COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE SELECT COMMITTEE ON FISCAL STABILITY AND INTERGOVERNMENTAL COOPERATION - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, February 7, 2000 9:15 a.m. - - - RESOLUTION NO. 000002 - Providing for the approval by the Council of the City of Philadelphia of a Five-Year Financial Plan City for the City of Philadelphia covering fiscal years 2001 through 2005, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority, pursuant to the Intergovernmental Cooperation Agreement authorized by an ordinance 13 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 DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 2/7/00 FISCAL STABILITY - RES. 000002 I N D E X Stephanie Franklin-Suber, Chief of Staff. . . Robert Dubow, Acting Budget Director. . . . . 6 Estelle Richman, Director of Social Service 24 7 Nancy Kammerdeiner, Revenue Commissioner. . . 33 8 Mjenzi Traylor, Acting Commerce Director. . . 63 9 Paul Deegan, PIDC . . . . . . . . . . . . . . 85 10 Debra Kahn, Secretary of Education. . . . . . 98 11 Linda Orfanelli, Acting Finance Director. . . 109 12 Joe Martz, Managing Director. . . . . . . . . 129 13 William Hankowsky, President, PIDC. . . . . . 133 14 Joyce Wilkerson . . . . . . . . . . . . . . . 148 Secretary of Strategic Planning and Initiatives 15 16 17 18 19 20 3 2/7/00 FISCAL STABILITY - RES. 000002 P R O C E E D I N G S
Good morning, everyone. This is the public hearing on the Committee of -- the Select Committee on Fiscal Stability and Intergovernmental Cooperation. Miss Suber, I understand you're testifying. I would ask Mr. McPherson to please read the tile of the resolution.
A resolution providing for the approval by the Council of the City of Philadelphia of a Five-Year Financial Plan City for the City of Philadelphia covering fiscal years 2001 through 2005, 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.
No, this is not a revised. 4 2/7/00 FISCAL STABILITY - RES. 000002
So I think the word "revised" should be deleted from the title of the resolution.
Yes. And also, it says "incorporating proposed changes," which are (inaudible).
Yes. Also, in the first paragraph, we should also delete "and incorporating proposed changes." There are no 11 changes that we're aware of.
Good morning, President Verna, members of City Council. My name is Stephanie Franklin-Suber. I'm the Chief of Staff for the City of Philadelphia. With me today are Linda Orfanelli, our acting Director of Finance, and Rob Dubow, our acting Budget Director. ), our Secretary of Education -- in the event members 5 2/7/00 FISCAL STABILITY - RES. 000002 of Council have questions for them. We appreciate this opportunity to present testimony in support of the Street Administration's proposed Fiscal Year 2001 through Fiscal Year 2005 Five-Year Financial Plan. I know that you have received copies of the Plan and copies of my testimony, so I will summarize, with your permission, only the most important points that are covered in the Plan. This is the ninth Five-Year Financial Plan for the City of Philadelphia. It is the first to be presented by Mayor John F. Street. First, the Plan recognizes the remarkable progress achieved by the City in partnership with City Council in recent years, both in terms of financial management and service improvements; Second, the Plan outlines the risks to the City's continued financial stability; And, finally, the Plan sets forth the Street Administration's objectives for certain key new initiatives in the upcoming years. For the seventh consecutive year, the City ended Fiscal Year 1999 with a balanced budget 6 2/7/00 FISCAL STABILITY - RES. 7 million. This is the Seventh straight year in which the City's General Fund has recorded improvement over the prior budget year. This performance could provide a very tempting excuse for complacency and unrealistic demands that the City achieve more only by spending more. But the City's fiscal position is vulnerable to a number of factors beyond our control, and this makes such a course inadvisable. 8 million. 9 million. And this is not even taking into account any new wage increases beyond Fiscal Year 2000. So in light of this fiscal outlook, the Street Administration's strategic plan is to work in close collaboration with City Council to ensure that City government continues to run efficiently and effectively and to adhere to four basic strategic principles of fiscal discipline. These have been the hallmark of City government since 1992. 7 2/7/00 FISCAL STABILITY - RES. 000002 First and foremost, the City must live within its means, maintaining balanced budgets that are a prerequisite to the stability and credibility of municipal government; Second, the City must continue to reduce the tax burden for citizens and businesses alike, sending a message each year that Philadelphia is becoming more competitive as a place to live and to work; Third, the City must continue to invest in its economy to help generate the sustained growth that is essential to reversing long-term decline; And, finally, the City must continue to enhance Philadelphia's quality of life by strengthening neighborhood services, crime- fighting, and the quality of public education to make the City an even more desirable place for employers and families. Through a unique and close partnership between the Administration and City Council, the City has balanced its budget, stabilized the debilitating erosion of jobs and tax revenues, and steadily improved the delivery of services while 8 2/7/00 FISCAL STABILITY - RES. 000002 cutting their costs to taxpayers. But there is still much work to be done. The ambitious agenda that was outlined by Mayor Street for the first 100 days of his administration indicates the challenges that we face in the upcoming years. We have to negotiate fair and reasonable labor contracts, we have to pursue aggressive crime-fighting measures, we have to spearhead efforts for educational reform, we have to explore reasonable strategies to build world-class facilities for our professional sports franchises.
At the heart of the Street Administration's agenda are two major new initiatives that are designed to reclaim many of the City's neighborhoods and support many of the City's children. I will touch on these very briefly. The first of these is the Saving Neighborhoods Campaign. This campaign will be an all-out assault on neighborhood blight and destabilization. This campaign is essential if Philadelphia is to retain its vitality and its viability as a destination of choice. 9 2/7/00 FISCAL STABILITY - RES. 000002 It is estimated that the cost to rid the City of its current inventory of vacant and dilapidated properties would exceed $200 million. And to date, fiscal constraints have forced the City into a crisis-driven mode, limiting publicly-funded demolitions to those building whose poor structural condition poses the most imminent danger to public safety. Through the Saving Neighborhoods Campaign, the Street Administration will partner with community residents and City Council to implement stabilization plans that are tailored to the special needs of specific neighborhoods. Financial support for the campaign will come from a $250 million fund, which will be capitalized through one of the City's development authorities. The second major initiative is KIDS, Kids Involved in Developing Skills. This initiative focuses on keeping children off the street by providing them with constructive activities after school. m. m. 10 2/7/00 FISCAL STABILITY - RES. 3 million, beginning in Fiscal Year 2001. The Recreation Department will extend its after-school programs uninterrupted through the summer months, while the Free Library will expand its LEAP capacity to all of its branches. Moreover, the KIDS Initiative will forge partnerships with schools, churches, synagogues, philanthropic organizations, and community groups in order to promote the program's as longevity through the generation of permanent funding support and after-school funding sites. These initiatives and others discussed throughout the Plan are all contingent on the City's ability to improve services, increase productivity, reduce the cost of government, continue its tax reduction program, stimulate economic investment, and balance the budget. Any retreat from this strategy could easily erode the progress we have made so far. Over the past eight years, City departments have responded to the challenge of finding innovative ways to maintain and expand the level of City services delivered at ever- 11 2/7/00 FISCAL STABILITY - RES. 000002 decreasing costs. The Street Administration is continuing these efforts primarily through a partnership with local Chambers of Commerce, which will take the lead in identifying new cost-saving and revenue-enhancing initiatives to pursue. 7 million was a milestone achievement for the City, Fiscal Year 1999 revenues benefitted dramatically from the underlying strength of the national economy. 8 million above budgeted levels. While these tax revenue gains were encouraging and are, in part, due to the City's economic development successes, wage tax collections are extremely vulnerable to changes in the broader regional and national economies. In the years ahead, it would be far from prudent to expect to see a repeat of this extraordinary revenue performance. Also, for the third year in a row, the City experienced an extraordinarily warm winter during Fiscal Year 1999. Because the City budgets for a moderate season, the City's utility spending 12 2/7/00 FISCAL STABILITY - RES. 000002 was lower than expected, and savings were also achieved on the City's budget for snow removal, pothole repair, and other winter-related costs. Clearly after the January we've just experienced, this trend has already begun to reverse itself in Fiscal Year 2000. In addition, elsewhere on the City balance sheet, there are new costs that must be absorbed, and some of our revenue sources have been curtailed.
For example, as a result of electric deregulation and state legislation, the City will see substantial reductions in its Public Utility Realty Tax Act (PURTA) revenues. Before the changes, the City received approximately $25 million annually in PURTA revenues. The deregulation and changes in state law, however, reduced the City's revenues to $20 million in Fiscal Year 2000, and are likely to reduce them either further in future years. 4 million lower than they would have been had there been no changes to the allocation. As a result of these and other factors, the Five-Year 13 2/7/00 FISCAL STABILITY - RES. 000002 Plan projects that the fund balance will decline in each of the next five years, dropping to below million at the end of Fiscal Year 2005. 5 The projected erosion of the fund balance is not entirely surprising. The fund balance was intentionally accumulated to provide resources needed to deal with major and growing projected expenses and costs. There are several factors beyond our control, which include a number of projected increased costs and expenses, and we expect that these will reduce the fund balance in future years. First, increased costs of new collective bargaining agreements covering Philadelphia's municipal workforce for Fiscal Year 2001 and beyond. These agreements have yet to be negotiated, and no funds are included in the Plan to cover wage increases or any potential spikes in health-benefits costs for any bargaining unit beyond expiration of the current agreements. Second, the continuing erosion of state funding for the Philadelphia School District. Despite the School District of Philadelphia's aggressive cost-cutting and increases made to the 14 2/7/00 FISCAL STABILITY - RES. 000002 City's already considerable local funding for the District over the past five years, the continuing erosion of state funding will leave the District facing an untenable budget gap in its next budget year. Third, the potential for increased demand for City service as a result of welfare cuts. Since 1996, both the federal and state governments have implemented legislation that has dramatically changed the face of welfare, and to date, the City has been spared the full potential impact of these changes because the State has not fully enforced its regulations. However, once more families begin to be sanctioned, many of these families losing benefits will seek services funded and provided by the City, and the City cannot accommodate that extraordinary demand without endangering our hard-won fiscal stability. Fourth, we are vulnerable to any downturn in the state or national economy. There's no question that the City's economy still lags behind the national economic recovery and remains vulnerable to any downturn. For example, looming changes in health services sector, which 15 2/7/00 FISCAL STABILITY - RES. 000002 affect the University of Pennsylvania Health System and Tenet Health Care Corporation, have resulted in the loss of jobs already this fiscal year, and further changes undoubtedly lie ahead. 5 percent. These projections are consistent with the recent performance of the City's economy, and most significantly, they do not presume any significant downturn in the regional, national, or international economies during the Plan period. Fifth, continued delay in the transition of the responsibility for court funding to the Commonwealth. Breaking from recent practice in response to concerns expressed by PICA, the Plan includes full City funding for the First Judicial District of Pennsylvania for Fiscal Year 2001 through Fiscal Year 2005. Continued delay in the courts transition will further adversely impact planned and vital increased City investment in tax reduction, economic development, 16 2/7/00 FISCAL STABILITY - RES. 000002 and school reforms. Finally, the Plan is balanced in part by assuming that the City will be able to achieve $60 million in as yet unspecified target budget reductions over the next five years.
While the City's record of consistently achieving management and productivity savings since 1992 has demonstrated that this goal is attainable, the need for continued fiscal discipline has not abated; it remains essential to the balance of the Plan. In conclusion, the Plan before you describes much of the City's fiscal recovery and enormous service improvements since 1992. Basic City facilities, from pools and fire stations to playgrounds and branch libraries, have been reconditioned, modernized, and reopened for business. Over 1,000 more police officers have been deployed to street duty. Yet, while taxes are going up in the surrounding suburbs, Philadelphia in 2000 is enjoying its fifth consecutive year of incremental wage and business tax reductions. Coupled with an unprecedented 17 2/7/00 FISCAL STABILITY - RES. 000002 $7 billion Economic Stimulus Program, these actions have been instrumental in achieving what preliminary statistics indicate will have been Philadelphia's third consecutive year of overall job growth, building on the 6,800 jobs gained in 1998. The choice of Philadelphia as the host city for the 2000 Republican National Convention is just one example of Philadelphia's emergence as a hospitality and retail destination. These tremendous strides are only the starting point. While taxes are finally coming down, Philadelphia's tax structure remains the least competitive in the region and one of the most costly in the nation. While jobs and investment are returning to the City, too many of Philadelphia's neighborhoods still struggle to overcome the corrosive forces of crime, drugs, poverty, and blight. While the country's economy is strong, Philadelphia's economic strength is threatened. And with the looming cost of collective bargaining agreements and interest arbitration awards, coupled with the ongoing delays in the Commonwealth's acceptance of its responsibility to 18 2/7/00 FISCAL STABILITY - RES. 000002 fund the court system, it is far from assured that Philadelphia's record string of balanced budgets and surpluses will continue. While the City's long-term fiscal stability may be tenuous, the Street Administration rejects major service cuts as a way to balance the budget. Service cuts would ultimately be counterproductive, because they drive out the City's tax base and they erode the City's neighborhoods. Instead, the City will continue to work to make the most of its available resources in order to sustain an enhance basic municipal services. Through the Plan, the Street Administration puts forth its vision for a better Philadelphia with strong neighborhoods, safe, sound, and educated children, and safe, clean streets that are free from crime, drugs, and violence. The realization of this vision is possible only if the City remains true to its commitment to maintaining its fiscal discipline. Thank you for the opportunity to present this testimony in support of the Plan. We would be happy to answer any questions, and representatives of all City departments and 19 2/7/00 FISCAL STABILITY - RES. 000002 agencies included in the Plan are here to answer specific questions regarding their sections.
Thank you very much. Each member will be given five minutes for questioning anyone in the Administration, and then we will have a second go-around if needed. I would like to start out with the questioning, if I may. Miss Suber, would you critique the uncertainties that are facing the City that would adversely affect the City's budget and Five-Year Plan, and what is the potential magnitude of their impact?
Answering the second part of your question first, Council President Verna, there are several risks and contingencies which affect the City's financial stability over the course of the Plan. Their potential impact is difficult to gage, although there may be some estimates on particular items that we can give to you. But in terms of the general risks and contingencies, to summarize, any downturn, any downturn in national local economies we are 20 2/7/00 FISCAL STABILITY - RES. 000002 extremely vulnerable. And as I pointed out in my prepared remarks, wage tax collections, for example, are extremely vulnerable to that element. As I also stated, any increased demand for City service as a result of the impact of welfare cuts, any changes in state or federal reimbursement formulas separate and apart from the changes in the PURTA allocation. As I touched on very briefly, any spikes in health-benefit costs for City employees. We made certain assumptions in the Plan that those costs may be 9 percent. In the event it's higher than that, that is another risk or contingency. One of the other risks is the possible waiver of the $18 million payment to PGW by the City of Philadelphia.
Rob Dubow, the City's Budget Director. I wanted to give you a couple examples of the magnitude of some of the risks. On welfare cuts, we estimate that for each additional thousand people who seek City services, it could costs us $10.8 million. For health-care benefits, for each percent above the 21 2/7/00 FISCAL STABILITY - RES. 000002 9 percent, we estimate in annual growth, it would probably be about a couple of million dollars in costs. And PGW, obviously it's about $18 million a year, which would be 90 million over the life of the Plan.
Each 1 percent wage increase is equal to about $10 million in costs.
Okay. When do you plan on presenting your blight program for City Council review? And can you tell us, will Council's technical staff participate in your planning process so that City Council will be informed of the issues that will be contained in the legislative package to be presented to City Council?
Council President Verna, I have been joined by our Secretary for Strategic Planning and Initiatives, Joyce Wilkerson. We are still going through the conceptual planning for the blight elimination program. We do not have a date as of yet by which we plan on submitting it to City Council, but we 22 2/7/00 FISCAL STABILITY - RES. 000002 do expect and plan to have City Council involvement during the planning process.
I think that's extremely important. Will you be presenting the Administration's comprehensive plan to address the fiscal crisis in the Philadelphia School District to City Council? And if so, when?
I'm being joined at the witness table by our new secretary of education, Debra Kahn. As you may be aware, the Mayor will be meeting with Governor Ridge this Friday, at 9 o'clock. One of the items on the agenda for discussion will be education. The Mayor will certainly review with Council his education reform plan as well as his plans to stabilize the School District of Philadelphia. I do not know at this point when we would expect to submit that information to City Council.
Can we assume that the Administration's position would be to hold the local tax burden of the School District 23 2/7/00 FISCAL STABILITY - RES. 000002 at its current level?
Thank you. Will you explain what the KIDS Program is? You indicate that the funding for this program will increase to $4 million beginning in FY 2001. What is the projected growth of this program in the out-years of the Five-Year Plan?
Generally speaking, the KIDS Initiative is part of a number of initiatives the Street Administration has already announced in connection with the executive order declaring the year 2000 as "The Year of the Child." Among the initiatives was the creation of an Office of Child Care, which will be the central point for policy development on issues relating to children but particularly the expansion of after-school programs, summer programs, and so forth. There is also the establishment of the Philadelphia Commission on Children. The major initiative that's going to be undertaken is a comprehensive review and analysis 24 2/7/00 FISCAL STABILITY - RES. 000002 of the budgets of all City departments that receive funding related to children and developing a children's agenda and a children's budget. There will be the creation of a nonprofit corporation, which will work in conjunction with the Commission and the Office of Child Care. The purpose of that corporation will be to raise monies through grants and through other fund-raising activities as a nonprofit corporation to support work of the Commission and to support the work of the office. The office will be under the supervision of our new Director of Social Service, Estelle Richman. And Estelle can comment more extensively on the initiatives to the extent I have not answered your questions.
Good morning, Commissioner. COMMISSIONER RICHMAN: Good morning.
I think we would like to know more about the program. What are the hours of operation after school? Will the program 25 2/7/00 FISCAL STABILITY - RES. 000002 exist during the summer? Tell us abut the ages of the children to be served and where the service will take place. COMMISSIONER RICHMAN: I am Estelle Richman, Director of Social Services for the Street Administration. As you know, this is a new position that looks at integrating the services between many of the operating departments that have worked within social services and for children's issues. We're in the process of naming members to the Commission on Children. And at this point in time, one of our goals, once that commission is named, is to review both goals and standards for after-school programs. As we begin that process, however, we are committed to make sure there's programs during the summer so there's a continual activity for children that picks up as close as possible to when school ends and to expand the number of after-school programs that are currently available for children. These programs will be available basically to all children who are in school, so if the children are in 1st grade or 2nd grade, we 2/7/00 FISCAL STABILITY - RES. 000002 will have some programs. If the children are in senior -- are in high school at the 11th or 12th grade, we will also have after-school programs appropriate to their needs. We're looking at programs that are geared to interest children so we're looking at a wide variety of types of programs. But our primary goal in this has to be make sure there are standards and goals and we're getting those at outcomes so we're getting full participating of children and we're getting things that children want to be in. One of the things we are aware of is that while we have implemented some after-school programs now that we believe have been successful, we don't have a mechanism to determining the successful nature of those programs; hence, the need standards and goals. We also know that still, even with the generous budget that we have put forth to expand these programs, which is close to three times the amount of dollars we have in them now, we still will not cover all of the children who are in need of after-school programs. But do believe that the expansion of 27 2/7/00 FISCAL STABILITY - RES. 000002 the programs that we have proposed and the ability to plan for standards and goals will enhance our ability to make these programs effective and cover more children and more neighborhoods throughout Philadelphia. I actually hope to have the Plan available for Council and Administration review sometime in the month of March because to be able to be up and running when school ends means that we have to more pretty swiftly on a plan for this year. And we do hope to have the program ready for implementation towards the last third or fourth week in June that will continue through probably the second or third week in August.
I'm assuming we would have programs in, say, the YMCA and the PAL centers? COMMISSIONER RICHMAN: We plan to use every available facility -- libraries, recreation centers, PAL centers. Whereever there is space available, we will be doing it. We'll also, during the summer, be outside a lot -- in parks. I know there's an extensive plan to expand our Mural Arts Program, and I'm not sure if Council's 28 2/7/00 FISCAL STABILITY - RES. 000002 aware of how much of that work of mural art is actually done and planned by children also in the neighborhoods. So there's a fairly ambitious agenda here, which we believe we can accomplish -- not only during the summer, though, but continuing throughout the rest of the year.
Who will be supervising these programs? COMMISSIONER RICHMAN: Some of the activities will be in the operating departments, although the planning, policy, and budget development will be out of my office, as the Director of Social Service. But the operating departments, such as the Recreation Department, the Department of Human Services, and the department that's not under me, the libraries, will all participate in both supervising and being in charge of the operating parts of these activities.
The Chair 29 2/7/00 FISCAL STABILITY - RES. 000002 recognizes Councilwoman Blackwell.
Thank you. I just want to follow up on one question because someone else might have been before me. And that is, in working with the neighborhood sites, will we have the opportunity to suggest some that you might not be aware of? COMMISSIONER RICHMAN: I would be happy for any suggestions that you might have.
Thank you. The Chair recognizes Councilwoman Tasco.
Okay, thank you, Commissioner. Does anyone have any questions of the Commissioner while she's up at the table? The Chair recognizes Councilwoman Brown.
Good morning. 30 2/7/00 FISCAL STABILITY - RES. 000002 COMMISSIONER RICHMAN: Good morning.
I am hopeful that as we move to create the standards for after-school programs that there's some dialogue, conversation, coordination with the Philadelphia School District to the extent that that's possible, particularly during the school year, when our buildings close down at 3 o'clock. And where appropriate, to look to members of the faith community who care like we do about what our children are not doing between and p.m., and just make them a part of that list of entities we look to in shaping the after-school programs. COMMISSIONER RICHMAN: Yes. Secretary Kahn and I have already talked that we'll be coordinating with the School District and the programs so that they can be back to back and there's not a gap there. And certainly we will include the members of faith within this planning, goal-setting, and standards-setting.
And let me just state for the record that I'll be particularly interested in the conversations around setting standards and criteria to ensure 31 2/7/00 FISCAL STABILITY - RES. 000002 that we put our money to good use. COMMISSIONER RICHMAN: That is our primary goal in looking at this and being able to actually -- with having a director of social services, one of my primary goals is better use of the dollars we have now and to be able to combine our dollars in a way. And while this is a major change, I think, for many of the operating departments, it's critically important that we begin to look at these budgets as supporting each other as opposed to the silos and working independently. So certainly, your suggestion is one that we will understand very clearly and we'll work with.
And then in the end, hopefully, this won't be "The Year of the Child," but "The Administration of the Child." COMMISSIONER RICHMAN: I certainly hope so.
Thank you very much. 32 2/7/00 FISCAL STABILITY - RES. 000002 Are there any other questions of the Commissioner? (No further questions.)
Thank you so much. At this time, The Chair recognizes Councilwoman Tasco.
Thank you, Madam President. Mrs. Suber, of the $200-plus million of surplus, how did we accumulate that surplus? Also -- I guess that's the first question. I know it's from some areas like the economy and things of that nature but, um. . .
There were a number of factors which led to the accumulation of the surplus, which were actually -- which were intentional. And the reason that we advised that the surplus -- the accumulation of the surplus is vulnerable is because we look at these as one-time circumstances or situations. The surplus was built on several factors, one of which was the growth in the national economy, which we've discussed. But the 33 2/7/00 FISCAL STABILITY - RES. 000002 other was certain savings from productivity initiatives, which were one-time savings. There were also savings that were achieved through the implementation of certain cost-effective risk management programs, which probably have been stabilized at this point. We also achieved rental savings when we consolidated all of the City offices. And so we see these as isolated situations and circumstances but also savings that we achieved through the collective bargaining agreements that were negotiated over the past several years.
Well, how much of that would be a recurring savings? If you plan to have after-school programs, which is not in the present budget but you want to add, how do you account for those dollars? Also, how do you account and will you generate fund to negotiate your contracts for the four unions?
The short answer to the first part of your question is that we really do not envision that many of the factors 34 2/7/00 FISCAL STABILITY - RES. 000002 I've identified will be recurring. That's why this is an accumulated surplus -- it is not an operating surplus, and that's another reason why we are projecting a deficit. This will be the first year where we actually start to spend the surplus. And it was accumulated in recognition of the fact that we are going to have to deal with certain increased costs that we anticipate in the future, and among those costs is the increased costs of potential increased costs of any collective bargaining agreements that we negotiate. They've not yet been negotiated, there are no specific numbers included in the Plan, but certainly, that's one of the increased costs that we would anticipate would impact the surplus.
On of your -- in the Plan, under Appendix 3, I see Line 20, "Future Target Reductions in Fiscal Year 2004 and 2005," I see an $18 million reduction. Does that in any way relate to PGW?
Let me ask you about the -- 35 2/7/00 FISCAL STABILITY - RES. 000002
I thought so, but I thought I'd ask you that. On the lien sale, has there been any tracking of the sale of the properties in terms of who may purchase and what efforts have been made to put some of those properties back on the market to generate revenue, the tax lien sale? (Nancy Kammerdeiner comes forward.) COMMISSIONER KAMMERDEINER: Good morning. I'm Nancy Kammerdeiner, the Revenue Commissioner.
Good morning. COMMISSIONER KAMMERDEINER: The first properties from the tax lien sale that went to foreclosure with the City of Philadelphia were just last month, so it was mid-January of 2000 before we saw the first actions for foreclosure on the tax claims that we sold, so we don't yet have many statistics along the lines that you're suggesting in terms of tracking what has happened to get those properties back on the tax rolls. The first efforts of the servicers, 36 2/7/00 FISCAL STABILITY - RES. 000002 after we sold those tax claims, were directed toward getting settlement on those claims without actually taking any properties to foreclosure at all, and they've spent the last nearly two years working very diligently at collecting on those claims without disrupting the owners of the properties.
How successful were we in negotiating some of the settlements? COMMISSIONER KAMMERDEINER: I'm --
I mean the collectors. Do you have -- is there any conversation between the City and the collectors on what their success rate is in collecting the money? COMMISSIONER KAMMERDEINER: Well, the bonds that were sold in order to finance the sale of those claims do have regular periods for payment, and all of those payments on the interest have been met on time, and that continues to be the case with the lien sale. And that's the primary measure we've been looking at to date in terms of their ability to deal with the collections. 37 2/7/00 FISCAL STABILITY - RES. 000002
Councilman, we'll have a second go-around. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Good morning Madam Chief of Staff, Mr. Dubow, Ms. Orfanelli, how are you today? (No response.)
Good. This might be for Mr. Dubow. In the Five-Year Plan, on Page ii-2, in the introduction, during the last third of the page is a sentence that reads: "In the aftermath of nearly a half century of decline brought about by its own mismanagement and by federal and state policies that too often have served to pit cities against their suburban neighbors, Philadelphia is finally beginning to reemerge." Can you tell me a little bit about some of these mismanagement issues and highlight some examples.
You didn't write 38 2/7/00 FISCAL STABILITY - RES. 000002 that, did you? (Laughter.)
I think we were referring to things like overly generous labor contracts that put a strain on our budget, tax increases that we probably thought were unwise. I think those would probably be our two major areas.
When were some of these labor contracts and these tax increases?
Okay. As Councilwoman Tasco said back here, I mean, did you write that into the Five-Year Plan, or is that just standard language that goes into the Five-Year Plan or --
You just desecrate the past and talk about the future.
Actually, Stephanie just turned to me and said, "I thought we took that out," and I said, "I thought we did, too."
Okay. It must be stuck on the disk somewhere or something.
Madam Chief of Staff, on your testimony on , under the bullet that starts with "The City must continue to reduce the tax burden for citizens and businesses alike," we've talked just a little bit about the legal situation that has the resident wage tax at one rate and the nonresident wage tax at another rate, and they seem to continue to mirror each other in the percentage decrease, but there seems to be somewhat of a little bit of a gap between the two. Why does that continue, and are we legally bound to keep the rates at different levels?
I think the state cap -- the suburban -- the nonresident rate, I imagine we 40 2/7/00 FISCAL STABILITY - RES. 000002 could actually bring them down to be the same. I think what we couldn't have done is raise the nonresident.
We could lower -- we could make them equal, you mean? Is that --
We could make them equal, you could make it less of a gap between the resident and the nonresident. Is there something stopping us from doing that, other than the additional loss in revenue?
Other than the additional loss in revenue and, I guess, the fear of the suburban reaction if we did that.
To closing the gap between what suburbanites pay in their wage tax and what City residents do.
Okay, so -- okay. 41 2/7/00 FISCAL STABILITY - RES. 000002 So we're worried what the suburban residents might feel or be concerned about as to what Philadelphia residents pay in the wage tax.
Okay, all right. Can you get us a chart, through the Chair, to show us over the past, is it now five years of wage tax reduction that we have through the Rendell Administration and now into the Street Administration will continue to embark on and show us for the average person making either $25,000, $40,000, and $60,000, what that person has saved over the course of time through those cuts, and then give a cumulative amount if that person --
-- had been in Philadelphia when the cuts started, they're still in Philadelphia, and show what the savings have been to that person. And then, if you have any ability to calculate what those same taxpayers pay by way of taxes, for instance in a next-door county like Montgomery County or something.
Thank you. 42 2/7/00 FISCAL STABILITY - RES. 000002 Thank you, Madam Chair.
Thank you. The Chair recognizes Councilman Cohen.
Thank you, Madam President. And to that last question, if you could add a comparison of the real-estate taxes for similarly valued homes.
The tax base for that. We file this report because we have to, this Five-Year Plan?
Well, there are a couple of reasons. One is, it's required under the PICA Act, and the other is that it's a planning tool for us.
Have we filed similar plans before we had to under PICA?
You mean, we've taken the burden and made a good use out of it?
And what happens 43 2/7/00 FISCAL STABILITY - RES. 000002 after, say, it goes through the process and the committee recommends it and Council passes it and the Mayor signs it? Does that have to be done within a specific time period?
Yes. It has to be done by the end of May is the actual requirement for the budget to be passed. It also has to go to PICA, and PICA has to approve it. That's the other important step in the process.
Well, when does it have to go to PICA? Is there a deadline date on that?
Yeah. It has to be submitted to PICA -- I think it's 120 days before -- I think it's by the end of February that it has to get to PICA.
It's submitted by the Mayor, that's right. Now, we've been able in the past to work with PICA, and they can extend that date if they get a qualified majority of their board to agree, and that's happened in the past. So 44 2/7/00 FISCAL STABILITY - RES. 000002 usually, we've been able to delay submitting it officially to PICA until after it's gone through the Council process.
I'm sorry, I'm not too clear on that answer. Are you, Councilman?
Oh, go ahead, please, no. I don't mean to interrupt you, but I'm not to too clear on that answer.
Yeah. PICA can, with the qualified majority of its board, which is four out of the five -- actually, it only has four members now. If four members of the PICA Board agree --
If four members of PICA's 45 2/7/00 FISCAL STABILITY - RES. 000002 Board agree, they can switch -- they can postpone the date by which we have to officially submit the Plan to PICA. And that's happened for the last several years.
Council has been passing its budget much earlier than the May date.
That's right. Council has been passing by the end of March, and the Plan has usually been going to PICA in April.
Even though it's supposed to go by the end of February?
Right. Because the board -- we've worked with the board to allow us to submit it later. They get it unofficially. I 46 2/7/00 FISCAL STABILITY - RES. 000002 mean, they get it - PICA already has copies of the Plan, so they knows what's in there, but it's just that --
If the board chose not to extend, what could the board do?
They would have to act on it earlier; they would have to approve it or disapprove it earlier than they've been doing.
A number of things can happen. We'd have to revise the Plan to get it to the point where they would accept it. They also have a number of options, including withholding from us their portion of the wage tax, which is about -- I think it's about $100 million. We would have to go to monthly reporting instead of quarterly reporting to them. There are also a number of grants that they can withhold from us, so they have a number of --
How many more years 47 2/7/00 FISCAL STABILITY - RES. 000002 does PICA have to go?
PICA is in existence as long as bonds they have issued our outstanding, and they have bonds outstanding for another twenty years.
And so their existence is guaranteed for that period of time?
Yeah, unless their bonds are refinanced in some way, you know, their bonds are repaid, they're around.
What happens if there's an ultimate conflict? Suppose the PICA Board wants us to do something and we very much don't want to do it because we think it's in the City's best interests not to do it?
Their discretion is really whether the Plan is balanced, they're not policy-makers. So, for example, they can't say, "We don't like your KIDS Program, we think that's a bad idea." They can say, "We don't think your plan is balanced to show us a reasonable plan that is balanced."
And that's basically the limit of their authority? 48 2/7/00 FISCAL STABILITY - RES. 000002
Balanced books, and they also have some discretion if they think what we're doing threatens, I guess, it's the life and safety. Like if we said we were eliminating the police department to balance our plan, they have some discretion to say that they think that's not reasonable.
Is there any basic distinction between the work of the PICA Board and the work of the City Controller?
Yeah. The Controller's work is much more extensive. I mean, the Controller looks at, you know, the day-to-days disbursements, the Controller audits individual agencies; whereas PICA really is in a much broader oversight, a much more limited role in terms of what this look at in day-to-day activities.
So would it be fair to say that it's basically easier to satisfy PICA Board than it is to satisfy the City Controller?
I would say it's not easy 49 2/7/00 FISCAL STABILITY - RES. 000002 to satisfy either one.
Well, I noticed in this morning's Daily News an interesting reference to something that the City Controller was raising, the question of the purchase of property for far more than -- by the City in the closing days of the Rendell Administration for a price much higher than what the City Controller believes the price should have been and its potential tie-in with a campaign contribution of large size. Now, is that the kind of thing that PICA would not get into? Or would PICA, if it found something like that an unwarranted or a potentially unwarranted use of City money, would PICA raise that kind of issue? Or is that soley the function of the City Controller?
It's never raised this specific issue. And so long as we satisfy PICA that the books are balanced finally, then what happens when PICA reaches that conclusion? What do they do?
They approve the Plan, they 50 2/7/00 FISCAL STABILITY - RES. 000002 approve the Five-Year Plan.
We'll come back to you. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. My question is about PGW. As you may know, we have some serious concerns about PGW, and the mere mention of their not paying the $18 million that we expect, in view of the fact that they have no real system of operation, is one that we're concerned with. We're also working on some suggestions that we'll submit to Council and 51 2/7/00 FISCAL STABILITY - RES. 000002 certainly to the Administration in that regard. But it upsets us if PGW talks about not giving the City its due when they're not even collecting money. If they would collect money owed them or, in fact, develop a system, which to date they have not, we think that some of these problems would go away, but we are definitely concerned about that issue because we do not feel that if they do not collect the money that we should be the ones to pay for that. So we certainly are interested in a response and we want you to know that we're really, really concerned about that whole issue. I mean, there were even rumors about a gas increase, which we would find absolutely unconscionable in view of the fact that they don't even have a system for collecting money owed.
Councilwoman Blackwell, there has not been a formal request made of the Administration to waive the $18 million.
We raise it as a risk in contingency in light of reports of cash 52 2/7/00 FISCAL STABILITY - RES. 000002 flow difficulties at PGW and our understanding that the recommendation has been made by the Public Advocate to the Gas Commission. So we simply acknowledge and recognize that this is a risk, a potential risk. The Administration has not made any decision, there has been no formal request.
That is great. I would submit to the President and to the Chair of the Gas Commission and to the Administration some information that I've received about specific problems and where they are even with the whole system of collecting complaints. I understand that they have -- they are administration-heavy but they don't have people who can absolutely answer the phones, that anybody answering the phone could have waiting generally at all times 400 people. So there's obviously no way in an 8-hour day you are going to answer 400 calls, but that's the way it goes. If we were to walk in certainly and to look over the system, they would adjust the computer so that would not appear. But the real fact is, there's no possible way that the 53 2/7/00 FISCAL STABILITY - RES. 000002 calls can be answered and that those that are answered can be dealt with given the kind of situation that's presently existing. But I'll submit it in writing to the President, then to the head of the Gas Commission and the Administration so that you at least have some direction in this arena as to where we can focus.
Thank you, Madam Chair. Good morning. The Plan mentions on the School District two initiatives: one, to continue the $15 million payment, the extra payment that we've been doing for the last several years; and, two, to challenge the State, which I thought was a nice way of putting it 'cause I have heard it put in some stronger language than that, to increase funding. Is there any attempt being made at this 54 2/7/00 FISCAL STABILITY - RES. 000002 point to do a -- at least an eight-year historical on changes in the way the City has learned to do business differently over the last eight years, both within our own departments, with our employees, and different things, and challenging ourselves to see if the School District is at least playing on that field with us? 'Cause if I'm the governor and I'm sitting down with our mayor, that's going to be my first question. Before you ask us for more money or make a case, now that you've got a hold of the School District, now that you're interested in the School District, which I think hasn't been the case at least in the sense of really getting into their operations, what are you doing, Mayor Street? And I can picture that almost, once they get to know each other better, being the first volley from the State's side. Could you give me some feel for that Stephanie?
I certainly know that Mayor Street is considering a close examination of the School District's overall management productivity in order to make sure that 55 2/7/00 FISCAL STABILITY - RES. 000002 we are, in fact, operating the School District in the most effective and efficient manner. I don't know the extent to which we've gotten into the details as to whether or not it's going to be, you know, an eight-year historical, but certainly that is one of his concerns.
Well, I would like to see somebody, where it's -- I hope it would be us doing it and not them at the State level, just looking at, if for the last eight years we have been operating as economically as efficiently -- and I'm not saying we're there yet but we're certainly light years ahead of where we were in 1990 -- what would our numbers look like? I mean, you can do a real quick hypothetical. If their health-care costs are still high and not where ours are, if their, you know, lack of a productivity bank, if you will, can be projected out to what could have been saved over eight years, you know, where we're going from here? And I think they're the hard questions we should be asking within the Administration within the City government of the School District, 56 2/7/00 FISCAL STABILITY - RES. 000002 because if we're going to take them over, you know, it shouldn't matter that much. It should be fairly transparent that if you're a School District employee, many of them don't live in the City, and a City employee, all of whom do, in terms of your benefits, what's expected of you, what changes can and should be made. And I think we really have to get our hands on that. It all drops down to the bottom line of more money for the kids. And it also makes, I think, a better argument to ask the State for money. So I would hope at some point -- sooner than later -- that we can get that kind of a feel for the differential, if there is one, and I'm certain there is one.
There are a couple of ongoing initiatives in place with regard to the School District. One, there is an existing private- sector task force on management and productivity, which is discussed specifically in the Plan on . But in addition to that, Mayor Street 57 2/7/00 FISCAL STABILITY - RES. 000002 has mentioned on numerous occasions the work of the Transition Team, and one of the areas the Transition Team's been focussing on is the School District and education reform. And one aspect of their work also includes management and productivity. And so we would expect the work of the Transition Teams to be completed shortly with recommendations and reports coming out of that process, which the Mayor has committed to share with Council.
Okay. I'll be looking for that. Secondly, the Mayor's mentioned that we're beginning to spend down the surplus now, and has projected that out over this administration. How have we actually been spending the down the surplus for the last couple of years? He's never mentioned that we're continuing to spend it down, and I'd just like some clarification on that. It's my understanding that this came in in a flourish, and we've actually, in the last couple years of the Rendell Administration, have been spending -- including the one we were halfway 58 2/7/00 FISCAL STABILITY - RES. 000002 in this, year fiscally speaking, have been spending down the surplus, so -- and running deficits. So could you clarify that?
Okay. So we haven't had any deficits under -- these would be the first deficit years we've had?
Okay, thank you. Stephanie, I'm going to ask you something that I haven't been able to get any administration. I think it's a fairly several request that could help us in Harrisburg, and it may even be more important if we get involved with whether we're still a first-class county or not under census results. But aside from any of those issues, 59 2/7/00 FISCAL STABILITY - RES. 000002 just in terms of good, solid arguments for more state funding, we are the only city-county in the country -- I believe we're the only seamless city-county -- I'm sorry in the state I meant first. In the country where there are a few, I think, we're not only the largest -- New York is another with their boroughs and everything and their own presidents. We are the seamless, transparent city-county. Since at least 1980, our county side, I believe, has been bleeding our city side. What we traditionally do as a city, and would do if we weren't a county, have been, you know, the police, the fire, the L&I, the things that cities do. And I don't believe our costs have been mind- bogglingly (sic) escalating over the last twenty years in those areas. But on the county side, the social services, the prisons, the courts, things that you only do as a county, as an agent of the state, have been just off the table. I mean, between drug epidemic and all other kind of social things going on, particularly in urban areas, but they're true everywhere for counties, our numbers have 60 2/7/00 FISCAL STABILITY - RES. 000002 just gone through the roof. And so without a recognition first by ourselves of this great imbalance, you're not going to get much attention from the State on it, and we've never really broken this down ourselves. This is what we spend as a city, this is what we spend as a county. The -- it makes it difficult to argue with the State when you don't even have your own house in order in terms of the numbers involved in both of these. And I believe for at least twenty years, in a sense we've been robbing the municipal side of our revenue stream and borrowing from there to pay our county side. And I think the numbers reflect that clearly if a study is done over that period on county functions. So I think aside from any School District arguments we may have, I think there are clear arguments that could be made to the State that you're hurting us as a city by not helping us more as a county. 'Cause it's in both of those areas where high concentrations of poverty kill you, just kill you, both in education and in social service areas that counties function in. 61 2/7/00 FISCAL STABILITY - RES. 000002 And I asked the Goode Administration, I asked to Rendell Administration, and I got tired of asking. Just break it down. And if we can't break it down, we ought to go out of business. And on the one hand, it makes for real nice comparisons. Allegheny County is almost exactly our side -- different economic groupings making up that county. But at least we can go to Harrisburg with some real comparisons and some apples and apples. I mean, that's what I'd like. I don't want to hear the differences but where we can find similarities to make persuasive arguments. I mean, I think many of us would like to help make those arguments. If you could find someone in the Administration that could break that down for us, I would appreciate it.
We can do that. And I think, just to add to your point, the delay in transition of court funding, that responsibility we continue to bear, when it 62 2/7/00 FISCAL STABILITY - RES. 000002 belongs to the Commonwealth. So I do think you've got a good argument.
Councilman O'Neill, are you finished with your questioning?
Thank you. Does the proposed Five-Year Plan provide for the expansion of the Convention Center?
Well, will the hospitality and tourism segment of our economy be able to sustain itself without the center's expansion?
I think that the Convention Center is actually working on analyses of that, and they have not come to us with any kind of formal proposal. So the answer then is that I don't know until we've had further discussions with them.
Can you tell us what the strategies are for the City, that the 63 2/7/00 FISCAL STABILITY - RES. 000002 City will use in order to stimulate the growth of small and emerging businesses? (Mjenzi Traylor comes forward.)
Good morning, Council President. My name is Mjenzi Traylor, I'm acting Commerce Director. We're going to be focussing primarily in the strengthening of the services that have been given through the Mayor's Business Action Team. And in addition to that, we now have another tool for strengthening businesses -- the Keystone Opportunity Zone. And so we're experiencing considerable growth in those zone areas and new businesses coming in. I'm not prepared this morning to affix figures to that; I will take your question back and try to do a further analysis that will give you a better answer to that. In addition, we also have an activity that we have done in cooperation with the Small Business Administration -- the Small Business Support Center that we operate over at 1315 Walnut, which has been strongly supportive of 64 2/7/00 FISCAL STABILITY - RES. 000002 business activity.
In addition, Council President Verna, one of the -- one of the Transition Team's subcommittees has been focussing specifically on emerging industry and business. And, again, these are reports and recommendations which we expect to come out of that process within at the next month or so. So there's been a parallel effort in addition to the initiatives that the Commerce Department is directly involved in where we would expect to be in a position to develop strategies for buttressing, you know, existing businesses, strengthening our small businesses, but also developing some of the emerging areas. So we would expect to be in a position to talk in more detail after the Transition Team makes its report.
Thank you. Thank you very much. What is the total cost to the City's General Fund for the Republican National Convention? There are many different figures. I'd like the record to reflect exactly what the 65 2/7/00 FISCAL STABILITY - RES. 000002 figure is.
We don't have a total number. We have $5 million in the budget, specifically in the Operating Budget, specifically for the Police Department in terms of additional officers and more extensive security and to enhance our ability to deal with any situations involving civil unrest or demonstrations and so forth. The bulk of what the City will be contributing to the convention will be in the nature of in-kind services and programs and activities. These are ongoing, and we are in the process of identifying what those costs are. But we don't have that information for you as of this moment. We'd be happy to provide it, though.