Committee Hearing, February 7, 2000

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.

This is not a revised Five-Year Plan.

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.

At this point in time.

All right. Miss Suber. Good morning.

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.

How about wage increases?

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?

Yes.

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.

Fine. (Estelle Richman comes forward.)

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.

Thank you. I think I've used my five minutes.

You always have --

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. Thank you, Madam President.

Thank you. The Chair recognizes Councilwoman Tasco.

I don't have any questions of the Commissioner.

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, Madam President.

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?

No. 24

Let me ask you about the -- 35 2/7/00 FISCAL STABILITY - RES. 000002

It's just a coincidence.

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

One other question.

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?

Excuse me?

When did these events take place?

Probably beginning in the '60s, '70s.

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 --

I think it's pretty much standard language.

Standard language, okay.

Yes. 39 2/7/00 FISCAL STABILITY - RES. 000002

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.

That's right.

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.

Is that the end of the answer?

Yes.

So we could lower it but we don't?

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.

The fear of the suburban reaction to what?

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.

Yes.

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 --

Yes.

-- 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.

Yes.

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.

Yes.

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?

No. 22

You mean, we've taken the burden and made a good use out of it?

Yes.

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.

Approved by the Mayor by that date?

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.

And the --

I'm sorry, I'm not too clear on that answer. Are you, Councilman?

Well, I was still going to pursue it, but go ahead.

Oh, go ahead, please, no. I don't mean to interrupt you, but I'm not to too clear on that answer.

Could you repeat 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 --

Could you slow down a little, please.

Sure.

This is not a race track.

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.

It has happened for the last several years?

It has.

Did you say it has happened or hasn't?

Yes, it has.

During a number of years?

Yes.

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 --

And what --

I'm sorry, go ahead.

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.

What happens if they disapprove?

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

Yes.

To demand that we have balanced books?

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?

PICA has never raised issues like that.

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.

And you have dinner out that night?

I go home and take a nap, I think. (Laughter.)

Councilman?

Yes?

If you don't mind, your five minutes are up.

Yes. Thank you.

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.

Right.

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.

Thank you. Thank you, Madam President.

Thank you. Councilman O'Neill?

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?

Yeah. Actually, the surplus has gotten larger each year.

Okay. So we haven't had any deficits under -- these would be the first deficit years we've had?

FY 2000 would be.

Okay.

The year we're in now.

Okay, so we've been running true surpluses.

Yeah.

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.

Okay, thank you.

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.

Thank you.

Councilman O'Neill, are you finished with your questioning?

Yes.

Thank you. Does the proposed Five-Year Plan provide for the expansion of the Convention Center?

No. It doesn't have any funding for that.

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.

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.

With the police, I assume that is for overtime?

(Nods.)

Yes, that's the bulk of it.

Could somebody say that, please?

Yes. 66 2/7/00 FISCAL STABILITY - RES. 000002

Yes.

How would you characterize the Administration's overall revenue-growth assumptions contained in the Five-Year Plan?

I guess we would characterize them as cautious. I mean, there is -- conservative. We assume a relatively flat economy throughout the life of the Plan, and so the tax revenues aren't consist with that.

You indicate that you are projecting General Fund revenues to grow by an average rate of 2.2 percent from FY 2000 through FY 2005. Is this the growth rate before or after the adjustments of the proposed tax decreases?

It's after, after the decreases.

On , regarding the real property tax, what are the assessment growth assumptions contained in the Five-Year Plan for both commercial and residential properties?

I'm checking through the 67 2/7/00 FISCAL STABILITY - RES. 000002 Plan now to find that.

Okay.

We forecast that the combined residential and commercial assessments will grow about 1.3 percent through the life of the Plan.

I'm sorry, I didn't hear you.

About 1.3 percent through the life of the Plan.

What is the Administration's strategy for improving the collection of delinquent taxes? I know we talked about the Revenue Department having new systems. Are these systems -- these systems are currently online, are they not? COMMISSIONER KAMMERDEINER: Good morning again. This is Nancy Kammerdeiner. Most of the systems improvements that have been referenced over time are online, but we are still in the process of moving two of the larger land-based taxes into our consolidated system. By June of this year, we expect to be moving the business use and occupancy tax into our 68 2/7/00 FISCAL STABILITY - RES. 000002 consolidated base, and then approximately one year later, the real-estate tax would be moved to the consolidated base. That doesn't mean that we --

How are -- excuse me, I don't mean to interrupt you, but how long have the new systems been in place? COMMISSIONER KAMMERDEINER: The initial consolidation of the integrated tax system that has all of the self-assessed business taxes went online in February two years ago. We have added, I believe, school income tax to that base since then. And we have seen some great improvements in our ability to manage the process as a result of having the integration on one platform instead of having multiple taxes systems. The main thrust we have been working on with that integrated system has been improving the kinds of messages that we give to taxpayers when there's a problem. When we process their tax return, we are now sending out notices to tell someone that there's been a calculation error, that there's a missing schedule -- all of those things that have in the past resulted in bills 69 2/7/00 FISCAL STABILITY - RES. 000002 that the taxpayers couldn't understand. We're trying to do a better job of communicating with the taxpayer and helping them to understand what it is they owe so that they can and will pay the balance that's due or be able to provide additional information to us in order to correct their record.

With all of that being said, how successful have we been in collecting many of the delinquent taxes? COMMISSIONER KAMMERDEINER: I think that success rate is shown in terms of the collection amounts that we're seeing with the last two fiscal years, where, in spite of rate decreases, we're showing higher collection amounts. And we are up in our collection of delinquent taxes as well as the current year taxes. One particular area where we've had a great deal of success is with the school income tax. We've been matching our records to the IRS records. And this fiscal year -- and we're only now seven months into that fiscal year -- we have far exceeded the budget expectations of the School 70 2/7/00 FISCAL STABILITY - RES. 000002 District on the collection of delinquent school income taxes as a result of that special project. We spent the budgeted amount by October of '99, and we continue to work with that compliance project to bring in additional funds for the School District as a result of our use of the system that the computer system and the matching capabilities we now have with IRS data. And that's just one small example, but it's typical of the kinds of things we're now able to do and are doing on an increased basis.

Can I follow up with one question to yours?

You certainly can. The Chair recognizes Councilman Cohen.

Is it possible that in the City's own administration that there could be as many as, say, 35,000 uncollected accounts 'cause the City records don't know of them, just as we're hearing rumors in the Gas Works? Would that be possible? COMMISSIONER KAMMERDEINER: With the business taxes, they are self-assessed taxes, we don't always know if someone has a liability. 71 2/7/00 FISCAL STABILITY - RES. 000002 We're using as many resources as we can to identify those who may have a liability who are not currently registered with us if. But if they're registered with us, we are billing them. We, to my knowledge, have no 7 unbilled accounts for taxes where we have a known liability.

In connection with that, would you be checking with the Gas Works to see how they discovered if they have discovered the existence of these other kind of accounts to see whether a similar situation might exist in the City? COMMISSIONER KAMMERDEINER: We've had some discussions with them. I think their situation is with new meters, new accounts that were installed and not put on their system and some accounts that were left behind when they went from their old system to their new one, and they're in the process of identifying them and bringing them over. I don't think we have a comparable situation that we're looking at, but we certainly will be reviewing our water accounts as we verify that we are billing everyone there. 72 2/7/00 FISCAL STABILITY - RES. 000002 To my knowledge, we have no similar problems in our water and sewer accounts to the Gas Works, and that would be the most comparable area that we would have.

I am told that there's a property, for example, that's long been in existence at the corner of 16th Street and Champlost that goes under the name of -- at least the sign outside says "National Transmissions." It's been there for many, many years, and I'm told there are no City records on that property. COMMISSIONER KAMMERDEINER: No City records for --

On that property at all. COMMISSIONER KAMMERDEINER: For real estate or what?

Nothing exists. COMMISSIONER KAMMERDEINER: Nothing exists.

That no taxes have been paid for many, many years. It's a corner property. COMMISSIONER KAMMERDEINER: We 73 2/7/00 FISCAL STABILITY - RES. 000002 certainly will look into that.

Could you check into that? COMMISSIONER KAMMERDEINER: We certainly will.

And see if that leads to similar kinds of situations? COMMISSIONER KAMMERDEINER: We certainly will. And anytime anyone identifies a situation -- there could be isolated instances like that where -- particularly in corner properties, you find that we are more in jeopardy of having two records for it: one, in this example, on 16th Street, and one on Champlost. I will be surprised if we don't have a record for it in one way or the other there, but I certainly will check into that.

And if you'd be good enough to notify me. COMMISSIONER KAMMERDEINER: Yes, we will.

Thank you, ma'am. COMMISSIONER KAMMERDEINER: Yes, mm-hmm. 74 2/7/00 FISCAL STABILITY - RES. 000002

Thank you. At this time, the Chair recognizes Councilwoman Brown.

I have a follow-up question to Councilman O'Neill's discussion about our dual status as city/county and draw your attention to the last paragraph on of your testimony, Stephanie, where you acknowledge that the Commonwealth is not living up to its responsibility, and that that has not taken place since '96. So does the City have a plan, or a revised plan of action, for addressing that? And/or are there any negotiations underway with the Commonwealth for the Commonwealth to honor its obligation?

It will be one of the agenda items in the upcoming meeting with the Governor on the 11th.

Okay, very well.

This week.

The Chair recognizes Councilman Nutter. 75 2/7/00 FISCAL STABILITY - RES. 000002

Thank you, Madam Chair. On a different part of Councilman O'Neill's question, if I can make an additional request. Madam Chief of Staff, does the Mayor intend to pursue the level of involvement and oversight and coordination between the City and the School District here in any comparable fashion to what Mayor Daily did in Chicago as it related to that city and the involvement and oversight of the school district there, and specifically in the area of finances that Councilman O'Neill was talking about? I think the City Charter calls for, if not requires, some level of coordination between the City and the School District, but I think that Councilman O'Neill's question went more to efficiencies and operations, the finances and the accounting function. The Mayor, as a result of some action by the City Council, has received powers much greater than any other mayor has on January 1st of this year and by way of his appointment to the School Board. Just how far does the Mayor plan to 76 2/7/00 FISCAL STABILITY - RES. 000002 go in terms of his involvement with the School District and specifically with its operations?

Well, you've raised one issue, which is the School Board, and as you know, the Administration is in the process of accepting applications and looking at potential changes to the School Board.

Right.

But I think the most significant change in the Administration was the creation of a cabinet-level position, the Secretary of Education, whose sole focus is on speaking for the Administration on education issues and making sure that there is ongoing monitoring and coordination with the School District, and that's the focus of that position. And in addition to meeting with the Governor, there are ongoing meetings that the Mayor holds with the leadership of the School Board, the Secretary of Education, and the U.S. Secretary of Education recently --

I understand that.

-- came to visit the Mayor. And so there are -- 77 2/7/00 FISCAL STABILITY - RES. 000002

Not to cut across you, Madam Chief of Staff. What I'm actually talking about again is within the realm of what Councilman O'Neill was talking about. When the City, upon the inauguration of Mayor Rendell, and recognizing what our financial system was like and the systems and programs and efficiencies and savings that were accomplished over a series of years, which have now obviously led to the much discussed and touted $205 million surplus, and I know Miss Kahn and respect her a great deal. I don't necessarily know that she's going to spend each and every day either down in the Finance Office or working with the unions or anyone at that level to get those kinds of efficiencies and changes and savings made. So my question goes back to, does the Mayor intend to try to do some of things that Mayor Rendell did as mayor and the current mayor supported as the council president in terms of the fiscal operations and efficiencies of this city government and look to do many of the same things at the School District because he is the Mayor and will have appointed his own school board in a very 78 2/7/00 FISCAL STABILITY - RES. 000002 short period of time? That's really the question.

When I responded earlier, I pointed out that there is an ongoing transition committee that has been looking at not only educational reform but also management and productivity initiatives.

Right.

Once there are recommendations made -- I mean, I certainly think that the Mayor intends on looking at management and productivity and savings in the School District. I cannot tell you whether the strategies he will adopt will be the same as those used by Mayor Rendell or Mayor Daily in Chicago. But I do know that that is significant and I do know that we are actually looking at new and different and more innovative strategies, which is why we have gotten involved in the process all of the local Chambers of Commerce. So, yes, the Mayor will adopt a strategy for management, productivity enhancement, and savings at the School District.

Right. 79 2/7/00 FISCAL STABILITY - RES. 000002

I can't say if they will be exactly the same as the Rendell Administration or the Daily Administration.

I understand, and I'm not saying that the Rendell Administration stuff was good, bad or indifferent, or the greatest thing since sliced bread. All I'm saying is, when the transition committees' and all the various committees' work are done, they don't work with the School District. And similar to any transition committee recommendations that Mayor Rendell may have received from whoever he talked to, they didn't implement them at the City level. People who work here implement them and the people who work at the School District will have to implement them. Lastly, in this same area, we talk about the -- your testimony makes reference to the $15 million for the School District, which has been supported as, I guess, kind of a one-time payment for, I think, the last at least three, maybe four years, and it's proposed that we continue that. Can anyone tell us at this point where 80 2/7/00 FISCAL STABILITY - RES. 000002 that figure came from, why does it stay the same? And, I mean, is there any discussion about that particular number? I mean, I certainly support the School District. Why is that the number?

I don't know.

Mr. Dubow, you get the award for the most honest answer anybody has given. (Laughter.)

And we're only in our first day.

We can try to find out, and if we're able to do that, we can give you the information.

All right. Lastly, and I'm sure the agenda's full between the Mayor and the Governor. But, again, does the Mayor, given what we've talked about earlier, there were other components of kind of an educational reform agenda, the first component of which had to do with the School Board, and that's one of things that we could do at the local level. Does the Mayor intend to talk to the Governor and/or the state legislature about 81 2/7/00 FISCAL STABILITY - RES. 000002 changing state law as it relates to the City Council's ability to review and adopt the budgets for the School District? Presently, we're not legally able to do that.

I'm not aware that he intends on discussing that with the Governor.

Is it fair to say that you're also not aware that he may, in fact, intend to talk to the Governor about it? Or you're not saying that he's not going to talk to the Governor about it? Could we make that a -- can we put that on the agenda?

As part of the education reform strategy, that has not been one of the issues that we have discussed. And so, therefore, it is not on the agenda for discussion with the Governor.

Okay. Well, as a member that's been here for a little while, and the President's certainly been here much longer than myself, I mean, the current -- the reality is that the School District comes over. Our only legal authority and responsibility is to 82 2/7/00 FISCAL STABILITY - RES. 000002 reauthorize the taxes, which, you know, we could do, I guess, in the next couple weeks and not have them over here. I mean, to have no oversight, legitimate oversight over their budget or any ability to pass on it, at some level, it becomes somewhat of a sham process. I mean, it's all the same people. And so we pass the budgets to decide whether someone's trash is going to get picked up, but we don't approve budget that decides whether someone's kid's going to get an education. That doesn't seem to make a lot of sense to me. But we need state authorization to make that change, and I would more formally request that there be some discussion about that. When the Mayor was then-candidate back in, I believe, April, he did come here to testify with regard to the ballot question, but there were other items on that particular agenda that basically said, If we do this, we should next seek authorization from the state to look at approval of budgets, the Mayor's more direct involvement in the appointment or nomination of the school superintendent, as well as the Mayor's direct 83 2/7/00 FISCAL STABILITY - RES. 000002 involvement and responsibility for signing the contracts between the School District employees and the School District of Philadelphia. Those three items all require support from the state legislature and approval of the governor because of the appropriate state statutes.

(Nods.)

Thank you. Thank you, Madam Chair. I know my time is up.

Thank you. The Chair recognizes Councilman Goode.

Thank you, Madam President. Good morning to Mrs. Franklin-Suber and members of the Administration.

Good morning.

Along the lines of carryover language from previous five-year plans, can you clarify the unprecedented 6-year $7 billion Economic Stimulus Program, that phrase? Does that refer to six years of unprecedented economic investment, six years of unprecedented job growth? Or what does it refer to? 84 2/7/00 FISCAL STABILITY - RES. 000002

What page are you on?

It's throughout the document. The question really is, if you compare the same six years within the last decade, 1984 to 1989, what has changed in terms of economic investment and job growth? It's on of Miss Suber's remarks.

Councilman Goode, let me take that question for now and look at it, and then we'll come back before the end of the session.

Okay. I have a couple other questions. How has economic development strategy changed over the last two decades? And as you look at that comparison between the same 6-year period, 1984 to 1989, and 1994 to 1999, how do you account for the greatest success in terms of job creating during the '80s? And what is the projected job growth for the first six years of the Street Administration?

Excuse me, Mr. Mjenzi, before you respond, would you please identify yourself for the record. 85 2/7/00 FISCAL STABILITY - RES. 000002

Mjenzi Traylor, Acting Director of Commerce.

Spell it for the stenographer.

M-J-E-N-Z-I. Last name, T-R-A-Y-L-O-R. Council, we think that this -- the answer to your questions can best be dealt with through in conferring with Mr. Hankowsky from PIDC, who is not here this morning, and we would like to ask to be able to get back to you with the response.

There is a representative from PIDC here. (Paul Deegan comes forward.)

Good morning. My name is Paul Deegan, D-E-E-G-A-N, and I represent PIDC. Philadelphia Industrial Development Corporation.

Just pick up, please.

Yea, I think I would have to echo the Commerce Director's answers. We can go back and get numbers and submit them to Council. I think we can answer the question; I 86 2/7/00 FISCAL STABILITY - RES. 000002 don't think we have the numbers right here, though.

The purpose is not just comparison of numbers; it seems to suggest in the Five-Year Plan that we should continue the course according to the Economic Stimulus Program because it is a, quote/unquote, unprecedented 6-year $7 billion Economic Stimulus Program. If is not six years of unprecedented economic investment, if it's not six years of unprecedented job growth, if there is a period to compare it to within the last -- the previous decade, 1984 to 1989, the question is, is economic development strategy changing, is it intended to change? And what is the job growth projections for the Street Administration?

In terms of the job growth, we will have to get back to you with those numbers. But in terms of the strategy, the strategy, in terms of economic development, has been outlined at length by Mayor Street in his inaugural address, in his budget address, in his 100-Day Plan. 87 2/7/00 FISCAL STABILITY - RES. 000002 And basically, we're going to continue to focus on the development of Philadelphia as a hospitality and tourism destination, but also, we're going to focus on revitalization of the neighborhoods, strengthening small businesses buttressing existing businesses, identifying emerging industries, and trying to expand in new and innovative ways the local economy. Part of that is the Economic Stimulus Program, which is why we have a specific $5 million line item in the upcoming budget. And so we're going to continue to provide as much support as possible to existing businesses through the combination of programs that are currently in existence, with the Commerce Department also working still in conjunction with PIDC and PAID, as we have in the past, but also probably implementing some new and different strategies which will come out of the transition process I've referred to previously.

So is the Economic Stimulus Program a program or is it actually economic development strategy? I heard you differentiate between the two. 88 2/7/00 FISCAL STABILITY - RES. 000002

The Stimulus Program is a program and is one aspect of the overall economic development strategy.

So the program --

And it is a program that is actually funded by the City through a contractual relationship with PIDC and PAID. And so it's an ongoing program.

But the $7 billion for the Economic Stimulus Program does not refer to the contractual relationship, does it?

It's more than just the funding that we have provided over the past several years of the Rendell Administration. We can get --

My question is that there not a $7 billion contractual relationship between the City and PIDC regarding the Economic Stimulus Program, is there?

The $7 billion does not refer to $7 billion in funding for the Economic Stimulus Funding Program, that is correct.

Councilman, you're asking 89 2/7/00 FISCAL STABILITY - RES. 000002 if there is a contract with PIDC for that amount of money? The answer ---

No, that's not the question. I know the answer to that questions. Seven billion dollars refers to both public and private funds.

That's right. If you look at on the Plan, it lays out the $7 billion and where they come from.

So in answer to my question, it would continue the same strategy from the previous six years?

For the Economic Stimulus Program, yes.

Thank you.

Thank you very much, Councilman. The Chair recognizes Councilman Kenney of.

Thank you, Madam Chair. I want to go back a minute to the School District and the issue surrounding the $15 million appropriation that we have been doing 90 2/7/00 FISCAL STABILITY - RES. 000002 for the last number of years. Is there any idea or any accounting for what that $15 million is spent on? Part of problem that I've had annually in dealing with this issue and in dealing with School District funding generally has been my belief, and I think echoed by Councilman Nutter, kind of the lack of accountability to this particular legislative body that the School District has or has not as it relates to the monies that they expend. Has there ever been a consideration of in some way maybe setting up a $15 million productivity fund or loan bank or something that we could at least, from our perspective, understand what it is that particular money's being used for? Whether it's books, technology whatever it it's -- whatever it is. I mean, I don't want to have to direct them how to spend it, but I would like to see what projects and programs they're initiating with the $15 million. And I'll tell you why. From time to time, the School District makes, or the Board makes, decisions at the request of the Superintendent that somehow fly in the face of the 91 2/7/00 FISCAL STABILITY - RES. 000002 fact that we are in fact in this fiscal crisis that we keep on hearing about, and primarily it's issues of raises that are given to administrators occasionally. I understand that there may be a new round of raises that is being discussed or considered as we sit here today for sometime in the near future within a week or so. I think part of the problem is twofold. Number one, we don't mind giving the $15 million up -- maybe we should be giving more money, as Councilman Nutter alluded to. But at the same time, there are actions often taken or sometimes taken by the Board and by the Superintendent that fly in the face of this overall concern about fiscal crises and deficit. Is there some consideration to perhaps being more accountable with this 15 million?

I certainly think that -- I certainly think that consideration can be given to the expenditure of the $15 million. It's my understanding that we simply give the $15 million, it's unrestricted. Whether or not it can be earmarked, whether or not it can be used in the way of a productivity fund or something along 92 2/7/00 FISCAL STABILITY - RES. 000002 those lines, I think, are all issues that can be seriously considered and explored by the Administration.

By the Administration in conjunction with the Superintendent or the Board or with us? 'Cause it's -- I mean, even though it's a pittance, a comparative pittance, it's still our million. 10

I think in 11 reaching a decision, the Administration would 12 include in the decision-making process members of 13 City Council as well as the Board. 14

I would appreciate 15 that. But let me ask you a question about the School District's and the Administration's overall strategy as it relates to trying to coerce, cajole, beg, plead more money from the Commonwealth of Pennsylvania. There has been an ongoing philosophy or strategy or approach that basically says that the Commonwealth of Pennsylvania has been unfair to the School District of Philadelphia and its children because there exists a $2,000 or $1900 gap per pupil in 93 2/7/00 FISCAL STABILITY - RES. 000002 spending for the School District of Philadelphia as compared to the surrounding counties of Philadelphia, who spend $1900, $2,000 more per pupil. The people who live in the suburbs -- state legislators, other county commissioners township people -- would contend that that gap is created by the fact that the real-estate taxes in their communities are substantially higher than they are in Philadelphia, and also counter with the fact that 60 percent of the School District's budget is provided by the Commonwealth of Pennsylvania, which is an unprecedented number when you compare it to other counties throughout Pennsylvania. Now, while I recognize that the City of Philadelphia and its students have peculiar and unique problems of poverty and disjointed families and other kinds of issues that create an additional need, how do we expect to be successful in arguing that the Commonwealth of Pennsylvania has been unfair to us, taking into consideration those issues?

That was a 94 2/7/00 FISCAL STABILITY - RES. 000002 strategy pursued by the Rendell Administration. The Street Administration starts from the proposition that all children are entitled to an opportunity for a quality education. And if you start to focus on the quality of the education, the programs and the activities, and if you look at the issue from a statewide perspective, putting the money aside, it becomes a question of what the Commonwealth's commitment is to that proposition. Once you start to focus on programs, the quality of programs, the quality of education, then it seems to me if -- and it seems to the Street Administration that it's easier to reach common ground because you're starting from a different perspective. And so, the position is simply, the children in Philadelphia and the children across the Commonwealth are entitled to an opportunity to receive a quality public school education. That's what they are entitled to receive.

How does the Administration intend to take that admirable, which I agree with, philosophy and move it to the point of reality wherein the State acknowledges 95 2/7/00 FISCAL STABILITY - RES. 000002 the need for additional funds for the City and provides it, without the continuing rancor that is, I guess, been one of the Superintendent's hallmarks in kind of being a confrontational speaker when it comes to his remarks vis-a-vis state legislators and senators and even the Governor. I mean, certainly our Mayor Street has shown public support for Superintendent Hornbeck, but at the same time, he goes off and makes a speech or two which puts us what I believe may be four five paces back in our attempts to meet or match that common ground. And I mean, a lot of it is philosophy, and it's also practical politics and practical approach to politicians and people who can make these decisions for us. I mean, why are we continuing in a position where we say we need to find common ground, and on the other hand, are calling people unfair and racist and other things?

Well, I am not aware that you're referring to any speeches that the Superintendent may have made after Mayor Street came into office. 96 2/7/00 FISCAL STABILITY - RES. 000002 Mayor Street is setting the strategy for education reform for the City of Philadelphia. And the Superintendent and all of the members of the School Board and the Secretary of Education and other members of the Administration will follow his lead. And the starting point is the meeting with the Governor on the 11th so that they have an opportunity to get to know each other and to assess the extent to which we can resolve the issues amicably and reach common ground. It is our understanding that the Governor is committed to quality education. And Mayor Street is committed to quality education.

If that resolution 16 includes the potential of the establishment of a pilot voucher program in the Commonwealth of Pennsylvania, would that be something that this administration would be supportive of, if in fact it means additional dollars for the public schools of Philadelphia?

I can't answer that question.

Has the Administration or yourself or anyone met with any 97 2/7/00 FISCAL STABILITY - RES. 000002 legislative leaders -- Majority Leader Perzel, Senator Salvatore, or other members of the Pennsylvania delegation to the State House -- as it relates to the strategies that need to be employed to bring more money to Philadelphia?

The Mayor has been in the process of meeting with various members of the General Assembly.

Has he met with Majority Leader Perzel or with anyone in leadership? Speaker Ryan, anyone?

I do not know the extent to which he may have had informal conversations with them. I know he intends to meet with them if he hasn't met with them already.

Is my time up? What I would like to do is come back around. Madam President, as I said, my light is broken here, so just put me on the next go-around. Thank you very much.

Okay, we'll come back to you, then. The Chair recognizes Councilman Nutter.

Thank you, Madam 98 2/7/00 FISCAL STABILITY - RES. 000002 President. To stay in the education area, first, Miss Suber, in your testimony on , down at the bottom, the paragraph starts with the ambitious agenda outlined by Mayor Street and then goes on to continue "spearheading efforts for educational reform and exploring reasonable strategies to build world-class facilities for professional sports." I think I've privately and publicly articulated a general interest in these world- class facilities for professional sports, and I'm sure we'll have a little bit of discussion about that over the next few months. But certainly, it would also be good in that discussion to have a plan and I'd like to know what the plan is for world-class facilities for public education. Is there a plan for the immediate improvement of the condition of our public schools from a capital standpoint? Miss Kahn, are you satisfied with the condition of our public schools?

Debra Kahn, Secretary of Education. 99 2/7/00 FISCAL STABILITY - RES. 000002 The School District, as you know, has its capital budget process.

Right.

And always on a regular basis, it allocates dollars for renovations of schools as well as new construction where needed and supplemental facilities. I think that there has been tremendous improvement in the condition of the schools. But, no, I don't think that we could say that we would be satisfied with the condition of all of our schools.

So you wouldn't today classify them as world-class educational facilities?

I think there might be a few that might meet that standard and in some of our newer schools and some of -- you know, other schools. And I also don't think that you can always judge, and I think that you know that the quality of what goes on inside a school necessarily by either the age of the building or what its facilities always look like, but clearly 100 2/7/00 FISCAL STABILITY - RES. 000002 many of our schools need improvements.

Okay. And is there anything beyond the regular plan to have an accelerated improvement in the infusion of capital dollars to bring schools up to standard as quickly as possible?

Well, as part of this comprehensive plan that the Mayor has promised, I think we certainly have to include a look at the capital facility.

Okay, thank you. Later on -- well, why don't I ask you while you're sitting there. Further in the testimony, on 5, there's discussion about your recent appointment, recent charter reforms, Administration Secretary for External Affairs, to promote the City's education agenda at the federal and state levels. I mean, is there, I guess, an outline of a particular plan to get additional funding for public schools?

There is nothing in writing yet at this time.

Okay, thank you. 101 2/7/00 FISCAL STABILITY - RES. 000002 On , Madam Chief, your testimony talks about how Philadelphia's tax structure remains the least competitive in the region and one of the most costly in the nation. Other than the previously discussed continued decreases in taxes, does the Administration have any particular plan to look at the overall tax structure of Philadelphia? And do you plan to participate in the upcoming hearings, as approved by the City Council last week, to look at our overall tax structure and see where we might make ourselves more competitive, notwithstanding the incremental decreases in our current taxes?

The answer to both questions is yes.

Thank you.

As part of the transitional process, there is a Committee on Tax Reform, and we are expecting recommendations shortly.

Very good. Let me move to a couple items in the Five-Year Plan. First, in the L&I section, it's my understanding that L&I, for its licenses and 102 2/7/00 FISCAL STABILITY - RES. 000002 inspections, for some time, has been trying to get a productivity loan to improve and update their record-keeping system, the computerization of their operations. Can you tell me what the status of that loan is and what, if any, difficulty there's been in getting that improved? Councilman Kenney was Chair and I was Vice Chair of L&I for eight years, and many of us, I know, worked with that department on a regular basis. And if anyone needs record-keeping update capacity, it is certainly that department and it's well deserved. What's going on with their productivity loan?

I think we all agree that they need some information-system enhancements, and we've been working with them to make sure that we understand that they're doing it the best way possible. So we have spent a lot of time with them on that. And I think that their application is actually now in pretty good shape at this point and --

When will it be approved, Mr. Dubow? 103 2/7/00 FISCAL STABILITY - RES. 000002

Well, we have to bring it to the Loan Committee, and we don't have a meeting scheduled, but we'll have to look at that shortly, right.

How long does it take for the Loan Committee to decide to have a meeting?

Well, part of the problem is that a lot of Loan Committee members are also involved in this process, so the two are overlapping. So it's likely that we'll get to it as soon as the budget process is over.

Do many of the Loan Committee members ever call L&I for service?

Um --

I do, every day.

Yeah.

Maybe upon your return, you could tell us when the Loan Committee is going to meet. I'm pretty serious about this matter.

Okay.

Okay, thank you. In the Fairmount Park area, I was 104 2/7/00 FISCAL STABILITY - RES. 000002 trying to understand -- maybe I wasn't reading the numbers correctly. On , for Fairmount Park, the Five-Year Plan talks about the $1 million for street-tree maintenance, which I'd be glad to go into further when Fairmount Park comes up. But it says that prunes from only -- "Increase the number of street trees it prunes from only about 1,000 trees annually before FY '98 to 8,233 trees in FY '99, with approximately 8,000 trees projected in FY 2000 and 2001." That's on . On , selected service level performance measurement, there's a box in very small print that says "Street and Park Trees Pruned." Trees: FY 2000 target projection - 10,455. FY 2000 current projection - 10,455. FY 2001 projection - 10,405. There seems to be a couple thousand trees we've lost track of.

I think the difference might be, in reading this, number on refers to street trees, and the one on refers to street and park trees. But I'll check that for you. 105 2/7/00 FISCAL STABILITY - RES. 000002

All right. So are you saying, Mr. Dubow, that the 2,000 tree difference is including the park trees, which are not mentioned on of the testimony.

I think that's what it means, but I'll check to make sure.

Okay. On and 184, this is the Recreation Department, the programmatic initiatives area. You make mention of the Philadelphia 76ers. I believe this is actually Athletic Shoe Company and one neighborhood basketball league. You also talk about the Philadelphia Kicks, you talk about the Philadelphia Flyers, and I didn't see any mention of the Philadelphia Phillies or the Philadelphia Eagles in terms of their relationship with the Department of Recreation. Now, I'm, one, under the impression that they do actually have a relationship -- maybe this is either an oversight or the relationship is not particularly active. You can get back to me on that issue and desperately scour the room, looking for some to help you at the table. Can you also get back to the Chair with 106 2/7/00 FISCAL STABILITY - RES. 000002 information on how many children -- this is now on , expanding after-school programs to provide continuous year-round service. Can you tell us later on how many kids are participating in our current after-school programs? How many do you estimate will be participating with the tripling of the dollar amount? And if you could also tell us how you arrived at the tripling figure. What that was based on? Was it just what you thought you could afford at the time or that it was a significant -- a tremendously significant increase in the number of children being served?

Certainly.

Thank you. There's one question for the water area. Has my time expired? It expired a long time ago. Appendix 3, on , let me go there and then I'll come back to the Water Department. Can you explain in the FY 2001 estimate column, Line Item No. 26, funding for contingencies? It seems to be a deficit figure of -- it appears to be $80,843,000. What is the meaning of that figure?

In essence, it allows us to 107 2/7/00 FISCAL STABILITY - RES. 000002 fund deficits in the years after that. If you look at the 2002, 2003, 2004, that $80 million gets eaten up over those three years. Those four lines add up to zero.

Do you want to take me back through that, Mr. Dubow? You had 80,843,000 in FY '01.

In 01. And then we have 50,843,000 plus 20, plus 10 in the next three years.

Mm-hmm.

The 50,843,000 plus the 14 plus the 10 equal the 80,843,000. 15

Where did that 16 80,843,000 number come from? 17

It's really a calculation 18 based on what that gap was going to look like in 19 the next three years. 20

What the what?

What the gap was going to be in the next three years.

Is that technically considered surplus dollars?

Yes. 108 2/7/00 FISCAL STABILITY - RES. 000002

I'm sorry, I didn't hear you.

Yes.

Okay, all right. The Water Department, in Appendix 1, on , there's reference made to revenue strength and that the Water Department is going to continue to work with the Water Revenue Bureau, and the Mayor's Office of Information Services expects to bring on a customer data information system to deal with billing and collections and a whole host of other issues. My simple question is, is the same vendor going to do this work that did the work over at PGW? (Laughter.)

No. 19

Thank you very much. Commissioner, you're safe. Thank you, Madam Chair.

Thank you. I just have a question or two. On , you state that the City's Pension Fund remains severely underfunded. What 109 2/7/00 FISCAL STABILITY - RES. 000002 is the unfunded liability of the Pension Fund in dollars and as a percentage of the total fund? Tell us how this liability all came about. Is it as a result of the employees not paying their required share or the City not paying their required share?

Well, there's an unfunded liability that --

I'm sorry, you're going to have to identify yourself for the record and speak closer into the microphone, please.

I'm Linda Orfanelli, Acting Finance Director. There's a historical unfunded liability that goes back many years. In fact, former finance employees sued the City because it wasn't making the proper payment to the fund. This goes back many years. The fund, until recently, was only funded at about 50 percent so that the liability was quite large. Recently, the City got involved and funded a pension obligation bond, which has brought the funding of the fund to over 110 2/7/00 FISCAL STABILITY - RES. 000002 70 percent. The actuary report with the actual numbers will be coming up very shortly to give you more specifics, and we can present that to you as soon as it is available.

I think we would all like to see that, please.

I'm sure you would.

On , you state in the Five-Year Plan that the City liberalized pension benefits to its employees by allowing new exempt employees to vest after five years instead of ten years. I am not clear as to what is the point of this statement? We know that that happened, and I believe we agreed that the vesting period was for exempt employees. Wasn't that a recruitment issue?

It was definitely a recruitment issue. Prior to this change, the vesting was ten years for everyone except Councilmembers, which had been changed a few years. A problem existed because when we tried to hire employees, they could anticipate a four- or eight-year term, 111 2/7/00 FISCAL STABILITY - RES. 000002 which means that they would be contributing to the Pension Fund but they would walk away with nothing. The Administration looked at that and decided that it would help us recruit people knowing that within five years they were vested, and they, after the service time that they provide the City, they would have a pension. And as a result, the Administration came to Council and asked for this change to be made, and it was a part of the overall change to the Pension Ordinance. We believe that now and for the future, it will help us to attract good people in high-level jobs.

Are we still having trouble recruiting people?

Well, now we're up against an economic problem. The economy is so tremendous that the salaries we are offering -- although, as you know, we came to you a few years ago and increased salaries to levels we believed would help us recruit, it is still a problem, or is a new problem, because the economy is so 112 2/7/00 FISCAL STABILITY - RES. 000002 wonderful.

The Chair recognizes Councilman Cohen.

Thank you, Madam President. Just to continue on one question that you were on. Could you tell me under what circumstances the question of the current Pension Fund's assets would become questionable? You know, can you give me some example of when we might expect to have a problem resulting from this unfunded liability?

I'm not sure that I'm clear on your question, but I'll take a crack at what I think you mean, Councilman. The Pension Fund depends tremendously on performance of its assets. The City makes a contribution, the employees make a contribution, but the investments are a very big part of where we are. The economy has been, tremendous, equities have done well, we have a balanced portfolio. But in the event that the economy took a nose-dive and equities did poorly, then the Pension Fund would not do well, and we would have 113 2/7/00 FISCAL STABILITY - RES. 000002 less money coming in to fund our pensions. Is that what you're driving at?

Well, what is the balance of the Pension Fund?

Right now, it's over 5 billion.

I recollect when I came into City Council a goodly number of years ago, the Pension Fund was a half a billion dollars, which means this is about 10 times that amount of money. I'm just baffled always by the discussion of an unbalanced Pension Fund as being anything like a problem, 'cause the government is not a business. We're never going to go out of business. I can't foresee any time when Philadelphia would go out of business, except when kind of the whole world no longer existed. A fully funded Pension Fund means -- could I state my meaning and they you can correct me if I'm wrong? I think being fully funded means that if the government closed tomorrow, every pension obligation now on the books could be immediately paid in full. And I can never 114 2/7/00 FISCAL STABILITY - RES. 000002 understand anything like that kind of a scenario ever existing. And so my eyes glaze over and I usually find the auditors, whom I question, their eyes glaze over, when I say, "Forecast for me a circumstance under which there could be a problem." And the present state of funding, actually when it was 50 per or 40 percent, and I've never yet had anybody come forth with a scenario which suggested that in a the lifetime of any yet-to-be-born grandchildren, there could be a problem. Do you know of any scenario like that? I mean, other than repeating to ourselves the words that we have an unfunded liability that must be dealt with and kind of shaking our heads warningly, is there ever a scenario that anybody's ever projected that would indicate that any employee of the City of Philadelphia would ever fail to have pension funds available?

I can answer that.

Hmm?

I can answer that question. 115 2/7/00 FISCAL STABILITY - RES. 000002

You can?

Yes, I can.

Yeah, go ahead.

You're talking about theory, the 100 percent funding, etc. But the reality is that if the burden on the residents of this city became too great because of the funding of the Pension Fund, the General Fund obligations to the General Fund could become burdensome, and that would cause us to have to raise taxes. No, we're not going out of business, but what burden do we want to place on the citizens of this city to fund our pension?

Well, that's the kind of answer I always get, and it never answers the question. All right, we'll go on to other areas. I'm wondering, does Mayor Street have any anticipation -- I hope not, so I give you the answer first that I want to hear. But I wonder, are we going to one day awaken and find that Mayor Street, like Mayor Rendell, has asked the Governor to take people off of welfare and have them have no income? 116 2/7/00 FISCAL STABILITY - RES. 000002 That's what Mayor Rendell did in the last month or two. He complained to the Governor that people were still remaining on welfare that shouldn't have been, according to the Mayor, by the Mayor's own standard. I'm hoping this mayor will have a different definition. Because on the one hand, I hear the terrible consequences that will accrue to Philadelphia if people come off of welfare. We shudder at the thought of all the burdens we'll have to assume. And yet the Mayor, Mayor Rendell, was asking the Governor to take people off of welfare.

Mayor Street does not have any plans as ask the Governor to take people off of welfare.

All right, thank you. Thank you for that. Now tell me the answer to another very simple question. We have a $207 million surplus, give or take a million or two of that?

It's 205.7 million.

205.7 million. Now, 117 2/7/00 FISCAL STABILITY - RES. 000002 is that a surplus I can touch? Is the money somewhere in the bank and I can go there or open a safe deposit box or do something like that? (Laughter.)

Councilman --

Tell me, what is the form of that surplus?

Mr. Dubow actually keeps it in a very safe place. (Laughter.)

And it's under a mattress?

Absolutely, yes.

Under his mattress?

Absolutely, absolutely. You're going to have a lot of visitors tonight.

Yeah, where is it? I mean, is it in a bank somewhere?

It's on the books. It's not actually sitting in a bank account anywhere. It's on our books.

Well, a surplus means -- in common vernacular, it's extra money. 118 2/7/00 FISCAL STABILITY - RES. 000002 It's leftover money, it's untouched money at the moment, unused money. Is it in any of those forms? What is the form of the surplus?

Actually, we call it "unused money." Over the course of this plan, if you read through, we actually project that the surplus year by year will go down to 5 million at the end of 2005.

But right now, does it exist? Are we being told the facts when we're told there's a surplus of 207 million?

Yes, there's a surplus.

It exists. Now, in what form does it exists? Are they certificates of deposit? Is it bank books that the City carries around with it?

It's really --

Maybe the Chief of Staff has access to it? (Laughter.)

No, no one has access to it.

Well, what's the form of it? How do we see it. How do we know 119 2/7/00 FISCAL STABILITY - RES. 000002 that it exists?

It's really -- if you look at the accounting -- our financial statements, it's an accounting of our revenues and expenditures over the years and where they wind up. Our revenues have been higher than our expenditures. So some of it is in the bank, some of it might be accrued revenues. So it's dollars that we've gotten in but that know we will get in, for example, from the State as reimbursements for things, for services that DHS provided. So it's not all actually hard cash sitting in a bank since what we use is called "a modified accrual basis of accounting."

Say that again?

We use what's called "a modified accrual basis of accounting," which means some of our revenues are based on cash, what we actually get in, some are based on obligations people have to us as of the end of the fiscal year. So it's not just sitting in a bank account. It's shown in a couple of different ways 120 2/7/00 FISCAL STABILITY - RES. 000002 and it's not a simple answer to that. I don't think there really is a simple answer to that.

You don't believe what?

That there's a simple answer to that question. There's accounting treatment for -- accounting for different types of revenues in different ways. It's 205.7 million.

Well, the money not obligated 'cause that's usually what a specialist indicates, that this is yet-to-be-allocated money 'cause if it's already allocated and used --

That's accurate, although in the course of this place, it really isn't allocated. All but five million of the surplus is gone in 2005.

How much is it going to go down this year?

We project it to go down to about 55 million.

And this year alone, will there be a deficit of 55 million.

Yes.

Why? 121 2/7/00 FISCAL STABILITY - RES. 000002

There's a few reasons. Some of it is not surprising to us. Part of what's happening now is that we're assuming the cost of the existing contracts, we are now funding more of the costs of the Federal Crime Bill costs, our prison costs have gone up faster than inflation.

Councilman Cohen?

Yeah?

Can I inject one thing based on his answer?