Oh, five. Thank you. (Break taken.) - - - (Proceedings resume.).
Thank you, everyone. All right, we will continue. Councilman DiCicco?
Thank you, Madam Chair. I just want to go back, if I can, to a question on the parking surcharge.
And I think that when you were responding to my earlier question, you indicated that there was some arrangement that was made with the teams basically on the front end, that they would put more -- they would increase the contribution to the development of the stadium, kind of like in lieu of -- and correct me again if I'm wrong again in the terms I'm using -- in lieu of the surcharge. Am I 122 12/5/00 STADIUM BILLS HEARING correct so far?
When we look at the old plan versus the new plan, and there was consideration for that surcharge as one of the City's sources of revenue to the project.
What was the value of the surcharge as it related to that plan, the cumulative value? Do you have a ballpark -- no 15 pun intended -- a ballpark figure?
Okay, and if you can supply the chart, I'd appreciate that.
But I guess what I'm trying to get at is if you took that number, whatever it is, how does that compare to what the differential is or the -- how does that compare to the value of what the team's contribution is? Was 123 12/5/00 STADIUM BILLS HEARING it -- I'll just use raw numbers. The surcharge would bring in $10 million over years. Did the 4 teams put the $10 million in to offset that? 5
Yeah, because, I guess, my concern is that when we made those projections based on the original stadium plan, we were probably looking at what the surcharge would generate as it relates to the 15,000 parking spaces.
'Cause the only place we could get it is on spaces we control, that's right.
Under the new proposed plan, which we're all happy that we're increasing the number of spaces by about 7,000, 124 12/5/00 STADIUM BILLS HEARING does that -- if we were to look at the surcharge again, does that still compare equally to the investment that the teams are putting into the deal?
I honestly can't do that one off the top of my head; I would have to look, but I will do that.
I figured you wouldn't have to do that, so I'm asking for that information. Because, again, when we look at the cost of doing the project, or the public investment, and I understand what your answer was and probably would be again, is that we look at that investment going forward, but are we really doing -- why would we give up a potential, significant potential revenue stream by way of the surtax? And it's because -- the answer will probably be because the teams are going to put up X, but I don't know if their X equals our Y, or whatever we want to refer to them as over a 30-year period.
'Cause it's got to 125 12/5/00 STADIUM BILLS HEARING be a significant number that the City could recoup by way of what I think is a user tax.
And we can make that as part of our contribution, or at least reduce the contribution in terms of what that surcharge would be.
That will be all. But, again, you know, and also -- but I -- it's important that we see the 15,000 versus the 22,000.
And what those numbers would play out to be over the 30-year period.
Thank you, Madam 126 12/5/00 STADIUM BILLS HEARING Chair. Mr. Hankowsky, I want to go back a moment to the line of questioning Councilmember Blackwell was pursuing relative to the -- any potential downturn in the economy. Does the City derive any economic benefit or revenue from the operation of any luxury suites in either building? I mean, will we get any piece of that?
Not directly as lease revenue, but from the sale of --
Yes. You get -- you get 5 percent amusement tax of the value of the ticket per event per suite. You get liquor-by-the-drink, to the degree that's consumed. And then the license fee, you know, that 100,000, or whatever somebody pays, become a gross revenue of the team and either gets picked 127 12/5/00 STADIUM BILLS HEARING up in our BPT or our net profits tax, whatever tax is applicable to that corporate organization.
Okay. While I agree with you on the construction phase of the project, it would be a good situation for us to be in to be emerging from -- to do the deal now and then to be emerging from a recession, a slight recession, at the end of the period when it opens. What does that downturn in the economy potentially do to this corporate decision-making about purchasing luxury suites, the disposal income available to use them for every baseball game -- for example, fully stock them with liquor and food. Are there -- I know that the tax code, federal tax code, changed a number of years ago.
The super box and sky box expenditures became more of a burden to the company.
As opposed to a tax 128 12/5/00 STADIUM BILLS HEARING writeoff.
Do you see any potential downside or unrealized expectations in the event that we're in a recession of some kind?
And those decisions to spend that kind of money aren't being made?
Right. And clearly suites and club seats paid for by corporations are a discretionary expense item, and if a corporation has a, you know, a downturn in its business activity, that's something that may be go. I mean -- by the way, it's also indicative -- you see it in meetings of the Convention Center is a very -- the Convention Center very much rides on national business trans -- 'cause in a downturn, you cut down business travel.
So if the economic downturn occurred over the next couple of years while these were being built, it would probably have an impact on the pre-sales, the leasing of those suites and club seats prior to the opening 129 12/5/00 STADIUM BILLS HEARING of the facility.
And would that have an effect -- has that been accounted for in our projections?
Well, no. We didn't run a model that plugged in a downturn in the next couple of years. We ran, you know, a 2.5 percent growth model, which would tend to be less than a long-term historic growth pattern, but instead of -- you can run a model that goes like that, kind of a roller coaster up model, or you can run a model that's the same -- gets you to the same place but it does it by a linear curve. We ran that model for the flat analysis.
Any revenue that's not realized by the City that was anticipated is covered by -- potentially by the general fund?
The teams, on the other hand, have the opportunity to adjust ticket prices, luxury box prices, prices of food and beverage in the boxes, retail sales within the stadium complex, the cost -- the charge for beer 130 12/5/00 STADIUM BILLS HEARING by the cup. They have some opportunity. Even though they would not to pursue that scenario, they have the opportunity to recoup their unrealized revenues through increasing the price, but we don't necessarily have that option.
Well, of course, when they do that, we are the beneficiary of that because we tax it based on the price, so to the degree they go through some kind of optimization exercise, saying, Okay, attendance is down a little bit, let's raise prices so we kind of make up for the revenue, we would end up in the same place too because we're going to have high tickets prices with less people paying for them versus lower ticket prices with more people paying for 'em. So we kind of ride their -- the tails of their economic adjustments to the pricing.
And I would assume that any type of economic downturn in the national economy would affect us locally and, therefore, affect perhaps the discretionary spending patterns of working families and people who aren't (inaudible). I mean if, if mom and dad are both 131 12/5/00 STADIUM BILLS HEARING working and all of a sudden now, it's just now dad working, the potential of making that decision to attend the Phillies versus the Mets might be one that's made not to attend the Phillies versus the Mets.
But our exposure and our risk, as we discussed, is that attendance and spending, if it doesn't meet the goals or the projections, that we are going to eat.
That's right. And as I said several days ago, you know, in effect, I believe we share that risk with the teams 'cause they will have gone off and got mortgages for their shares of this building. They have flat -- you know, they're going to have prescribed fixed mortgage payments. And so, yes, we're both in the same pickle, but we're there together.
I don't know if we're in the same pickle; we're there together, maybe in different pickles.
I think the City doesn't has access to TV revenue or to 132 12/5/00 STADIUM BILLS HEARING revenue-sharing amongst the League to other things. So --
Let me turn for a moment to the timetable for the Phillies and Eagles stadium. We are in this deadline scenario of December 14th primarily because the Eagles -- I mean, both teams want to get it done, but the Eagles need to move in an expeditious fashion vis-a-vis the NFL loan fund and other financing opportunities -- I mean, other -- the ability to get their financing in place and to kind of move forward. And the key to that whole process is the acquisition of the T-Warehouse, which is the spot for their proposed stadium; is that right?
There's a chart in the briefing book that lays out, actually, a fairly nicely detailed schedule of the Phillies transaction. And, basically, for the Phillies to 133 12/5/00 STADIUM BILLS HEARING open in April 2004, they need to start construction -- I think it's by the third quarter of next calendar year. And prior to that, would be going through the bid cycle and awarding, you know, excavation, foundation, structural. I think you're fairly familiar with -- you know, as I say, the packages. And for them to be on that schedule, we will need to move Jetro really beginning at the beginning of the calendar. And when I say "move at the beginning of the calendar," what I mean is, do the work to renovate the space. They're going to move into Acme, get -- they have some issues with truck docks and stuff that have to get approved. So you would be doing -- you'd be designing that building that -- such that Jetro could move out, and doing this a little bit off the top of my head 'cause I actually don't have the book with me. I think in the second quarter, such is that you can demolish, and in the third quarter, you can start construction in late third quarter. So there are certain activities that 134 12/5/00 STADIUM BILLS HEARING are --
What's the date that Acme needs to be renovated for Jetro?
They're arguing -- excepting the notion that Acme -- we need to acquire Acme to do that -- I mean, we've had the discussion before that privately a private-sector deal could have been structured between Jetro and Acme on their own, but be that as it may, the Administration and PIDC is suggesting that we acquire Acme in order to do that. What's the date by which Acme needs to be ready for Jetro?
Let me see if I can get that for you. I think the rough schedule right now is. . . acquire or get Jetro under control in December, prepare --
This December. I mean, get an agreement with Jetro so you know you're going someplace. Prepare their new space from January 135 12/5/00 STADIUM BILLS HEARING through May. Take about two months to move them. And part of this is inventory; you actually want to burn down the one inventory, you know. Work on the environmental abatement and demolition of Jetro beginning in, like, July through September. At that point, you would have started construction like September, October. You would have awarded the site package, the foundation package, the concrete structure package, and the steel package. And with those -- you know, those are the guts of bringing it out of the ground. And then with a start in October, can yield an April 2004 opening.
Okay. There's also a 90-day waiting requirement on the T-Warehouse site to move the current tenants. Once the deal is consummated, there's a 90 day period wherein the tenants, the current tenants of T need an opportunity to move?
There are leases that the current tenants have that have different time frames in terms of cancelling them, and we are actually looking to accelerate that to stay with this schedule. 136 12/5/00 STADIUM BILLS HEARING
I thought there was a requirement upon our acquisition of T for a 90-day window for those tenants to relocate.
There are notice provisions that they get, but we're actually looking to accelerate that.
The acceleration of that has a cost associated, I would assume.
Theoretically -- hypothetically, if we were to move ahead with T, because that's the one that needs to be done the most or the quickest for the Eagles to have a different timetable than the Phillies. If we move ahead with T now, would that keep the project moving forward?
I don't think it adequately keeps the project moving forward. I think that to move the project moving forward you need to move on that. Let's just do property first. You need to move on that, you need to move on Acme, you need to move on Jetro so that you line those pieces up so that you could stay on this Phillies schedule. 137 12/5/00 STADIUM BILLS HEARING In addition, if I can get -- in addition, for the Eagles to proceed to come out of the ground, you know, really start, they're looking at a scenario where like, you know, around March 1st, maybe sooner, maybe February 15th, you are able to begin demolition of T-Warehouse et cetera. For them to be able to do all of that, they really want to have their financing in place. For them to have their financing in place, they're prepared -- they're actually going to do a -- they're sending a package out, I think it's December 15th, to lenders to put a lender in place in order to close a loan like in January, you know, maybe early February. And they really can't do that without saying there's kind of a deal here.
Would -- the City's acquisition of T would not be enough of a proof that a deal was imminent?
Why would we acquire T if we were -- I mean, in the context of 138 12/5/00 STADIUM BILLS HEARING all of things we've been talking about in the last three weeks, the acquisition -- the go-ahead for the acquisition of T, to me, would indicate a movement towards doing a new deal.
Well, I'm not saying it's not a movement; I'm saying it's not adequate action for a bank to close a loan to the Eagles. They have no legal rights to have a stadium in Philadelphia; there's been no action to give them legal rights to have a stadium in Philadelphia.
If the City acquired T or gave the permission to acquire T by December 14th and they permission on the rest of the deal within 30, 40 days after that, would that throw the schedule off for the Eagles opening the day that they desire?
I think it might, yeah. I mean, I'd want to check that in more detail, but I think it might.
Well, could we find out from the Eagles' perspective, the Phillies aside, from the Eagles' perspective, what's the last day beyond December 14th that they need to finalize their financing package in order for them 139 12/5/00 STADIUM BILLS HEARING to meet their deadline?
I didn't see Councilman Cohen reenter the chamber. I should have known.
Over a considerable number of months, the City Controller has issued reports to City Council indicating his very deep concerns about the economic aspects of this transaction. I don't know why he hasn't been listed as a witness before the committee; I think he really ought to be 'cause I think he's made a great contribution, at least to the discussion of what's going on. What is your reaction to the -- all of 140 12/5/00 STADIUM BILLS HEARING the reports he issued which indicate that he thinks it's a very difficult deal for the City and indicates all sorts of weaknesses?
Well, I'm actually not aware of any Controller reports that's been issued on the package that's before you. What is issued is a series of commentary over the course of several months. You know, he's provided you with information about what's happened in other transactions, et cetera. But I don't believe there's any Controller report on this proposal.
Well, I don't know whether he ever had a chance, like people could say of most of us in City Council, that they know nothing of this proposal, 'cause most of us still don't. We're just, you know, being acquainted day by day with new additions to it. So he has discussed stadium financing, he's discussed the general outlines of these programs, and his approach has generally been negative. His last public comment that I've seen was that he sort of felt it was a fruitless effort to appear before City Council because he believed that the City Council was going to enact it 141 12/5/00 STADIUM BILLS HEARING anyway. But I've seen nothing affirmative. I se he raised all kinds of doubts as to whether or not, from an economic development point of view, whether it was good. And he also raised questions about the impact it might have on other transactions that might be good for the City but that might not be able to be carried out because of this. Have you read the reports that he issued in the beginning?
Well, Councilman, again, you know, your own consultant, Commerce Capital, was able to take a look at this transaction from its introduction and, in fact, testified before this body and said that, in fact, our analysis was fairly okay.
No, Commerce Capital 142 12/5/00 STADIUM BILLS HEARING didn't say that. That was Council -- you hired them. I didn't hire them; you hired them. They testified in this chamber. All I'm saying is that the Controller hasn't -- you know, people have done quick financial analysis of these deals. I mean, the Controller has a whole host of material. I responded much earlier this afternoon that we're not making an argument on the basis of an economic development argument about this transaction; we're making an argument on the basis of the revenues generated by taxes inside this building, that this investment can be paid for by that and the rental car tax.
But why would, if something is going to be just paid for and it's not going to add to the economic development? Why are we in this when it's clearly taking money away from so many other --
Well, it's not taking money away. Councilman -- (Unintelligible, parties talking over each other.)
And now in this 143 12/5/00 STADIUM BILLS HEARING case, I'm going to ask you to permit me to finish mine.
Since it's clear it's going to take lots of money away from a lot of very badly needed City improvements in the infrastructure and it may impede other economic developments, as Councilman DiCicco indicated he was -- had some concerns about, and that's only one example. There could be many others that might be adversely affected.
Why -- why are we really doing this? Is it because two baseball teams have enough clout, or is it because the Mayor met with the head of the National Football League? I don't understand why this becomes such an urgent matter for the City to deal with. We have a ten-year lease running till the year 2011. Tell me, how do you justify the City putting this enormous amount of resources into this project? Even assuming it were to make a little money on the way. Is the use of that enormous amount of resources justifiable under the 144 12/5/00 STADIUM BILLS HEARING circumstances? I don't think so, so I'm asking you, how do you justify it?
Okay. Councilman, we've made this argument consistently over the last several days. I'm not sure that no matter how many times I make it, you or I are ever going to agree on this. But, fundamentally, this is a transaction where you don't have these revenues to spend on something else if you don't make this investment. So you've got to start with, if you leave them at the Vet through 2010, the general fund is going to take a hit. The size of that is -- can be in dispute, but something's going to happen. Or you can decide to do this. If do you this, you: One, have put the teams here for 33 years; two, have payback of your investment; three, you've created additional 145 12/5/00 STADIUM BILLS HEARING revenue for the School District, a Children's Fund, a special service district. You've created venues in terms of hospitality infrastructure to allow this city to compete and bring other activity here, which we're not counting in the transaction. And whether it's, you know, let's keep the Army-Navy Game and let's also try to get -- some day maybe we can get a World Cup Game, we could get the PanAm games, we could have a baseball All-Star Game, et cetera. And just like when we built the First Union Center, we didn't know we could get the Republican Convention. If we build these buildings, we might be able to get events that we can't get today. One of those events will come to the Vet. That's why you should do it, Councilman.
Well, you say you're not seeking to justify it on the basis of economic development, but every reason you gave are the same reasons you give when there is a project that you present to us as a fine example of economic development. 146 12/5/00 STADIUM BILLS HEARING
No, Councilman, I really don't think -- and we may never be able to do this and that's happened over the years. I just don't think we're connecting. What I'm say single that our financial analysis is not an economic development financial analysis; it's an analysis based on the tax streams out of building. What I'm saying is, it has an economic development benefit. I'm not going to even try to measure it and make that argument to you, because you then are going to argue that I shouldn't use multipliers, et cetera, you and your staff. What I am saying is, that there is a benefit that is in addition to the fact that the revenues out of the building pay for it, and that benefit includes investing in your hospitality infrastructure, being able to do other kinds of activity in Philadelphia, and being competitive on a national level to do that. That's what I'm saying.
The City Controller says that if we stayed in the Vets Stadium and met the requirements of the lease, that the City would 147 12/5/00 STADIUM BILLS HEARING have a net revenue gain of at least $5 million a year over the next years of the lease. 4
Because I don't believe 10 -- if you look at what's already been analyzed by a professional firm, which says you've got to spend at least 80 million to rehab the Vet and lists a number of other items that weren't even addressed in their report that also need to be addressed, and you need to spend 1.6 million a year just to maintain that $80 million investment so you don't have to spend it again over the lease term. And if look at what will happen in terms of if you're wrong and 80 million's not enough and you have to spend 100 million, and if you're wrong, that you keep the rental car tax, and if you're wrong, which those members assume, which is that the Phillies will continue to increase revenues and that the Eagles are going to increase revenues, and you'll continue to have an increased 148 12/5/00 STADIUM BILLS HEARING profit. If you're wrong anywhere there, you're not going to realize that money. And I'm not saying that all of those things are going to occur but I'm saying that some of those things may well occur. So I don't go with that analysis.
Well, it seems to me the chance of loss is a much greater one when we undertake -- the chance of harm to the City's development much greater when we take a billion dollars of revenue over the next 30 years and take it away from every other need of the City.
I don't agree. My point is that in a perspective where you do not develop new stadiums, you have no upside potential at the Vet, you only have downside potential. When you develop new stadiums, you have a capacity --'cause the numbers I'm using aren't -- (Unintelligible, parties talking over each other.)
If I could finish, Councilman, if I could finish. We'll try to do this together, we'll try to do this together.
Okay, I'll accord 149 12/5/00 STADIUM BILLS HEARING you that.
What I'm saying is that you have an upside potential, because I'm not assuming even the Phillies numbers for attendance; I'm assuming lower numbers than that. So you have an upside. By the way, I acknowledged in my initial testimony the other day that there is a risk; I am at no point ever going to say that there isn't a risk. There's a risk, there's downside risk going forward. My point is, there's an upside and a downside if you proceed, and I think they're reasonable, and I think there's only a downside risk if you don't proceed.
But just as laypeople, it would seem to me to be obvious to everybody that when you take such a huge portion of your city's resources and put it into one development, you are running all kinds of risks as well as depriving other areas from necessary support.
Councilman, again, you and I probably just won't agree here, you and your staff, who keeps supplying you with the questions. 150 12/5/00 STADIUM BILLS HEARING But what's fundamentally happening here is, you don't have this money to spend on something else unless this decision is made. Now, you might make an argument to me, Well, we shouldn't put our money in this, we should have the teams pay for all of it; I'm telling you, they won't do that.
You make a good argument for that. Wouldn't it be a better deal, just from an analyst's point of view, from your point of view, wouldn't it have been better if the Veterans said, you know, Professor Rosentraub's view makes a lot of sense. The Eagles contacted the National Football League and said we've worked that out, we're going to knock off -- we're going to increase our share of the money, 'cause we can make a loan from the National Football League for it? Wouldn't you have liked that if that happened? Maybe it sound like a fairy tale to you, but if it happened, wouldn't it be a lovely tale?
It's not going to happen. 151 12/5/00 STADIUM BILLS HEARING
I don't find great benefit in speculating about things that won't happen. This team is putting the largest amount any football team has ever put in a stadium; they're not putting more.
Look at the huge gain they're going to make out of this. A team for which Jeff Lurie paid 185 million; after this deal goes through, he's going to be worth double maybe, triple that amount of money.
I'm afraid you just didn't listen to my testimony a couple days ago. These teams are taking enormous risks.
Because we've put the risks on them. They're taking the risk of cost 152 12/5/00 STADIUM BILLS HEARING overruns on both site and stadiums. They're taking the risk of capital, they're taking the risk of --
They're taking the risk of site improvements over -- yes, they are -- of the cost to knock down the Vet, the cost to knock down T-Warehouse, the cost to do the environmental abatement, the cost to put the parking --
But they're going to make the profits. What I don't understand is --
Councilman, Councilman, again if I could -- they are taking enormous risk. They take the same risk you're worried about, of whether we're going to get our tax revenue numbers is a risk they're taking about whether they're going to have attendance.
So when a private business person -- if I could complete my comment. When a private business personal makes an investment, he looks for a return that's commencement (sic) with the risk, and he is taking the risk. Professor Rosentraub gave no, no, no 153 12/5/00 STADIUM BILLS HEARING analysis to the risk reward aspects of an investment. And that's Finance 101.
But the risk is what occurs when people go into business. And in return for the risk, they make gains. A government is not in the business of taking risks; the government is in the business of providing services to its people and is responsible for that.
Governments take risks all the time. Governments build airports, convention centers. Governments make all kind of investments.
Well, you didn't agree back then and we probably won't agree years from now. But government makes investments consistently in order to spur development, create employment, do all kinds of things. Some work, some don't. We're in the investment business.
Well, that's why I'm talking about corporate welfare because people who need, whether they're business people or poor 154 12/5/00 STADIUM BILLS HEARING people or working people, have a right to expect government to help, but what we're talking about is what kind of a bargain is this? When you have schools three times as old as the Vet in operation. You know, I don't want to go through the whole litany of all the needs; you know them well.
You heard them. And here we're taking this huge amount of tax money and putting it in what is essentially a business where the profits are going to go -- we're going to be happy if we just make out even but -- and the big profits are going to go to private enterprise and the people are going to be asked to hold up on their demands for the support that's needed for the schools, for the Police Department, for all of these other agencies. All right. Maybe you're right. We'll never reach an accommodation. But here you have -- and this is what I tell you is our problem. You have a problem that, to many of us to some, or to some of us at least, 155 12/5/00 STADIUM BILLS HEARING seems fraught with all kind of economic questions. You present it to us at the last minute, you encase it with the concept of an emergency deal that justifies Council delegating its powers to others, foregoing its rights of oversight. You know, it just doesn't make any sense to us at all. It certainly makes no sense at all to me for City Council to be considering this matter at this time, and I think the people of Philadelphia are very unhappy about it. Thank you, Madam Chair.
You're welcome are there any other questions? Any other questions? (No further questions.)
All right this Committee of the Whole stand in recess until Wednesday, December 6th, at 10 a.m. The record will also indicate that Bill 727 is withdrawn. Thank you. (Adjourned at 3:55 p.m.) - - - 156 C E R T I F I C A T E WE HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Tuesday, December 5, 2000, were reported fully and accurately by us, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE OF THE WHOLE STADIUM BILLS __________________________________, DEBORA WHITEHEAD, Registered Professional Reporter __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter