'd like to say that the study, if we're talking specifically to -- 28 4/22/10 - FINANCE - BILL 100093, etc.

I asked a question. I'd like you to answer it. I'm asking in what areas were you found to fall below the bar that required you to have to submit a strategic plan? A strategic plan is supposed to be to match or exceed pure lending performance in those areas. So what areas did you fall below the bar in terms of other City depositories?

Shelley Metz-Galloway, Wells Fargo Bank. The areas that I've identified in the report where it appears that we have done less than our peers includes in the LMI borrower home purchase originations, is an area that appears that we have fallen below peer performance, as well it appears that we may have fallen below as well in home purchase originations to African Americans in home purchase originations. On the refinance side, it appears that we may also have fallen 29 4/22/10 - FINANCE - BILL 100093, etc. below in LMI borrower refinance, as well as in the 80 to 100 percent minority tract refinance originations.

So for the record, what percentage of home purchase loans went to African Americans in 2008?

Home purchase originations of our total originations was approximately 10.4 percent.

What percentage of home purchase loans went to African Americans in 2009?

In 2009, African American representation for home purchase originations was 20.1 percent.

What percentage of home purchase loans went to African Americans in the first quarter of 2010?

Twenty-four percent.

Chairwoman, I was wondering if I could approach the bench. 30 4/22/10 - FINANCE - BILL 100093, etc. We're referring to some information that perhaps the rest of the Finance Committee may not have in front of them.

Yes.

Is this the information that you e-mailed to me?

I'm sorry?

Yes, sir.

They have it.

They all have this?

Yes.

Is that consistent with your fair lending strategic plan?

I believe that at -- for the first quarter of 2010, the percent is just slightly below 20 what appears in the Econsult in the peer 21 percentages. 22

That's not 23 my question. My question is, is that 24 consistent with your fair lending strategic plan? 31 4/22/10 - FINANCE - BILL 100093, etc.

For the activity that took place in 2008, I would say that we were below plan, and we were below plan and -- the information is in front of you, but 2008, as everyone knows, was an extraordinary year, specifically extraordinary for Wachovia, and we were struggling during that year to retain being independent. So the lending --

My question was simply, was it consistent with your fair lending strategic plan.

Performance was not on.

Excuse me?

The efforts were in place, as noted in the strategic plan. The goals were not achieved.

Okay. What percentage of home purchase loans should have gone to African Americans under your strategic plan?

I don't have that information with me. 32 4/22/10 - FINANCE - BILL 100093, etc.

I don't understand.

The strategic plan identified lending to --

You don't know what percentage of home purchase loans you intended to give to African Americans?

What I have in front of me is broken --

I asked a question.

I don't have it with me.

You don't know?

It's not that I don't know. I don't have it with me.

If you know, you can just tell us.

I don't know it off the top of my head and I wouldn't want to give you inaccurate information.

Can you tell 33 4/22/10 - FINANCE - BILL 100093, etc. me in general what percentage you think should go to African Americans?

I would not want to guess at that.

Should it be 10.4 percent?

I'm sure it was higher than that, and I think that part of the discussion that we had was the working to achieve, at a minimum, what peer --

What percentage of home purchase loans went to African Americans in terms of all depositories?

The average it was 28 percent. In 2008 it was 28 percent.

So you fell below the bar?

Yes.

Yes, we did.

Why did you 34 4/22/10 - FINANCE - BILL 100093, etc. fall below the bar?

Well, I'm sorry. So thank you for correcting me. It was 24.7 percent. Thank you for that correction.

The Committee has that in front of them.

Thanks. Wachovia's performance in 2008 really reflected a decline not only in the City of Philadelphia but nationwide as well. Lending decreased significantly in the second half of the year. More than 75 percent of all lending took place for Wachovia in home purchase and refinance originations in the very first half of the year, but as Wachovia struggled in the second half of the year, lending volume fell precipitously, and that's what led to the merger with Wells Fargo. Wachovia's 44 percent decline in Philadelphia was consistent with the 43 percent decline that occurred in the 35 4/22/10 - FINANCE - BILL 100093, etc. City of Philadelphia and nationwide. Lending went down year over year between 2007 and 2008 significantly as foreclosure volume increased, as unemployment increased, as you're probably aware.

Excuse me. I asked why you fell below the bar.

We fell below the bar because the bar was set at a time that didn't necessarily reflect the conditions that Wachovia was experiencing in 2008.

What about 2009?

In 2009, the Wachovia/Wells Fargo originations for African Americans was 20.1 percent. We --

I'm asking where do you think you fell. Did you fall below the bar in 2009?

We do not yet know whether or not we have fallen 36 4/22/10 - FINANCE - BILL 100093, etc. below peer averages, because we do not have that data.

Point of information, Madam Chairwoman.

The Chair recognizes Councilwoman Brown.

Thank you. When was the merger?

The merger took place on December 31st, 2008.

And the process for that in terms of span of time equals what?

It was officially started in fourth quarter of 2008. So actually it was the beginning -- the first week of October.