That was not part of our 122 5/7/00 - FINANCE - BILLS 010258, 59, 60 presentation, but I'm trying to be responsive.
Okay. No, I appreciate that. So it happens and it happened everywhere else and --
No, I really don't think we've presented it that way or feel that that's the reason. As we've said, we start with an aggressive schedule.
And we were unable to begin when we plan to. And once that happened --
Well, when the original idea came forward, I mean, were these things so, you know, bizarre and extraordinary that they were not anticipated?
There were two ways to do it -- well, there were several ways. One was, we could design the project and actually start it and do a series of bond issues, and that way, we would sort of know, as we got further along the project exactly how much we needed, or at least we'd have a much better chance. We decided to do it this way because the interest rate environment was particularly 123 5/7/00 - FINANCE - BILLS 010258, 59, 60 favorable at the time, and so we took our best shot. And that's what we did.
We'll get you the official statement but I think you'll find that it was quite favorable. And my recollection is we sold bond at 5-point-something percent, and I'll get you the exact number. They were pretty favorable.
Okay. Now, my recollection back at the time was, at least for us, I think this was somewhat of a new and unusual, if not exciting and innovative, arrangement. And you'll forgive me if I don't remember all of the details, but I think -- I mean, there was going to be this bond offering, and then the money, I think, was actually going to go to you so that -- (Unintelligible, parties talking over each other.)
I thought that was slightly unique features, that we weren't going to be in control of it or it wasn't kind of us so much doing it. Or why don't you tell me about 124 5/7/00 - FINANCE - BILLS 010258, 59, 60 that.
Do you want me to tell you in simple terms? Actually, we could have the --
Sure. The way the 1998 bond financing was structured was that PAID would issue PAID bonds in the amount of $443 million. The City would then issue at the same time GARB bonds (General Airport Revenue Bonds) in the same amount. The bond proceeds from the City GARBs would be used as security with PAID debt service on the PAID bonds.
That's the basic fundamental structure of the transaction. And we're mirroring -- pending Council approval, we will be mirroring it the same way in the 2001.
I understand that part, but I thought that there was this other component that allowed for maybe things to move a little quicker, a little more nimbly, and we could, you know, kind of avoid some of the complications that go with City work, and that this was, I mean, on time, on budget, on its way, folks flying right out of the that terminal, 125 5/7/00 - FINANCE - BILLS 010258, 59, 60 whatever the anticipated date was. I mean, that's what was sold as a part of this whole thing and why we should do it. I mean, I remember a big hearing, and we had a lot of people here, you know, TV cameras and everything. So, I mean, what happened?
The arrangement was set up so that we could use private sector, or I'll say maybe slightly modified private-sector procurement methods. And that's what we've done.
And I don't think we're -- we're not here suggesting that the procurement process has been the issue, because we haven't suggested that at all. And also, once we start construction, I think you'll find that the projects have moved very rapidly. What happened is what we said happened: We started late and we got into a very overheated construction environment, which is, you know, you could say good news/bad news. It's a little bit good news in that the Philadelphia economy construction market at least was very, 126 5/7/00 - FINANCE - BILLS 010258, 59, 60 very strong.
I actually was trying to understand that. What do you mean by that?
What we meant was that we found fewer bidders than we had ever seen before on construction packages of this size despite efforts to do so and --
Because everyone was busy, exactly. And number two, more importantly, the bids were coming significantly higher than estimated. And --
Exactly, exactly. And as Chuck Stipancic gave one example before of a package where we took it apart to try to get bidders. We broke it down into smaller and smaller packages. The end-result was still significantly higher than we had estimated.
Councilman Nutter, if I 127 5/7/00 - FINANCE - BILLS 010258, 59, 60 could just add. I think one of the other problems we faced too, when we appeared before you in 1998, the project design was in its infancy and the budget was established in its infancy. And I think in hindsight, it would have been nicer for us to have come and simply design it 60 percent complete or 100 percent complete. Unfortunately, it wasn't at the time. So we established a budget based on what we knew at the time. And in hindsight, you know, maybe it could have been designed a little faster or a little more complete. But at the end of the day, we were -- we established a budget based on what we knew at the time. The other point that I would add -- you've heard it from a few already -- is that the project -- the international terminal project is going to be finished in under three years, the commuter terminal project in about a year and a half. We firmly believe that if this were a traditional public project -- and I think we have Terminal A as evidence that it took six to seven years to finish. Clearly, this project would not -- we would not be having the ground-breaking for 128 5/7/00 - FINANCE - BILLS 010258, 59, 60 the commuter terminal next month or in June, and the international terminal more than likely wouldn't be finished in the summer 2002. It would be many, many, many, many years down the road. So I think at the end of the day, even though we're not happy about the cost increase -- and believe us, none of us are, because we don't want to sit here and subject ourselves to this. But at the end of the day, we think it really did work and it does work. And I think the other thing that we mentioned in 1998 as well is that if we didn't get this project on line quickly as a company, you know, we have a choice in which to put our airplanes: We can go to Pittsburgh, we can go to Charlotte. We chose to make Philadelphia our international gateway. It works for us, we think it works for you. And at the end of the day, this process really helped us to achieve that goal a little faster. So we're proud of it in terms of how to make it work and when it's going to be finished. But, no, we're not happy about the cost increases.
Do you expect that 129 5/7/00 - FINANCE - BILLS 010258, 59, 60 the -- and I appreciate the answer, and we're glad you're here and we're not trying to obviously run you out. But, you know, we need try to kind of get a little information as we go through this process. Do you expect that that will continue in -- those kinds of statements about your presence here and the hub here and all of that, do you expect to be able to continue that level of presence in a post-merger environment?
Absolutely, absolutely. I think one of the attractions of USAirways to United Airlines is the Philadelphia market and the Philadelphia hub. United Airlines announced -- when they announced the acquisition that they were going to add more international service, we actually sort of beat them to the punch with Amsterdam -- Brussels starts this week. But they're also adding a --
Well, United has several hubs. We have three, they have five. Their hubs are San Francisco, Denver, Chicago, Dulles. 130 5/7/00 - FINANCE - BILLS 010258, 59, 60
And do we have any reason for concern that because of the proximity of the -- what is it, Washington-Dulles? -- that, again, in a post-merger environment, there will be some effort to move everything to that location?
In my view, we have no 11 concern. United has said they have no concern. And why would United -- I guess my question is, why would United Airlines buy USAirways, where the premier international hub is Philadelphia, to dismantle it? It makes no sense. They want Philadelphia. And what Philadelphia gives United Airlines is not only a large metropolitan area but further strengthen the north-south market, which is what we being to United Airlines.
Okay. Well, I mean, I won't comment on whether a particular business decision makes sense or not. You know, it wouldn't necessarily be the first business that did something that other people thought was unusual or bizarre. But, you know, in this 131 5/7/00 - FINANCE - BILLS 010258, 59, 60 context, you know, I just need to ask the question, and if you want to give us that comfort level on the record, I'm more than happy to accept it. Thank you. In the brochure -- I mean in the little package we got here, it said, "Due to the complexity of the projects, additional PM/CM services were needed." What did it start out at and what was the additional and what's the cost differential between them?
Can I take that from a narrative standpoint, and then maybe Chuck has numbers. We started the project with one firm managing both the international terminal and the commuter terminal. And that was Gilbane (ph.), and as we got into the project, candidly, the complexity of the project became more and more apparent. And frankly, the level of involvement by the Airport was different from what we'd expected. We were sort of used to running private-sector projects. And those two factors together led to us divide the construction management into Gilbane 132 5/7/00 - FINANCE - BILLS 010258, 59, 60 doing the Terminal F, the commuter terminal, and Turner doing the international terminal, and Turner has done other airport work, including work in Philadelphia. In addition, we added our own staff representatives instead of building a big staff of our own. We added our own staff representatives on an out-sourcing basis. And finally, the City, which had its own people watching the project in the form of "Dim Jim" [sic]. It had a Dim Jim on it so that explains the role --
Previously known as Day & Zimmerman Aviation. They've been active at the Airport for a long time. 133 5/7/00 - FINANCE - BILLS 010258, 59, 60
That's actually how they're referred to in the industry. So those of the roles of the four firms that you may see the names of as you go deeper and deeper into this.
I think I would add that in terms of putting specific dollar-amounts, when we refer to the PM/CM budget, I'm really referring to the professional services budget, which includes the program manager, the construction manager, the architects, the engineers. Initially, we had budgeted about $49 million for those services; it's now at about $84 million. And the 84 is what represents the 15 --
49 to 84, that's correct. That's for the architects, the engineers, the program managers, the construction manager, etc., etc. And that's what represents 15 -- approximately 15 percent of the 558 million.
Well, yeah. I 134 5/7/00 - FINANCE - BILLS 010258, 59, 60 mean, I can, you know, I can barely, you know, put up a shade in my house. So, I mean, I'm no 4 construction wizard, but you said you went from 49 million to 84 million just on --
And what -- I mean, if you tell me about, you know, Tinicum Township doing something to you or the Sun Oil line, you know, cut exploded or, you know, whatever happened to that and environmental reports and the like, but, I mean, how does that happen? I mean, how do you not know you need all of all of these additional people?
Well, I think as Bob Hazel mentioned with the narrative in terms of -- we started out one firm -- that was with Gilbane -- that was estimated about $9 million to do the program management for both projects as well as the construction management for both projects. At the time, we selected Gilbane 135 5/7/00 - FINANCE - BILLS 010258, 59, 60 through a selective bidding process. They were one of the lower bidders, if not the lowest bidder at the time. So we selected them, thinking full well that they could rise up to the occasion and deliver the project and deliver those services. And I think what we found out as got started on the project, again, because we had more coordination with the City, with Tinicum Township, with the Controller's Office, with the FAA, more coordination than what we envisioned before we knew a lot about what the project was going to be, that caused us to add Turner Construction as the construction manager for Terminal 1.
Well, maybe you would have made out better to stay less coordinated. You might have saved a little money. I mean, I mean that facetiously. But, I mean, if you got all this coordination going on but your price almost went up by double, what's the story?
Well, again, at the outset of the project, we envisioned this to be a truly private project, with minimal oversight, with minimal coordination.
But in reality, it's a quasi-public project. We still have the benefits of some private-sector methods, but in reality, it has certain public aspects to it.
Well, why don't we do this. I mean, as a part of the information stuff, why don't you tell me who all was a part of the $49 million package, and then tell me who ended up being a part of the additional -- what's that, 35?
Sure. I can. And, Bob, you may need to help me with this. The original 49 million primarily the big players -- your architects -- in this case, that was Cohen, Peterson & Fox, who was the designer for Terminal 1; the Shuard (ph.) Partnership, who was the designer for Terminal F; and then we had Gilbane, who was the program and construction manager for both projects.
Well, just, you know, kind of lay 'em all out, where did you have them in your budget, what were they --
You want me just to provide that as a supplement? 137 5/7/00 - FINANCE - BILLS 010258, 59, 60
What were they supposed to get, what were they supposed to do. That's on the $49 million crew. And then tell me what the other $35 million worth was and who they were and what they were supposed to do and how much and all those details.
Okay. And if you can give as well, I guess, a timeline is what the Councilman was talking about, about who came on when.
Thank you. Two last questions -- maybe three. The 450 PFC charge; now, when did that start?
Right, no, I remember that. And that was pursuant to an ordinance?
No, that's basically an application that we do to the FAA, asking for their permission to impose the additional $150.
Didn't we have to authorize the first one, though, the $3? Didn't we do something with PFCs at one time?
It's part of our rates and charges regulation, which, as I understand it, is a promulgated regulation; it doesn't come through an ordinance.
Oh, I think Mr. Cantu-Hertzler wants to get up there and say, well, it's something he's doing -- that David D Cohen slide, yes. (Laughter.)
Have a seat, please. We got a lot of chairs around here. Just make yourself comfortable.
The other thing that the ordinances specifically authorize is 139 5/7/00 - FINANCE - BILLS 010258, 59, 60 pledging use of PFCs as part of --
But when that whole PFC concept came about, there was no action over here on that particular matter?
I wasn't here then. I don't believe that that's the case.
Okay, all right. Maybe we just heard about it in a hearing or something and -- okay. Now, in the MBE/WBE charts, not to be confused with the "Dim Jim" chart information, that would be DBE/MBE, I added up -- every other page or so has, you know, 3.4 million awarded to date to this group and a million to the other group and 3.3 to the other group. And I think I got them all, and it seems to be -- what's the total amount of dollars that have been spent so far. I mean, have you spent the 443 or are you on your way to the 443 or --
Actually, in the presentation, the award, it really should be spent to date. That was a mistake.
Where it says that this 140 5/7/00 - FINANCE - BILLS 010258, 59, 60 amount has been awarded, it's not awarded, that's an amount that's been spent to date at this stage of the project. It's really two different, because when a contract is initially awarded, there will be a commitment in there with -- like today, we've only spent of that commitment X-dollars.
Okay, so then how much have you spent to date then? 'Cause you're saying that this should really be -- those numbers add up to $48.9 million. Are you saying that you've -- that they have actually spent --
I thought you just said 49 million. Jim, maybe you can help me with that. I can pull my calculator out and --
Oh, in terms of the project? 141 5/7/00 - FINANCE - BILLS 010258, 59, 60
We'll have to get you that information. I don't have it off the top of my head. In terms of how much we spent to date, it's probably in the range of --
We actually know how much has been spent on the minority side, but we don't know the global spending on the project.
I understand, okay. Now, at the present time, in various forms of consideration, we have a Water Department offering that we're talking about, which I think does not involve you guys, right? You're not getting any of the water money, right?
Okay, all right. And then we've got PGW, the Airport, NTI, the City, and have we done the stadiums yet?
All right. Now, in the testimony with regard to the Water Department, is it my recollection that -- we did a couple things: One, that was originally going to be a $250 million offering, we amended it in the hearing to 500 million.
To accommodate an additional $250 million in refinancing, which I think we're going to do in the fall?
Okay. And that was because we believed that based on where we are today, we wee an interest rate continuum going in a downward direction toward the fall?
We actually -- the way rates are today, don't expect rates to -- we don't expect the Federal Reserve -- not the Federal 143 5/7/00 - FINANCE - BILLS 010258, 59, 60 Reserve, excuse me, FOMC to increase rates in the fall, so they'll probably be where they are or they may decrease.
Okay, 'cause I remember Mr. Isdell talking about the interest rate environment, and he said that, you know, now was the best time. I thought I had a recollection of that over the next few months, where we're anticipating either level or possibly lower. We have a number of offerings that are going to take place, and so part of my concern was that we literally have a whole lot of Philadelphia paper out on the market at the same time.
Two things, Councilman Nutter. The Director of Aviation is correct in terms of interest rates being very favorable, but the other fact is that they are running out of cash; this is why they need to be in the market, in time to -- by the end of July -- excuse me, by the end of June. The --
A lot of people are 144 5/7/00 - FINANCE - BILLS 010258, 59, 60 running out of money right about now.
You are absolutely correct. The other issue about there being a lot of Philly paper in the market, you're correct, and I'm actually challenged with that. And we're working in my office to sort of space it out. And while they are different credits -- Water's its own credit, Aviation is different, as is the stadium. You're right. One of the things we have to be sensitive about is the amount of Philadelphia paper that's in the market. We don't want to price ourselves out of the market.
And so we're really conscious about that. In terms of priority of issuance, based on where we are in the schedule, the Airport may be going first. It's a tie between the Airport and PGW, which I didn't want to bring up until tomorrow.
No, I don't. 145 5/7/00 - FINANCE - BILLS 010258, 59, 60 (Laughter.)
We've savaged -- the folks from USAir may have felt bad before the hearing and now you want to put PGW on 'em. I mean, you know, even I would have to rise to their defense. Geez. (Laughter.)
The Airport is probably going to be -- it's going to be Airport, PGW, and Stadium. And we're sorting out the order of that.
Hmm, okay. Well, I appreciate all of the information. I know you're going to be getting back a fair amount of requests, data to members of the committee.
Mm-hmm. We will put together a comprehensive response package.
Information from my department, from Aviation, and the various sources that will compile that, including the Parking Authority material. And we'll have a comprehensive response to you. 146 5/7/00 - FINANCE - BILLS 010258, 59, 60
It will take us about a week, if that's okay, Councilman.
Just one expansion of my request, one clarification of my request: I would like to see the actual change order documents and all of the issues that are -- I don't want -- what I don't really want is a synopsis of what was changed and how much it was; I'd like to see what the specific changes were. I mean, if that's available. I mean, it's similar to what we asked for on contracts. I mean, I don't want a list of the contracts; I want to see the contracts, or I want to see the specific orders. And I'd like to read it myself, rather than have somebody read it and give it to me.
And we want you to consider, if you will, that if you want these bills reported out today, you've got to be able to get all of this information back to us in order to get your vote. So consider carefully your response. 147 5/7/00 - FINANCE - BILLS 010258, 59, 60
I'm sure when there is either a cost overrun, a change order, or increased labor costs, I'm sure there's document that's submitted to the general contractor. I mean, that's just --
We'll provide what you want. It was only a question of dealing with the volume, you know, and whether you're going to want, you know, multiple boxes. We'll get you what you asked for, absolutely.
And we've got to find enough people to read it. Thanks.
Councilman Kenney, if I may just ask if it's possible to either, you know, now or after the hearing is closed, could -- I just want to make sure 'cause you did ask us for a good number of items rather quickly and I think I got them all down. I think the City Treasurer was also making a list. We just want to make sure that we get everything you want. Would you want to do that after?
What I suggest is maybe tomorrow, you can fax me what you think I asked for, and then I'll add to it. 148 5/7/00 - FINANCE - BILLS 010258, 59, 60 (Laughter.)
I mean, just so you understand what you think you're looking for. It should probably be everything I asked for, and I'll call and tell you it's all right.
Why don't we fax you all of the questions we think the committee has asked us, and if we have missed the point, the community can have an opportunity to modify the requests as we understand that you're requesting.
Could I ask Councilman Kenney's indulgence to give us a day and a half to get this material to him, questions to him.
Absolutely. And I will be glad to confer with members of the committee to make sure that we have all of their questions intact and get back to you so that there is no problem with regard to what is requested by 149 5/7/00 - FINANCE - BILLS 010258, 59, 60 any member of the committee. So if you certainly field that information to us, we can -- we will make sure we get in touch with the committee members and have all of their questions addressed, in addition to the ones we submitted at the beginning of this hearing.
We will provide the questions to you Wednesday morning for your approval and comments, and then once we get them back, we will have the information to you within a week from the time we get that back from you, if that is permissible by Council. Okay, so Wednesday morning.
Are there any other questions from members of the committee? (No further questions.)
We're waiting for another committee member to come down who's on her way down. (Councilwoman Tasco returns to chamber.)
Thank you, Councilwoman. 150 5/7/00 - FINANCE - BILLS 010258, 59, 60
I would like to restate, if you would indulge me, Councilwoman Blackwell, the timing of the information and how this is going to work. What I'm proposing, if Council is agreeable to it, is that Wednesday morning, the day of tomorrow, we provide to you a list of questions as we understand it to be, which represents material and information that the committee is requesting. We hope that the committee can turn the questions around to us within hours. And if we get it back on 14 Thursday, we will guarantee that we will get 15 responses to all of the questions as we 16 collectively understand it back to you by 17 Wednesday of next week, which is the 16th, and so 18 we will get it back to you by Wednesday, the 19 16th. That is when we will have responses to the 20 questions, if Council -- if the committee is 21 agreeable to that. 22
All right. 23 Then we here on this committee are willing to 24 report these out with a suspension, with the proviso that we have all of the information before 151 5/7/00 - FINANCE - BILLS 010258, 59, 60 there is a final vote.
We will ensure that we have that information to you, Councilwoman.
Madam Chair, if I could just restate you commitment that you will hold the bill until we feel as committee that we have enough information to make a reasonable decision.
Thank you. All right, having said that, we will now conclude public hearing and enter our public meeting. - - - 152 5/7/00 - FINANCE - PUBLIC MEETING
I will now entertain a motion from Councilman Kenney with regard to Bill No. 010258, that it be reported out with a suspension of the rules and with a favorable recommendation, and I will so entertain that motion at this time. Councilman Kenney?
Thank you. Bill No. 010258 has been reported out of committee with a favorable recommendation and also a recommendation that the rules of Council be suspended so as to permit first reading at our next session of Council. All in favor? Opposed? The ayes have it, and so this motion is carried. Councilwoman Tasco, I will ask far a similar motion with regard to Bill No. 010259.
Madam Chair, I move that Bill No. 010259 be reported out of committee with a favorable recommendation and with a recommendation that the Council rules be 153 5/7/00 - FINANCE - PUBLIC MEETING suspended so that this bill can be read at the next Council session.
All right. It has been moved may I have a second. (Duly seconded.)
It has been seconded that Bill No. 010259 be reported out of committee with a favorable recommendation and also a recommendation that the rules of Council be suspended so as to permit first reading at our next session Council. All in favor? Opposed? The ayes have it and so it is carried. Councilman Nutter, we will ask you for a motion with regard to Bill No. 010260.
Thank you, Madam Chair. Madam Chair, I move that Bill No. 010260 be reported out of committee with a favorable recommendation and a further recommendation that the rules of Council be suspended so as to permit first reading at our next session. (Duly seconded.)
It has been 154 5/7/00 - FINANCE - PUBLIC MEETING properly moved and seconded that Bill No. 010260 be reported out of committee with a favorable recommendation and also a recommendation that the rules of Council be suspended so as to permit first reading at our next session of Council. All in favor? Opposed? The ayes have it and so this motion is passed. We thank everyone for their cooperation and willingness to work together. We might also mention that we have a young lady, Jamilla (ph.) Brown, who is here, visiting from Houston School with the City Treasurer, and we thank her for attending and hope it hasn't been too laborious for her to follow and that she's enjoying her visit. Let me thank all the members of the committee as well as those from the Administration and the Airport who are here. Thank you David L., and we'll try to get it all done.
So this ends our committee. This committee hearing and meeting 155 5/7/00 - FINANCE - PUBLIC MEETING is adjourned.
Thank you. (Adjourned 4:03 p.m.) 156 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Monday, May 7, 2001, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE ON FINANCE BILL NO.'S 010258, 010259, 010260 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter