COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, March 25, 2009 10:15 a.m. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILMAN CURTIS JONES, JR. COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN MARIA QUINONES-SANCHEZ COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO Resolution 090226 - 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 2010 through 2014, and incorporating proposed changes with respect to Fiscal Year 2009... - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2
Good morning, everyone. This is a public hearing of the Committee of the Whole. I would ask Mr. McPherson to please read the title of Resolution No. 7 090226. MR. McPHERSON: Resolution 9 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 2010 through 2014, and incorporating proposed changes with respect to Fiscal Year 2009.
Who is testifying? (Witnesses approached witness table.)
Good morning. Welcome. Please identify yourself for the record and proceed with your testimony.
Good morning, Council President Verna and members of City Council. I am Clarence Armbrister, 3 3/25/09 - WHOLE - RES. 090226 Chief of Staff in the Office of Mayor Michael A. Nutter. On behalf of the Mayor, I am pleased to provide testimony on the FY10 Proposed Operating Budget and Proposed FY10 through FY14 Five Year Financial Plan. Balancing this year's Financial and Strategic Plan for Fiscal Years 2010 through 2014 has presented this Administration with a set of complex choices and challenges. In response, the Administration has set forth a Plan that preserves the City's core services to ensure that the City's economy is not permanently damaged by the economic downturn, while ensuring that our most vulnerable citizens are afforded an adequate safety net to weather the current economic storm. Accomplishing this will require shared sacrifices from our City workforce and our residents. Since November 2008, this Administration, working with this Council, has worked to eliminate almost 4 3/25/09 - WHOLE - RES. 4 billion in operating shortfalls from FY09 through FY14, primarily caused by revenue losses from the recession and pension payment increases required because of severe losses in the stock market. 4 billion represents roughly percent of the total projected 9 General Fund expenditures over that time 10 and almost 25 percent of our discretionary spending. The Administration carefully weighed options for balancing the FY10 through FY14 budget, and then placed them in the context of the difficult actions that were implemented to close the first billion dollars in shortfalls in the November 2008 rebalancing plan. Along with reductions in funding for crucial departments, I would ask Council to remember that we suspended temporarily, with the support of this Council, rate reductions in the City's wage tax and business privilege tax that raised $230 million in revenues to close that 5 3/25/09 - WHOLE - RES. 090226 November shortfall. As we considered steps to address the projected shortfalls in FY10 through FY14, we kept in mind those actions already taken, like this temporary suspension in wage and business tax reductions, to balance the first sizable shortfall. As we did in November, the Administration has prioritized the collection of unpaid and delinquent taxes and the implementation of efficiencies in the delivery of services to residents and workers who commute into Philadelphia. However, the deepening recession has made it impossible to close the emerging budget shortfall solely through actions designed to make Philadelphia's government more effective and efficient. Just like the state and city governments across the country, as noted on of the Five-Year Plan, we have had to pursue savings in personnel costs, reductions in services and increases in taxes. For example, New York City Mayor 6 3/25/09 - WHOLE - RES. 8 billion gap in Fiscal Year 2010. Atlanta Mayor Shirley Franklin has laid off 372 employees, eliminated over a thousand positions, furloughed every city employee four hours a week and closed Fire Department ladder companies to close a $140 million FY09 gap and another $50 million gap in FY10. In addition, Mayor Franklin has temporarily closed of the 17 31 recreation centers in Atlanta and 18 delayed the opening of nine swimming 19 pools. 20 This Plan anticipates that our employee unions will make important contributions to preserve our core services and economy by foregoing wage increases, volunteering for unpaid work days, generating savings through changes 7 3/25/09 - WHOLE - RES. 090226 in work rules and agreeing to changes to their pensions and healthcare. The Administration is seeking over $300 million in labor cost reductions and salary freezes from the City's employee unions in the Five-Year Plan, which will certainly influence our labor negotiations. However, these efforts alone are not enough to balance this Five-Year Plan.
The depth of the downturn will require the City to pare back services further, although it will be done without closing any facilities. 4 million in increased fee revenue, totalling 296 and a half million dollars over five years. Again, these actions are in addition to the steps that the Administration and this Council took to close the first billion-dollar gap in 2008 of November. 8 3/25/09 - WHOLE - RES. 090226 Unfortunately, the savings generated over five years from implementing these two actions is insufficient to eliminate the City's projected shortfall. Consequently, the Administration must raise targeted taxes to close the remaining portion of the shortfall. The decision to raise taxes was not taken lightly. In this Administration's view, the damage to the City's economy that would occur if the City closed the remaining gap with additional and severe service reductions would be devastating and long-lasting for so many of our citizens. Effective and efficiently provided public services are just as important to the health and vitality of a city as reasonable tax rates. Harvard Professor Edward Glaeser argues that, "safe streets keep cities strong," while New York University Professor William Easterly and Upjohn Institute economist Timothy Bartik argue 9 3/25/09 - WHOLE - RES. 090226 that public services can enhance economic growth. Closing the gap solely with expenditure reductions would require an additional $222 million in annual reductions in FY10 and FY11, which would decimate the City's core services and irretrievably damage the City's economy. This Administration has made the preservation of the City's core services its priority in order to ensure that Philadelphia is poised to thrive economically when the current recession ends. Similarly, while the Administration did consider wage and business privilege tax increases because of our commitment to explore all options, we nevertheless strongly rejected recommending increases in these two taxes because of the significant potential long-term damage that would be done to Philadelphia's economy. The City has already temporarily suspended rate reductions in the wage tax and the 10 3/25/09 - WHOLE - RES. 090226 business privilege tax as part of the actions taken in November 2008 to address the first billion-dollar shortfall. Professor Inman recently stated, "The last years of modest cuts in the wage 7 and gross receipts taxes saved the City 8 more than 35,000 jobs, or about 2,500 a 9 year. The decision to temporarily stop 10 the tax cuts will, therefore, cost the 11 City's private economy 2,500 jobs. This 12 is on top of job losses from the 13 recession. " Any increase in these taxes to address the FY10 through '14 shortfall would only serve to drive businesses away from Philadelphia, as Professor Inman has thoroughly and definitively documented over many years. The Administration believes that temporary increases in sales and property tax provide the best option to 11 3/25/09 - WHOLE - RES. 090226 preserve Philadelphia's core services until the national and local economies rebound and revenue growth returns to some measure of its pre-recessionary levels. And the temporary increase in rates of sales and property taxes will limit the damage that would otherwise be done to long-term economic growth if deeper service reductions or higher wage and business taxes were enacted. Furthermore, the Administration remains committed to a continuous examination of services and use of facilities to ensure that the City is operating at the highest level of efficiency, so that taxes are not higher than necessary to provide the services that citizens require and deserve. Specifically, the Administration is proposing a three-year one percent sales tax increase, from 7 percent to 8 percent, over the period FY10 through FY12. In FY13 the sales tax rate will revert back to 7 percent. The 12 3/25/09 - WHOLE - RES.
090226 City estimates it can generate over $340 million in revenue through this temporary increase in the sales tax. The Administration is also proposing a two-year real estate tax increase, by mills in FY10 and 12 8 mills in FY11. Contrary to some news 9 reports, it should be emphasized that the 10 real estate tax rates in FY10 and FY11 11 are not cumulative, and, in fact, the 12 rate declines four and a half percent in 13 FY11 compared to FY10 levels. 64 mills. The 16 City estimates it can generate over $270 million in revenue through this temporary real estate tax increase. Again quoting Professor Robert Inman of Wharton, he has described why he believes a temporary property tax makes sense to close Philadelphia's current budget gap. In a follow-up with the Administration, he explained that a temporary property tax "does the least damage to the private 13 3/25/09 - WHOLE - RES. 090226 business sector and jobs. " In addition, it should be noted that businesses are not exempted from the burden of this tax. Approximately 43 percent of all real estate taxes are paid by commercial establishments. The City of Philadelphia will need significant legislative assistance from the Commonwealth of Pennsylvania and this Council to successfully implement the Mayor's FY10-FY14 Proposed Plan. The Mayor's proposal does not ask for direct financial assistance or support. Instead, the Mayor is asking the Commonwealth to provide the City with the authority to implement two changes: One, new funding assumptions for its pension 14 3/25/09 - WHOLE - RES. 090226 plan, which would save over $330 million over the Five-Year Plan; and, two, enable the City to impose a temporary increase in the City's sales tax rate from 6 percent to percent for the next three 7 fiscal years, providing over $340 million 8 in acutely needed revenue. Without Commonwealth approval of these two initiatives, the City will have to implement dramatically deeper reductions in service detailed in a contingency plan shown in the Five-Year Plan, totalling an additional $405 million over the Five-Year Plan. These reductions include, among other things, cuts in the size of the police force, reductions in the number of firefighters, less frequent trash collections and a permanent 6 percent increase in the City's property tax rate. Just as the Commonwealth of Pennsylvania needed the assistance of the federal government to withstand the current downturn, the City of Philadelphia will need legislative 15 3/25/09 - WHOLE - RES. 090226 support from the Commonwealth to help weather the economic downturn and avoid the devastating cuts included in the contingency plan. These are unprecedented times and they require tough choices and extraordinary approaches. The Administration looks forward to working with City Council to move forward with a fiscally responsible budget that will prepare us for economic renewal in the future and will preserve critical services to Philadelphians. Thank you for your support. I appreciate this opportunity to provide testimony regarding the Mayor's Proposed FY10 and FY14 Five-Year Plan and FY10 Proposed Operating Budget. I will be happy to answer any questions that Council may have regarding my testimony, and I would like to acknowledge that I am joined at the witness table this morning by my two colleagues, Rob Dubow, Finance Director, and Steve Agostini, Budget 16 3/25/09 - WHOLE - RES. 090226 Director.
Thank you. Mr. Armbrister, the Mayor's letter on Pages and of the Plan states, quote, "Therefore, my Proposed Budget and Five-Year Plan include assumptions of reduced City costs for healthcare benefits, pensions and work rules. Without achieving at least this level of savings in these areas, we will not be able to balance our Plan," end of quote. With that being said, how can City Council or PICA approve a plan until union settlements have been reached?
Well, I think part of our -- I think that the Administration is preparing plans to -- contingency plans with respect to whether or not those particular savings are reached. It is very likely that we, through the negotiating process, will complete that process. However, to the 17 3/25/09 - WHOLE - RES. 090226 extent that we cannot, the City is prepared to provide a contingency plan in which we would have to make further reductions in staff in order to achieve those savings.
Well, it's not a contingency. We have planned for it just as if we planned for the possibility of the savings that we're projecting to achieve, just as we planned for the increase in the taxes that we're anticipating we will receive. But we 18 3/25/09 - WHOLE - RES. 090226 really fully expect to achieve those level of savings, and the Administration is currently planning for if we do not achieve those savings through the negotiation process or the arbitration process, to achieve those savings through labor costs and other ways.
Can you tell us where it's reflected in the Plan?
Madam Chair, if you would turn to Appendix 4 -- and for the record, Steve Agostini, Budget Director. Appendix 4 in the Plan, , actually shows an anticipated workforce savings reserve. It is sort of the reverse of the wage reserve we showed in the budget that we presented to you at this time last year. It shows $25 million in savings that begin in FY10 and continue through FY14.
Where 19 3/25/09 - WHOLE - RES. 090226 did you say it is, Steve?
Thank you, Madam President. Steve, I'm not sure I understood the response. I think the question is, there is a contingency in the appendices for failure to get state sales tax revenue and state concessions on the pension and stuff, but where is specifically -- and maybe I'm just missing this -- where specifically is the contingency for failure to get the union concessions that you're seeking?
Thank you, 20 3/25/09 - WHOLE - RES. 090226 Madam President.
The idea is that if we are not able to achieve those savings through negotiations, the Administration will present a plan to you to reduce those labor costs by that amount. We are working on those plans as we speak, but we do have contingency plans that we can share with you at a later time if during this process -- at this process to generate those savings through labor reductions.
Yeah. Appendix 2 is designed to show the new actions that we had to take to balance the second $1.4 billion. So there were really two parts to what we had to do to bring ourselves into balance. One was the November rebalancing plan that was approximately a billion dollars and the second was the January rebalancing plan, which was about $1.4 billion. Appendix 2 shows what was 21 3/25/09 - WHOLE - RES. 090226 done in that second plan, that second rebalancing plan.
So is Appendix 2 the adjustments from the estimated obligations to the proposed 2010 budget?
No. They're slightly different from that. They are just the impact of new initiatives. To see the adjustment from estimated obligations for '09, you'd have to go back to Appendix 11, and Appendix 11 shows by department what actual expenditures were in '08, what the '09 adopted budget was, what the current target, which is the estimated obligations you're talking about, and then what 2010 is.
You know, over the weekend Mr. McPherson came in to review the Plan and has come up with a program. Can someone explain Appendix 2 from what Mr. McPherson has provided members of Council, which is 22 3/25/09 - WHOLE - RES. 090226 very, very confusing?
There are two different -- they're doing two different things. What Mr. McPherson has done is really more equivalent of what we've done in Appendix 11, which is taking you from the '09 adopted budget to the '10 budget. And I'll look through what Mr. McPherson has done. I assume those two are consistent. MR. McPHERSON: What's missing is, there's no detail as to what are the actual items that were reduced as they are in Column A. So we understand what the programmatic impact is of those cuts, but we don't understand the programmatic impact of what the layout of the Five-Year Plan numbers are by department, and it does not go to the -- well, it does not delineate what is the programmatic impact of any of these reductions, and that is what Column A does in Appendix 2. So we really do not know the full magnitude of the cuts that 23 3/25/09 - WHOLE - RES. 090226 the departments are taking as far as their services impact.
Well, right, and as you know, the detail usually comes about a week and a half to two weeks after the Plan is done. When the detail comes out, you'll be able to see all the detail by department of where their cuts are, and that's our normal process for when you get that information. It just takes a little while to go through the process once we've decided what each department's budget is going to be in terms of putting the detail together.
According to the Plan, I don't think, Rob, that it shows that Council has cut its budget.
And for the record, can you tell us how much Council has cut its budget?
Sure. If you go back to Appendix 11, it shows Council's 24 3/25/09 - WHOLE - RES. 090226 budget going back to '08, Appendix 11, . So that takes you back to '08, which shows 14.6 million in actual expenditures for '08, then it shows the adopted budget of 17.8 for '09. The current estimate for '09 is 16.9 million and then the 2010 budget of million, 9 which is 1.8 million below the '09 10 budget. So it shows a $1.8 million 11 reduction from the '09 budget to the '10 12 budget. 13
The 14 Plan has a contingency budget if the 15 State does not allow the City to amortize 16 the pension liability over 40 years and to increase the sales tax. In this scenario, are you requesting that the real estate millage be increased by 20 mills? What is your scenario if we do 21 not raise taxes?
Council President, the scenario is very dire if we don't get the sales tax increases. There would be significant and we think 25 3/25/09 - WHOLE - RES. 090226 devastating reductions in services, which would include layoffs in Police and Fire. It would require the closing of facilities, recreation centers, pools, libraries. And if we don't get any of that revenue and there's no other revenue forthcoming, we will have to make some very severe cuts that the Administration does not like -- would not like to make.
Mr. Dubow, does any of the real estate millage increase that you're requesting go to the School District?
No. The School District is not requesting any additional millage.
Then can you tell us what the percentage increase you are requesting in the City's portion of the tax?
I don't have that offhand. We should calculate it and bring it to you, but I think it's a little over 40 percent. 3/25/09 - WHOLE - RES. 090226
I think some people are saying 48 percent, Steve.
Mr. Dubow, I notice in the revenue estimates that you have included $3 million in FY10 for strategic marketing fees. Can you tell us what this is?
I think it's what's more commonly known as naming rights and pouring rights. So I think we're in the middle of an RFP process to try to bid out those rights, and that's our estimate of what that will generate in terms of 27 3/25/09 - WHOLE - RES. 090226 revenue.
I guess it depends what the bids come back and what kind of contract we have to enter into, but it very well might.
Well, wouldn't that have to be transmitted with the budget?
Well, I don't think we actually have -- I don't think we're far enough along in that process to know what we'd be transmitting, because we don't have a contract.
Because we're going through the process of selecting a vendor, and we think it's a fairly conservative assumption of what that will generate.
Appendix 2, Plan A, Recommended Budget, 28 3/25/09 - WHOLE - RES. 090226 details the adjustments that each department has been assigned, correct?
Madam Chair, these adjustments are on top of the annualization of the FY09 rebalancing cuts that were implemented by the Administration as of January 1, and having a quick look at Mr. McPherson's chart, I think that's where some of the confusion is, that what --
This is very confusing. I don't know how anybody else feels about it, but we got more charts, and each chart is different from the other.
Well, actually, I think we can reconcile them. I think Mr. McPherson's chart is confusing because it looks like he doubled up on some of the cuts, and I'm happy to sit down and walk through them with him, but part of what happened is, in the rebalancing, we implemented six months worth of cuts as of January through 29 1 3/25/09 - WHOLE - RES. 090226 June 30 of 2009. Those reductions had to be annualized in the FY10 budget in order to reflect that they were permanent changes to the funding level for departments and for the City overall. Those changes then, in addition to what we are recommending and what is on that appendix that you've referenced, is what's included in FY10. But, again, I'm happy to walk through this with Mr. McPherson --
-- and clear up some of the confusion he's got here on the table.
That would be great. Again, we go back to the charts, which are, as I said, very confusing. In one chart it shows that the District Attorney's Office is being cut $7 million. In another chart it shows she's being cut by $4 million. 30 3/25/09 - WHOLE - RES. 090226 What is she being cut by and how many positions are we talking about?
Madam Chair, again, 3 million of that cut was part of the FY09 rebalancing plan that we introduced in November of 2008 and then implemented as of January 1. Four million of that is a new reduction as part of balancing the FY10, which is a new proposal before you today.
So what position level will she be budgeted for? I notice that again on the charts and in the Plan, it shows 449 positions in FY09, I believe, and in FY10. Is she still going to maintain the 449 positions with a cut of $3 or $4 million?
We're still waiting for a response from the District Attorney's Office as to how they're going to implement their reduction.
Has there been any conversation with her? Yes? No? Maybe? 31 3/25/09 - WHOLE - RES. 090226
Yeah. There have been ongoing conversations that our Deputy Mayor for Public Safety, Everett Gillison, has had with not only the District Attorney's Office but others in the criminal justice system. I think yesterday -- and it was reported in today's paper in fact -- there was what they call a CJAB, Criminal Justice Advisory Board, meeting yesterday in which the very subject that you're talking about was discussed in terms of their various reductions in services.
I did not have an opportunity to see this morning's paper and -- oh, my heavens. I just looked at the board here. I think just about every member wants to be recognized. Each Councilmember will be given three minutes on the first go -- no; five minutes on the first go-around, and then I have any number of questions I would like to ask, too. 32 3/25/09 - WHOLE - RES. 090226 The first to be recognized will be Councilman Goode.
Thank you, Madam President. Good morning, gentlemen. (Good morning.)
Mr. Armbrister, in your testimony, you state that Wharton Professor Robert Inman has described why he believes a temporary property tax increase makes sense to close Philadelphia's current budget gap. Essentially, he says it does the least damage to the private business sector and jobs. My first question is, aside from tax policy, can anyone in the Administration concisely and coherently articulate the City's plan for business and job growth over the next five years?
I think certainly our Deputy Mayor for Commerce could probably articulate it, but I'll take the first stab. If you'd like to 33 3/25/09 - WHOLE - RES. 090226 hear from him, he's here. I think it's fair to say that the Administration's view towards job growth is to make sure that we provide an environment that is conducive for job growth, which is generally consistently low tax rates, if we can provide them with the level of services that we need to provide, and certainly with respect to the challenges that they will have to address with respect to development and things like that. Our plans going forward are really going to depend in the large extent in the green economy. We're looking at the green economy in terms of jobs, but Andy Altman is here and I'll let him provide some more information on that. (Witness approached witness table.) DEPUTY
Thank you. Andy Altman, Deputy Mayor for Planning and Economic Development, 34 3/25/09 - WHOLE - RES. 090226 Commerce Director. I'll give a brief long answer, but I think we -- in terms of looking at job growth, as Clay said, there are a number of strategies that we're putting in place, and they really fall into six areas. I won't go through enormous detail, but just outline what I think those are. The first is creating a competitive economic environment. This has to do -- I think one of the most fundamental things that the City can do in terms of job growth is being competitive, and what that means is our tax structure clearly and, as was laid out before, in terms of our approach to taxes and particularly wage and business tax, and the study that was cited is fundamental to job growth.
Mr. Altman, my question was aside from tax policy, what's the City's plan for business and job growth. 35 3/25/09 - WHOLE - RES. 090226 DEPUTY
Let me -- I'll go through that. The other is, related to that is, we are looking at a number of reforms in terms of our regulatory process, because that obviously brings down the barriers to small business growth and development. So we have a number of reforms at License and Inspections and L&I. We're trying to get permits done within a 90-day period. We received some grant money to do a comprehensive overhaul of our entire permitting process, from storm water management to permitting, to the planning process. So, again, lowering those barriers on the regulatory side. In terms of investing in growth, which I think is important even in this difficult time, we're looking at some of those growth sectors of the economy. Those include in particular the education and medical institutions. Those are one out of three jobs in the City. They have over a billion dollars 36 3/25/09 - WHOLE - RES. 090226 in capital investments in the pipeline. We are working with them to facilitate all of those developments, because those result in jobs for the City. And those are, I think, one of the sectors that is helping us to weather the recession better than other cities because of the diversity of our economy. So we've been convening the university heads and the CEOs of all the healthcare institutions. The Mayor has done two significant meetings with them. We've appointed a coordinator just for education and medical institutions at the Commerce Department to help them with all of their projects. We're also working with them on commercialization of technology; that is, trying to increase the number of patents and start-ups, and we're working with the University City Science Center on the creation of a fund to support small entrepreneurs in business in that area. As clay said, we're working on 37 3/25/09 - WHOLE - RES. 090226 the issue of green jobs. There will be some significant federal dollars coming to us in the recovery package for weatherization. We could literally double our funds in weatherization an additional potentially up to $15 million a year. That can result in up to 750, a thousand jobs, and these are jobs that can be made available to folks in the neighborhoods. These are jobs that we can train for within an eight- to ten-week period, and we're working actually with some providers. We're starting our first class, a green jobs class, that's going through the system. That will be ready in eight weeks. So we think that will be a significant source of jobs at that end of the spectrum. (Bell rung.) DEPUTY
And we're also working on -- continuing to work on the office sector of the economy improvements that are happening at 30th Street with developments there, making -- 38 3/25/09 - WHOLE - RES. 090226 as you know, the IRS is going to be there. That's 5,000 jobs, and the development of that area, as well as continuing to work with firms in Center City. We do believe that there are opportunities with the recovery fund in the area of energy. There will be about $20-some million a year that will be coming to the City, which we think we create potentially a fund that can help with business development, both small businesses as well as larger businesses in terms of both their real estate as well as in start-ups. So we're looking at that as a significant source of potentially the green jobs economy. So we're looking at these growth sectors of the economy and taking whatever federal dollars we can, leveraging those so that we can invest to create those jobs, as well as working with the major institutions of the City to create that pipeline of jobs in this 39 3/25/09 - WHOLE - RES. 090226 period of time, because we think there are probably up to 4,000 jobs that can be created in this next 24- to 36-month period. We are also continuing on the area of small business development, which I say is the third strategy. The first is development reform and removing barriers. The second is investing in our growth sectors. The third area is working with small businesses. At Commerce, we have the Office of Neighborhood and Business Services that Kevin Dow heads up. That, as you know, is a major initiative of the Mayor and working with the Council. So that we will have people assigned to each area of the City as our business liaisons who are working with small businesses to help get through the process, answer their questions, and really, once again, as part of removing barriers of being business friendly. So we're doing a significant amount on that front. 40 3/25/09 - WHOLE - RES. 090226 We are also looking at getting dollars out in terms of what's called the Neighborhood Reinvestment Fund, where we have upwards of $20 or $30 million. Again, not General Fund dollars, but using federal dollars as well as some of the commercial bond dollars to do things like our gap financing product that we've discussed before, which actually we're ready to close on a number of projects, which will be very helpful in terms of those neighborhood projects that need that extra gap because of the changes in financing to complete their projects. And we want to do another round of those, and we're also looking at the additional new market tax credits that will be coming from the federal government and using the -- leveraging those for neighborhood investment so that we can start really ceding some of these neighborhoods and small business efforts in terms of our economic development strategy. 41 3/25/09 - WHOLE - RES. 090226 I could go on a number of things, but I think key sectors, neighborhood investment, removing barriers and, of course, we're looking at job training and skills, because the potentially significant federal dollars that will come in. We're looking at the green job training, but we're also looking at a displaced employees program with community colleges so that people who are getting laid off, we can sort of put them back to work not only in entrepreneurial activities, but whatever retraining may be needed. We're just in the early stages of putting a program together with the community college system. So hopefully that gives you a flavor for it. I can go into detail on any number of those.
Thank you, Madam President. I have other questions, but I'll follow the rules.
Thank 42 3/25/09 - WHOLE - RES. 090226 you. The Chair recognizes Councilman Jones, and I would ask that he follow the rules, too.
Thank you, Madam President. First let me say to the managers of this government that it's easy to manage when you have a surplus. It is difficult and challenging nonetheless to do so when you have projected deficits of the size of this. So we recognize the task before you. Having said that, based on the stimulus plan that is coming from the federal government -- and I know a lot of that is on the capital side of the house -- have you factored in to your five-year projections what the impacts of the stimulus package will have on our budget?
Yeah. There are a lot of very good things about the stimulus plan. One of the things it 43 3/25/09 - WHOLE - RES. 090226 doesn't do is help close our budget gap. We've identified about $80 million of funds that would come to the City. For almost all of that, there are prohibitions against supplanting City dollars. There are other parts of stimulus that we're still trying to compete for, but, again, almost all of that is things that can't supplant City dollars and things that are one time. A lot of it is capital. So there will be spin-off benefits in that it should help stimulate the economy, but in terms of direct help for our Plan, there isn't much there.
I would ask that you keep your answers short so that my questions can get in. One of the other questions I would have is that if we don't get the one percent sales tax increase, we go up from a projected 16 mills to mills. 24 Was that what was stated?
That's if we don't 44 3/25/09 - WHOLE - RES. 090226 get that or the pension amortization change.
And there are other items too, which is the additional reductions on the spending side.
Have you analyzed the impact on Sheriff sales and other processes that will be impacted that will inevitably hit our social service side, such as homelessness and other places like that, and is that being factored in? We have the highest number of Sheriff sales in the history of the City of Philadelphia. Have we looked at that by way of an unintended consequence of a sales tax -- I mean, real estate tax increase?
I think what we've done from a kind of purely technical standpoint, we've certainly factored in with respect to the collection rates that you would expect 45 3/25/09 - WHOLE - RES. 090226 that it might be more difficult for people to pay. That was really one of the reasons why we're so bent on trying to preserve our core services in this budget, that we know that in addition to the economy, in addition to the things that we are proposing may have an effect, adverse effect, on people, that it is even more important to preserve our core services. So that's one of the major tenets of this budget plan. And we still, as Mr. Dubow reminds me, of course, we still have the foreclosure plan in place, which has become a national model. So we'll continue to work very hard to make sure that we can protect those citizens who might find it a little bit more difficult in these circumstances.
Is it also a possibility that if we have to go to a Plan B by way of the sales tax, that wage tax is something that would be considered as a strategy to deal with the revenue 46 3/25/09 - WHOLE - RES. 090226 side of the house?
Is it something that will be considered? I mean, this Council can certainly consider anything it would like. I think the Administration's position is that we would really, really encourage and discourage raising wage and business taxes because we think the long-term negative impact of those.
As negative as real estate can be to some people in the City. I mean, all things should be at the table, on the table and in discussion, and that's just my opinion.
Thank you. The Chair recognizes Councilwoman Brown.
Thank you, Madam President. Good morning, gentlemen. 47 3/25/09 - WHOLE - RES. 090226 (Good morning.)
Follow-up on the sales tax question, and knowing for sure that it still remains a proposal. What is your anticipated plan or strategy to secure the approval from the state and what is the plan if the state says no?
Well, obviously the plan with respect to trying to secure approval of this is, as you note in your question, that it does require us to seek help from Harrisburg. We've already started to reach out to leadership in the Legislature to let them know about our plans and our potential requests to them. Although they have not endorsed it, they have not slammed the door on it as of yet. They have expressed some concern. As you'll recall in the Governor's budget address, he proposed providing authority for all counties except Allegheny and Philadelphia to do 48 3/25/09 - WHOLE - RES. 090226 what we are asking to do. So it's not something that they're not prepared to consider. The Governor has actually proposed it, and we are looking to make sure that we get equal consideration as the Legislature looks through this process.
On of the Five-Year Plan, you state the goal to increase Philadelphia's population by 75,000 over the next five to ten years. How do you reconcile this admirable goal of your proposed two-year property tax affecting Philadelphia residents? Are you afraid that so many -- well, let me say this: It's interesting that calls -- I have not gotten calls. What I have gotten are letters. So when constituents take the time to reduce their sentiment to letter, that to me is powerful. How do you reconcile that not affecting the potential of us hemorrhaging our population even further?
Well, I 49 3/25/09 - WHOLE - RES. 090226 think -- and my testimony included some reference to the fact that we think as much as people make decisions about where they are from a tax standpoint, they also make a decision about where they live regarding the amount of services that they have. And in the absence of basic services, we think that we would be doing long-term harm to the City if we were to cut as deeply as we would be -- as we would have to if we didn't get these increases in revenues. When you're talking about -- and we kind of saw this in the fall when we did our first rebalancing plan, in fact, when we did have to unfortunately in a very quick period of time cut certain services that people really demanded that they wanted. The real question for us and this body and us is to figure out what the level of service should be and how do we pay for it. I would argue that if we were to reduce services to an extent so low that we 50 3/25/09 - WHOLE - RES. 090226 would have to cut, that we would see not only people not wanting to come to Philadelphia, but you would probably see an exodus of people leaving the City, because people want a certain basic level of service for what they're paying for.
Do you recall the -- did citizens specifically say which tax they had an appetite for to hold services harmless either from the Pew report or from the ultimate report that we received from the Penn scholars? Were they specific in what type of tax?
I don't remember. We'll say that when we talked to Professor Inman, he said the least damaging tax on your economy is a temporary property tax. So that was one of the reasons that we thought that would be the tax that we should go with.
the Plan, the section entitled Reduce and Eliminate Programs cites the reduction in pools and libraries, the elimination of 51 3/25/09 - WHOLE - RES. 090226 limited residential services, but also the elimination of the Adolescent Violence Reduction Partnership effort, which we know was data-driven, with proven results. Do you believe that the list of cuts disproportionately affect children and youth?
The short answer is no. Does it disproportionately -- I mean, it certainly affects children and youth, and Don Schwarz, the Deputy Mayor for Health and Opportunities, is here. He can talk about our decisions with respect to that particular decision, but that was a decision that we made during the rebalancing in November.
I'm going to go on the record now to make it plain and make it clear how disappointed I've been in the lack of response, not from Don Schwarz, but from the lieutenants when it comes to the number of programs 52 3/25/09 - WHOLE - RES. 090226 that ended up not being funded this year. What do I mean by that? A number of us on Council had been, quite frankly, disturbed by the fact that the feedback questions and meetings to request the "how" have not been honored. And so going forward, particularly when DHS comes before us, my hope is that this conversation could be had in the office, and when we can't have conversations in the office about issues around children and youth, then the next step is, we have to wait until times like now. (Bell rung.)
So there are a number of us on Council who have a lot of concerns about those programs that did not meet the new criteria and the unclear explanation of the new criteria on why those programs were not considered going forward. So this is just the tip of the iceberg when we raise questions around the Adolescent Violence Reduction 53 3/25/09 - WHOLE - RES. 090226 Partnership, and be alerted to the fact that there are many more that will happen. The hope is to have the conversation in the office so that we do not have to take up the time at this table like now. Thank you, Madam President.
You're welcome. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. Mr. Dubow, let me see. There is an item, the Police Department is estimating $14.9 million from the state for police on patrol. I'm not confusing that with the Pennsylvania State Police patrolling for the City Police. Could you explain what this $14.9 million is and why that grant is expiring?
I think that was a state grant that was always for a defined period of time. So I think that period 54 3/25/09 - WHOLE - RES. 090226 of time is up, but it was a state grant designed to help municipalities put more officers on the street.
For three years. So it's going to expire after this 14.9. I'd like to know what the Administration is doing to try to extend these grants. They're so very important. Do we have a grants office or people that work for the Administration looking for every opportunity from the federal, state and other private foundations, looking for opportunities like 14.9 million? That's a lot of money to allow to expire.
Councilman, in answer to your question, in the Mayor's Office, we do have a grants office, but as important, the respective deputy mayors and commissioners are also tasked with the responsibility for making sure that they acquire as many resources, 55 3/25/09 - WHOLE - RES. 090226 either through grants, appropriation funding from other governments, and so everybody is charged with that responsibility, notwithstanding the fact that we do have a grants office. We do.
So we're going to see -- I think that's a significant, very significant, amount of money, and I would hope that we have people working to get that extended, if not allow it to expire.
Mr. Dubow, forgive me if this was already asked of you, but I don't think so. Are the positions detailed on Appendix 4, funded?
Could you elaborate a little more, because it's not as clear as can be that that is the case. 56 3/25/09 - WHOLE - RES. 090226
Councilmember, what you have before you there is a table of our anticipated staffing levels given the funding that is represented in the FY10 Proposed Budget.
Sure. Those positions that are listed on Appendix 4 in the FY10, 2010, Proposed as well as the Proposed through 2014 represent the General Fund funding and the position levels based on the Proposed Budget that is before you. So, yes, we see them as funded positions.
Excuse me. Then how does that explain the DA's positions? 57 3/25/09 - WHOLE - RES. 090226
Again, we assume that the District Attorney would come back with proposals. Absent proposals, we have left the positions as -- they may decide that they find, for example, other revenue sources to fund their existing level of expenditure in their existing positions.
What other revenue sources could she possibly have?
There are forfeiture funds, for example, that they have access to that they could use. There may be other funds, other grants.
The forfeiture funds are not included in the budget. There's a portion of them that is included in the budget. We believe that there may be additional forfeiture funds. We did not presume to make reductions in their staffing level until they 58 3/25/09 - WHOLE - RES. 090226 communicated with us how they wish to address their new budget levels.
No problem. So I think I'm doing this from memory now. Four hundred forty-two positions for the DA?
Now it's 449. So that's your number, not the District Attorney's?
That number is an expectation based on their current funding levels for FY09 where they would be.
The 449 positions are there. We anticipate that that is what they will use if they go to other revenue sources. If they decide they want to come back and make reductions, then they'll make reductions to those staffing levels.
I don't get it. Where are these other -- you just explained forfeiture. I would assume that the District Attorney is using all the forfeiture money that's presently available. Do you know something that we or she or the District Attorney's Office doesn't know and where these additional funds are available so we can tell her that?
We anticipate that they are actually -- there are actually available balances that they could use. Again, there may be other sources of funding that they can throw on the table, and if they decide that's not 60 3/25/09 - WHOLE - RES. 090226 the case, then they can come back and reduce expenditures. I think it's pretty straightforward.
Thank you. The Chair recognizes Councilman Greenlee.
Thank you, Madam President. Good morning, everyone. (Good morning.)
Back to the property tax issue, as obviously we're all hearing from people with great consternation about that. And let me start out by saying I'm not advocating this position, but let me just ask the question. When it comes to property taxes -- and I see in Professor Inman he talks about the least damage to the private business sector. Obviously we 61 3/25/09 - WHOLE - RES. 090226 got a concern about the least damage to homeowners and residents, many senior citizens out there. Does the Administration have an answer to the general question of when property taxes are being hit pretty high, I would say percent, that could be on 9 people -- obviously seniors with fixed 10 incomes, people that might not be working 11 at all, and the fairness or the balance, 12 if you will, vis-a-vis the wage taxes 13 where at least you're hitting people who 14 are getting a salary -- and I understand 15 the argument against the wage tax, but 16 there's arguments against raising any 17 taxes obviously. 18 So do you have a general 19 comment on that? Like, again, at least those people who are getting -- would get a wage tax cut -- again, I'm not advocating it -- are at least all working and have money, where some seniors or some others that get a real estate tax increase are very limited in their money. 62 3/25/09 - WHOLE - RES. 090226 I know it's a long question.
No, and, first of all, we should say that we agree with you that there are problems with raising any tax, so I don't think we want to be in a position of saying it's good to raise the tax. We're really looking to see what does the least damage, and what all these analyses show is that wage tax and business tax wind up costing you jobs, and we think the worst thing we could do in this environment is cost ourselves jobs. So we really wanted to stay away from the wage and business taxes. And then -- but to your question about the equity issue, there is a state program that provides, I guess it's, a freeze for low-income seniors. So at least there's that program available.
You have to be pretty low income, though, in all fairness, but I understand that.
We understand 63 3/25/09 - WHOLE - RES. 090226 that's an issue.
I guess I just -- the reason I particularly brought that up, I was going to ask it anyway, but when I hear about the least damage to the private business sector -- and, again, I'm not trying to advocate damage to them at all, but I just hope there's that balance about the damage to homeowners, many of whom lived here 70, 80 years and for many, many years paid wage taxes and whatever. Again, I'm not advocating a position, but I think at this early stage, I think at least we got to throw that out there and --
And I think it's fair to say the Administration is willing to consider ways to ameliorate the effects on low-income or low-wage earners, things like that. I think we're prepared to look at that. And the other thing I would just say too, Councilman, is -- I think I mentioned in my testimony -- I think the 64 3/25/09 - WHOLE - RES. 090226 real estate tax, although it's viewed as being hit only on residents, it also affects commercial property owners that represent about 43, maybe 40 percent of the taxpayers as well.
No. I hear you, and, like I said, there are certainly arguments both ways. I guess I just have -- and Councilman Jones mentioned it -- just a little trouble at this early stage -- it's still relatively early -- in saying we're closing the door on something, on property tax. Again, I'm not advocating it. I said that three times. But I'm just a little concerned about closing the door, when you're talking about hitting homeowners with a pretty good jolt, particularly with who some of those homeowners are. One last question on taxes, on the sales tax. I think one of the other problems with Harrisburg, if I'm right, first you got to get them to agree and then secondly timeframe. The Council 65 3/25/09 - WHOLE - RES. 090226 President mentioned about the timeframe with the union contracts. Any time -- because the state usually seems to operate more slowly and a little far behind us. Any thought about when if they do it, how quickly they might make that decision? I guess it's a little early to ask that, but...
Yeah. I don't think we can pre-judge what the Commonwealth is going to do, but I would say that I think in our projections, we've anticipated that we wouldn't get the first dollar of sales tax if it were approved by this Council and by the Legislature on July 1st. So I think we have taken a haircut, if you will, or adjusted for that fact, that all tax revenues wouldn't be coming in at a hundred percent on the first day of July. So that's reflected in the numbers.
Okay. All right. Thank you. Thank you all. Thank you, Madam President. 66 3/25/09 - WHOLE - RES. 090226
You're welcome. If I may on your question about wage tax, I understand that there was a Senator or State Rep in Harrisburg who has been threatening that the City would not receive any of the gaming funds or revenues, and I believe that we did receive, what, $80 or $90 million this year. Has anybody from the Administration gone to Harrisburg to determine are we in jeopardy of in fact losing the gaming revenues if we raise any of the taxes?
We've had a number of discussions with people in Harrisburg who have consistently said that there's a real threat that we would lose that money --
The 67 3/25/09 - WHOLE - RES. 090226 Chair recognizes Councilman Green.
Thank you, Madam President. Just on your last point, I don't agree with that premise at all. The state Legislature, the General Assembly has really no interest in our local tax policy. They do not care what our wage tax rate is. What they want is casinos, and if you build the casinos, we can do whatever we want to with our tax policy. So it is not a concern of the Legislature or the General Assembly what our wage tax rate is. They specifically built into the law when they passed it that if there's a two percent drop in our revenue, we can raise our wage taxes. It's just so -- that premise is -- the choice for them is between punishing us for not building our casinos or building our casinos. And I've talked to many state legislators from Philly and around the state, and I can assure you, that's 68 3/25/09 - WHOLE - RES. 090226 what they told me. That's the choice, build the casinos or we can raise our wage tax. I'm not even really asking you to respond to that.
Well, I do want to respond, because it's important to remember that earlier in this decade, before the issue of casinos even existed, there was legislation in Harrisburg that set our wage tax rate for five years. They do have a concern about where our resident and non-resident wage taxes are and they have for years and --
They have a concern about where our non-resident wage tax is.
That legislation set both sides of our rate and it had nothing to do casinos.
That's right. But I think that's evidence that they are concerned about where our rates are. And 69 3/25/09 - WHOLE - RES. 090226 what we have heard, not just from one side, we've heard it from many different people up there, that they are concerned about giving us money to reduce our wage tax rates and then having us increase it.
Rob, we can't have this boogeyman. All across the State of Pennsylvania people are getting gaming money for property tax relief and they're increasing millage. Okay? What we do to balance our budget we're going to be able to do without that happening, and I trust our legislative delegation to be able to protect us and members of the Southeast Caucus and others who understand the choices we have to make. And that's just going to require leadership from our Mayor to make sure that we're protected if we decide to go with the wage tax increase in addition to property tax.
I hear you. I just want to be clear that we think this is a real risk that we've heard from a number 70 3/25/09 - WHOLE - RES. 090226 of people.
Well, there's many real risks in this budget. We're making lots of assumptions here. One real risk is that you don't get the pension and healthcare savings that you project, which would require another $430 million. This is full of assumptions and risks. That's what the budget process is.
Right, but what I'm saying about this risk is -- you're saying it doesn't really exist, and I'm saying it does.
No. I'm saying it's a risk like any other risk and it has an expected value and you can -- it's either going to come to fruition or not, but we should know the answer to the question. Specifically, who is going to introduce the bills that will increase our sales tax and that will give us the relief we need on pensions in Harrisburg? 71 3/25/09 - WHOLE - RES. 090226
I'm not sure we're in a position to answer that question at this point, Councilman.
Why are we assuming that that will be the case, then, if we don't -- I mean, we should know this, because we need that to be passed in three months.
Well, I mean, I leave the internal workings of the Generally Assembly to the General Assembly. We have been in contact with the leadership of the General Assembly as well as our own delegation, and we have --
I am not aware of anyone having agreed, but no one has said that they would not introduce it for us.
I'm not sure 72 3/25/09 - WHOLE - RES. 090226 what the Governor's position is on these particular measures.
That's pretty shaky ground. It's $600 million in revenue or savings as a result of these two things and we don't know if the Governor supports it? Yet we're going to pass a budget on that basis? You're asking us to? You're asking us to pass a budget without knowing whether that's real or not?
We have had numerous conversations with the Governor, with legislative leaders, and there's no 16 reason for us not to believe that these will not get a fair hearing in Harrisburg.
What is the reason to believe that it will happen? (Bell rung.) 73 3/25/09 - WHOLE - RES. 090226
Because the legislative with whom we've talked have provided us with indications that they will certainly listen to us. They've invited us to make our case to them, and we think we have a very good case to make to them. And they said they would listen to us. So they have not closed the door on the possibility of either the request that we're making with respect to Harrisburg in the pension area or with respect to the sales tax.
Well, my time is up, but I haven't heard anything that gives me hope that that's going to get through the state so far.
I'd like to ask Mr. Altman to come up to the table. 74 3/25/09 - WHOLE - RES. 090226 While he's making his way up here, one question with respect to a follow-up to Councilman Greenlee's question on real estate taxes. And Councilman Greenlee is correct that the existing programs that give some relief to some of the senior citizens are relatively low in terms of income. During this debate in this real estate issue -- because I agree, it is very, very controversial and I've gotten nine million calls about it. I'm sure other Councilmembers have. Has anybody from the Administration during the course of having conversation about getting state enabling legislation on all of these other matters, be it the sales tax and the pension issue, talked about getting some enabling legislation to allow us to put provisions in place to help people if these taxes go up to this degree and assuming next year that we have full valuation, which will also impose a 75 3/25/09 - WHOLE - RES. 090226 significant burden on individuals' real estate taxes? Because I keep hearing us talk about it, but I don't hear anybody talking about that.
We've had those discussions with people in Harrisburg about actual value, and you're right, we should actually wrap into that conversation doing it in terms of this increase. We haven't done that yet, but we will.
I'm talking about relief, because everybody knows getting something out of Harrisburg is very difficult, so if we're going to go up there and ask them for these other measures, we need to have that as part of the discussion also.
So are we going to do that? 76 3/25/09 - WHOLE - RES. 090226
All right. Mr. Altman, I want to follow up on Councilman Goode's question. I know he's going to follow up on his own question, but I actually wasn't intending on asking you this, but when I heard your response to Councilman Goode about the business plan and the ability to create jobs, you did it very eloquently, as most Commerce Directors do when they come before us. It's kind of out of the playbook of responses to City Council. It's pretty much the same thing every year. But I got to tell you that I'm a little concerned about the reality of what you say in terms of implementing those things. I have had personal experiences. I continue to hear from the development community and from people at 77 3/25/09 - WHOLE - RES. 090226 large that the productivity relating around those issues is just not there. As an example from a personal perspective, I met with you and your Deputy last summer at 21st and Ridge and showed you a site, and that was after trying to get you to respond. After two months, we finally agreed to meet at the site. I showed you the site. The parcel is approximately three acres. At that time, we had three developers interested in building a commercial facility in the middle of a significant number of new houses that were built by government-supported funds, homeownership, very stable areas, and it took me about two, three months before -- actually, I didn't get a response from you. I had to call you again to remind you about the issue, and I got the sense that you had actually forgotten, and I followed up later on. We're now into 2009. I gave you a copy of the letter from the 78 3/25/09 - WHOLE - RES. 090226 developer. I still haven't heard anything. I had your Deputy in here the other day and asked him what's going on, and he was clearly caught off guard, because he told me that the person was asked to give some development scenario. I called that person a half an hour ago. They said they still hadn't heard from you. To give an eloquent speech in City Council is very nice, but in reality, I'm just not seeing the production coming out of this Administration and particularly as it relates to Commerce. And while I understand in terms of percentages, that's very small in terms of the problems that we're experiencing in the City, but the reality is, if you're not having production in the City, be it land sales, be it transactions, be it zoning board transactions that I understand are significantly lower, the reality is that that lack of productivity is going to at 79 3/25/09 - WHOLE - RES. 090226 some point factor into the revenues that should be coming into the City. So while that was a nice speech, I'm not seeing it. I need to get a sense of what you all are going to do that's different. You talk about removing regulatory barriers. Frankly speaking, I think that you have added on to some of the regulatory barriers as it relates to this Administration's ability to move product. So I really need you to tell me why should I feel comfortable that your plan and you and your office are going to move things in a much quicker pace? DEPUTY