COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, March 21, 2002 9:05 a.m. - - - FY '03 SCHOOL BUDGET TESTIMONY - - - Bill 020031 - Ordinance amending Section 19-1301... Bill 020032 - Ordinance amending Chapter 19-1800... Bill 020033 - Ordinance amending Chapter 19-1801... Bill 020034 - Ordinance amending Chapter 19-1800... Bill 020040 - Ordinance authorizing transfers... PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL, Vice Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN RICHARD T. MARIANO COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, PA 19103 (215) 561-2220 629 3/21/02 - Continuing FY '03 School Budget Testimony
This is a continued public hearing of the Committee of the Whole regarding Bill Nos. 020031, 020032, 020033, 020034, and 020040. Do we have any questions from members of the committee of any of the witnesses that are here? The Chair recognizes Councilman Nutter.
I was about to ask a question and there was no one there. I think the gentleman from the school district, the CFO, Mr. Doosey, and any other --
Can we request that he come up in case there are issues relative to City finances, City budget?
We will also 630 3/21/02 - Continuing FY '03 School Budget Testimony communicate with him and try calling him.
Thank you, Madam Chair. Mr. Doosey, I need to go back over some items that we discussed yesterday with regard to we had a fairly extensive discussion about timetables with regard to the deficits in the fiscal year '02 going into fiscal year '03. My recollection is that you said yesterday, or it may have even been the day before, that going toward the end of FY '02 you faced a $70 million cash flow problem. Is that correct?
That is correct. The cash flow situation again is the School District cash flow is currently scheduled to expire May 15. Should the City provide the one-time grant for fiscal year '02, that extends to June 10, and there is a $70 million gap between June 10 and June 30.
I couldn't hear on 631 3/21/02 - Continuing FY '03 School Budget Testimony this side of the room.
I understand. We had the same problem yesterday. Why don't you try to pull that mike a little closer, Mr. Doosey?
The current cash situation for the School District is -- assuming no additional funds from any source are received, the School District will run out of cash May 15. Assuming that the City provides the $45 million proposed one-time grant for fiscal year '02, that date extends to June 10, and there is a $70 million gap between June 10 and June 30.
Wait a minute, Mr. Doosey. Either yesterday or the day before when we had the discussion about the $70 million, I thought you said that the $45 million one-time payment would take you to June 10 and then you had a $25 million gap from June 10 to June 30?
The difference is that the -- it's -- I'm sorry. The $25 million is correct if you -- I guess -- I'm sorry I am throwing out a different number today. The difference between the and the $70 million number is we have 25 an opportunity to advance one payroll from next 632 3/21/02 - Continuing FY '03 School Budget Testimony fiscal year to the current fiscal year to save money on the Pewzer's contribution. If we stay with the current payroll schedule, it is $25 million.
Right. Don't change the numbers on me from day to day now. I only have one set of notes.
Which number was the number you were just referring to on the million? 13
There is a $70 16 million cash flow problem from May 15 to the end of 17 the fiscal year. What Mr. Doosey is anticipating is 18 getting the $45 million one-time payment almost 19 immediately. That would allow him to continue to 20 operate the district until June 10. From June 10 to 21 June 30 there is a $25 million gap and so the 45 22 plus the 25 makes up the entire $70 million issue. 23 He also raised the prospect of moving 24 around a payroll payment, which I think it is 25 accurate to say then created a little bit of 633 3/21/02 - Continuing FY '03 School Budget Testimony confusion. Why don't we leave that out of the discussion for the moment and stick to the 70, split up by the 45 one time and then you still have a deficit until the end of the fiscal year of $25 million. Mr. Doosey, I just want to go over these facts again. We also had some discussion about the deficit financing and a timetable issue with regard to our present discussion and the need for cash, which is -- again, I don't think there is any dispute about the need for cash but also the understanding of when that need might be, when did you have to go to the bond market, and we talked about basically a 35-day period backwards from when you actually needed the money. In the scenario of getting the $45 million on a fairly quick basis that took you to June 10, we then engaged in some math and calendar exercise that took us back 35 days to around about May 5, 4th, even back to the 1st. You said you might need a few other days. I think last night we basically agreed that a deadline, if you will, would be April 27 or so. Is that correct?
No, that is not correct. 634 3/21/02 - Continuing FY '03 School Budget Testimony The actual date when -- I was in error in not anticipating that there needs to be a window where underwriters will not allow us to go up to the last day. They will insist on a grace period where funds would be in hand prior to the last day that funds would be disbursed by the School District and also I miscalculated the time frame necessary in that the -- all the legislation permitting the issuance of the bonds needs to be in place before the underwriters go to market, not when it closes. The impact of this is that the drop-dead date for approval of all legislation is April 11 and I have a letter from bond counsel I would like to put in the record documenting that fact.
So you are now correcting -- I want to try to make this as easy and respectful to you as possible. You are saying on the record that you are changing the date that we talked about last night, which was around or about April 27 to --
You indicated April 11. Is it April 11 because that happens to be a Thursday and a council day, or it could actually be 635 3/21/02 - Continuing FY '03 School Budget Testimony about April 15, but obviously we are not in session at that time? The last session before --
What is driving the April date is I need to mail the preliminary statement 6 by April 15. 7
Okay. So why don't 8 we put all of those dates on the record. Your real 9 drop-dead date -- I don't want to call it a 10 drop-dead date. Your real deadline is April 15. We 11 have a council session where we could vote on a piece of legislation on April 11. Therefore, you need action no later than April 11 in order to meet your April deadline? 15
And under that scenario you could, under our legislative process and procedure, have a first reading of a bill on April 4 and second reading and final passage on April 11, which would meet the types of deadlines that we have talked about and that your bond counsel is advising you. Is that correct?
Yes, sir, that's correct. 636 3/21/02 - Continuing FY '03 School Budget Testimony
Let's talk about another issue from yesterday. You made mention, and it was handed out during yesterday's session while we were in session. There has been a great amount of discussion with regard to legislation that is pending in Harrisburg that seeks to accomplish at least two objectives. One is relief for the City from the provisions -- the maintenance of AFRA provisions in Act 46 related to both the one-time FY '02 $45 million payment as well as the millage transfer that would happen for FY '03. Is that correct?
And the second component of that legislation seeks to amend the debt act so as to allow for a deficit financing in excess of the present limitation of ten years to go to 30 years; is that correct?
Now, I need you to tell me a little bit about that piece of legislation. First, what is the bill number?
I apologize. I don't have the bill number available with me. 637 3/21/02 - Continuing FY '03 School Budget Testimony
I take it that this is a fairly significant and important piece of legislation to you?
It is my understanding the bill will be introduced next Tuesday.
I thought our discussion yesterday or the day before was that the bill was going to be passed on Tuesday, March 26. That's my recollection from your testimony yesterday.
That's not my understanding. My understanding is it would be introduced Tuesday in the Senate.
Do you recall yesterday your testimony that the bill was going to be passed on Tuesday? I believe I asked that question three times yesterday. 638 3/21/02 - Continuing FY '03 School Budget Testimony
Your recollection is that you testified that it would be introduced on Tuesday?
Deborah Kahn, secretary of education for the City. If I can clarify, I believe at least I testified to, and I did not hear all of Mr. Doosey's remarks, but that we have asked for action on that legislation and that the Governor's office has, in fact, been meeting with legislative leaders, as have our representatives. I don't think we can tell you definitively what day or what bill number or anything like that, but there have certainly been many, many discussions about this issue. 639 3/21/02 - Continuing FY '03 School Budget Testimony
In addition to the bill number and when it is being introduced, if Councilman Nutter will allow me to add a request if we ask who exactly is going to introduce it.
No problem, councilman. Miss Kahn, maybe I attach too much significance to your description or your response -- and, again, I think the record will point out that the language was maybe what you just said, that you expected action on the bill on Tuesday. Now, maybe I was mistaken in legislative parlance. Generally in our body if somebody says an action is being taken on a bill, that usually means that a vote is being taken. Did you mean to convey that, or are you now saying that your definition of action is that a bill is being introduced on Tuesday?
What I said was that we have requested action on the bill next week. 640 3/21/02 - Continuing FY '03 School Budget Testimony
It could mean -- depending upon their procedures, it could mean introduction and passage.
Well, again, that was not my recollection of our discussion, so I need to ask you a few more questions. I believe the record will reflect that the testimony about this particular matter was that we needed to take all or some of the actions on legislation in front of us now because you were anticipating or expecting action by the legislature on Tuesday. Is that your recollection?
What I said was that if this council takes action to move these bills forward we believe that in anticipation of action by the general assembly next week that this would put us in a very strong position for the City to be able to say that we are taking the steps forward to implement the City's portion of the financial agreement. 641 3/21/02 - Continuing FY '03 School Budget Testimony
Okay. So now let me ask this question: Who is introducing this bill?
I don't know yet. That is not my decision. That is a decision to be made by members of the general assembly.
We have been working through the Governor's office and our representatives have also been having conversations with the leadership of the general assembly.
I can't tell you that definitively. What we have asked for is that the legislation -- that there is action taken. If that can mean introduction and passage, great. If it only means introduction, I don't know yet, but those discussions are serious. They are ongoing.
How does their 642 3/21/02 - Continuing FY '03 School Budget Testimony process work up there? How do you get a bill passed in Harrisburg?
I don't think I'm in a position to give you the exact primer in the step-by-step process of passing legislation in the general assembly, but I'm sure there are others that can do that. Nevertheless, I think the basic --
Who might be able to do that? I mean, I'm assuming that you are going to -- this is also an important piece of legislation --
And I'm assuming you are going to want to monitor or watch this bill 20 through its process, right?
How do you do that if you don't know what their process is?
Well, it will be done most directly through our government legislation 643 3/21/02 - Continuing FY '03 School Budget Testimony representatives in Harrisburg.
And as the legislative representatives for the City, what are they telling you as to the process and the expectation about this bill?
Just what I have told you, that the discussions are ongoing, they are serious, that legislative leaders and the Governor's office -- number one, that the Governor's office supports the effort and that the legislative leaders have been made well aware of the need and the timetable.
I understand that. What's the position of the legislative leaders?
I believe -- I don't know whether there are any firm commitments yet. I do not know. I can take time to confer and see exactly 644 3/21/02 - Continuing FY '03 School Budget Testimony what the status is, but I believe that it is under consideration.
And your legislative -- I'm sorry. What did you call it, legislative?
Wasn't there a recommendation made yesterday, Councilman Nutter, that this council meet with the leadership in Harrisburg before we take any action on this to ascertain where the leadership in Harrisburg is at?
There was a recommendation that we meet with the leadership in Harrisburg to ascertain this. Since obviously we cannot get any answers from Miss Kahn or Mr. Doosey as to conversations and where those conversations are in Harrisburg, shouldn't we be as a body, legislative body, meeting with that leadership to ascertain where those talks are and process whether they are real or not or whether there is really a 645 3/21/02 - Continuing FY '03 School Budget Testimony possibility of them passing this type of legislation on the $75 million? Because we are not going to get any answers from -- we are not going to get any answers through this process.
Councilman, I know there were discussions about that, and while I don't necessarily know whether they were conclusive finally, I know that a number of members of council did express in some of those conversations an interest in having that discussion, and I suggest it would be a good discussion for us to have. Let me try to do this: Miss Kahn, your legislative representatives, they are talking to the Governor's office and the respective leaders of the House and the Senate on both the Republican and Democratic sides of the aisle?
Let me ask this question: Has the Mayor had a conversation with either Senator Jubalier, Senator Brightbill?
The Mayor has certainly spoken to them. Whether he has spoken to them --
No, specifically about this legislation. 646 3/21/02 - Continuing FY '03 School Budget Testimony
Specifically about this, I don't know. Certainly he spoke to them about the need for this, and "this" being the larger plan. Whether he has had a specific conversation recently about the timetable I can't speak to.
As the secretary of education you wouldn't know whether the Mayor had a conversation with legislative leaders about a significantly important bill in Harrisburg?
I understand that. I didn't think you were babysitting him --
-- but I understand you might have a conversation from time to time.
Councilman, just a minute. You have a lot of competition in the room and then we have the sirens outside. Those having discussions side bar, please do so in the corridor. Please proceed. I'm sorry, councilman.
Thank you, Madam President. 647 3/21/02 - Continuing FY '03 School Budget Testimony Do you know if there have been any discussions directly either with Speaker Ryan, majority leader Purcell, minority leader Dewies, or Senate minority leader Mellow about this bill?
I believe that there have been, but I don't know the nature, no. Discussions are happening with both staff members as well as the members themselves and I can't be absolutely up to the minute on every conversation.
I understand you might not have real-time information, but when did the bill go up?
I believe that it has been in discussion for about the past week, ten days, two weeks, something like that it has been in discussion.
Could you give me a sense of what you know up to three days ago?
I know that we have had serious indications that there will be -- can be some action taken. I can't sit here and commit to you --
Who are the serious indications from? 648 3/21/02 - Continuing FY '03 School Budget Testimony
-- that any other legislative body will take an action, the same way I would never commit to members of the general assembly that the City Council will definitively take a certain action. I don't believe that it is appropriate or in the best interest of this process to do that.
I did not ask you to lock anybody into anything or indicate what someone was actually going to do. My questions have been strictly along the path of who has been talked to and what did they say. You said that the legislative leaders in Harrisburg have been engaged in those discussions. I'm asking you about specific individuals who based on general public information are the leaders in those respective bodies.
The general indications that I have and the reports -- and I do not have every detail -- are that the idea has been explained, it has been understood, and that it seems to have been received favorably. I cannot speak to how that reaction will be specifically interpreted into action.
I understand that. Received favorably by whom? 649 3/21/02 - Continuing FY '03 School Budget Testimony
So it is your testimony that Senator Jubalier, Senator Brightbill, Speaker Ryan, and majority leader Purcell have indicated to you that they are favorably disposed to this bill?
I cannot say whether each one of those has. I'm just simply not up on every single current conversation.
Well, I understand that, but in those bodies there are no people higher than those individuals, correct?
In those particular bodies there are no individuals of higher authority than those four people; is that correct?
So that's who you would want to engage in that discussion with?
Those are the people that our representatives would want to speak with, correct.
But your testimony is at the moment you cannot say if those four 650 3/21/02 - Continuing FY '03 School Budget Testimony individuals or representative Dewies or Senator Mellow or Representative Varley or Representative Evans or Senator Fumo or whoever the -- I don't know who the -- I actually don't know who the senate majority chair is on appropriations.
You cannot say that those it looks like eight individuals have been spoken to and what their position is as it relates to this particular bill?
I can't tell where it stands with every one of them. Everybody has a different role to play in this process and it is really up to the Governor's office and it is the Governor's legislative secretary who has also taken the lead to help us determine this strategy and lead that strategy.
Thank you, Madam President. Point of information for Councilman 651 3/21/02 - Continuing FY '03 School Budget Testimony Nutter, in addition to the eight people that he has talked about in the course of this questioning, it is important to remember that they also have constituents. It is not simply that they are leaders in their own right, but they are elected leaders of their caucuses. So in addition to the views of those very prominent legislators both in the House and Senate, it is important to be able to gauge the views of their constituents who represent the rank and file of both the House and Senate who put them in those leadership roles. So their positions often are reflective or should be reflective of the views of those constituent members. So simply an individual in leadership indicating a desire to be helpful does not necessarily translate into the ability to convince their rank and file that this is good for them in their districts. And may I highlight the fact that this is an election year for the House. So with some of my experience with those two legislative bodies in my past life from here, it is not simply the leadership saying, yes, we will help you. It is the leadership having to convince the majority of 652 3/21/02 - Continuing FY '03 School Budget Testimony the members of their caucuses, their own constituents, that this is a good thing. So it is much more complicated than just the leadership saying, "We will do our best." Thank you.
Thank you, councilman. One last question in this area. From your perspective whose legislation is this? Is this a City request legislation or is this Governor Schweiker's request for legislation?
The legislation was drafted as a combination of actually Council for the School Reform Commission as well as the City Solicitor's Office. What we did together was submit it to the Governor's office. The City of Philadelphia cannot directly submit legislation to the general assembly and therefore it was going to the Governor's office and it has the backing of the Governor's office.
The Governor doesn't get to vote on legislation, right?
I understand that, but that is at the end of the process. The Governor 653 3/21/02 - Continuing FY '03 School Budget Testimony does not introduce legislation, right?
I guess from a process standpoint I'm somewhat intrigued. With every respect to the Governor, why would you start with the Governor on a legislative matter that is solely decided by legislators?
The same way when we submit legislation to this body there is an administration-backed legislation or not, and it was important as part of this entire arrangement --
Well, obviously, for introduction because the Mayor, the same way, cannot introduce legislation. A member of this body has to introduce legislation. But in this process it is important to have it also be backed and to be assisted by and to work in partnership with the Governor's office in his legislative operation.
It's your choice. Mr. Doosey, let me lastly go back over some outstanding requests for information. I wanted to make sure that our lists are in sync. We had 654 3/21/02 - Continuing FY '03 School Budget Testimony some discussion yesterday about variations on the present proposal, which is to put forward a bond offering for upwards of $300 million for 30 years with a fairly flat debt service schedule of $25 million a year, total cost barring $75 million, correct?
And I had also asked you some questions about variations on that in a variety of either staggered payment schedules or terms such that the present limit naturally is ten years, but I believe I also asked you to try to put together debt schedules showing years, years 15 as well as naturally the 30 year. Presently we 16 don't have a debt service schedule from you; is that 17 correct? 18
We also have 20 outstanding as a request actually a five-year plan for the School District; is that correct?
Can you talk to us a little bit about in the -- I think in the legislation or maybe it is in the existing debt act, 655 3/21/02 - Continuing FY '03 School Budget Testimony tell us about any call provisions that you would expect to have as a part of this proposed bond offering.
I would anticipate the bond offering having a three- and five-year call. Those call provisions are required under deficit financing, counsel advises me, simply to ensure that should the district run surpluses during those early periods of time that the bonds in fact will have the ability to be called earlier.
Well, we should all be so fortunate. Could you provide us with a schedule that shows in the most optimistic situation what would happen in a three-year call as well as a five-year call which would also indicate what the total cost of the borrowing would be as a result of even though we are planning to go out 30 years and we know that's going to cost $750 million, I believe it is correct that if you call the bonds early in a three-year or five-year call, you would actually probably significantly reduce the cost of the total borrowing; is that correct?
That is correct, and those schedules are in the process of being prepared and 656 3/21/02 - Continuing FY '03 School Budget Testimony will be delivered to the council president.
The flat 25-year debt service schedule that is being proposed today, I asked you a question yesterday with regard to a staggered or graduated debt service schedule over that 30-year period or any other period that may be determined. What I mean by that is given the financial situation not only of the School District, which it is proposed here that this will help, we also have the financing of the City to take into consideration, and I asked you whether or not you could prepare or whether you have the opportunity or the legal authority to develop a graduated debt service schedule with lower payments in the earlier years and increased payments in the latter years, although the total amount of the payments would actually be the same, but the theory naturally being in the later years of this offering all parties would have more money notwithstanding the fact that there could be a three- or five-year call. Do you have the ability legally to do that?
I would have to defer to counsel on that. I do know with the last general 657 3/21/02 - Continuing FY '03 School Budget Testimony obligation bond that was recently closed on February 1, that is exactly the structure where it is a sliding scale structure with lower principal payments in the earlier years.
Let me ask this question: If you are able to put that schedule in place, the legislation before us though has a set rate which calls for the estimated $25 million shift in millage. If you have a debt service schedule that has lower payments in the early years but you are receiving still the $25 million, what do you do with the extra money?
It would be used for 18 general School District purposes. I'm making no 19 assumptions that there are any restrictions on it. 20 From a budget standpoint, I'm not making any 21 assumptions on restrictions as to whatever the stub 22 amount of that $25 million would be. 23
But you are going to 24 put in your OS or your POS that there is a dedicated 25 revenue stream from the millage transfer to pay the 658 3/21/02 - Continuing FY '03 School Budget Testimony debt service on these bonds. How do you stay in compliance if, for instance -- if the earlier debt service payments are $15 million but you received $25 million from the millage shift and you technically have $10 million I will call it, quote/unquote, extra, you are saying that you are going to put the $10 million in the general School District operations. How do you ensure in the latter years when your debt service payments may go as high as 30 or $40 million, one, that you are going to be able to meet the debt service schedule, but, two, is there not the potential of misrepresentation to the bond holders that you didn't set aside that $25 million that is dedicated from the millage transfership only for debt service payments?
With all due respect, I will ask bond counsel to respond to your question.
If the members of council please, my name is Robert Tuteur, T-U-T-E-U-R. I'm a partner in the law firm of Blank Rome Comisky & McCauley, and we serve as bond counsel to the School 659 3/21/02 - Continuing FY '03 School Budget Testimony District. Councilman Nutter, in response to your questions, the Local Government Unit Debt Act does limit the manner in which debt service can be paid, and debt service with respect to overall indebtedness of a local government unit, of which the School District is one, has to be substantially equal over time. That can be done in one of two ways, either by structuring the debt service on a particular bond issue as being substantially level or by structuring all of the debt service of a local government unit that exists to be substantially level over time. That's why Mr. Doosey said that in the last bond issue which the School District did that the debt service was structured in a certain fashion. It was structured that way, but when you look at the overall debt service of the School District, it is in fact level. That will limit to some degree whether you can front-end or backload, which is really I think what you are suggesting --
-- the debt service on this 660 3/21/02 - Continuing FY '03 School Budget Testimony particular bond issue. Moreover, council should keep in mind that the objective, of course, will be to attempt to get bond insurance, as the School District has been able to do with I think almost every one, if not all, of its issues because that will help lower the interest costs.
Bond insurers in my experience will not take favorably to an issue which is backloaded. Moreover, to the extent that you postpone principal payments into later years, you increase the coupon on the bonds because as a matter of investors, the longer they hold the paper, the higher the rate of interest that they want. So essentially whether you do this over ten years, years or 30 years or any other period 18 for that matter, I think you will be looking 19 essentially at level debt service. 20
Thank you. Mr. Tuteur, let me ask you this question: Is it my understanding that a letter is being sent to the Chair of the SRC with regard to the proposed bond offering related to whether or not any POS or other documents will be sent prior to a written 661 3/21/02 - Continuing FY '03 School Budget Testimony explanation that given the uncertainty at the moment of the legislative matter that is soon to be going to Harrisburg or is in Harrisburg or is floating around the Governor's office, no action will be taken on this particular bond issue until the relief that is sought in this particular bill has been attained?
Councilman, without legislation there can't be a bond issue. The Local Government Unit Debt Act in its present form would not permit the deficit funding bonds which the School District -- would not authorize the deficit School District bonds which the School District presently would like to issue. We must have legislation in order to issue these bonds.
I understand that, but there are two components to the legislation. What will you do if the legislation is bifurcated such that the legislature gives you the ability to float a 30-year bond but does not provide Act 46 relief?
I think that's a question that I would ask Mr. Doosey to answer because I think what you are asking is a financial question, 662 3/21/02 - Continuing FY '03 School Budget Testimony which I don't feel comfortable in answering.
In all discussions with primary bond counsel, Joan Stern, and with the SRC, it was not contemplated that the bonds would be issued without both a change to the local public debt act by the state legislature and Act 46 relief. It is for that reason that the formatted bill that was presented yesterday and is attached to the letter that I will place into the record specifically states that those two components are part of one and the same bill.
I understand that, but, Mr. Doosey, and I know you are relatively new to government service, but, one, you know there are two things you never want to watch being made, sausage and legislation; two, just because you send the bill up in a particular fashion doesn't mean it is going to come back to you anywhere near the fashion that it started. My recollection, I think, is that we probably didn't anticipate that the Parking Authority was going to be taken over, and the vehicle that was used, I think, was a bill to provide -- had something to do with nurses and I 663 3/21/02 - Continuing FY '03 School Budget Testimony think debt relief for school loans or licenses or something. I can't think of two things that are further apart from each other, so I'm compelled to still ask the question. If you get relief on the Local Government Unit Debt Act and not on Act 46, will you in fact have a bond offer?
I didn't ask you what your intent was. I asked you what you are going to do. I intend to pay my bills on time. Sometimes it doesn't work out.
If I can jump in here, and I can't speak for the SRC, and I think the commission would have to reconsider that, but certainly that scenario would then have an impact on the original $45 million appropriation and we would then have to revisit what our position has been in our long-standing position that we need that exemption. I think what Mr. Doosey has testified to in terms of his cash flow is they are counting on the $45 million from the City and if they don't receive it, it would put their timetable even for the bond issue in some jeopardy.
Let's talk about the 664 3/21/02 - Continuing FY '03 School Budget Testimony $45 million in the last two questions. On Bill 3 020040 there was a request yesterday that we receive essentially an updated version of the letter that the Mayor sent as a part of his veto message from the bills that we passed last year for that $45 million. The Mayor gave his reasons. We understand the reasons. They had to do with lack of relief from Act 46, the same position we find ourselves in literally a year later. I think Secretary Burrell testified that he couldn't see any reason why such a letter wouldn't be available. Can you give us updated information on that?
I have asked the Mayor and certainly we are prepared to send you a letter to that effect.
Lastly, there is a provision in Bill 020033 that makes mention specifically of June 28, 2002 with regard to a certification required by the city solicitor in the context of the bill that is in Harrisburg in the Governor's office and the relief from Act 46. There was some concern that that date, when you look at the calendar and the chain of events that need to 665 3/21/02 - Continuing FY '03 School Budget Testimony happen, that that date to some extent does not make much sense because it is fairly clear that if a number of other things happen you are going to have a bond offering prior to June 28, at which point that dates becomes somewhat meaningless. There was discussion with Mr. Doosey and with Miss Stern about the prospect of a discussion with the city solicitor's office in making that provision more realistic and to comport with the realities that we're faced with here today about who is going to do what when. Can you seek to get some resolution on that particular issue?
Yes. I thought Mr. Fader has testified on that point, and if he needed to go back and clarify that, I'm sure he will do so.
Okay. All I can ask at this point I think is -- and I cannot say this more strongly -- this is a very serious matter that people are trying to figure out what to do. With regard to specifically the millage shift bills, my request is that the information that has been requested either by myself and many other council members may have information requests of their own, that we receive this information in a timely fashion 666 3/21/02 - Continuing FY '03 School Budget Testimony and that there not be a request to vote on these matters prior to the receipt of these documents. I am not left with the impression that the compiling of these documents or this information will take any enormous amount of time and certainly will not in any way, shape or form affect the schedule that we talked about earlier which is unique passage of these bills by April 11. Certainly we could do that, and, again, with timely receipt of information through the Chair, get a first reading on the 4th and have final passage on the 11th, but I cannot overemphasize the discomfort level of not having that information in a timely fashion prior to being asked to vote on such a not only important but complex piece of legislation.
Councilman, I would like to clarify and reaffirm what our request is, and I'm not sure what you meant by this, but that we are still asking for these bills -- for this committee to vote these bills to report them out today. If what your request is is in addition to that, that's fine, but if you are suggesting that the committee not move to report the bills out, I agree with you. We can provide that information and can have first 667 3/21/02 - Continuing FY '03 School Budget Testimony reading on the 4th and hopefully final passage on the 11th, but we still would need the bills reported out today, and pending that, then we could provide the information prior to when you would need certainly final action.
Miss Kahn, based on the schedule, I don't know why you need any particular action today. This body can again move those bills out either on the 3rd, certainly the morning of the 4th, exactly similar to our situation here today and still maintain your schedule. I understand your need to be on a schedule in order to be able to do a bond offering. I am very clear on that and I understand that. At the same time I think it is crossing the line of relationship to ask members to vote on such a complex matter with virtually no information in front of them that this record is replete with instances of information requests, not that there has been any acrimony about this, not that anyone has said they will not provide information, but we literally have had now two and a half days of hearings. I think you know from many of the 668 3/21/02 - Continuing FY '03 School Budget Testimony members that they were not satisfied at the lack of information that was provided at the start, the middle and now virtually the end of these hearings, and I think at the moment it is unreasonable to ask members to take action on bills that clearly do not have the necessary requisite documents to go with them to in any way, shape or form justify a vote at this point in time when it is also crystal clear and you know our rules -- I'm not sure what they do or how they do it in Harrisburg, but our rules are absolutely crystal clear that we could have a vote on this bill. By your own testimony you don't need a vote on this until April 11th and we have more than enough time to get it done even under that timetable.
Our point is that by taking the action today and having the committee report the bills out, it gives us the ability to have an indication that the bills are moving ahead on a timetable that would in fact take us to final passage on the 11th and at the same time it really doesn't bind this council into taking any final action. It is simply a step that we are requesting so we can deliver that message to Harrisburg that we 669 3/21/02 - Continuing FY '03 School Budget Testimony are on that track, and, again, it doesn't presuppose any final action, although obviously we are continuing to request that final action.
I understand that, but action, no action, you can certainly amend -- I mean, look, we have had a hearing. We have had two plus days of hearings. It is obvious to anyone with their eyes or ears open that this process is moving, that these bills have attracted a tremendous amount of attention and that they are moving down a particular track. There is no question about that. It is not like there wasn't a hearing. It is not like people have not been engaged. We are all grown-ups here. You can very clearly either directly or through your legislative representatives express to people that there is movement on this, and to now virtually treat us like children, that you need to take an action so I can show somebody else that something is going on, leads me to think that you don't trust us or that there is such lack of faith in relationship that if it is crystal clear that people are trying to move, trying to be helpful, but there are easily a half dozen to ten serious outstanding information requests and that 670 3/21/02 - Continuing FY '03 School Budget Testimony short of that and that demonstration of good faith and conversation back and forth, you can't meet those requests, none of which are onerous, none of which are burdensome, and demonstrate to the body that there is a partnership and relationship here that will lead you to the place where you know it is going to go anyway.
We have over the course of the past, as you say, two and a half days attempted to provide you with all the information you have requested.
Miss Kahn, you talked about providing. You have provided virtually no information. We had to ask for this bill, which is not the bill. It is a draft of the bill. No one knows the bill number. You don't know who is introducing it or who is running the matter. Yes, there has been a lot of discussion and there have been a lot of indications that you wish to cooperate and wish to provide information, but the information itself is not here. The intention to provide information is not the same as providing information. You know that as well as I do.
I also know that we don't 671 3/21/02 - Continuing FY '03 School Budget Testimony control all parts of the process. We are doing the best in providing you with all the best information that we can possibly do right now and it is a matter of -- not a matter of trust as you suggested. It is a matter of taking affirmative steps.
Miss Kahn, there is nothing that has been requested of this body over the past two days that could not have been a part of a package of information. You know as well as I do that when people want you to have information we get binders. We get boxes of information. There is not one request that has been discussed here this morning that could not have been a part of a package of information. Nothing. There is not one document that I requested that either Mr. Doosey or Mr. Tuteur or Miss Stern or anyone else who has been at that table has said, "No, I cannot produce that. That is impossible to produce that. My machine doesn't count that high. My computer won't work that way." Everyone has said, we can produce that information in a very timely fashion, and if it could be produced in a couple days, it could have been produced a couple days ago. You know that as well as I do. 672 3/21/02 - Continuing FY '03 School Budget Testimony
My response to that is it is not possible to anticipate every request, but I will restate what our request is and our preference is that in fact the committee report out these bills today.
I understand that, but you could anticipate some requests. If there had actually been a discussion of any of this prior to the hearing, I would have been glad, as I often do, I would be more than glad to tell you what I would like to have before a hearing as opposed to asking for it in a hearing. So, no, I don't charge you with the burden of anticipating every request. What I do ask is that people take the opportunity to ask people what they want and then see whether it can be provided. Thank you.
It is important that we need to show a sign of good faith and movement to Harrisburg on a piece of legislation that has not even been enabled yet, where the legislation has not been finally drafted or introduced? So we are being asked to show signs of good faith on an issue that 673 3/21/02 - Continuing FY '03 School Budget Testimony doesn't seem to be moving with any speed at all in our state capitol. I have a question for Mr. Tuteur, if I may. It is my understanding and experience that a 30-year bond offering, sir, is usually done in an attempt to pay for capital projects. Is that a pretty accurate statement?
And the reason for the 30 years is we try to identify the real life of that capital project and therefore expand or extend the payments on that capital project over its useful life. Isn't that in fact --
In fact, you would have to have capital projects of that length in order to do 30-year bonds.
What is your expert opinion on the use of 30-year financing notes to fund deficit financing for periods of less than three years? Do you think it makes sense despite what your client may want you to do and have you ever seen it done before? 674 3/21/02 - Continuing FY '03 School Budget Testimony
In response, Councilman Kenney, to your first question, yes, it makes sense, and here is the reason why: As our letter, which we will submit to Council President Verna, indicates, there will be -- and as Mr. Doosey testified earlier, the tax laws require -- let me back up a minute. When you do deficit financing, as you pointed out, it is not capital financing. It is not for a protect. It is to cover a deficit. If you do that utilizing tax-exempt bonds, which is what is contemplated here, the tax laws don't permit you to keep those bonds out any longer than you need to. That is to say, if the School District had the good fortune ten years from now to have a huge surplus, we couldn't keep those bonds out for 30 years. What we pointed out in our letter and what Mr. Doosey testified to is to the extent that the School District runs surpluses above and beyond the working capital needs, there will be extraordinary calls of these bonds at regular intervals, probably annually, so that if we have the good fortune to run surpluses, these bonds will not be outstanding for 30 years. However -- 675 3/21/02 - Continuing FY '03 School Budget Testimony
Are you aware of any surpluses that this district has run in its history?
I'm not, but let me just finish my point. However, the benefit of taking it out 30 years is to give you the relief, if you need it, of having a 30-year obligation. If you have a five- or a ten-year obligation, which of course would have a much higher attended debt service to it on an annualized basis, and you don't have the ability to pay it because you don't have the surpluses, then I would suggest to you, sir, that we are in a much worse position.
The thing that I don't understand outside of this extremely peculiar situation is if I went to a bank -- and, as a matter of fact, Mr. Neville has testified himself the other day that what we are being asked to do is tantamount to putting your groceries on your credit card, which I don't think any financial adviser would ever advise anybody to do. So if I went to a bank outside of this particular situation and said that I wanted to borrow a hundred million dollars spread out over 30 years because I was running a business 676 3/21/02 - Continuing FY '03 School Budget Testimony that needed that hundred million dollar deficit financing over the course of the next two and a half years, do you think the bank would lend it to me?
So why would we ask the taxpayer to lend through their good faith and credit a similar situation on what seems to be a very expensive and really not a very sensible idea?
My suggestion to you is that there is a difference between running a business, and you are absolutely right, no bank would lend you the money.
And that's why the School District of Philadelphia is in the position it is, because running a government is different from running a business, and while I understand you have not put us in the situation and you are giving testimony on your opinion, it seems to me extremely shortsighted and extremely financially nonsensical to take this debt out 30 years when in fact 30-year borrowings are normally for capital projects and we are talking about getting fiscal breathing room for two and a half to three years. It seems like an awful amount of money to spend on the back end of 677 3/21/02 - Continuing FY '03 School Budget Testimony debt service for this short window of opportunity. Perhaps you disagree.
So you think in your expert opinion that borrowing 750 -- paying $750 million over 30 years makes sense in this particular circumstance?
No, I think in my expert opinion, sir, structuring the transaction so that you have the flexibility, albeit expensive -- nobody is going to suggest that 750 -- certainly I'm not going to suggest that $750 million is not a lot of money.
If you are a taxpayer in the City of Philadelphia, which I assume you are, you are going to be contributing to the payment of that.
Congratulations, if it happens. I have just a few questions for Mr. Dubow. Thank you for coming back over, Mr. Dubow. I appreciate your patience. 678 3/21/02 - Continuing FY '03 School Budget Testimony
I assume as budget director you have had the opportunity to run various scenarios, as you probably do on a daily basis, as to what the City is incurring in debt, what debt service payments are going to be required or anticipated, what other revenue estimates are projected to be, and through the course of the years, three years, five years, kind of run these scenarios in your head regarding what the City's fiscal condition would be based on various variables that may occur during the course of any given year. Is that pretty accurate? Do you kind of think about those things?
Yes. Let me identify myself for the record. I'm Rob Dubow, City's budget director. Yes, that's accurate.
Have you had the opportunity to determine or run this kind of hypothetical scenario in your own head relative to the borrowing or encumbering of the City taxpayers for this kind of debt over 30 years in anticipation of the possibility or potential that all the things 679 3/21/02 - Continuing FY '03 School Budget Testimony that we anticipate receiving through the course of this hearing, $75 million from the Commonwealth, a final fix on the statewide funding formula for schools, and considering the fact that the government would like to see the schools stay open without disruption, have you been able to determine what effect this borrowing could have on the City's long-term fiscal health in the worst case scenario?
To go back to our discussion from yesterday, the way we have looked at it on the City's side is what we have committed to do is make a $45 million a year payment and we built that into our plan and, as we discussed, that makes things a lot tighter for us and gives us a lot less flexibility.
Well, in the worst case scenario, if none of the items that we are anticipating happening from Harrisburg happens or if some of them happen, say the $75 million happens, my understanding is the $75 million, it's a one -- according to testimony yesterday I think from Mr. Doosey, I'm not sure, the $75 million request to Harrisburg is basically a one-time request. It isn't? So the commitment -- explain to me what the 680 3/21/02 - Continuing FY '03 School Budget Testimony $75 million is. Is that going to be in perpetuity?
The $75 million is the assumption of the parties. The City's ongoing commitment for $45 million is contingent on the State's commitment for an additional $75 million. While that would have to be appropriated annually by the Pennsylvania House, the $75 million is included in the Governor's executive budget starting at 75 million, increasing to $82 million in the '05 fiscal year.
But unlike the City's Act 46 problem, the second $45 million being the $20 million grant and the millage, that would be perpetualized by virtue of Act 46; is that correct?
And even though the commitment is there for the 75, it is still on an annual basis a budget item that needs to be voted on as an individual item, correct?
So if hypothetically the legislature changes or the Governor changes in the next three to five years, there is a possibility not Philadelphia's contribution, but there is a 681 3/21/02 - Continuing FY '03 School Budget Testimony possibility the State contribution might not happen, whether it is 75 or 82 or the progressive eighty-five ninety? Let me make it simpler. We are locked into $45 million a year in perpetuity; they are not, correct?
Are they under the same constraints that we are under Act 46 for any money they give us this year? Are they under the same constraints?
So that goes through a separate individual budget process each and every year. Hopefully we will be successful, but the possibility exists that we may not?
No, I'm not asking you to quantify the risk. I'm asking you to give me what is actually true as far as our ability to anticipate what may be coming from Harrisburg in the next one, two, three, five, seven years.
Frankly, I don't think 682 3/21/02 - Continuing FY '03 School Budget Testimony anyone can anticipate with certainty.
Well, I'll tell you what the SRC or the school board can anticipate from the City, is at least $45 million a year in perpetuity. Is that accurate?
So there is a difference between that situation and what is coming out of Harrisburg?
Mr. Dubow, in the event that down the road the $75 million is somehow obstructed or waylaid or that the long-term solution of statewide funding of schools across the state is not forthcoming, what effect does this additional encumbrance have on the City's budget if we want to keep the schools open?
Let me make sure I understand your question. You are saying if sometime down the road --
The year after. If the 75 million stops and there is still no solution 683 3/21/02 - Continuing FY '03 School Budget Testimony statewide to the funding and we are still encumbered and we have a desire to keep the schools open.
Are you saying if the State does not live up to its commitment --
I cannot speculate as to what they will do. Obviously if the entire pot that goes into the School District is lower, there is some risk for the City.
In order for us to keep those schools open, we would have to have an increase in revenue in some way, wouldn't we? We would have to have more money. Well, we certainly wouldn't have to have less money.
That's right, councilman, but that presumes that the City could attempt to do this on our own and we can't and we have always been on record as saying that.
I know you don't want to do it on your own, but you are asking us to encumber the City for 30 years to almost do it on our own. This is a question for Mr. Dubow because 684 3/21/02 - Continuing FY '03 School Budget Testimony what I need to know is if we attempt under the worst case scenario with this new encumbrance to keep our schools open, it is going to acquire additional dollars; is that not correct?
Well, there are two assumptions you are making. One is that the deal won't fall apart and one is that we would be willing to put in money we don't have, and we have consistently said that we won't do that.
So the schools are closed, or they wouldn't be able to open?
We are talking about the situation you talked about yesterday.
Right. And what I'm asking you is what the potential solution to that situation is. Is it an attempt or a need to increase revenue from a City source to keep the schools open? We are willing to borrow $750 million to keep the schools open for two and a half years. I assume if we hit a wall down the road we are going to want to keep the schools open too, so we are going to need increased revenue.
You are asking what the solution is. Our answer to that is that the State 685 3/21/02 - Continuing FY '03 School Budget Testimony has a responsibility.
Rob, with all due respect, the State has always had a responsibility. The State has had a responsibility for 25, 30, 40 years. No one is arguing that. I'm talking about the practical nature of what it is that you're asking us to do, and the practical nature is that we will need more money from our City source to keep the schools open or they close.
You are asking me to speculate on what if we do something we said we are not going to do. That's essentially what you are asking me to do because we said we are not doing that.
We. We. We are the School District. We are the taxpayers. We are paying as taxpayers of the City of Philadelphia for whatever it is the School District or the SRC is asking us to do. You can separate from the Act 46 and the SRC's creation. The bottom line is that the 686 3/21/02 - Continuing FY '03 School Budget Testimony people that live and work within the confines of the City of Philadelphia are paying this, so it is our system in the end. We are paying for it.
We are state taxpayers too and so are the people that work in the city. So, therefore, the School District of Philadelphia, whether it is the SRC or the old district Board of Education is our system, correct?
So what I'm asking you is down the road, if none of this materializes, we are going to be in a situation to require additional revenue in order to educate our kids?
The School District will need additional revenue. The state will have a responsibility to --
Right, and they are not living -- hypothetically they are not living up to it. So now we are in a position where the schools potentially cannot open. The state has not lived up to whatever commitment we think they made 687 3/21/02 - Continuing FY '03 School Budget Testimony with you guys because we don't know of any commitment they made from our perspective and we are encumbered with $25 million of debt service over 30 years. We are encumbered with $25 million of debt service for NTI. We are encumbered with or $25 7 million in debt service for new stadiums. What do 8 we do? We have to find new revenue, correct? 9
I don't know how to answer 10 the question you are asking me. 11
I will answer it for 12 you. We have to find new revenue. 13 All the discussions we have been having 14 in the midst of this wage tax discussion and grocery 15 receipts taxes and the recognition that we are 16 probably one of the more unfairly taxed cities in 17 the country, we probably couldn't raise the real 18 estate tax, we probably could not raise the wage 19 tax, we probably could not raise business taxes in 20 the city, so the only options left to keep the schools open in light of the state again failing its responsibilities would be potentially to raise the real estate taxes. Isn't that a possibility?
I will repeat what I said before. Our position at that point would be, and 688 3/21/02 - Continuing FY '03 School Budget Testimony for the reasons that you have just said, that we couldn't afford to put more money in, and that's why the State should have to live up to its responsibility.
The State should live up to its responsibility and hopefully the State will, but this bridge loan that we are asking to make or to allow to be made or to pay for will take us beyond 2004 potentially. In the event the State doesn't live up to its commitment or alleged commitment in solving statewide school funding, we are stuck in 2004 after a municipal election with the opportunity to close the schools or raise additional revenue to keep them open, and I would argue to you that the easiest one to raise, because the other ones are so problematic, would be real estate taxes. So we find ourself in a situation in 2004 after that municipal election without the state's commitment or the state's follow-through with anything that they committed to or allegedly have committed to, I would argue with you that the next move is going to be to raise the real estate taxes in the city. It will pay for the schools. It 689 3/21/02 - Continuing FY '03 School Budget Testimony will be a safe thing to do after 2004 because everybody will be safely reelected.
Councilman, I'm sorry. We are going to have to curtail some of our questions.
We have the monsignor waiting to deliver the invocation and I know the youngsters are back there and I'm sure they are getting a civic lesson.
With all due respect, Council President, I agree with you. The monsignor has been waiting and these young people have been waiting, but we are in this room this morning not through any fault of ours.
The people who are sitting at this table could have been sitting at this table a lot earlier than five minutes to 11:00 on Thursday morning. We could have had this discussion much sooner than we have had it, so anybody who has been inconvenienced, it is not any 690 3/21/02 - Continuing FY '03 School Budget Testimony fault of this council. Thank you.
Thank you. At this time the Chair recognizes Councilman Cohen.
Yes. This is a strange sort of discussion because those of us occupying council seats ask questions and talk about the issue to people representing the administration as if the individuals representing the administration created these policies or even necessarily support them privately. The fact is people sitting at that table have to pursue a certain line of answers to questions because they don't have the same freedom that we have in City Council to discuss our views. Isn't that right? Aren't you portraying the views of the Mayor, the administration? Is that true, Miss Kahn? Let me address the secretary directly as the ranking member sitting at the table.
Of course we are here representing the views of the administration, but I also think we have made known both our personal beliefs as well as the belief of the administration that the issue of having the State live up to its 691 3/21/02 - Continuing FY '03 School Budget Testimony responsibility in funding schools is critically, critically important to both the present and the future of this city.
Of course you believe that the State ought to live up to its responsibilities, but your definition of the State living up to its responsibilities is far different from our definition. We believe the State lives up to its responsibilities when the State takes action in accordance with those responsibilities, not when the State defaults or the State puts caps on the amount of contributions it is going to make to the School District like it did back in the early 1990's.
What I'm saying is there's a difference in how we interpret. You have to interpret everything through the prism of the Mayor's eyes. We are free to interpret the situation through the prism of our own eyes and therefore we even have differences of opinion that we are free to express, maybe not free to vote, but free to express. And I think that distorts this 692 3/21/02 - Continuing FY '03 School Budget Testimony kind of dialogue that takes place. Suddenly we got involved this morning in cash flow. Tell me the relationship between the cash flow problems of the district and the deficit. Is there any relationship between the two items?
Could I ask you to restate the question? I'm a little confused. I have testified what the cash shortfalls would be through the end of the year and starting in July, so I don't understand what the question is.
What would stop the School District from operating would be a lack of cash, right, not a deficit? Because we have a big deficit and the school system is operating with a big deficit, but if you had the same kind of cash flow deficit, if you didn't have the cash, the schools wouldn't be operating, right?
If I didn't have the cash, the schools could not operate, but it will reach a point in time where you cannot incur larger deficits. I think we are at that point in time.
The deficits become 693 3/21/02 - Continuing FY '03 School Budget Testimony problematical when the additional streams of cash to cover the shortfall stop. You are only postponing the day of reckoning.
But as of now we have a very substantial deficit, according to your figures, and we are open and operating, right?
Now I understand your question. Yes, the immediate need is a cash need, not an accounting deficit issue.
Has the School District made an effort to meet the cash flow needs other than through the bond issue that we are talking about with the $45 million contribution by the City? Have you gone to banks asking for them to take you through April 15? Is that the first date of danger?
The actual problematical period historically for the School District is from the July to August period, which is when tax revenue anticipation notes historically are issued by the district, and that's exactly what it is, short-term bank borrowing.
I have difficulty when we flow between historical dates and actual 694 3/21/02 - Continuing FY '03 School Budget Testimony dates. This year what is the date when the schools will cease operating as a result of a cash flow shortage ?
Without any additional funds we anticipate that we will run out of cash on May 15.
Now this is approximately two months before. What is the School District doing to take care of the situation in the event this council acts unfavorably on the administration's request?
With all due respect, sir, I don't think there is a second alternative given that the amount of funds that are necessary the Pennsylvania Department of Education has advised that they are not in a position to advance and the banks have advised that they are skittish to lend given the current deficit of approximately $170 million.
Has there been any effort to go to banks directly, or is this supposition on your part? 695 3/21/02 - Continuing FY '03 School Budget Testimony
No, we have initiated initial discussions with the banks because I have to assume that if for some reason something does not happen I have to start those discussions at this point in time.
Is there any other bank? How about First Union or Wachovia, whichever you choose to call it?
In the past First Union and PNC, because they are Pennsylvania domiciled -- well, I can't say Pennsylvania domiciled -- because they have material operations in Pennsylvania have always been the two banks frankly that would be willing to lend to us in these circumstances. Needless to say, the School District does not -- is not the most favorable credit that a bank would look at. 696 3/21/02 - Continuing FY '03 School Budget Testimony
Because we have insufficient cash flow and we also have a deficit.
Has there ever been a time that the School District has defaulted on a bond issue?
Why would we be a bad credit risk? I think we are an outstanding credit risk. The School District has not only itself but the City and the State to rely on.
We have been a viable credit risk for the bondholders because of the Commonwealth's intercept which provides that if we were not able to pay the bondholders, the amounts of monies due the School District from the Commonwealth will be redirected to the bondholders. It is for that reason that we are a viable credit. Standing without that intercept, we would be a junk credit in the credit markets. It is only because of Pennsylvania law which obligates the Commonwealth to redirect funds for the benefit of the bondholders that makes us a viable credit in the marketplace. 697 3/21/02 - Continuing FY '03 School Budget Testimony
That's a pretty good guaranty to the bondholders, isn't it?
You know, it seems to me we paralyze ourselves and tie ourselves up in knots. It seems to me we have lots of sources. Did you go to the pension fund? We have a pension fund in the city with many billions of dollars? Its returns have not been very good. The beneficiaries of the pension fund are the city employees who have a great stake in the viability of the pension fund. We could pay them an interest rate which is probably higher than the recent returns the pension fund has had in the last year. Has there been an effort made to go to the pension fund?
I'm afraid I'm getting confused. The source of the funds, I don't know understand what the source of the funds, whether it be pension fund or long-term general obligation bonds, how that is material to the School District's current situation and current need for cash.
I'm sorry. I don't get that answer. It seems to me the pension fund, 698 3/21/02 - Continuing FY '03 School Budget Testimony like the bank, would in an excellent position to provide the cash flow money necessary to maintain the school operation during the month of June, the rest of May and the month of June. It seems to me that the School District is derelict in not taking a whole series of steps made to guarantee its continued operation in the event that either Harrisburg or Philadelphia as far as the legislative bodies are concerned will both fail in meeting the needs of the School District.
I will restate my testimony from yesterday. Not only do I have a cash shortfall between now and June 30, there is also a cash shortfall between July 1 and August 15 when we receive the bulk of our annual revenues of approximately $200 million. Getting to June 30 really isn't the answer. If I get to June 30, yet immediately after the July 4 holiday continue not to have funds, I will still not be able to open up the schools in September even though I completed the current school year.
But that is a different problem from finishing this school year.
That is correct. 699 3/21/02 - Continuing FY '03 School Budget Testimony
Thank you. The Chair recognizes Councilman Clarke.
Thank you, Madam President. Madam President, I just wanted to reference earlier testimony with respect to procedure as it related to hearings in council and information submissions. I have only been here two years, and in my brief tenure here I have seen just about every procedure imaginable used as it related to reporting bills out of committee. I have actually seen bills recommitted to committees. I have seen information come before the final passage of a bill, and it is just unclear to me as to if we have individuals saying they essentially want to send a political signal --
I'm sorry. It is just so noisy. Please proceed, councilman.
I said it is clear to me that the request here today is to send a political signal to Harrisburg that the City of 700 3/21/02 - Continuing FY '03 School Budget Testimony Philadelphia is serious and I think we all know that we are serious and I think that Harrisburg to a degree knows we are serious, but simply reporting a bill out of committee, understanding that there is a strong likelihood that we will not move that bill 7 beyond the first reading, that is the request on the table today. We will be hearing a calendar later on at some point in caucus that probably every bill on that particular calendar is going to be held, some of which have been held more than a year. I don't think it is an unreasonable request to ask us to report those bills out of committee, understanding that without the submission of that information that these particular bills would not move beyond the first reading of council. So I would just like to get that out there, that there is another process. It is not just simply us not moving the bill out of committee until we get the appropriate information, and I agree we should get all the information. If it requires that we get some additional briefing from the administration or from the legislature, I think that should happen, but it is clear that the request 701 3/21/02 - Continuing FY '03 School Budget Testimony today centers solely around sending the appropriate signal, and I'm assuming there has been some discussion among members of the SRC, the administration and members of the legislature that sending that particular signal today enhances their ability to move forward the $75 million commitment. So I just wanted to put that out there, that I think that's what we are here to talk about today.
Thank you. The Chair recognizes Councilman Goode.
Thank you, Madam President. I share the same concerns as my colleagues over the testimony of the commission and the administration. I think it is not much different than past practices of the lack of information and respect for council in terms of its process, and council has never really been involved as it should be in school matters by law, just by the way government is structured. But as I share those concerns and as I share the same concerns with a 30-year, $30 million debt issue, we have no bills before us today that 702 3/21/02 - Continuing FY '03 School Budget Testimony obligate us to a 30-year, $30 million debt issue. We should actually end that confusion right now. We are not voting on a 30-year, $30 million debt issue. We are simply making a decision to give the School District $45 million a year, and I'm particularly concerned because we spent a couple hours here in the height of hypocrisy, particularly for certain members who less than six months ago were ready to give the School District $75 million a year with no 11 strings attached. On October 11 Councilman Kenney along with Councilman Nutter and Councilman Ortiz introduced an appropriations bill for $75 million. Take $75 million, give it to the general fund, give it to the School District, no strings attached. In fact, the day that bill was introduced Councilman Kenney made a speech after council, and let me quote from that speech. It says, "Any solution that may be coming from Harrisburg is going to require local increased aid to the district. I think in the end and also I believe the legislature has made it very clear that unless and until Philadelphia steps up to the plate for additional, substantial new monies for the district, they are really not willing to provide 703 3/21/02 - Continuing FY '03 School Budget Testimony any additional funds that will make any difference. In the end it is our responsibility to deal with the district. " He goes on to say, "I can't think of a more important investment we can make in this city other than the education of our kids and I will argue that probably even beyond blanket taxes and auto insurance and other reasons why the citizens of Philadelphia decide to no longer be citizens of Philadelphia, probably the number one reason is condition of the schools and lack of choices they feel they have for their kids. " 704 3/21/02 - Continuing FY '03 School Budget Testimony He goes on to give an interview to the Philadelphia Inquirer in which it says, Councilman James Kenney posed legislation authorizing release of $75 million. He is quoted as saying, "I think it's important that we show a tangible commitment, that we show the students, their parents, and the State that we are willing to come up with a substantial amount of money," Kenney said. The article goes on to say "Under Kenney's bill the City would give $75 million to the district, an amount intended to restore the $65 million appropriation to the schools that Street vetoed at the end of the summer. Street and council members have expressed concern the state law, Act 46, will require any such appropriation to be made annually if the State ceases control of the district, but Kenney said that was not a concern for him now. The city should make school funding a budget priority," he said. So you see the $45 million bill as opposed to the $75 million bill is a better deal. For the $45 million bill, it represents the art of negotiation. The $75 million bill represents the art of grandstanding, and what is happening here in 705 3/21/02 - Continuing FY '03 School Budget Testimony the last few days represents the art of hypocrisy. It is as I have heard in this council before. It is flip-flopping. It is boomeranging. It is wrong. It is time for us to end this disingenuousness that is in this body, decide what we want to do, if we are going to help the kids or not.
In the end, for those people who might be educated in the school district and don't know what disingenuous means, it means full of crap. Thank you. )
Thank you. The Chair recognizes Councilman Kenney.
Thank you for the opportunity to respond to the additional personal attack from Councilman Goode's inane fixation with what I have to say and my positions. But let me say I will take that $75 million deal again today. What the Mayor and what this administration is asking us to do is to basically give $45 million, million of which will 23 be used for debt service. They have already said 24 they are going to borrow $300 million and pay for it 25 over 30 years at the cost of $750 million. I will 706 3/21/02 - Continuing FY '03 School Budget Testimony take that deal for $75 million today and I will take it tomorrow, but I will not mortgage or remortgage the future of this city's taxpayers on what I believe is a pure election ploy to get this administration beyond 2003 without a critical stoppage of school services so that they can then move forward in the next term, not really caring about what happens because now the reelection as already happened. So I will take that $75 million deal again today. I will not remortgage the City's future for $750 million over 30 years. Even legal counsel that has to at some point in time defend their client's positions, I don't think that necessarily was a very strong endorsement of using a 30-year borrowing to pay for a two, two and a half year window of opportunity with no guaranties, with no additional indication from anyone in state government that this problem is going to be solved. So we all have our opinions. I'm glad that Councilman Goode has had the ability to quote me properly. I do not stand beside those words, but I do not stand beside mortgaging the City's future over the next 30 years on a wing, a prayer and a 707 3/21/02 - Continuing FY '03 School Budget Testimony promise. Thank you.
The Chair recognizes Councilman Goode for a point of order.
This $45 million bill 6 can be categorized as people want as obligating us to a 30-year $30 million debt issue. That simply is not the case. It is not true. The truth of the matter is that the $75 million bill, as he says he would accept now, if we were to pass that bill, if we would have another appropriations committee hearing today, pass it out, the School District would actually have $75 million that they could use to float the same debt. The $75 million has more loopholes than the $45 million bill. Thank you.
There is apparently a disagreement here, but I will stand by that position and I will take the $75 million and I will take the $75 million appropriation from the State to match it and I will refuse to participate in any activity that will encumber this city over the next 30 years and $750 million in hard-earned taxpayers' support to do this shell game that the administration insists on pursuing.
Thank you. 708 3/21/02 - Continuing FY '03 School Budget Testimony Councilman Ortiz, you are next.
I would vote for $75 million today. I would vote for $75 million tomorrow; however, we have a couple of bills in front of us. One will allocate $45 million. Bills 0200031 and 020033 will erase the millage that will transfer over to the school and lower the millage in terms of the city. That is the other money that is being transferred that will pay for the floating of the bond over 30 years. In order not to resolve the issue of the structural deficit that we have in the School District of Philadelphia, not to begin even to discuss a final solution, I would put $75 million today that would go to classroom, that would go to instruction, that would be targeted to that rather than mortgage the future for one year, a one-year crossover and a bridge that will not resolve anything. Yes, yes, let's give the school. Let's send a signal that this City Council is willing to put a lot more money, but let us not mortgage our future without any response from Harrisburg as to where are we going to go to resolve the final issue of education not only in Philadelphia but across the 709 3/21/02 - Continuing FY '03 School Budget Testimony Commonwealth. It isn't grandstanding. It isn't hypocrisy. It is the aspect of coming together and for the first time dealing with the issue of finally funding the Philadelphia school system in an adequate manner. We are not discussing that here. All we are saying is let's build a bridge and no one knows where that bridge is going to lead to, but it does not lead to the solution of our funding problem.
Thank you. Councilman Clarke, do you care to be recognized?
Yes, Madam President. I just wanted to speak to the reference of the electoral process as it relates to this particular bill and I agree that in some respects that is a part of this discussion, but I think it has more to do with the electoral process of this particular year. The reality is, as I have said on numerous occasions throughout the process of these last two days, that until we seriously deal with statewide school tax reform, this issue is not going to be resolved. The reality is that I don't think 710 3/21/02 - Continuing FY '03 School Budget Testimony anybody involved in this process thinks that at some point in time we are not going to seriously address this issue given the fact that more than half, more than half of the school districts of the State of Pennsylvania have a similar problem as Philadelphia. After November this is going to be the front burner. This is going to be the topic of discussion, about reforming our school funding, right? That is not going to be discussed now. We need not kid ourselves. I cannot believe that anybody in this room does not have a sense that that is the case. With respect to the 30-year note, in the testimony yesterday there was a question with respect to restructuring the debt on that particular 30-year note. I believe that the response was assuming that we got statewide school tax reform that that would be addressed and that would be addressed immediately. I don't think it is anybody's intention, anybody's intention, to think that we will be dealing with the bill as structured now as it relates to the 30-year note. So I think that we need to seriously consider what we are being asked to do today, which 711 3/21/02 - Continuing FY '03 School Budget Testimony is simply send the appropriate political message that we are serious about this, that we are willing to commit. I understand that we need to get certain information and I think that information will be forthcoming because I think the folks know that we are serious about us getting that information and there is a strong likelihood that if we do not get that information there will not be the votes to move this ahead. So I would just like us to focus on the issue at hand today. Thank you, Madam President.
Thank you. The Chair recognizes Councilwoman Tasco.
Thank you, Madam President. Did I misinterpret, Miss Kahn, your answer when Councilman Nutter asked you about providing the information? I thought your answer was I will provide you the information if you pass these bills out of committee?
No. I'm sorry. What I said 712 3/21/02 - Continuing FY '03 School Budget Testimony was I didn't want my answer to imply that I was willing and that it was our position that the bills not be passed out of committee. I said we are still asking that this committee vote the bills out and certainly we will be providing that information. We would provide it in any case, but I didn't want it to be misinterpreted in saying that we were withdrawing our request to have the bills reported out of committee.
I want to give a point of information for those of us that sat here for a couple of days. To be clear on what we are asked to vote on, as I understand it, there are two bills. One, as Councilman Ortiz said, $45 million for '02, but and 20 that add up to the 45 17 million, while we do not vote on the $300 million 18 bond deal, the moment we pass that 45 million gives 19 the SRC the ability to go to the bond market and to 20 sell those bonds, so in essence we are giving our 21 approval to the expenditure of those bonds. 22 I just want it so people will be clear 23 on what we are doing here today. There are two $45 24 million. Thank you. 25
Thank you. 713 3/21/02 - Continuing FY '03 School Budget Testimony Are there any other questions or comments from the members of the committee? Seeing none -- Miss Kahn, did you want to be recognized?
There is a small clarification on what Councilwoman Tasco said. There are the two bills that reflect the transfer ordinance. I mean one bill for the transfer ordinance for the 45, two bills, one of which increases the millage for the School District and the other that decreases the millage for the City. Those could not precede the protection for the City on that unless we get the protection from Act 46 on those from the double counting from the State. That's on the one hand. And, two, the district and the school reform commission could not proceed with the bonds unless they get the authorization from the State. Thank you.
Thank you. Are there any other questions or comments from members of the committee? Seeing none, this will conclude our public hearing. We will now go into our public meeting, and the Chair recognizes Councilwoman 714 3/21/02 - Continuing FY '03 School Budget Testimony Blackwell regarding Bill No. 020031.
Point of information. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Can we, not only by way of bill number, but in five words or less, with regard to some of these bills? We know that some are the regular tax reauthorizations. The ones that have been of the most intense discussion, if they can be -- I don't want to say highlighted, but at least pointed out which bills are which bills or what they do?
Bill No. 020031 is the one that reduces -- it is the two-part bill that the secretary kind of talked about. This would reduce the real estate tax on the city side. Then the companion bill --
That's all. We don't have to go into the companion bill. We are just talking about this bill right now.
I understand. 715 3/21/02 - Continuing FY '03 School Budget Testimony
I apologize, Madam President. For clarification, you said "and the companion bill," which I know will come up. The companion bill is 020033; is that correct?
Yes. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. I move that Bill 020031 be reported out of committee, no suspension, with a favorable recommendation. (Duly seconded).
It has been moved and seconded that Bill No. 020031 be reported out of committee with a favorable recommendation. All in favor will signify by saying aye. MEMBERS: Roll call.
Aye. 716 3/21/02 - Continuing FY '03 School Budget Testimony
No. 717 3/21/02 - Continuing FY '03 School Budget Testimony
So the motion fails. We will now consider Bill No. 020032. I don't think there has to be any explanation on that one, or do you want an explanation on all of the bills?
This is the reauthorization of the use and occupancy tax for the School District. This is the normal reauthorization that council does every year.
The Chair recognizes Councilwoman Blackwell. 718 3/21/02 - Continuing FY '03 School Budget Testimony
Madam President, I move that Bill No. 020032 be reported out of committee with a favorable recommendation. (Duly seconded.)
It has been moved and seconded that Bill No. 020032 be reported out of committee with a favorable recommendation. All in favor will signify by saying aye. MEMBERS: Aye.
The ayes have it and the motion carries. The next bill is Bill No. 020033. Mr. McPherson, please give an explanation of that bill.
This is the companion bill to the other one that increases the School District's millage by, I believe it was, the 2.71 mills.
I move that Bill 020033 be reported out of committee with a 719 3/21/02 - Continuing FY '03 School Budget Testimony favorable recommendation.
Do I hear a second? (Duly seconded.) MEMBERS: Roll call.
It has been moved and seconded that Bill No. 020033 be reported out of committee with a favorable recommendation, and we will now have a roll call, Mr. McPherson.
Councilman Longstreth? 720 3/21/02 - Continuing FY '03 School Budget Testimony
Eight/eight. 721 3/21/02 - Continuing FY '03 School Budget Testimony
The motion fails. The next bill to be considered is Bill 5 No. 020034. Mr. McPherson, would you please explain what that bill does?
This reauthorizes the net income tax for the School District.
Thank you, Madam President. I move that Bill No. 020034 be reported out of committee with a favorable recommendation. (Duly seconded.)
It has been moved and properly seconded that Bill No. 020034 be reported out of committee with a favorable recommendation. All in favor will signify by saying aye. MEMBERS: Aye.
The ayes have it, and the motion carries. 722 3/21/02 - Continuing FY '03 School Budget Testimony The next bill to be called for consideration is Bill No. 020040. Mr. McPherson?
This is an appropriation transfer for the City's fiscal 2002 budget which would transfer -- which would provide the appropriation for a $45 million grant to the School District.
Thank you, Madam President. I move that Bill 020040 be reported out of committee with a favorable recommendation. (Duly seconded.)
It has been moved and properly seconded that Bill No. 020040 be reported out of committee with a favorable recommendation. All in favor will signify by saying aye. MEMBERS: Aye.
The ayes have it and the motion carries. 723 3/21/02 - Continuing FY '03 School Budget Testimony Bill No. 020031 and Bill No. 020033, we will stand in recess on those two bills until April 3 at 9:30. This concludes our public hearing and meeting. May I ask that all counsel members stay in their seats. We are really behind schedule. I would like to remind everyone that on Tuesday, March 26, at o'clock there will be a 10 public property/public works hearing. 11 (Adjourned at 11:30 a.m.) 724 3/21/02 - Continuing FY '03 School Budget Testimony CERTIFICATE I HEREBY CERTIFY that the foregoing proceedings of the Committee of the Whole of the Council of the City of Philadelphia of March 21, 2002, were reported fully and accurately by me, and that this is a correct transcript of same. ______________________________ Cynthia A. Whyte, RPR (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)