COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FISCAL STABILITY - - - Room 696, City Hall Philadelphia, Pennsylvania Monday, February 10, 2003 10:05 a.m. - - - RESOLUTION 030030 - 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 2004 through 2008, and incorporating proposed changes with respect to Fiscal Year 2003, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority pursuant to the Intergovernmental Cooperation Agreement, authorized by an Ordinance of this Council approved by the Mayor on January 3, 1992, (Bill No. 1563-A) by and between the City and the Authority. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DI CICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - V A R A L L O, INCORPORATED I N D E X RESOLUTION 030030 PAGE JOYCE WILKERSON, Chief of Staff .......... ROBERT DUBOW, Budget Director ............ 8 JANICE DAVIS, Finance Director ........... 9 RICK TUSTIN, Capital Program Office ...... 13 PHIL GOLDSMITH, Managing Director ........ 18 CLARENA TOLSON, Street Commission ........ 19 JOHN ZANIER, DHS ......................... 51 DUANE BUMB ............................... 62 TOM NESTEL ...............................129 3 2/10/03 - FISCAL STABILITY - RES. 030030
Good morning, everyone. This is a public hearing of the Select Committee on Fiscal Stability and Intergovernmental Cooperation regarding Resolution No. 030030. I would ask Mr. McPherson to please read the title of the Resolution.
Resolution No. 030030 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 2004 through 2008, and incorporating proposed changes with respects to Fiscal Year 2003, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority pursuant to the Intergovernmental Cooperation Agreement, authorized by an Ordinance of this Council, approved by the Mayor on January 3, 1992, by and between the City and the Authority.
While my colleagues join me at the microphone, good morning.
Good morning. Before you start, Ms. Wilkerson, I do want to 4 2/10/03 - FISCAL STABILITY - RES. 030030 apologize to everyone for our late start. Hopefully, we'll be getting more members as the hearing goes on.
I'm joined at the microphone by Janice Davis, Director of Finance; and Rob Dubow, our Budget Director. I'm Chief of Staff to the Mayor. I'd like to thank Council for the opportunity to begin these budget hearings by testifying on behalf of the budget and Five-Year Plan submitted by the Mayor on January 28th, 2002. I've submitted the majority of my testimony in written form last week. What I'd like to do today is put the numbers that were submitted last week in a bit of context. This Plan is submitted to accomplish the goals that the Administration has set forth to make Philadelphia a premier City in which to live, work, and visit. We all want neighborhoods that are attractive and safe from crime, with well-educated and well-protected children, and a mix of commerce that capitalizes upon our traditional strengths but takes advantage of new high-tech opportunities. The Mayor has often said on the floor of Council that we can turn our attention to neighborhoods without 5 2/10/03 - FISCAL STABILITY - RES. 030030 turning our backs on the City. We can do this by maintaining our fiscal discipline while we continue to make strategic investments in Philadelphia's future growth and development. We're facing very difficult, uncertain economic times. In many ways, the fiscal situation that all cities now face was caused by the perfect economic storm, a convergence of powerful and unpredictable events, the end of an unprecedented 10-year economic expansion, new and unanticipated homeland defense expenditures, increase in criminal justice costs, and the City-State partnership that averted a shut down of the Philadelphia public schools. But we also followed a different path in Philadelphia. We committed to continue tax reductions that is beneficial to the long-term health of the City, but complicates the tax of balancing the budget in these difficult times. And my testimony that I submitted goes into the numbers of the Five-Year Plan in substantial detail. I'm not going to read from the testimony. What I'm trying to do is paraphrase the themes that support the Five-Year Plan. So you'll not find the 6 2/10/03 - FISCAL STABILITY - RES. 030030 testimony that I'm giving verbatim anyplace. In preparing the Five-Year Financial Plan, the Administration initially faced a projected deficit of $834 million by the end of FY '08. By taking the steps outlined in this Plan, we intend to address that liability. We will have to be disciplined. And some of these steps outlined will be painful and involve some service cut backs. We will have to maintain a watchful eye on the economic perils and uncertainty facing the global economy. However, the beauty of five-year planning is that you do identify challenges early enough to identify and implement solutions to longstanding structural problems in the way government operates. The choices and sacrifices that we will outline during these budget hearings will fundamentally change the way we do business and institute reform measures that will make government operate more efficiently and effectively for generations to come. The deficit reduction strategies do not come at a cost of our critical investments in fostering long-term systemic changes. Our primary strategies include revenue proposals, efficiency improvements in management and 7 2/10/03 - FISCAL STABILITY - RES. 030030 productivity, policy changes, and service reductions. They're outlined in detail in the Five-Year Plan. Our approach to reducing the deficit balances the imperative to reduce services against our ability to make critical investments that will eliminate the need for some of those services. For example, we will not stand by and watch our prison population and associated social service needs grow. Rather, the Administration is committed to investing in crime prevention programs, including after school and parenting education, neighborhood stabilization, Operation Safe Streets to reverse the trend and eliminate the associated cost.
In this sense, an ounce of prevention is worth a pound of cure. The Plan also proposed to continue the Tax Reduction Program. 21 percent. 4625 percent. 8801 percent. These reductions will provide Philadelphia taxpayers with an additional $319 million in the next five years. 8 2/10/03 - FISCAL STABILITY - RES. 030030 Since the beginning of the Street Administration, taxpayers have benefited from $475 million in lower taxes. We've asked departments to cut their personnel and overall budgets to produce $200 million in savings over the life of the plan. These mandated cuts do not apply to critical public safety operations; the Free Library, the Recreation Department, or Fairmount Park Commission. But we will see some unfortunate consequences to these cuts as quickly as this summer. For example, the grass in Fairmount Park will not be cut at the same schedule as we did last year. We have read in the press that despite our population decline, the size of City Government has not adjusted. Over the next five years, this Administration has set a goal of reducing the size of government by approximately 2,500 employees. While we look first to achieving those reductions through the DROP Program, there is no doubt that some layoffs will be involved. We have begun this process at the top in the Mayor's Office. By April of this year, 50 senior staffers from the Mayor's Office, the Finance Department, and the Managing Director's Office will leave City 9 2/10/03 - FISCAL STABILITY - RES. 030030 Government. We will also have to make sizing decisions when it comes to City facilities. One of the major ways that government operations will change to close the budget gap is to increase productivity and streamline management services by centralizing department administrative functions. Functions such as payroll, attendance tracking, IT support, hiring and training personnel, and providing public relations and information services will be combined into administrative service centers that will support a cluster of City departments. Through this initiative we can save approximately $35 million and at the same time allow City departments to focus on their core business and eliminate redundant positions. Another similar proposal will consolidate eight existing department call centers into a single call intake and service delivery contact center, saving approximately $5 million. It will simplify what people have to do to get straight answers to simple questions. In addition, the Administration proposes a fairly dramatic shift in its pension policy. The 10 2/10/03 - FISCAL STABILITY - RES. 030030 Administration will, for the first time in a long time, begin making only minimally permitted payments on the pension. With smart management and fiscal discipline to make hard choices, we anticipate saving a total of $489 million over the next five years. This plan also contains several revenue-generating measures that have been submitted to Council in past weeks concerning increase fees for the Department of License and Inspections, the Records Department, and also an increase in parking fines. This plan also continues strategic investments in priority areas that will change the lives of our residents for the better. Our goal is to foster the stabilization and revitalization of neighborhoods throughout the City. Last week, we announced -- the week before last we announced the first large-scale housing developments of our Fight Against Blight and Deterioration. This is the next step in an ongoing process to improve the appearance and safety of our neighborhoods by removing dangerous vacant buildings, debris-filled lots, decayed trees, abandoned cars, graffiti and litter. 11 2/10/03 - FISCAL STABILITY - RES. 030030 Other weapons to transform our neighborhoods include funds for code enforcement to abate public nuisances and loans for home repair.
The Five-Year Plan also maintains our commitment to the welfare and development of our most vulnerable citizens by providing quality youth development and effective social services for our children and families. This includes an expansion of Beacon after-school programs, delinquency prevention, and visits to a thousand new mothers that risk of neglect and child abuse. In addition, $5 million is provided for Child Care Health and Safety Fund. Additional funds are allocated to School-based Facilities Improvement Fund. You may ask, how can we do this given the tough economic times? The real question is, what will happen if we don't? The consequences to our children and to our City's future will prove us to be penny-wise and pound-foolish if we fail to protect our children and put them on the right track. The future of our City also depends on our ability to attract and retain businesses and the jobs that are essential to economic stability. 12 2/10/03 - FISCAL STABILITY - RES. 030030 Through the Commerce Department and Innovation Philadelphia, we're targeting existing businesses to convince them to remain in Philadelphia and addressing the needs of new high-tech entrepreneurs. Building our business base is also tied to strategic initiatives we have outlined in the Plan. In addition to tax reduction, safer streets, better schools, and revitalized neighborhoods are critical to business location decisions. As important as it is, growing our City is not our only concern. The people who have long lived in Philadelphia deserve to get what they pay for. Our citizens pay taxes and we will continue to deliver vital City services, from public safety to snow removal and garbage collection, to the upgrade of facilities in Fairmount Park. We must continue our services that improve the quality of life of our taxpayers. Once again, Operation Safe Streets has had a profound impact on our City neighborhoods. Citizens are expressing record levels of satisfaction with the Police Department. And after years of increases, the prison population is no 25 longer growing, and crime is beginning to slow 13 2/10/03 - FISCAL STABILITY - RES. 030030 down. Much will be said and debated over the next weeks about the details of this Plan, but as we engage in this debate, I hope we will be mindful of the things we don't have to talk about. We're not faced with the percent tax hikes proposed in New 8 York City. We're not looking at Draconian service 9 cuts like closing libraries or fire houses. The 10 prudent management and fiscal discipline that we 11 have exercised over the past three years has served 12 us well, despite the increasing economic uncertainty 13 that is facing every city in the nation. 14 I'd like to thank you for the 15 opportunity to present this testimony in support of 16 the Five-Year Financial Plan. We will be happy to 17 answer any questions you have. We also have 18 representatives from virtually every City agency here that can answer any questions the three of us can't.
Thank you very much. I would like to make an announcement for the first go around. Each Councilmember will be given five minutes and will be timed. I would ask 14 2/10/03 - FISCAL STABILITY - RES. 030030 that you please respect that. You can start timing me. Ms. Wilkerson, the Mayor, in his budget address, announced three new initiatives to significantly increase our capacity to serve children and families in our City. They are a $5 million Child Care Health and Safety Fund, a $30 million Free Library Expansion Fund, and a $25 million School-Based Facilities Improvement Fund. Could someone from the Administration explain what these programs entail, where they appear in the Five-Year Plan, and how the City will pay for them?
These are initiatives that will be funded by a sale lease-back, and Ms. Davis will go into that in more detail. And Mr. Dubow can explain where they appear in the Five-Year Plan.
They do appear? Mr. Dubow, where are they in the Five-Year Plan?
They're only covered in the 15 2/10/03 - FISCAL STABILITY - RES. 030030 Five-Year Plan in terms of debt service on the sale lease-back. There's $4 million a year beginning in '05. To the extent that we -- when we get to a point where we want to actually spend money, we'll have to come back for transfer ordinances to move money into appropriate places.
The City will be using a sale lease-back structure in which the central library itself serves as the property being sold. And in this case it would be the building sold with the City maintaining the ground. We will receive a rent -- ground lease rent payment on the land, while making a payment on the building equivalent to the debt service on the $60 million. It's a structure that allows us to get the benefit of depreciation and any arbitrized (sic) play in funding the particular project. So we will use the actual library itself to generate the funds.
Councilwoman Blackwell is asking a question, and I had the same question. Are we selling or leasing, did you say?
It's not a true lease. It is a sale lease-back in which the rights to the building are sold, but only from a financing 16 2/10/03 - FISCAL STABILITY - RES. 030030 standpoint. As we get the plan fully developed, we will be coming back to City Council with a fuller explanation than we can give at this point with the details. It is something that's been used in this area in the past with the sale lease-back of buses by SEPTA to generate funds. It's taking advantage of the fact that the City gets no tax benefit from depreciation, while a private investor would. So you leverage the actual occupancy. We are never forced to leave that building. We don't give up true title to the building. And, in fact, it's a tax structure that allows us to take the benefit of the fact that we don't get anything from depreciation on a significant piece of property that does have significant depreciation every year.
At the appropriate time, wouldn't this have to have Council approval?
Yes, it will. As we fully develop the proposal and fully develop the actual project, we will come back to City Council for a briefing and then for City Council approval. As it is developed, we will get in touch with City Council 17 2/10/03 - FISCAL STABILITY - RES. 030030 often before we get here for an approval vote, because it is a different structure.
Ms. Davis, you just described what sounds to me like taking advantage of a loophole.
It is, in essence, the sale of our depreciation, for lack of a better way to describe it.
After we go through this exercise, is there -- I guess it's tough to determine whether that loophole would immediately be reacted to and closed and all this would be a waste of effort?
No. This is a structure that has been used probably for the last 30 years. It's just that Philadelphia has not used it to its advantage. SEPTA uses it on an ongoing basis to extract value from their buses and rail cars. I've seen airport runways sold and then leased back. It is a very common play on the fact that governments can't use depreciation. Private people can. And they're willing to pay us for the ability to use it. 18 2/10/03 - FISCAL STABILITY - RES. 030030 So it drives down some of your financing cost.
That's okay. Just good luck. Because once you do it, they'll probably close the loophole. Thanks.
Councilwoman Blackwell, did you want to ask a question?
You may not remember, but my staff just reminded me that this might have been done during the Wilson Goode Administration with the Municipal Service Building. Does anybody remember that?
It's a common structure. We just have not -- okay. We did it for MSB. It's a fairly common, really everyday structure that takes advantage of the fact that we can't do a thing with depreciation, but it exists. And there are people who are willing to pay so that they drive down our financing costs. And we can do it in a way that it does not impact our capacity to borrow and still derives benefit. 19 2/10/03 - FISCAL STABILITY - RES. 030030
There are companies that are structured to act as go-betweens, between us and, say, Fortune 500 companies.
Maybe General Mills or -- there is a market where this is traded. So that it is literally a company will be approached by the person who is structuring it to sell them our depreciation. It may be a consortium of multiple companies. It could be Time Warner. It could be General Foods. It could be Proctor and Gamble. We won't know until the transaction is complete. And even at that point, we may not know who the counterparties to that transaction are.
We will be using -- and I don't have the name of the company with me -- a firm that has done it multiple times. And I'll be glad to get the information to City Council. 20 2/10/03 - FISCAL STABILITY - RES. 030030
Could you give us something in writing as to this whole process?
I'll get you the detailed sort of primer on what this is, what we propose this transaction to look like, and all of the pertinent information.
No. We don't actually sell the asset. We maintain the ground under the asset and enter into a long-term agreement that is equivalent in theory to the life of that asset, so that you're not really selling the asset. It's just a vehicle for extracting the benefit from the asset. It's not unlike refinancing your house to get that benefit out. You're not giving your house away. You still have the right to live in that house. And at the end of the term, if you've lived by all of your requirements, you get the house back. That is, in essence, what we're doing. We will never get out. We won't be forced to use a part and 21 2/10/03 - FISCAL STABILITY - RES. 030030 give another part to someone. As long as we make the payments, we retain title.
It's not forever. It can be structured in multiple ways. We will look at how we derive the most benefit to determine whether we do it years, 30 years, 50 years, or 20 years with a 11 renewal. It's going to follow sort of a standard 12 debt service-type time period. 13
Since we've done it 14 with the MSB Building, is there any way you could 15 give us a report on that transaction? 16
Yes. We can get somebody 17 to go back and see what that transaction looks like. 18
Thank you. 19 Would the Administration provide us with a listing 20 of all of the debt service payments included in the Five-Year Plan?
I have a question. 22 2/10/03 - FISCAL STABILITY - RES. 030030
Is it on this same matter? Because I had five minutes and everybody else used them.
Is it on the same issue? Thank you. Ms. Wilkerson, you state that one of the negative financial events causing the City's fund balance to decline was unanticipated homeland defense expenditures. What has the Administration done in this regard and how much has been spent?
I can get you a detailed breakdown on how much has been spent. The Administration has started by installing the bollards. We are also securing off the City Hall from some of the tunnels leading up to City Hall. Currently or historically, it's been possible to access the basement of City Hall. We are taking steps to secure the ground level entryways to prevent access. We're working with engineers and other planners on the details of the more comprehensive 23 2/10/03 - FISCAL STABILITY - RES. 030030 security system that includes controlling access. We have about 28 points of access into City Hall. The plan that's is proposed would create limited access along the northern side of City Hall, and the installation of security booths. The Plan also calls for cameras monitoring the hallways. The details of those additional plans are being worked out now.
When do you anticipate we will see something, particularly in City Hall?
I believe the -- I've asked Rick Tustin to come up, who is head of Capital Program Office.
To answer your question, right now we are finishing up the risk assessment report that we've hired a consultant to help us with. They've met with all of the occupants of the building, or representatives of all of the occupants of the building, and have put together a comprehensive plan. 24 2/10/03 - FISCAL STABILITY - RES. 030030 As the Chief of Staff has just stated, we've already done some work on the outside. Probably the next thing you'll see is some better control of the access points to the apron where, right now, we have chains that go across. That was a temporary measure. There will be retractable gates in those areas, either pneumatic gates that will come up either through the ground, or some other type of gate that will secure that area. And we've also asked them to expedite the design documents that will be required for the security at the entrance points on the first floor. So most of your entries to the first floor will have some sort of a card access with a redundant camera system so that, not only will we know who comes in, when they come in by the use of their access card, but we'll also be able to have them on camera, as well, if it's after hours. We're trying to do the work in stages. You should start to see some of this work this spring, actually physically see the work being done this spring, and it will continue over the next 12 to 16 months until it's 100 percent complete.
Can you tell 25 2/10/03 - FISCAL STABILITY - RES. 030030 us what that will cost?
Thank you. I think I've used my five minutes. The Chair recognizes Councilwoman Blackwell.
I'm sorry. You're going to have to repeat. Would you mind closing the door? It's rather noisy.
I just wanted to add something to the answer on our costs on homeland security. We also assembled what we call rapid assessment teams during the anthrax scare. We had over a thousand runs. They were joint teams of police, fire, and health. So that was a big part of 2/10/03 - FISCAL STABILITY - RES. 030030 our cost, too.
We thought that was probably included. I think we were just waiting to hear you say that. How about the airport?
We added police officers out there. And they also had additional overtime. They've had a few million dollars worth of costs added per year out there.
Thank you. I apologize for not listening. I've got a million things going on over here. I have some concerns about entrance into City Hall. Obviously, we're all concerned about security during these times, but I'm also concerned about the constituents that we deal with every day, who come for ID, welfare, a place to stay, a job, and food. And so I would hope that, as this plan evolves, please include me in any discussion because we are really concerned. If everybody has to have an ID getting in, I have people who don't have ID. Unless I have a staff member or two stationed in the 27 2/10/03 - FISCAL STABILITY - RES. 030030 hallway downstairs, you know -- we have some issues. I would hope that as this plan evolves, that you would take into consideration that there are members of the public who still need access to the building who can't gain access in the traditional way.
We certainly will do that. One of the things that the consultants are doing is engaging a number of different people, but we'll make sure that we have contact. This is a public building and you're always trading off security versus wanting to keep the building as public as possible.
You're welcome. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. I'd like to get some information so when Public Property -- I assume it will be Public Property -- is before us, in reference to establishing the constituent call centers and the possibility of moving to a 311 number. My recollection is that there were substantial costs 28 2/10/03 - FISCAL STABILITY - RES. 030030 when we established 911, in having the local telephone company establish that. So I would hope that we have a budget established for what those charges would be just to the provider of that 311 service.
We do. We have a plan that not only shows savings, but also shows what kind of cost we'd have to incur to set up the system and to keep it going. And we can get you those details.
I don't know the exact numbers off the top of my head, but we can get you the report.
Well, when you include -- including the number, there is substantial savings for us.
I don't honestly understand. I understand 311 is a good number. But it's a big expense that we're incurring when most of those calls from residents of Philadelphia to a five-digit number aren't really a significant impact 29 2/10/03 - FISCAL STABILITY - RES. 030030 to them financially, because many people have dialing within the City of Philadelphia that does not incur a charge to them. I understand it's a convenience, but if this is a very, very big expense, I think it really needs to be considered, especially in the initial setup.
I'd like to have Ms. Davis comment, because it also coincides with some other initiatives and expenditures that the Administration has to undertake.
As we were looking at what to do with billing and collections for the Water Revenue Department, as a component of that, we were looking at CRM, our Customer Relationship Management and 311. A lot of the cost for the software will be involved as part of that. So there are some synergies that we will be able to take because we need CRM and 311 as a part of billing and collection. Additionally, we have people now answering phone calls that will now be directed, instead of to 1776, to 311. 311 happens to be the number that's identified to that service, but we could, in fact, use 1776 and take those multiple 30 2/10/03 - FISCAL STABILITY - RES. 030030 people, train them on the basic FAQs, those most often asked questions, and have them centralized in a call center. That's simply what 311 is. It's not as dynamic, perhaps, as a 911 where you have the interaction. It is just, for us, the consolidation of people calling individual departments, calling 1776, calling somebody that they know works for City Government and getting transferred around. For us, it's the consolidation of that. We'll be able to take advantage of the software that we'll be purchasing for another reason and piggyback that along with that consolidation. So by consolidating those employees, we will get the benefit of the savings.
I think if you checked the notes of testimony at the last budget process, I was the one that gave the Administration the suggestion to move to a call center. I understand all of that. But my concern is that we might spend many millions of dollars, many millions, just in -- did you ever try to add call waiting to your phone at home? They want to charge you $17.50 just to do that. My concern is that the City could be obligated to pay many, many millions of dollars 31 2/10/03 - FISCAL STABILITY - RES. 030030 to Verizon or any other local provider of telephone services to establish a 311 line, when it really doesn't -- we're not saving the taxpayers of this City any money, because calling within the County of Philadelphia in many cases is a free call to that person from their residence. Maybe not their business. I would hope that before we pull the trigger on establishing this, that you really understand the ramifications, the cost, et cetera, associated with that.
Public Property has, in fact, had an extensive study done on this process, so we've gone in depth to make certain that what we're taking on is not something that will in the long run prove unbeneficial to the City. And we'll provide that information to your office or to any other City Councilmembers who might -- or to the Council President for her distribution.
But when the Public Property people come here, you can bet that's number eight question.
The Chair 32 2/10/03 - FISCAL STABILITY - RES. 030030 recognizes Councilman Ortiz.
Thank you, Madam Chair. Ms. Wilkerson, can you just give us an explanation and background in terms of these across-the-board cuts and their impact and their savings? You said the across-the-board cuts led to just over $200 million in budget reduction over the life of the Plan. And then you say, unfortunately, the consequences will show. Could you give us a detailed explanation of what consequences, by department, and where these cuts have taken place and their impact on services, if any?
We can give you an overview now, if you want, and then submit in writing something more detailed.
Well, give us the overview now and we'll get the detailed explanation.
When we put the '04 to '08 Plan together, we asked each department to take a 2 1/2 percent across-the-board cut. We excluded from that the Fire Department, Police Department, 33 2/10/03 - FISCAL STABILITY - RES. 030030 Free Library, Recreation, and Fairmount Park. We also excluded independently elected officials. When departments came back and gave us their plans based on those cuts, they gave us savings of about $84 million in personnel, about $82 million in contracts, $28 million in materials, supplies, and equipment, and about $9 million in Class 500. The impact on service that people report back to us were in just a couple of areas. Fairmount Park said that the length of time between mowing grass would go from about two and three quarters weeks to just under three weeks, which is actually where it was a couple years ago. They also said they'd have to cut back on the amount of times they maintain or renovate ball fields. And the Streets Department said that the length of time it takes to get to ditch repairs would increase. Those were the effects people told us about.
When they say it will increase, what does it mean? It will increase by two days, three days, four weeks, seven months?
What the Department said is that instead of getting to -- I think their ditch backlog would grow from 252 to 752. 34 2/10/03 - FISCAL STABILITY - RES. 030030
Their ditch backlog would go from 252, which is where it is now, to about 752.
And the time to get to these areas would be what? You're telling me the increase, but you're not telling me a time line. I report something today. How long will it take a crew to get there? Will it take four weeks, three months, eight months?
I'm going to ask Clarena Tolson from the Streets Department to answer that. Clarena, can you come on up for a second?
While she's coming up, Phil Goldsmith was going to respond on the Fairmount Park issue.
I'm going to put on my Fairmount Park hat, if I can, because I do want to --
You really get into crisis situations, don't you? You must like this.
This is not a crisis. 35 2/10/03 - FISCAL STABILITY - RES. 030030
You go from City schools to budget deficits in the City.
Maybe we'll put you on the shuttle investigation or something like that.
I want to say on Fairmount Park, because I don't want to leave the impression that -- what we did with Fairmount Park is what, hopefully, we will do with all City departments and have been doing, is looking at our core services and coming up with what I would call predictable, relevant, and reliable service levels.
Phil Goldsmith, Managing Director. So I think what we want to do is look at predictable, relevant, and reliable service levels, and when we present the budget for Fairmount Park, what you will see is three new programs. One is a regular cleaning of our hard surface trails so that our users know that our trails are going to be cleaned, the hard surface trails, on a regular, predictable basis. 36 2/10/03 - FISCAL STABILITY - RES. 030030 Secondly, the addition of more rest rooms with a predictable cleaning of those rest rooms. And then, third, is a safety program where we are inspecting our playground equipment on a regular, predictable basis so we know the users of those playgrounds are using safe equipment. To do that, we had to also look at things where perhaps we didn't have to do as frequently and so make some trade offs. And on that is some of the mowing and some of the athletic fields, and those will be prioritized. And some of the lawns we're looking at turning into metals and so forth. So I think the important thing is that we are adding additional services while looking at things where we may be able to reduce back without hurting our users or hurting the core services of the park. Thank you.
Good morning, Councilman. Clarena Tolson, Streets Commissioner.
I asked a question in 37 2/10/03 - FISCAL STABILITY - RES. 030030 terms of -- because they used the Streets Department as an example, and they said it would be an increase in terms of ditch maintenance or ditch --
-- repairs, restoration. It would grow by a couple of hundred, but they didn't give the time line. What does it mean actually when it's reported to when it's getting fixed? Because people like to know that, or at least have an idea. MS TOLSON: Sure. The time line for repair presently is in the six week range for restoration, to bring a ditch from a plumber's repair or Water Department repair to the complete restoration of that spot. We expect that with the challenges that we're going to face, that the timeline for restoration will go from 6 weeks to approximately 10 to 12 weeks.
I should also say that we are working on some legislation that could help us with this issue. We're presently working on a 38 2/10/03 - FISCAL STABILITY - RES. 030030 right-of-way legislation that will place more accountability on those that provide openings in the street, such that they will help pay for the restoration in a much more quicker manner than we presently have.
You might have a private vendor. You might have Bell Telephone -- I'm sorry -- Verizon come through and open the street to put in cabling. And right now there's not much accountability on their part in terms of the maintenance of those streets. They do a simple opening and then it's up to us to do the closure. But it could be a big help to the City to have those that are opening the street actually be responsible for restoring the street.
Councilman Ortiz, your time is up. You'll have to wait for the second go-around. 39 2/10/03 - FISCAL STABILITY - RES. 030030 Councilman Clarke.
I just want to touch on a couple of issues in this particular round. One is something we spoke about earlier. This whole employee reclassification. As we have a substantial amount of individuals going out in the DROP Program and in some instances we will be bringing them back, particularly in the Police Department, there is this issue about reclassification. For a number of years, it was my belief, and some other individuals' belief, that in a lot of instances we have police officers doing work in the neighborhoods, in the government, that we could probably have other types of Civil Service employees do. One of the issues in particular that comes to mind is this whole issue of public nuisance officers, for lack of a better term. I know in various other cities, Baltimore in particular, and actually I think in some instances in New York, 40 2/10/03 - FISCAL STABILITY - RES. 030030 where we actually have a different category of employee who provides traffic service. I don't know if we still do, but I know at some points in time we actually here in the City of Philadelphia had police officers writing sanitation tickets, which I think is, frankly speaking, a waste of their training. As we move ahead, assuming that we will have a substantial amount of police officers come back after the DROP Program or rehiring of those police officers, what's the possibility of us looking at reclassification in hiring an employee who would make a lesser amount of a salary, but be able to provide a service that, frankly speaking, we think is inappropriate for police officer to do?
Councilman, as you know, it's something that the Mayor has supported previously. We're going to take out those old files, dust them off. I think you're right, the DROP Program does present us a real opportunity now. And hopefully, we'll have the analysis completed before the Police Department comes and testifies as a department. We also have currently available to the City the right to move some non-uniform officers into some of the desk duties, for example, that 41 2/10/03 - FISCAL STABILITY - RES. 030030 police officers currently perform. We're going to take another look at that to make sure that we're using that program or that opportunity to the best advantage. But hopefully, we'll try to have an answer for you in more detail when we come for the department testimony.
I recall earlier, a couple years ago in the discussion, there was some question about whether or not there would have to be a Charter initiative. Is that your understanding, or could you do it internally simply through the personnel departments?
We'll have to take a look at that, rather than speak extemporaneously on it. My guess is there are collective bargaining issues, there are probably some Charter issues, but we'll take a look at that and try to have an analysis when the Police Department comes to testify.
Okay. One of the other things that's important to me, this whole issue of revenue growth, in particular, under the NTI program. In earlier explanations, particularly in the communities, we talked about reclaiming 42 2/10/03 - FISCAL STABILITY - RES. 030030 vacant land, non-revenue-producing vacant land, vacant buildings, and reclaiming that to create an environment that would ultimately produce revenue both through, hopefully, wage tax and property tax. Can you talk to me about where we are, particularly given the most recent announcement of those seven developments that the Mayor announced recently? Has there been an analysis of the best case scenario, if we were able to reclaim that land?
No. We've not tracked that to date. We've not estimated what the additional tax revenue would be. There have been studies, some of them by the Horticultural Society, that actually studied what it would mean in terms of revenue if the vacant land was put into productive use. We can make those available to you. I think we can, at this point, since we've identified a significant number of units, plotting some of the numbers of residents at this income that would generate wage taxes and other kinds of revenue for the City. And we can do that. We have not done it thus far.
Doesn't it seem prudent if you're going to make an investment, prior 43 2/10/03 - FISCAL STABILITY - RES. 030030 to making that investment, you would determine or at least guesstimate what the return on that investment would be?
This was something that did come up at the time that the bonds were proposed. The Administration did not propose the NTI Bond Program based on a return of investment. What we said was that we're currently spending this amount of money; we're not doing it in a structured way, that we can make better use of the money we're spending for demolition and the money we're spending to eliminate blight if we focus on trying to harvest the opportunities that are represented by the abandoned buildings and the vacant land. It was re-targeting the amount of money that we were spending anyway. That was our rationale for undertaking the program, as opposed to return on investment kind of analysis. But we can certainly pull that information together and get that for you.
Well -- and I don't want to belabor the point, but not simply just pulling together the analysis on what was proposed. I think as we move ahead when we make those decisions, that should be a category in that 44 2/10/03 - FISCAL STABILITY - RES. 030030 decision-making process. I would think that if we're going to spend whatever the amount, I'd really like to know what the benefits are. And I think in that decision-making process, making a determination as to whether or not we spend NTI dollars in particular portions of the City, I'm sure some of the Councilmembers will agree that they would like to see that money spent prudently and be able to tell the story that this, in fact, will enhance the City's revenue growth. One other issue. You had naming rights, and I'm not clear exactly what that would be in your testimony. I know maybe a year or so ago there was this issue in one of my colleague's districts about naming rights and there was this discussion about certain advertisers being able to advertise on City-owned facilities. Is that what we're talking about, or we're talking about some other initiatives?
In this instance, we're sort of looking at everything that might be available in that arena, whether it is pouring 45 2/10/03 - FISCAL STABILITY - RES. 030030 rights where Philadelphia becomes the City of Pepsi or Coke or whatever, are using City facilities as a vehicle for advertising. We have put together and will be finalizing in the next week or so an RFP to see what is available. Some school districts and other cities have done quite well in using the purchasing power of that City to attract corporate sponsors, if you will, who are interesting in saying that Philadelphia drives Fords, or whatever. It becomes a very popular vehicle for them and, in many instances, is a lot cheaper than what they spent for air time on TV. So we are doing an RFP to get someone in to put together a strategy for going after those multiple opportunities. But it wouldn't simply be putting some logo of some company on a police car or whatever. Not that we do that, but it might entail becoming the Pepsi generation.
Or we may see a John Deere commercial with the Mayor on a little tractor removing snow.
The Mayor likes trucks. We might be Ram capital of the world. Just by way of comparison, in Texas where I most recently worked before Philadelphia, 46 2/10/03 - FISCAL STABILITY - RES. 030030 this was a very popular vehicle for school districts to generate additional revenue. And there have been payments of up to $20,000 per child, some as much $50 million over a 10-year period just for being the Pepsi generation or the home of Dr. Pepper. There was one school district whose buildings were in the flight path of DFW Airport, and they painted literally the logo of one of the beverage companies on their roofs so that people coming in and taking off DFW would see that. And there was a payment of $17 million for that benefit. School districts have used it. Other cities have used it. And Philadelphia just getting into the business of some commercial endeavor for the fact that we do have purchasing power.
I think, as Janice said, what we're going to do first is conduct a survey to find out what kind of opportunities are out there. I think we're mindful of the issues that have been raised in the past about pushing soft drinks in schools and what kind of message that sends. So we're mindful that there are a lot of issues. We don't want to create a lot of visual litter around our City, but at the same time, we think that there 47 2/10/03 - FISCAL STABILITY - RES. 030030 are creative opportunities. And we'll be spending some period of time trying to figure out what they are, how to solicit them before making any kinds of decisions.
Okay. Could you make sure that you include the Councilmembers in that process? I know of at least one Councilmember, Councilman Cohen, who will be very interested in any advertising on any public facilities. I really would like to have you participate in full early on in the decision-making. Is my time up?
Thank you. On Page one of your summary, you talk about the Administration looking at ways to change the way government operates. When Ed Rendell became the Mayor and we were experiencing serious financial challenges, he instituted a number of efficiencies, government efficiencies. I mean, do you have additional ones, or are you keeping the ones he instituted? I mean, we thought he had sort of 48 2/10/03 - FISCAL STABILITY - RES. 030030 gotten the butter from the duck. What else do you plan to do in terms of the efficiencies?
We've mentioned briefly the 311 call centers, the administrative clusters so that every department will no longer have its own personnel function, it's own record keeping function. We intend to consolidate some of those. Janice can talk about what is intended for the Finance Cluster in more detail. I think that gives you some sense of the kind of opportunities that we think are out there.
As you consolidate these functions, the consolidation of those functions, have you calculated the loss to personnel in consolidating those functions?
Yes, we have. Going back to your initial question about Mayor Rendell, he drove down the cost of doing business in the same way. He took advantage of some ways to cut cost without fundamentally changing the structure of government. What we're proposing is to fundamentally change the structure of what we're doing, so that instead of telling a department to just do more with less, we're looking at the fact that there are 49 2/10/03 - FISCAL STABILITY - RES. 030030 redundancies in certain departments around those non-core functions, the things that everybody sort of looks at and says, "Well, we've got to do that because Finance wants it or we've got to do it because Personnel wants this piece of paper." It doesn't add anything to the way they do it, but somebody in that department has to do it. As we looked across government, we noticed that whether a department had people or 11 250 people, some of these same positions were there. 12 By taking the fact and looking at the Finance 13 Cluster, where there are roughly 76 people 14 identified -- and when I say the Finance Cluster, 15 we're talking about the Mayor's Office, because we 16 created sort of new clusters. We're talking about 17 the Mayor's Office, MOIS personnel, Treasurer's, 18 Revenue, Water Revenue, Procurement and Finance. 19 When we looked across that grouping, there were some 20 76 positions that are identified in the budget as administrative. When we looked at creating a cluster to handle the work that is traditionally the work of taking care of budget items, taking care of procurement items, MOIS doing that interaction with personnel, when we looked at doing that by 50 2/10/03 - FISCAL STABILITY - RES. 030030 leveraging the fact that one person can probably handle two or three of these departments, we came up with a number half that amount. And that's what we're going to roll out across government. We will look at it in a studied way. We're going to spend about a year making certain that what we do in Finance can be duplicated and supported by policies and procedures across the entire government. And then we will implement probably six of these clusters with departments that are like departments with the same types of needs. If there is a department like DHS that has very specialized needs, we're going to pay a lot of attention that they are different. We would not mix them with the Finance Cluster. They have very different needs. We're going to put departments that are very alike together. When we look at the personnel and we estimate that, by the end of the Plan, there will be 400 people who will not be needed providing those functions. We will take advantage of the fact that there will be hirings in Drop to outplace some of these people, and we will be looking strategically to minimize the number of people who don't have jobs. Moving them from this, 51 2/10/03 - FISCAL STABILITY - RES. 030030 we recognize that we will be hiring people because people will be leaving in Drop. And so we're going to look and strategically attempt to outplace these people. There will be some impact on the work force, but we're attempting to minimize it.
Yes, we still have the Productivity Bank. And in this instance, Rob is directly taking the benefit, so it won't go to the Productivity Bank. Instead, any savings go directly to balancing this Five-Year Plan.
Councilwoman, I'm sorry. Your five minutes is up. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. Will the individual district allotments in terms of recreational facilities and libraries in this year's budget be protected, those that we have already talked about? 52 2/10/03 - FISCAL STABILITY - RES. 030030
One more question. In terms of NTI and community participation, since that's listed as a goal, as we proceed on with this, will that whole issue be protected? My understanding is that even though we have the goals and the minority participation, female and disabled, community participation could still be an issue. Are we able to make sure that is protected as we look forward?
We're looking at trying to put mechanisms in place to better deliver on that. That's one of those very challenging issues. And so Pat, Managing Director's Office, me, are sitting down and trying to put in a mechanism that better delivers on that. It is a commitment that we've made. It's a commitment that we intend to deliver on.
Thank you. 53 2/10/03 - FISCAL STABILITY - RES. 030030 Ms. Wilkerson, do we have or are we likely to receive the $30 million in TANF funds for investment and after school and youth development programs? Are you using the money for these programs? Are we decreasing funding to other programs? If so, can you tell us which other programs will be affected?
No. You are likely to receive the TANF money. We use programs that are eligible for TANF to take that funding, and it's federal money. And we're looking to expand the amount of money that we get through TANF. And it's not a reduction for anything else.
Thank you. Can you tell us if the $25 million School-Based Facilities Improvement Fund will be financed by the School District or the City?
That would be funded by the City under the lease purchase -- sale lease-back agreement structure that Ms. Davis discussed earlier.
Do we know which schools will benefit from this fund?
No. That decision 54 2/10/03 - FISCAL STABILITY - RES. 030030 hasn't been made. What the Administration has proposed is that as we go through the process of trying to right-size City facilities, that we acknowledge that in order to locate facilities, in order to take advantage of some of the benefits of downsizing, we're going to have to spend some money. A lot of these initiatives have inherent in them having to spend money. What the Administration wanted to do as we launch this process of trying to right-size is also identify a pool of money that can be spent in connection with the right-sizing initiative and making better use of the school facilities that are out there. There is no plan on where that money will be spent. Our commitment is to work with City Council and the other stakeholders as we go through this whole right-sizing process.
Now, Ms. Wilkerson, did I understand you to say that the $25 million will come from the sale lease? Now, are we talking about the sale lease from the library?
It's all part of that same project. We anticipate borrowing roughly $60 million through that process. And the $60 million will be spent in the way identified in the 55 2/10/03 - FISCAL STABILITY - RES. 030030 Mayor's budget speech as being the three initiatives that he identified, the Library Expansion Fund being the major part of it. But those funds will also be directed to the other components of his plan.
Also, you state that Innovation Philadelphia will work to increase the annual science and engineering research investment in Philadelphia to $1 billion. What have they attained thus far?
Innovation Philadelphia has done a number of things. One is worked to better leverage the federal dollars that are coming into Philadelphia. Mr. Bendis will be here with the Commerce Department. Philadelphia, this entire region, receives substantially less federal dollars than other jurisdictions. We also support these kinds of initiatives with less local money and state money. Mr. Bendis has worked to develop material and to reach out to additional sectors of the community to let them know that this funding is available. Now, small businesses can go on-line and make applications. The Innovation Philadelphia provides consultant review of the applications, 56 2/10/03 - FISCAL STABILITY - RES. 030030 small grants to assist in helping with the development of applications. Innovation Philadelphia is also involved in the student retention initiative. The university presidents and a lot of the other -- or some of the other players, I believe, the university science center and some of the others, are engaged in the initiative to try to retain students in Philadelphia. Innovation Philadelphia is a key player in that. Innovation Philadelphia has also been working to attract new types of businesses to Philadelphia. And so in the Five-Year Plan or in the Mayor's budget message, and also in his message to the Chamber, he identifies some of the businesses that will be moving to Philadelphia. Some of them we expect to have coming to the naval yard. A lot of that has been as a result of some of the outreach of Innovation Philadelphia. But Mr. Bendis will be here with the Commerce Department and provide more detail.
Thank you. I would like to get back to the DROP Program, if I may, for just a minute. In last 57 2/10/03 - FISCAL STABILITY - RES. 030030 year's Plan, the Administration proposed to only replace two-thirds of the civilian employees who would be leaving as a result of the DROP Program. And you have commissioned a study, I'm told, which we have not seen. And I would really appreciate it, if that could be made available. In this year's Plan, you now have increased the number of jobs to be left vacant from one-third to one-half. How do you propose to achieve these savings, and what is the status of the report?
We have a draft of the report. As soon as that draft is finalized, we will get it to you.
Is there any indication as to how much savings will be realized?
The report dealt in specific with six departments, and then it also included some kind of City-wide proposals. And a number of those proposals are actually things that you see in this Plan. Like, for example, they were proponents of centralizing the administrative services. We plan to work with each department as people leave through the DROP to identify ways they can re-do their 58 2/10/03 - FISCAL STABILITY - RES. 030030 business to do it with fewer people. That's part of what the study did. The study found those opportunities in working with the six departments that they worked with, and will continue over the next four years to work with each department.
What is the Administration's position with regards to the DROP Program going forward? Does the Administration support the program or wish to see it terminated?
From the standpoint of its impact on the Pension Fund, our interim report shows that it has had a negative impact on the Pension Fund. The Pension Board --
I will get you a copy. The Pension Fund will commission the full study to be prepared and ready some time in the fall. The review is supposed to take place in July. And at that point the Pension Fund will come with a recommendation. Given the negative impact on the Pension Fund, at this point I would recommend to the Mayor that DROP be discontinued. DROP has traditionally been used in 59 2/10/03 - FISCAL STABILITY - RES. 030030 areas that had difficulty keeping people in government. Philadelphia's experience with a number of long-term employees would indicate that that is not a problem we've had. And, additionally, the fact that our salaries are very competitive and our benefits, in fact, richer than those of the private sector in this area, that maintaining employees is not something that the City will have difficulty doing, except in very specialized areas. And so for that purpose, I think the City does need to review its widespread use of DROP. Because while DROP has afforded the City an opportunity at this point to restructure government, going forward, it is a very high price that's extracted on the Pension Fund for keeping DROP in the way that it was initially implemented.
Could you detail the negative impact on the Pension Fund?
The impact has been that employees are retiring actually two years earlier.
I'm talking financial. 60 2/10/03 - FISCAL STABILITY - RES. 030030
Yes. And I'm getting to it. That change in behavior has been identified as about $100 million impact. Additionally, there is a differential between the earnings of the Fund and what we're guaranteeing to those DROP participants, to the extent that we're not earning 4 1/2 percent, but we are paying 4 1/2 percent. That is another dollar value. At the point that the actuary did the calculation, he did not include the dollar value of that differential with any specificity, but mentioned something in the neighborhood of $13 million. At this point it looks like --
He didn't go into great detail on the precise amount of the impact and differential. But as I recall, it was roughly $13 million just from that differential at that point in time. When we get the full report, he will go into greater detail, of course. But at this point, it looks like $113 million or so negative impact.
Last night -- I 61 2/10/03 - FISCAL STABILITY - RES. 030030 wasn't going to go into this until the third go-around. Last night I saw a report in the news in terms of the City's contribution to the Pension Fund, and that you were diminishing the City's contribution to the Pension Fund and the impact that would have on the pension and the current pensioners. Could you detail that? Because one of the things that they listed in this report last night was that there would be a reduction in terms of pensions that people now receive, or that could be an effect.
That was an outright lie. There is no gentle way to put that piece.
Yes. That was a lie. The people who are currently covered by the Pension Fund, because it is a defined benefit plan, will suffer no change in that benefit. No discussion has been held on what would happen to future employees. We do not have the ability to change what those vested people will receive. That is a part of what they've earned for being employed. So there is no 25 truth to that. The impact will be on what the City 62 2/10/03 - FISCAL STABILITY - RES. 030030 has to contribute to cover those benefits. And whether or not the City at some future date may decide, instead of offering a defined benefit, they will switch to something like a defined contribution going forward. But it has nothing to do with those employees who are currently -- the retirees who are currently receiving pensions or to those people who are currently vested in the existing pension funds. It would be something that would have to be decided and implemented by this City Council in some future period to make a switch from defined benefit to defined contribution. That was erroneous reporting and very misleading.
I'm sure that you got a lot of phone calls today on that.
Could you tell me then, when you say you're going to pay the minimum municipal obligation, what was -- what does that mean in terms of dollars and what does it do to the Pension Fund?
I will let Rob answer the exact dollars. But what it does to the Pension Fund is that in the future we will face a larger unfunded 63 2/10/03 - FISCAL STABILITY - RES. 030030 liability. It just means that in future years, if the market does not rebound, we will be forced to make larger contributions. The minimum municipal obligation is the minimum amount that we can legally make under the laws of the Commonwealth of Pennsylvania. The City had been funding at a higher level. We will be funding at the level that is required by law. And I'll let Rob give the impact of the payments going forward.
If we had been paying under our old funding policy, we would be paying $245 million more than we're paying over the life of this Plan. Even with the payment schedule that we have in this Plan, we're paying about $130 million more over the life of this Plan than we did over the life of last year's plan. So our payments are actually higher than they were in last year's plan.
Detail the projected payments, please. You say it's $130 million more detailed in projected payments over the life of this Plan.
Under our current funding, policy, in '04, we would pay $202 million; in '05, $240 million; in '06, $283 million -- wouldn't it be 64 2/10/03 - FISCAL STABILITY - RES. 030030 easier for you if we just sent this to you?