All righty. The machine is playing games with us. Councilman Nutter and then Councilman Ortiz. Thank you.
Okay, thank you, Madam Chair. Mr. Hankowsky, can you -- one question just from the other day, and then I do have some zoning questions and then I have some other questions. Can you give us kind of a status update on the economic opportunity plan with regard to minority and female and disabled business owners?
Yeah, I'll try, Councilman. Since last week? -- I believe we're on a second draft. I've actually -- you might understand, there are people working on these various elements probably literally as we're meeting here. I don't know whether they have concluded that work or whether there's going to be a third draft, but I think it is anticipated to be completed literally almost momentarily. You know, 86 12/5/00 STADIUM BILLS HEARING it could be today but probably not later than tomorrow, Councilman.
Okay. With regard to the zoning bills, now there was the earlier discussion about Bill 726, which was requested to be withdrawn, and then the withdrawal was withdrawn, and so Bill 726 apparently still exists, and there is an amendment that was introduced. 727 --
To zone the remaining -- or a portion of the remaining Navy Hospital site sports stadium district.
We're withdrawing it because the -- there has not been community agreement to do that.
Mm-hmm, good reason. And 728 is the one that came in with the new -- 87 12/5/00 STADIUM BILLS HEARING
-- the new proposed zoning map, which is different from the proposed zoning map that was in the bill.
Is that correct? Okay. And my best reading of this is that you have expanded the amount of the Food Distribution Center zoning classification on the new map as compared to the new map that was in the bill.
Almost right. The only reason I say "almost right," it's actually -- it's currently Food Center, so we've actually decreased the amount that we've changed to sports stadium. It's just the flip side of it. Same effect. (Unintelligible, parties talking over each other.)
-- the new map in the bill decreased the size of the Food Distribution Center zoning.
And created sports stadium zoning. And then the new map -- 88 12/5/00 STADIUM BILLS HEARING
Very interesting, okay, fine. And that's what's pending before us now.
Tell me a little bit about this -- all of this -- there's been all of this discussion about the North Lot. I was originally under the impression that the major selling point of the siting issue was that the original stadium concept from a long time ago had a ballfield on the North Lot and it was X-number of feet away from the nearest house, and people weren't too thrilled about that. And then we went to -- the Phillies stadium is going to be on the Jetro site?
The Phillies stadium on the Jetro site some 1400, 1200 -- I think 1250 feet away from the nearest house. 89 12/5/00 STADIUM BILLS HEARING
By some. Now, there is active, live discussion about the prospect of development activity on the North Lot?
There is no ongoing active, live discussion; there has been some discussion. It has been raised as a possibility. It has raised concerns to the South Philadelphia community that such a development might occur without their knowledge, comment -- you know, having a period of comment or review. We believe that the legislation we submitted did not give us the right to do that, but there has been some confusion as to whether that's clear enough, as I indicated, I think, earlier this afternoon, because it's -- as you know, when you read legal documents, you can kind of get lost sometimes. It's -- I don't believe it's there because we weren't granted it, but people have 90 12/5/00 STADIUM BILLS HEARING asked that there be an affirmative statement and we don't have it, so that it's not an omission, it's actually -- aggressively says, You can't go do this without coming to City Council, in order to provide a review process mechanism. And we're totally prepared to do that 'cause we believe that we were doing that anyhow, so we -- if it needs to be over clear and very precise, we will do that.
Okay. What are the present development rights that anybody has down in that what will now always generally be called "the sports complex area"?
Right. These are the are rights that I enumerated for Councilman Rizzo a few -- a while back this afternoon. The only party that has development rights right now is Comcast SpectaCore -- they were granted to SpectaCore and, obviously, inure to the successor acquirer, that deal with four secret parcels that are defined with actually maps with metes and bounds descriptions and allow for, again, a certain listing of things they can do on those parcels by use and by size and provide 91 12/5/00 STADIUM BILLS HEARING requirements to replace parking if it's displaced et cetera, that we're granted for a 20-year period, I believe, beginning in 1992, so I guess there's about years left. 6
Okay. Now, tell me 7 a little bit about what are the present revenues 8 to the City and costs to the City, let's say, over 9 the past eight or nine years with regard to 10 Veterans Stadium? Is there a document admidst any 11 of the massive materials that we've received that 12 lay out what the present situation is?
I believe there was a -- it's not in the material, Councilman, that is of recent vintage. Meaning, you know, there was the briefing books and the package that was sent. There was, I believe, a transmittal, actually November 5th of 1999, that was provided to Council technical staff by the then-Chief of Staff that laid out attendance, I think, over the last ten years, laid out the annual revenues, the annual obligations expense over the last ten years.
Did not have a capital 92 12/5/00 STADIUM BILLS HEARING table, Councilman.
And then I believe -- and I -- and then I may have something that does the latter. I have -- and I'm not sure it's been shared with Council technical staff -- I mean, I happen to collect all that. Whenever I see a table, I take one. So I have a table that's the outstanding debt service on Vets Stadium, I think, from the Budget Office that I could provide to the Council President, if that would be available.
And also lists, I guess, what we've done over the last ten years of annual capital budget expenditures.
The reason I ask that is because -- I mean, it seems to me that at the end of the day, you do have to try to figure out the financials of this whole proposal and some level of comparison between what the current situation is matched up side by side to some 93 12/5/00 STADIUM BILLS HEARING extent with what the projections are --
Right. Which we attempted to do in Table 10, I think, of the briefing book. Is it of the briefing book? 8
Is that the 9 briefing book where all the table numbers are 10 punched through with the three-hole punch?
That's why I can't figure out where anything is but --
Right. Where -- what 94 12/5/00 STADIUM BILLS HEARING we did was, we took the ten-year -- I think it's the ten-year historic average of Vets Stadium revenues and Vets Stadium expenses and ran them up with the current five-year plan inflation rate of 2.5 percent. But I could supply, if you're interested, the backup tables that you get those ten-year averages.
Right. And this is where you ran tables from 2000 to 2010?
Phillies, Eagles, gross revenue, sky box revenue, and all of that?
Okay. Now, tell me a little bit about the Arthur Anderson report, and what is it and what is it not?
What is it and what is it not? We asked Arthur Anderson -- we engaged Arthur Anderson to take a look at the future projected tax revenues that would get developed from what is called "in-stadium activity," you know, buying the ticket, parking the car, buying the soda, buying the hat, and to do that, I think, 95 12/5/00 STADIUM BILLS HEARING basically with two sets of data inputs. One is their knowledge of the industry and experience; and the second being information the teams provided about, for example, what do the teams think they're going to price the seats at, so -- in order to compute a gross receipts tax. There were certain pricing decisions that the teams make. And so what they did was to do that analysis of those prospective tax revenue streams and provide that to us. It is not an econometric analysis of the transaction, meaning it is not an attempt to look at, you know, multipliers and all of that. It is not what is generally called "a financing report." And what I mean by that is, you know, if it's not exactly the kind of document the teams would use to borrow their money in terms of -- you know, they'll have to do proformas and all of that. It's a tax revenue projection for the City. I think that's what it is and what it isn't.
Well, the kind of document that you talked about that the teams 96 12/5/00 STADIUM BILLS HEARING would use to borrow money, is that the kind of document that either has more detail or has more substantive weight to it or has more detail?
A couple things. I think one is, you know, we list -- or the Arthur Anderson report lists, the various assumptions used to make their calculations, so it takes a little while to plow through it, but you can ascertain, you know, attendance projections that are called "per-cap spending projections," etc. The teams', I'll the term "proforma analysis" that they would perhaps share with a lender is confidential information; we don't have it. And, you know, it is much -- it is a analysis, that -- you know it's just a different analysis. It's an analysis that a lender makes to a borrower, which is just a different kind of an analysis. It's not better or worse; it probably has the same kind of, you know, assumptions and level of detail.
What does it mean 97 12/5/00 STADIUM BILLS HEARING when the Arthur Anderson report, the cover sheet, says that procedures do not constitute an audit or examination in accordance with professional standards and had Anderson been engaged to perform additional procedures on audit or examination. In accordance with professional standard, matters might have come to Anderson's attention that would have been record. What does that mean?
Well, I could -- I -- I don't have Arthur Anderson here 'cause I didn't realize we'd be getting into this, but I could have them provide you with some clarification. But I think what means is, when you're an accounting firm, a CPA firm -- and I don't know, Councilman, whether you've read accountants' letters on front of reports, but there's very proscribed words they use, depending on what the report is. So sometimes you hear of a, you know, review of the financials versus an audit of the financials. So what they're saying, I think, as a professional practice matter is, This isn't an audit; we didn't go in and, you know, look at all 98 12/5/00 STADIUM BILLS HEARING of the City's revenue collections for the last five years and actually audit them and say, you know, when the Finance Department tells us that, you know, we get X from liquor-by-the-drink today, we didn't go in and audit that. We took the data that we were provided and went with it. So it's, I think, basically a clarification from their professional standards that -- that that's not what they did.
And, you know, and if they had gone in and found that the Revenue Department doesn't collect revenue correctly, I guess that would have been something that would have altered their calculations.
Right. Now, attached to your testimony from that long-ago day, I think last week, are a series of charts; one of them is Table 2. It is not punched through. General fund revenues from two new stadiums. And then it has a number next to it, I guess a footnote.
In the annual 99 12/5/00 STADIUM BILLS HEARING General Fund Impact Column, far right, second from the right.
If you look under Construction Taxes Column 3, you'll see a $7 million increase, which would take you to million. And you see that the rental car tax, 22 which was only enacted by this Council as of July 23 1st of this calendar year, goes on an annualized basis of 4-8, so you pick up 2.5 million.
And I think what we do in Column 2 is -- this assumes that the -- this is -- I actually need to -- (Mr. Hankowsky consults with colleague off record.)
It assumes that the suite flip has happened. I think that's right. So those three things happening. You've begun construction, you have a full year of rental car tax revenues, and there's a slightly different economics at the Vet.
And then in 2002, it drops to $12 million. Why is that?
That's because you begin to actually issue the debt the 304 million in debt and begin to pay debt service. So you have the $27 million subtraction out of Column 8.
Mm-hmm, okay. And then it actually goes negative the next year?
Yeah, because you've got one stadium opened -- that's sort of this -- it's the transition year. You've opened the one, not the other, you've still got the Vet, you're 101 12/5/00 STADIUM BILLS HEARING paying the debt service. So you don't have the full impact of both stadiums open and you don't have full revenue at the Vet because you've lost one tenant.
All right. So that's just a pure $3 million cost to the City's general fund.
No, but you've -- but you've -- the general fund has earned $58 million in the three prior years, so that one has an annual impact. The cumulative impact is positive to the general fund.
Now, the numbers all of the numbers that we have, seem to revolve around the City's benefit: wage taxes, stadium tax revenues, baseball stadium revenues, vehicle rental tax revenues.
What are the numbers that are created, or where's the chart that shows what numbers the tax revenues emanate from? I mean, what gets you these figures? There must be projections --
That result in a certain level of tax revenue to the City.
Right. That is basically contained in the Arthur Anderson report. The way it's contained there, it may not do all of the multiplication exactly the way you're asking the question, Councilman but -- so, for example, it will say, We think the attendance in Year 1 is 2.9 million, which is less than the Phillies think it's going to be, and we think that the average ticket price at that point is -- I'm not sure what it is, but $26 or something. If you did the calculation, which they obviously do to compute the amusement tax, so they do the gross to do the 5 percent, that would be the ticket revenues available to the team. And so there's a whole series of those kind of calculations that yield, for example, gross concession revenue that then we will -- you know, we'll do our percent, the State will do their 6, or we'll -- you know, we also do it by liquor to do our 10. So there are a series of 103 12/5/00 STADIUM BILLS HEARING revenues that are calculated upon which then the tax assumptions are created.
Well, does any of that provide for, again, a year-by-year comparison between revenues and costs to the City under the current situation, revenues and costs to the teams in the current situation, and then both of those elements projected forward? I mean --
No, no. We don't do that -- we don't -- what we don't do is -- you could calculate and you could do it year to year on the Arthur Anderson report. You could calculate the gross revenues that the teams will get from the stadium per year. What you don't then have is the -- is to take that -- you'd have to drop that into, I think, actually into a proforma for the stadium and for the team.
Because really, you get to a point where you can't -- you cannot disaggregate them, because what happens is, the team will get these revenues, the team will, let's say, let's pick the Phillies, of 174 million, let's say they borrow it and put it in the 104 12/5/00 STADIUM BILLS HEARING building so you're going to have a new debt service in their, a debt service column. And I think the other day when you had the teams up here, there was some Q-and-A that sort of dealt with what they thought their revenues and expenses were.
Limited as it may be. Because, for example, with baseball, you end up with this very -- well, you end up with this baseball thing, which is, they have a revenue- sharing system where the rich teams are taxed and the poor teams get money, and the Phillies would actually turn from being a poor team, get money, to a, quote, profitable team and pay money, so there's actually a huge financial spread on a balance sheet --
-- on a proforma. The effect of that is it's just not stopping one; it's actually creating the --
-- it's doubling the 105 12/5/00 STADIUM BILLS HEARING impact. So you have to go through that and then you have to also look at players' salaries, which we do, because we compute wage taxes, and the players' salaries become a new, obviously, expense to the team, to figure out exactly where's the team. And we don't have that kind of an analysis done on a year-to-year basis.
Well, then I guess my request, if you can forward it to the Chair, is -- I mean, as -- at least as has been presented that this is a good deal for the City and you've shown all of the City numbers and the revenues and the 30 years from now or the 33 years from now, the $159 million benefit to the City, and everyone talks about how great a deal it is for the City, I'd like to see the same kind of information as it relates to the teams, because I can't -- I can't really evaluate in a vacuum how good something is for me or for us if I don't have a sense of what's going on on the other side with what everybody else is doing and how they're benefitting. I mean, it's all relative as compared to what? I have no comparison. 106 12/5/00 STADIUM BILLS HEARING
I don't know how something good is for me until I have a little better sense of how good it is for them.
Okay. I'm not sure how far I can take that, but I'll try to be responsive and put something together, 'cause I don't have their financial information, so I can't totally do a proforma for these teams.
But there is apparently information that exists that allows for not only the calculation of tax revenues to the City --
-- but also a belief, if not a mantra, that it is a good deal for us. You can only have tax calculations based on revenues generated --
No, I can do all that, I can do all that. What I'm not easily able to do, which I thought was your question, is the next 107 12/5/00 STADIUM BILLS HEARING step, which is to also analyze the expenses for the team.
And their other kind of revenue. They get other kind of revenue.
They just don't get stadium revenue; they get TV advertising and revenue-sharing and all of this stuff.
I mean, I've learned enough in this several-year process that this is a fairly -- that the economics of this business are somewhat complicated to get your arms around.
So I'm not -- what I'm not sure I can give you -- 'cause I don't want to say I'll get you something and then not be responsive -- is a full team proforma. But I can give you the revenues, I can give you a sense of those look like, 'cause you're right, those are implicit in the Arthur Anderson analysis. 108 12/5/00 STADIUM BILLS HEARING
Well, I mean as -- I'm sure you've figured out, you know automatically that I naturally want to go to the next level.
Okay. Let's talk about the projections and the upside and the downside for the City. And all of the revenues to the City, I'm assuming, are primarily a function of the various prices of things and attendance. Are those two of the critical factors here?
That's correct. The third probably, just to have 'em, is players' salaries, is a huge number.
Right. Well, we know from the other day that one of the issues that drives players' salaries, having nothing to do with us and it's kind of larger national issues and contracts with the TV folks, is that 63 percent of the TV revenue has to be spent on players' salaries, and we have no impact on that whatsoever.
So whatever the 109 12/5/00 STADIUM BILLS HEARING deal is with Fox, TNT, Channel 6, Channel 3, whoever the players are, that part is going to happy anyway. You're obviously are able to cut better deals, I'm assuming, both by the team and by the league to the extent that you have, what is it, 28 teams mow?
Somewhere in the course of the next two or three years, virtually every new team will be in a relatively new stadium?
Which I assume at 110 12/5/00 STADIUM BILLS HEARING the end of the day helps to drive TV contracts and all of that activity.
Yeah, I, I -- you know, TV contracts are driven by fan interest.
Which drives advertising, which drives et cetera, et cetera, right.
New stadiums, then we have more fans. It's nice if you have a winning record, but you're going to get a little bit of a bump in fan activity --
Okay. What is our responsibility, or what is our level of exposure, if the projections don't go the way they've been laid out or if attendance is off or the teams aren't doing that well?
I mean, what 111 12/5/00 STADIUM BILLS HEARING happens?
Well, I think there are multiple -- well, there's a very simple answer, let me give you the very simple answer. The exposure is the City will have borrowed the money, there will be a owed debt service, the City will have entered into a --
The City will have entered into a operation and maintenance schedule with the Eagles, and the City will have an obligation to make certain payments. So those payments will be due and payable. What you have is obviously a fairly, as you can tell by, say, Table 3 or 4, when you see all of the tax streams, you have a fairly -- you have number of things happening. So you could have Phillies attendance, which they believe is going to be like 3.3 million, we think it starts at 2 -- they think it starts there and settles at 2.9, we start them at 2.9 and settle them at 2.5, 112 12/5/00 STADIUM BILLS HEARING 2.5 million. But suppose we're wrong and it's even less than that?
Well, that could produce -- that drive down our tax revenue numbers. We might have also been wrong on pricing and maybe pricing's higher, so you could have offsetting conditions in any year --
-- that would impact where do you end up. I mean, the worst-case scenario is some type of calamity, you know, a strike, there's a fire in the building and they just can't play for a year. I mean, you know, things -- you know, so you could have, you know, a kind of turnoff of the stream. But that's exposure. We also think, though, that there are potential upsides. As I said, the attendance could be greater than we thought. The -- we've been, I'll use the term, "conservative" or "reasonable" in the growth assumptions. You know, we use -- you know, in terms of the revenues 113 12/5/00 STADIUM BILLS HEARING et cetera. If things go better than that -- a good example of that is the rental car tax, where we've had growth assumption -- growth rates in actuality greater than we're projecting. So you can also have situations where you have, quote, good years and bad years. We do better in our numbers in some and worse in others.
We don't count any out-of-stadium spending, you know, which could be significant. I'm talking about direct, I'm not multiplier. But the worst-case scenario is we pay.
What is your analysis, and I would actually like to get something in writing either from yourself or -- I know Mr. Dubow was here earlier, I don't know if he had to leave -- or some combination of the two of you. What is your response to the PENNPIRG document from the other day or the PICA Director document or at least somewhat publicly expressed concerns by the City Controller as it relates to these projects? 114 12/5/00 STADIUM BILLS HEARING
Actually, I don't have an immediate response to the PIRG document. On the PICA document, I'd be pleased to provide Council with a letter that we're actually sending to PICA, which responds to that report. I think there are some, I'll use the term, "mistakes" in the simple analysis aspect that they went through, which were kind of walked through. But there's probably -- the most fundamental issue is, which I think is just a -- I'm trying to be -- think of the right phraseology here. There's a question of really whether this is the right analysis approach, is they, quote/unquote, charge the new transaction, two new stadium transactions, with the cost of preserving the current tax revenue stream we get, your very initial question, from the Vet. Not just through 2011 but through the entire length of the transaction. I mean, I could say the words, which are, Well, we were getting it -- if we have to make them general fund whole before we start using new money in this deal, I said -- I mean that's 115 12/5/00 STADIUM BILLS HEARING kind of an interesting -- I'd love to be able to do that. But you don't have it. If you don't do these, one of two things happens: The teams don't play at the Vet and they're gone; or you do some other significant public investment transaction to build new stadiums and it has an expense to it.
So I think there's a -- and once you multiply those numbers for -- 'cause it's 333 minus 10. For years, it has a pretty 12 significant negative impact to the transaction. I 13 mean, I would rather say this transaction 14 preserves all of that money, plus makes more, and 15 could pay for itself. 16 So it's a very -- 'cause if you look at 17 the PICA report, there was no analysis of a world 18 without new stadiums, what will that expense be. 19 So I just think that there's just a kind of a 20 philosophical issue about how you approach the 21 analysis, which is what are you comparing? And I 22 think what you compare are the two future worlds. 23 They compare only one of those worlds against the history, but the history isn't going to repeat itself into the future, no matter what you do, 116 12/5/00 STADIUM BILLS HEARING build them or don't build them, it's going to be different.
Have you done any analysis of the projection that indicates what a break-even point is in terms of how much slide can you have in the projections before there begins a period of fiscal threat or fiscal damage to the City?
Yeah, let me give one response, which is what the -- I'll speak on behalf of Mr. Dubow in his absence. In the five-year plan analysis that was done by the Finance Department, what they did was, they did do a little bit of what you said, Councilman. They took a cut at what we did, at what Arthur Anderson did, let me put it that way. So they took 90 percent of Arthur Anderson numbers for the Eagles, 80 percent for the Phillies, 50 percent for other events in the football stadium, and said if that world happened, that the negative impact on the five-year plan was 5.8 million, which is, I think, the table that was distributed a couple of days ago. So there was an attempt to do that, that sensitivity analysis. 117 12/5/00 STADIUM BILLS HEARING
Has there ever been any discussion about any type of back stop or guarantee against losses for the City by way of the teams such that if things go to a certain point, the City will have some protection?
We were not able to obtain that in the course of our negotiations. I think I said that the other day when that question was raised. So we --
Does that answer mean that you are actively working on that?
We had a discussion -- it was one idea we had at one point; I don't want to say it was -- I mean, we had many ideas about many things.
Yeah. And there's -- we just didn't get there. I don't want t sort of -- I think it's inappropriate to go through them.
It's difficult enough in a vacuum to deal with a single issue in what was a massively, as you know, on-and-off negotiation.
Right. Okay. We will have -- I'm sure we'll have some further discussion about that. Thank you very much.
Just on the news this morning, there was a prediction that the economy's going to slow down over the next three years, so we assume that means that interest rates can increase, disposable income used on entertainment will decrease, and unemployment will increase. And I was thinking about our discussions in the debt service. Debt service as a percentage of the general fund in a real analysis steadily increased since 1998. What is the current percentage of the general fund that we're paying for debt service? And how much will that percentage increase given our current commitment to PGW, the School District, and the 119 12/5/00 STADIUM BILLS HEARING blight initiative? And given the predicted slowdown in the economy over the next two to three years, as predicted, by increasing interest rates, what is our capacity to manage debt service on these current commitments plus that of the stadiums if projected revenues fall short?
Councilwoman, I cannot myself answer the question about the City's current debt service, but we can get the Finance Department to get you that.
In terms of the prospective of a downturn in the economy over the next three years, I don't think the timing could be better. There's no better time to have the recession than during the construction period for the new stadiums, when we would still enjoy the benefit, which is the only benefit we're taking credit for, of the taxes from the construction activity, be coming out of the recession at the time that the stadium's opening, and that's when we need economy to be prosperous for people to attend the event. 120 12/5/00 STADIUM BILLS HEARING
Do you think that we're establishing a precedent through funding capital projects through debt financing? And if so, what are the advantages and disadvantages? How do you view that?
Again, I think that's perhaps a question for the Finance Director or the City's Budget Director. I'm happy to give it a thought, but I think it would probably be most appropriate, since it's a fiscal issue, that that be dealt with by the appropriate City fiscal representatives.
Absolutely. 121 12/5/00 STADIUM BILLS HEARING Okay, we'll break for five minutes.