Now, this is all on adjusted mark value, okay? Another way to look at it is, in the years 1985, '86 and '87, the adjusted market value returns were very significant.
But the average from -- is it '88 to '97 was 8.8 rather than 10.8.
I was using a bad number all morning, so I appreciate you clarifying that. Would you agree with the statement -- oh, Mr. McPherson's here now, he can answer the question so I'll hold that for him -- on the amount of money the City projects to save in the General Fund because of the Pension Fund obligation bonds. What I'd like to be able to weigh is how much they might offset costs you talked about this morning. 96 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 Now, all the hypotheticals going back ten years is 'cause that's the experience we have, we've adjusted it for the POB base being much larger. And I think most people, if not everyone, would agree that it's been a pretty good ten years for the market. And I've been trying to project out the next ten based on that, recognizing that that's being extremely optimistic because it's been a very good ten years in the market generally. But does -- assuming that it happens that the next ten years reflect the last ten, does that have a positive impact on our unfunded liability?
Okay. And so the unfunded liability would keep going down if we could keep getting the returns we've been getting on average?
Well, let me phrase that. The unfunded liability is projected to continue to increase through the year 2003 by itself. That increase may be smaller, or it may start to go down sooner. 97 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
But in either event, it will positively affect the unfunded liability, which, in other words, means that the unfunded liability will be less than we expect it to be in the future.
Once the -- let's follow that through. We've established that if our next ten years reflect the last ten years, then it will have a positive impact on the unfunded liability in the Pension Fund. Next question, taking that a step -- the next step down the road. Does a positive impact on the unfunded liability of the Pension Fund have a positive impact on the City's General Fund?
Okay. The answer to that is that, taken all by itself, just the investment return would have a positive impact on the City's obligation and the impact of the General Fund. Taken in aggregate with the other assumptions, it 98 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 may or may not.
Like what salaries are and things like that, who dies, who lives?
Salaries, how long people live and die, right. When we set up a body of assumptions, of which the investment assumption is just one, our approach is to best predict the future on the assumption that we want neither gains nor losses.
We want -- are hoping that the fund will experience what we expect it to. To the extent that we have favorable investment gains, that helps us when we have unfavorable mortality experience. "Unfavorable mortality experience" simply means that things are good for your retirees, they're living longer.
But if you take the last ten years into the next ten, which is what we have to work with, those other assumptions 99 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 also being like the last ten, does it have a positive impact on the unfunded liability and the General Fund?
Are you saying do all the assumptions, collectively have they had --
Ell, I have to check the statistics. I know I put together statistics on the last twelve years. And in only four of those twelve years did we have a positive impact on the unfunded -- that is, net experience gains which resulted in the reduction of the City's obligation.
IN eight of those twelve years we had a negative on the unfunded; that is, the unfunded was greater than expected, which resulted in higher City obligations.
So during this period of historic returns, we have needed those historic returns to offset some of our other assumptions which were not conservative enough. Primarily one of them, which we changed 100 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 this past year, is basically our mortality table, which goes to the question of life expectancy. The retirees of this fund are living longer than we expected under a previous table. We've now adjusted that to recognize that longer life expectancy and make sure that the funds are sufficient to pay out for a longer period of retirement years.
If you had an average of 8.8 as opposed the your 9 assumption.
And as a result of that, it cost the City some money because the unfunded liability was greater than you had predicted by that 0.2 percent model.
If you had projected an actuarial assumption of 8 percent which was clearly met if it had been 8 percent.
The City would have had to pay more just based on the 8 percent assumption.
So they actually would have saved money because the unfunded liability would be lower than you would have predicted under an percent return. 6
So a lot of this 8 has to do with what numbers you pick at the beginning -- whether the City makes or doesn't make it. I mean, I'm not making a joke out of it, but that has a whole lot of bearing on this is where we start. So if we start where most other funds are -- I'm not questioning what you're doing with the 9 percent; you only missed it by 0.2. But if we were where everyone else is, at 8 percent, the City's obligation, because of a higher built-in unfunded liability prediction, would be higher all the way along, and they would actually be getting a break on those payments once you see 8.8.
Okay. Is there anything else that we haven't discussed today that might save the General Fund in this whole area because it just hasn't come up today or that might 102 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 cost the General Fund money? We just haven't -- no one's asked the question about it because we just don't know enough. Are there other variables that we haven't talked about in terms of this? I just want to know if there's something we're going to find out next week. Like, boy, if we had only known that, we could have asked about it. I mean because I'm just finding out -- and I just apologize for not being an actuary -- that, you know, setting 8 percent changes all of your answers on what it costs the City, 'cause it really just costs more every year if it's 8. And then you reduce that as you get to 8.8. If you start out at 9, it costs less with the predictions, and then it goes up to the extent if you don't make 9, if you make 8.8. So a lot of this is -- is there anything else that is missing from this picture that you could think of?
And, Joe, that goes for both of you. I just want to --
I can't predict the next 103 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 question. However, I think that we've explored a lot of it and I think that the Councilmen as a whole have gotten a pretty fair education of what the issues are. And I think that when you look at those issues, you're still looking at the fact that anything that you give away that people don't currently have a right to now -- whether it be funds going into the PAF -- cost something.
You know, the fact that we have excess returns in one year or another either offsets costs that are internal to the plan or offsets costs externally that are funds that have to come from the General Fund. So what you're really talking about is a cost.
It is the allocation of the general revenues in the General Fund that you have control over. So whether you share above 9 percent, you share above 10 percent, you're making a financial decision not within the Pension Fund but ultimately within the General Fund.
Last question. 104 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 Again, I do want Mr. McPherson to answer that other question that was asked by Councilman Cohen, because it was on my list. Let me go back 'cause I might not have to ask the question if -- Charlie, the question -- basically, I don't want ask Councilman Cohen's question but how I would have asked it is, there was a savings to the City on an annualized basis of the pension obligation bonds. That's one of the reasons it was done; it wasn't just to create a larger corpus for the Pension Fund, although that's a very good thing. There actually is a projected savings to the General Fund that can be annualized by flattening out payments and doing --
With the pension obligation bond, it was two things. One, it was -- it allowed City the ability to enter into the capital markets to borrow the money at a rate that was less than 9 percent that we're paying. And it also allowed to us extend the payments. These were -- I believe they're 30-year bonds. And currently, under Act 205, the accrued unfunded has to be paid off, I believe, by 2019. So we pick up the additional years from 2020 to, you know, pick 105 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 up another, I guess, or years. The information -- I just got off the phone with Payne Weber and asked them to fax me some stuff because clearly, how the structuring was depended on what vehicles they just sold. So, hopefully, I'll have a fax literally in five minutes that I can indicate that to you. Clearly, from a budgetary perspective, there was cost avoidance because, again, under the payment methodology that we had to pay under Act 205, we had an accrued unfunded that we were paying off of approximately, I guess at that point a little over $2-1/2 billion. Those payments would have required just payment on the accrued unfunded growing from, I thin, approximately $200 million now to approximately $500 million by the year 2019. Again, that was the impetus for doing the pension obligation bonds because the City could not afford those budgetary increases from $200 million to $500 million. So what the pension obligation bond did, and I believe the first year figure was somewhere around -- was about $20 million to the General Fund. I think in total, it was about 106 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 or 4 -- but, again, I need to see the structure 3 -- which then would reduce the City's expected 4 increase under the old methodology. 5 So clearly, we were able to reduce what 6 we would have spent. And from a budgetary 7 perspective, I believe there was some savings. 8 But there was also -- a component of that was the 9 cost avoidance that the Administration would have 10 had to factor into the budget. 11
So if you take the 12 savings plus the cost avoidance, you might be 13 going from 20 to 24? 14
You might -- somewhere 15 in that range. And, again, when I see that, I 16 will -- 17
But it also does come a 20 point when we're paying more on these bonds than 21 we would have been paying otherwise because we're 22 extending the payment date for -- we're going out 23 thirty years.
Right, but also, that's future dollars which, hopefully, will be a 107 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 lot cheaper.
Right. I think from a present value calculation, I think the savings was somewhere around -- Joe, do you remember? -- about $230 million? It was somewhere in that range from a present value savings is what the pension obligation bond did. And from a total payment stream, again --
Oh, it was about 300, maybe a little more. I need to see the structure 'cause I know some of stuff was changing when they went to market.
See, Joe, as you're representing Mr. Hayllar, I'd like to frame the argument as we leave this discussion as having shifted to the General Fund, which as Charlie's indicated, that's really where the whole issue lies. Protections, number one, from Armageddon's and we have that protection. And secondly, just what the hit is. Because, as we heard from the actuary, there is an impact on the General Fund. What I would like to leave on the 108 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 record and ask the policy people in the Administration to talk about -- whether it's the Mayor or the Finance Director or whoever's doing it, is just to explain to us when the pension obligation bonds save 300-and-some million over thirty years and this projecting out what we had in the last ten years, going from to 9, is 9 going to cost $5 million a year when we're saving 10 more than $10 million a year under the pension obligation bonds. And I don't know, who took the hit, Charlie, on the $25 million in fees? The General Fund or the Pension Fund?
Well, it was added to the value of the bonds that were sold. So in essence, the City would take the hit because we're paying the debt service on those bonds, so if you're looking at it that way --
So the City took the hit. 109 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
The City is paying the debt service on the pension obligation bonds.
It came out of the proceeds of the sale, but the sale was not --
No. What they did was, Council authorized the net proceeds up to a billion and a quarter, I believe, to go to the Pension Fund.
The Pension Fund did not sell the bonds; the bonds were sold by PAID. So then the City did the service agreement with PAID, and what backed up those bonds was the City's agreement to pay PAID a yearly fee that would equal the debt service required on the pension obligation bond, which then alleviated a portion of the payment that the City would have had to make to the Pension Fund on the remaining accrued unfunded liability.
Right. 110 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
So you had to take a look at what the City's General Fund is going to be paying on pension obligation bond, what it would have been paying had it not issued the pension obligation bone, and that's where they talk about the savings or cost avoidance. It's the fact that it helps bring down that increase that we would have been paying to Pension Fund, and even why those are more cost avoidance is because from a budgetary perspective, the City realized that they could not afford, on a yearly basis, those type of increases to the Pension Fund because we would have had to have paid off the accrued unfunded, as I said, by the year 2019. And that payment was somewhere in the vicinity of $500 million. So --
I still don't understand the pension -- you float bonds. Do the costs come out of the proceeds of the bonds or not?
Yes, they came out of the proceeds of the bond. But since the General Fund is paying the debt service on those bonds, therefore, the General Fund is paying for the 111 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 issuance cost.
It's all in the way of phrasing it I guess. I could argue the other, I think, just as easily. But if you --
Right. And they would have had $25 million more in net proceeds if it hadn't been for the professional fees?
No, it would not. Because the way that the ordinance was established, we set a maximum amount.
Just answer one question at a time, Charlie. You may be absolutely right and I may be in left field on this, but all I want to know is, was there $25 million less that went to the Pension Fund because there were professional fees in the deal?
Not from the ordinance 21 that Council adopted, no. Because Council adopted an ordinance that indicated $1,250,000,000 to the Pension Fund. That's going to the Pension Fund, and then there was the ability to add on the cost of issuance on the back end to the bonds so they 112 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 actually issued bonds greater than the 1,250,000,000.
So then it's bonded separately. The costs were bonded separately from --
They were added on to what we authorized to go to the Pension Fund.
Okay, thank you. That's an explanation, I appreciate. It's nice to actually understand it anyway. It might not have been what I thought it was but I understand it. Madame Chair, I have no other questions right now, but I would stress the need to sit down with the Administration. I would particularly like to sit down with the Mayor. These numbers are not what the Mayor discussed with me and they're not what I believe he thinks the numbers are. They're very clearly much, much different. And when you balance them against the savings from the pension obligation bonds, they wash out. I'm not talking about the bonus payment. The bonus payment is coming out of the General Fund. I'm talking about the PAF. We're past the bonus part of this when we get to the 113 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 PAF. And that's all that's resolved around the 90 to percent in discussions with the Mayor and 4 everybody else. 5
Are you 6 suggesting, then, that someone from the Mayors's 7 office come up to City Council? 8
I would like to 9 have a meeting with the Mayor -- either personally 10 or with a group of people. I don't have to do it now. We've got till next Thursday to get this bill out if we're in a hurry.
I thought the Mayor had called you to discuss --
Yeah. He told me it was going to cost $100 million a year to the Pension Fund. It's going to cost $5 million. When you balance the other out, that's insignificant. And so he was significantly in error.
He may not understand that. I would like at least a chance to talk to him. 114 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
And if Mr. Hayllar contradicts this, I'm willing to listen to that. And if there's a hurry to do it today, I'll talk to him after we do it, that's fine. I'm just not voting for it, but I don't want to stop progress here.
But we do not have to vote this out if we're in a hurry until next Thursday. We can't do it any faster than the next Council meeting, which is a week from today.
Right. The Chair recognizes Councilwoman Blackwell.
Thank you. To follow-up on my colleague's comments, certainly, I would like to follow up on those comments just made. As the president may be aware, we received a different bill today with amendments than we received last night, so there have been further changes, and certainly, everybody was not aware that there would be some 115 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 changes to the language. And, certainly, I concur with those comments -- I concur with those comments just made.
Excuse me, Councilwoman, there's a point of information. The Chair recognizes Councilman Nutter.
Thank you, Madame Chair, just a quick point. Madame Chair, Councilwoman Blackwell said that the amendments, as offered today, are different from the amendments as circulated yesterday. I think I can report to you, Madame Chair, that the only difference is that there was one word that was misspelled in yesterday's version. It was corrected overnight and that was the change that was made. I believe it was in Section C on 4. There was a word that said "that" and it should have been "than." That is the only change from what was distributed to the members yesterday as compared to today. I apologize for the typo. I'm sorry, it was in Section (e), on , of 131.3. If you look at Section (e) that talks about "no credits shall be made. . ." In 116 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 that last sentence, last night it read, "are less that the fund basis." That was corrected overnight read "are less than the fund basis." That is the only change that was made from last night to this morning. The change was caught -- the error was caught after the amendments had been distributed. There has been no change from yesterday to today other than correcting that one word.
Mr. Nutter, did we not receive information that deals with the age of the survivors that we did not have last night?
Councilwoman Blackwell, you are also correct about that. That was -- are you talking about the explanation or actually what's in 131.1?
Well, I thought there was a change -- perhaps I'm incorrect -- in terms of the age of the beneficiaries or the survivors.
Councilwoman Blackwell, you are basically correct, and I am in error. 117 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
Yes. That is to deal with the issue of do survivors and beneficiaries have to meet the 60-year-old test. There was a lot of discussion about that. The change that's actually in addition of words to make sure that the survivors and beneficiaries themselves do not have to meet the 60-year-old test. The change -- it's actually an addition of words to make sure that the survivors and beneficiaries themselves do not have to meet the 60-year-old test. And provided this morning was also an explanation with some examples of how that situation will work out. I believe in one of our briefings, members were very upset that survivors and beneficiaries, as the bill had originally been drafted, it could be read that the survivors and beneficiaries had to meet the 60-year-old test also. And so after that discussion, a change was made so that survivors and beneficiaries do not have to meet the 60-year-old test -- only the 118 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 member does by the effective date of the bill.
Yes. Then you prove my point that there were changes that were submitted.
As well as on that deals with the fund basis and the year -- that's also been changed. So my point is again that --
-- there were changes that some people may not have been aware of because the proposed amendment to this bill 15 dated 1/27/99 had some changes -- at least two that I've noticed with an explanation -- that are different than the document that we received last night. My point is that there have been changes that we were not made aware of. And also, Councilman O'Neill mentioned discrepancies with the Administration with regard to whether we're talking 100 million and 5 million. That's a big, big discrepancy.
Right. 119 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
In addition to, number three, that Ben Hayllar, who leaves a statement, there are a lot of questions with regard to him that are not answered. And so, Madame President, I don't know how we resolve all of this today unless we can have -- certainly, if the Mayor were here, certainly he's the executive officer of the City, and we would accept -- obviously, we would accept his statement over Mr. Hayllar's. But if we were to resolve this issue before next Thursday, as Councilman O'Neill just said, then I would like to have all of the information before us.
That is what I'm saying. If that means the Mayor comes to explain the difference between 5 million and 100 million, we would certainly welcome his presence.
Councilwoman, if I can, and I apologize to you. You are absolutely correct. There were some changes made beyond a word. 120 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 The date in the fund basis explanation had not been changed but had to be changed since, in accordance with the discussion the other day, the establishment of the Pension Adjustment Fund, which was originally proposed for July 1, 2000, has been changed to July 1, 1999 as a result of discussions with unions. The fund basis definition, then, was out of synch with another section that called for the creation of pension adjustment fund on July 1, 1999. That number then had to change in the fund basis explanation. I believe, one, that was to the advantages of all involved, that there is at least consistency 'cause you can't have a fund basis with a definition that calls for something a year after the fund is established. We moved the establishment of the fund up a year. The number was left in error.
We do not disagree with what you say for clarification.
We only note that we have a different document today -- 121 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
And we don't have all the facts that we all can agree on --
I cannot answer the questions that are outstanding either to you or to Councilman O'Neill with regard to the Administration. I can certainly explain myself. And while these are significant, or may be viewed as significant changes, I don't believe that they would be viewed as detrimental changes, and I'm again fully prepared to explain it.
If the concern by the members was that the beneficiaries and survivors did not have to meet the 60-year-old test, but in yesterday's language, that was not crystal clear, the language was changed overnight. This change inures to the benefit of 122 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 the beneficiaries and survivors 'cause they now do not have to meet the 60-year-old test. So there was a change there, you are correct. There was a change in the fund basis explanation because it was out of synch. That date and that definition was out of synch with the change as a result of the discussions to start the Pension Adjustment Fund a year earlier. And the last change was the one that I started with earlier, which was that one of the words was wrong in item (e) out of 131.3. Those are the changes from yesterday. Two are to the benefit of the beneficiaries. I apologize for the error.
Well, we wanted to note that we had a different document. I don't disagree with those changes for clarity.
But we would like to -- we would like to know, Madame Chair, we'll check to see if we can get some response. It seems to me the issue of whether this change would cost 5 million or 100 million is a major, major point. And we would like to know 123 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 how the Administration intends to respond to that question. And that's the difference between having a bill and a responsible bill, quote/unquote, and having an irresponsible bill. Maybe there is some misunderstanding somewhere on the part of the Administration that can certainly straighten all of this out.
We will certainly try to get in touch with somebody in the Administration.
Mr. Herkness, did you want to say something on that issue?
Just back to originally when Councilman O'Neill said, Is there anything else where there could be any costs? The experience of the fund is where all of the costs are. All of the costs are in that experience. Under the experience umbrella is the various things that Ken Kent addressed -- the age, the mortality, the disability incidents, the death and. The two big assumptions are the investment and salary assumptions and the earnings assumption. 124 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 The percent and the salary assumption is what the State really looks at. We have to send a special letter to the State when we're more than 3 percent difference. We have a 9 and we have about a 5 in salary assumption, so we have to send a letter to the State to say, This is what we've done with the City. If we -- if the Board voted to -- and this comes up basically every year. There's an experience study every three years to see how closely the assumptions are being met. If the Board voted to decrease the investment assumption, which it has over the years had a lot of debate about almost every year.
In my opinion, the Administration would absolutely prefer it to be 9 because every quarter point, no matter what your other experience, you guarantee is going to be another $20 million. So an 8 percent assumption, plus or minus, I don't know if it's exactly 20. Could it be 17, yes. Is it 28, I think so.
(Inaudible, 125 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 off-mike.)
I'm sorry. Other than the Administration preferring it immensely being instead of 8 because of the cost avoidance 7 or savings, what is the discussion that generally 8 goes around the Pension Board when you arrive -- 9 when you're trying to arrive at 9, knowing that the prevalent return in this country is 8 or 7.5? I've heard 7.50, I'll stick with 8. What is it that drives us to 9? I'm sure it's not just because it helps the General Fund not have to pay as much. But what is it that are the other things that go into us having 9 with most others having 8?
First, let me point out that 8 percent is an assumption that is seen more often, but your fund is not the only fund that is at 9. Secondly, that the investment assumption is tested on. Every four years, a five-year experience analysis is done, which has to be submitted to the State to substantiate the reasonability of your assumptions, each 126 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 individually and in the aggregate. The assumption has been in place for 4 a long time, and the experience has held out that 5 it is still a reasonable assumption because you 6 have maintained a 9 percent return, relatively 7 speaking, on the adjusted market value basis. 8
I think it's very 9 defensible. As Joe said, it's always a long discussion. I just don't know -- what's the other side of it, somebody arguing for 8, 8-1/2? I don't think anybody's arguing for 10, are they?
I don't remember anyone ever arguing for 10. The controller -- any number of controllers always comment on the 9, whether it would be Jonathon Saidel, Joe Vignola, they're always commenting on 9 being aggressive and that it forces you to take some risks in the markets.
And other than that, you know, there's a vote, and generally, they've sustained the 9 over the years.
So the higher your goal is, hopefully, the higher -- the more you'll 127 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 push yourself to get it.
The other side of the argument is a lower assumption is more conservative. That means that you have a higher probability of equaling or exceeding that assumption on your actual experience. It will increase the City's obligation to contribute such that I imagine that if the City had to contribute on an 8 percent assumption, the cost of the plan would probably increase not 80 but more like $100 million a year, which, I would imagine, changes some of your positions on other decisions that this body has to meet on periodically. And there is no reason based on the experience to subject the City to that kind of additional increase in costs at this time.
Right. But the -- but the -- if the Pension Board did vote to have an 8 percent assumption or an 8-1/2, they could defend that also as a reasonable level. I know your 9 percent has been defended, and I'm not attacking it.
If the experience held out such that the recommendation to the Pension Board, 128 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 based on the past experience study and the projections to the future were such that we made a recommendation, number one, we wouldn't go from 5 to 8. 6
But, say, we went from 8-1/2 8 or 8-3/4, that would be the recommendation. And 9 the Pension Board would then identify for the City its obligation to contribute based on that.
And 8-1/2 instead of 9 would make it about 50 million more.
We're going to take a 15-minute recess. The stenographer is requesting that. Thank you. (Short break taken.) - - - 129 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 (Proceedings resume.)
The Committee of the Whole is now back in session. I would ask all of the Councilmembers in their offices to please come into the chamber. Thank you. All members please come down to the chamber. Again we're requesting that all members come down to the chamber, please. (Joseph Vignola comes forward.)
I want to thank you for your patience here all day kind.
Kindly identify yourself for the record so that we may proceed.
My name is Joseph C. Vignola. I'm the Executive Director of the Pennsylvania Intergovernmental Cooperation Authority, commonly known as "PICA."
And can you tell us how PICA feels about this bill before us.
Madame President, thank you for the opportunity. 130 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 Madame President, I'd first like to apologize to you and members of City Council. I would hope to have had some written materials for you but because of the flux in the language of the bills and just the ability to try to listen to the testimony and get back the my office, that is not possible. I thought it was better that I stay here and listen and comment verbally rather than preparing written statement. Madame President, I would like to thank Councilman Nutter. He took the liberty of faxing to me last night a rough draft of the bill. And as I explained to Councilman Nutter during the break, unfortunately, I was busy on my computer doing some social studies homework and never changed the fax server so I did not get it until this morning, till I got into the office. But we spent some time this morning with my staff given a rough draft of the bill and the comparative analysis. And I would like to begin preliminarily by saying that in a letter that I wrote to you, Madame President, and other members of City Council on January 13th of this year, I indicated that I thought it was important 131 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 that we find a methodology that affords the pension relief necessary to the employees while it is affordable by the City of Philadelphia. To that extent, it appears that the one item that is going to afford immediate pension relief, a lump-sum payment of $1,000 and $1,000 plus increment for longevity, is without controversy so far during this debate that I had. We at PICA looked at the numbers. And to the extent that it is contemplated, the operating budget impact is contemplated in the five-year plan and the budget that was submitted to City Council yesterday by the Mayor of Philadelphia, PICA would have no concern or objection to affording that lump-sum payment to certain retirees. In regard to what you're doing now in talking about a Pension Adjustment Fund, those former colleagues of mine who saw me in the halls throughout December and January know that I felt that a pension adjustment could be made based on the sharing of excess earnings by the Pension Fund. Having been a member of this City Council and been elected an official now being a member of 132 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 PICA, I think that it's something that the legislative process, the electoral process and those elected officials should decide to what extent the fund should be established. At PICA, though, we are a financial oversight board. I would be remiss if I didn't say that it's the staff's and my considered opinion that in looking at the establishment of the fund and how the money is paid into the fund, there has to be a methodology where every aspect and I believe the actuary for the City of Philadelphia indicated that there are three parties to this: the retirees, the active members, and the City of Philadelphia. There has to be a methodology whereby everyone could share in the gain and minimize the pain to everyone. And a methodology of funding this PAF that would afford some monies into the fund before distribution occurred would be reasonable. Again, those of you that listened to some of things that I was talking about in December and January said that, you know, would hear that I was talking about a 10 percent. And that 10 percent ways based on an actuarial 133 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 assumption of 9 percent. In reading the rough draft of Councilman Nutter's proposed amendments, he's talking about 1 percent spread above the stated actuary assumption, whatever that actuarial assumption may be from time to time. And that is consistent with what I was saying over the past two months.
So to that extent, you know, we at PICA feel that the bill does begin the process that affords pension relief to retirees who need the pension, and can and will be affordable by the City of Philadelphia. Again, not only in this fiscal year but through the fiscal years throughout the five-year plan and beyond and. With that presentation, Madame Chair, I'd be glad to answer any questions you may have or any questions that other members of City Council may have.
Thank you. Are there any questions for Mr. Vignola by members of committee? (No questions.)
Thank you 134 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 very much.
Thank you, Madame Chair. I would certainly be prepared to have a discussion about amendments if that's okay with the body.
Thank you and good afternoon, Madame Chair. First what I'd like to do is acknowledge and reemphasize and point out that what changes were made from the material that my colleagues and the leaders of the unions as well as Mr. Vignola and probably Mr. Herkness received from last night versus what was handed out today. And the document I'm working from says at the top "Proposed Amendment to Bill No. 990001," and it 135 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 has the date of 1/27/99 on that document. To the best of my recollection, from last night into this morning, these are the changes: In section 131.1 --
These are the changes -- if we look at the bill, are these the changes from the memo of yesterday?
These are the changes from the memo of yesterday. There was discussion earlier today about a change between the document that was given out yesterday and the document that was given out this morning. I just want to get on the record what those changes are, and then I'd be prepared to talk about the actual amendments -- what they are and what they mean.
It's what you received yesterday, Councilman. 136 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
I didn't receive anything. I might have a copy in my office.
Councilman, it's a document that I put in your hand last night when I was in your office.
Does everybody have copies of the proposed amendments?
Well, it's not the proposed amendments of today. It's in addition to that. The status of the bill as of yesterday. You mean what I took home with me and read has been changed?
There were some 137 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 minor changes. I just want to go over them, and then I will be prepared to discuss. In Section 131.1, lump-sum increases: The change from last night to this morning is that the bracket was extend to include the comma in front of the word "beneficiary."
It's the first line. It reads: "Each member, beneficiary or survivor." "Beneficiary or survivor," last night those words were only in the brackets; this morning, the comma was included in the brackets. That is a change. On the second line, the words "or would be" were added from last night to this morning. This deals with the issue of making sure that the beneficiaries or survivors do not have to meet the age 60 requirement. It was not clear from the language of yesterday that that problem had absolutely been resolved. That's on the second line and also on the third line. The phrase "or would be" was added today. On , as was discussed earlier, 138 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 under the definition section for "fund basis," the original bill had the fund starting on July 1st of the year 2000. The fund basis is directly tied to when the fund is established. And, unfortunately, last night's version went out with the date of July 1, 2000 to be consistent with the original date of the bill which was the establishment of the fund on July 1, 2000. We did not catch that last night and realized this morning that that number had to be July 1, 1999. On , in item (e), which starts with the phrase "No credit shall be made to the Pension Fund," in the last sentence of that paragraph --
It's (e) at the top. Last night it read: ". . . or less that the fund basis established as of July 1, 1999." The word "that" was incorrect. That word was changed this morning to "are less than the fund basis established a of July 1, 1999."
Oh, that was changed to "than." 139 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001
Yes. On , in small letter (c), it starts with "If in any period of two consecutive fiscal years. . . " The version that you received last night, on the third line said, "using an adjusted valuation methodology." In order to be consistent with all the other terms in the bill, the words "market value of assets" was inserted between "adjusted" and the word "valuation." We have the phrase "adjusted market value of assets valuation methodology as a defined term" and so the terms had to be consistent. All of those changes, because of the way the bill was written, this is essentially a bill that has two primary sections: one is amending the Requirement System Ordinance of 1956; the other is amending the Retirement Benefit Plan of 1987. All of the changes that I've mentioned are also replicated in Section 2 in the appropriate places because Section 2, the language is an exact mirror of the language in Section 1. 140 1/27/99 COMMITTEE OF THE WHOLE - Bill No. 990001 There were no other changes made from last night to this morning. Or at least that I've been able to catch yet. But I feel fairly confident that those are all the changes that were made.
Madame Chair, they all seem to be just technical changes.
Except for the change of the date of 2000 to 1999, July 1.