COUNCIL OF THE CITY OF PHILADELPHIA2 COMMITTEE ON FINANCE3 Room 400, City Hall6 Philadelphia, Pennsylvania Thursday, December 8, 20117 9:20 a.m. PRESENT: COUNCILWOMAN MARIAN B. TASCO, CHAIR10 COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN FRANK DiCICCO11 COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN WILLIAM K. GREENLEE12 COUNCILMAN JAMES KENNEY BILL 110876 - An ordinance authorizing the Director of Commerce and the Director of15 Finance to enter into a multi-year agreement or agreements with the Philadelphia Authority16 for Industrial Development ("PAID"), the Redevelopment Authority of the City of17 Philadelphia ("RDA"), and other parties as necessary concerning the parking garage18 project constructed as part of the overall Market Street East - Gallery II Redevelopment19 Project... - - -21 2
Good2 morning. The Committee on Finance will3 come to order.4 I'd like to recognize that we5 do have a quorum in the presence of6 Councilman Greenlee, Councilman Goode,7 Councilman DiCicco and myself and8 Councilman Kenney.9 The Clerk will please read the10 bill.11
Bill No. 110876, an12 ordinance authorizing the Director of13 Commerce and the Director of Finance to14 enter into a multi-year agreement or15 agreements with the Philadelphia16 Authority for Industrial Development17 ("PAID"), the Redevelopment Authority of18 the City of Philadelphia ("RDA"), and19 other parties as necessary concerning the20 parking garage project constructed as21 part of the overall Market Street East -22 Gallery II Redevelopment Project,23 including an amendment to the agreement24 between the City and PAID, as amended,25 12/8/11 - FINANCE - BILL 1108761 originally authorized by Bill No. 5462 (approved June 15, 1993), and further3 authorizing the Director of Commerce and4 the Director of Finance, where necessary5 or prudent, to enter into ancillary6 agreements with any or all of PAID, the7 RDA, Parametric Garage Associates8 ("Parametric"), a new lender to9 Parametric, and other parties under10 certain terms and conditions.11
Thank you.12 Is there anyone here to testify13 on this bill?14 (Witness approached witness15 table.)16
Good morning,19 Councilwoman Tasco and members of the20 Committee on Finance. I'm Rebecca21 Rhynhart, Budget Director for the City of22 Philadelphia, and I'm here to testify on23 behalf of Bill No. 110876.24 Bill 110876 will authorize the25 12/8/11 - FINANCE - BILL 1108761 Director of Commerce and the Director of2 Finance to enter into a multi-year3 agreement or agreements as well as4 amendments to certain agreements with the5 Philadelphia Authority for Industrial6 Development, the RDA, and other parties7 as necessary concerning the parking8 garage project.9 In 1982, the City guaranteed10 debt on behalf of the Parametric Garage11 located at 11th and Arch Streets as part12 of the economic development deal to get13 JCPenney to locate at the Gallery.14 Parametric did not generate sufficient15 revenues to pay principal and interest on16 those bonds, so the City had to pay debt17 service on the bonds totalling just over18 million from the 1980's until 1997.19 The amounts accrued interest at 5 percent20 annually, and now the outstanding balance21 owed to the City is approximately $5222 million. The RDA is also owed about 623 million for unpaid ground lease payments,24 as the RDA owns the land under the25 5 12/8/11 - FINANCE - BILL 1108761 garage. The total amount owed to the2 City would come due in 2013, but3 Parametric is not expected to have the4 funds to pay this amount and it is far5 greater than the value of the garage,6 which is about $26 million.7 Parametric's operations are now8 profitable and it has offered to obtain9 private financing in order to pay off the10 remaining bonds and pay the City and the11 RDA on an annual basis from excess cash12 flow. This is in the best interest of13 the City, as it results in about 1514 million to be paid to the City and the15 RDA and financial controls being put in16 place to maximize annual cash flow from17 the garage to the City's General Fund on18 an ongoing basis through 2051 or until19 the balance is repaid. The four parties20 involved with this proposed deal are the21 City, PAID, the RDA and Parametric. The22 deal is expected to close in January23 2012.24 Certain documents will be25 6 12/8/11 - FINANCE - BILL 1108761 executed as part of this transaction,2 including an installment sale agreement3 between PAID and Parametric, which4 requires the garage to make payments to5 PAID, who will then make the payments to6 the City. There is a parking garage7 agreement between PAID and the City,8 which details how PAID makes payments to9 the City and to the RDA. And then10 there's a participation agreement, which11 details the payment split between the12 City and the RDA, City getting 90.213 percent of amounts received and the RDA14 getting 9.8 percent of amounts received.15 I respectfully request that you16 report Bill No. 110876 out of Committee17 with a favorable recommendation, and I18 further request that the rules of Council19 be suspended so as to permit first20 reading at the next session of Council.21 This concludes my testimony,22 and I'm happy to answer any questions you23 may have at this time.24
Thank you25 7 12/8/11 - FINANCE - BILL 1108761 very much.2 Are there any questions3 regarding -- Councilman Greenlee.4
I'm just8 trying to figure out exactly what9 happened here. Did Parametric pay10 anything in this time?11
Parametric has12 paid a little bit. And I would say a13 little bit because in some years we've14 gotten like $30,000 or so, but nothing --15
Nothing related18 to the material amount owed, and they19 really for -- I mean, we paid the debt20 service through '97, and then they've21 managed to get by, but were not22 profitable from year to year until the23 last two or three years they've been24 making some money.25 8 12/8/11 - FINANCE - BILL 1108761
Now, was2 that the agreement, that if they make a3 profit, or was the thinking if they don't4 have the money, they don't have the5 money?6
From talking to10 people that were originally involved in11 the deal from the '80s, at that time,12 there was not --13
Sure.16 In the 1980's, there wasn't the17 expectation that the garage would be18 profitable. It was done to try to get19 JCPenney to locate as a condition, to get20 them to locate there, but now that the21 garage is profitable, it's in a pretty22 good location, across from the Convention23 Center, we're trying to maximize the24 amount of cash coming to the City.25 9 12/8/11 - FINANCE - BILL 1108761
And the2 total amount that will come back to the3 City is how much, just so I'm clear?4
Well, we will5 get -- there's $15 million that will be6 split between the City and the RDA that7 will come in in January, next month. The8 City will get -- it's about 13 and a half9 million of that, free and clear. We'll10 get that money. Then on an ongoing11 basis, we have negotiated controls so12 that the City has the right to approve13 the garage's annual operating budget, and14 the City gets all excess cash flow from15 the operations of the garage. So we16 should expect to see funds coming in on17 an ongoing basis. In the first year it's18 expected to be about 600,000 or so.19 They're projecting that to ramp up. But20 we are expecting to get that money. So21 that is why it's a good transaction for22 the City.23
And I24 know you say in your testimony it will be25 10 12/8/11 - FINANCE - BILL 1108761 on an ongoing basis through 2051 or until2 the balance is repaid?3
That's right,4 because after they pay us about the 135 and a half million or so, they'll still6 owe us about $38 million. So each7 year -- I mean, we are getting all of the8 excess cash flow between the City and the9 RDA, so it will take a while to get that10 amount repaid.11
But it's14 maximizing any excess cash flow so that15 it comes to the City and the RDA and that16 we benefit from that.17
Looking21 back at this transaction in '82, is this22 something that you would have supported?23
It's hard for me24 to answer that not being here and knowing25 11 12/8/11 - FINANCE - BILL 1108761 the economic development situation. I2 mean, I would say in general there's3 danger to guaranteeing bonds issued for4 private development because of something5 like this where we end up being on the6 hook for it, but, again, I don't know --7 since I wasn't there, it's really hard to8 say how imperative it was to bring that9 development in.10
So are we11 still -- we're not guaranteeing the12 bonds.13
Right. There's17 a few million dollars of these bonds18 outstanding, about 2 million or so. So19 that will be paid off with this20 transaction. We are no longer on the21 hook in any way for that.22
So our23 transaction is to get some of our money24 back.25 12 12/8/11 - FINANCE - BILL 1108761
This3 transaction is to get some of our money4 back.5
Right. This6 transaction is to get the up-front money7 as well as getting operational control8 going forward so that we squeeze the cash9 flow out of this garage for our benefit.10
How will11 you know what the cash flow is? What12 process --13
Sure. Well,14 each year we've negotiated controls where15 they have to send us the draft operating16 budget 90 days before their fiscal year.17 The Director of Finance of the City must18 approve that budget or that budget does19 not go into place, and then the20 trustee -- the cash flow goes to a21 trustee, and then the trustee can only22 release money for operating expenses if23 it fits with the operating budget that24 was approved by the Director of Finance.25 13 12/8/11 - FINANCE - BILL 1108761 So we'll have pretty tight controls on2 it.3
Okay.4 Thank you.5 Any other questions?6 (No response.)7
Thank you8 very much for your testimony.9 The amendment, do you want to10 explain what the amendments are?11
We updated the15 attached parking garage agreement and the16 participation agreement just to reflect17 some additional changes and strengthening18 of our position in those documents. So,19 yeah, it's just to provide more20 up-to-date documents for you.21
This will25 14 12/8/11 - FINANCE - BILL 1108761 conclude our public hearing. We'll go2 into our public meeting.3 The Chair recognizes Councilman4 Goode for the amendment to Bill 110876.5
Thank you,6 Madam Chair. I move that the amendments7 to Bill No. 110876 be approved.8 (Duly seconded.)9
It has10 been moved and seconded that we adopt the11 amendments to Bill 110876.12 All in favor?13 (Aye.)14
There18 being none, the motion is carried.19 The Chair recognizes Councilman20 Greenlee to report Bill 110876 out of21 Committee with a favorable22 recommendation, as amended.23
Thank24 you, Madam Chair. I move that Bill No.25 15 12/8/11 - FINANCE - BILL 1108761 110876, as amended, be reported out of2 this Committee with a favorable3 recommendation and that the rules of4 Council be suspended to allow for first5 reading at our next session of Council.6 (Duly seconded.)7
It has8 been moved that Bill 110876, as amended,9 be reported out of Committee with a10 favorable recommendation and a request11 for the Council rules to be suspended so12 this bill can be heard at Council's next13 session.14 All in favor will say aye.15 (Aye.)16
There20 being none, the motion is carried.21 There's no other business22 before this Committee, the Committee is23 adjourned.24 Thank you.25 16 12/8/11 - FINANCE - BILL 1108761 (Committee on Finance concluded2 at 9:30 a.m.)3 - - -4 5 6 7 8 9 10 11 12 13 14 15 16 17 17 CERTIFICATE2 I HEREBY CERTIFY that the3 proceedings, evidence and objections are4 contained fully and accurately in the5 stenographic notes taken by me upon the6 foregoing matter on December 8, 2011, and that7 this is a true and correct transcript of same.8 9 10 11 12 --------------------13 MICHELE L. MURPHY14 RPR-Notary Public15 16 17 18 (The foregoing certification of this19 transcript does not apply to any reproduction20 of the same by any means, unless under the21 direct control and/or supervision of the22 certifying reporter.)23 24 25