COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, March 26, 2001 10:50 a.m. - - - BILL NO. 000708-Authorizing transfers in appropriations from the Grants Revenue Fund to the General Fund. BILL NO, 000709-Authorizing transfers in appropriations from the Grants Revenue Fund to the General Fund. - - - PRESENT: COUNCILWOMAN ANNA C. VERNA, Chair COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK DiCICCO COUNCILWOMAN JANNIE L. BLACKWELL COUNCILMAN MICHAEL A. NUTTER COUNCILMAN DARRELL L. CLARKE COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center Plaza, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 I N D E X BILLS 000708 and 000709 Debra Kahn, Secretary of Education--------------3 Bill Carapucci, Recreation Department-----------9 Rhonda Chatzkel, Chief Financial Officer-------11 Kenneth I. Trujillo, City Solicitor------------15 Janice Davis, Director of Finance--------------34 Pedro Ramos, President, School Board----------109 - - - 3 BILL NOS. 000708 and 000709
Good morning. This is a Public Hearing of the Committee of the Whole. I would ask Mr. McPherson to please read the title of Bill Nos. 708 and 709. MR. McPHERSON: Bill No. 708, an Ordinance authorizing transfers and appropriations for Fiscal Year 2001 from the Grants Revenue Fund, the Director of Finance-Provision for other grants to the General Fund, certain or all city offices, departments, boards, and commissions. Bill No. 709, An Ordinance authorizing transfers and appropriations for Fiscal Year 2001 from the Grants Revenue Fund, the Director of Finance-Provision for other grants to the General Fund, certain or all city offices, departments, boards, and commissions.
Please identify yourself for the record and proceed with your testimony. DEBRA KAHN: I will. Good morning, Council President Verna, Councilwoman Miller, and 4 BILL NOS. 000708 and 000709 Council Members. I am Debra Kahn, Secretary of Education for the City of Philadelphia. And on behalf of the Administration, I want to thank you for this opportunity to testify in favor of City Council Bills 708 and 709, which would transfer million and million dollars 8 respectively from the Grants Revenue Fund to the 9 Department of Recreation. 10 These two transfer ordinances are 11 intended to provide $45 million in additional 12 funding to the School District in the current fiscal 13 year 2000-2001. 14 The Administration proposes that these 15 funds will be used by the Department of Recreation 16 to prepay the School District for its use of School 17 District facilities over the next ten years through 18 a license agreement. 19 Joining me at the table are the deputy 20 Commissioner of the Department of Recreation, Bill 21 Carapucci; City Solicitor, -- and -- Ken Trujillo; 22 and the Chief Financial Officer for the School 23 District, Rhonda Chatzkel. 24 The School Board has a regularly 25 scheduled meeting today, but I do expect the Board 5 BILL NOS. 000708 and 000709 President, Pedro Ramos, will be in the chamber shortly, and he will be available to answer any of your questions. The School District will use the funds proposed for transfer via these ordinances for two purposes. First, the $20 million will satisfy the budget accord reached between the city and Commonwealth on May 31 of 2000. Under this accord the Commonwealth, the city, and the School District each agreed to take steps to ensure that the School District had sufficient cash to meet its obligations through Fiscal Year 2001. The city's contribution was a pledge from Mayor Street to request $20 million from City Council on top of what already had been approved for the School District in the city's 2001 budget. This accord, as we will remember, enabled the School District to operate schools for this entire school year. The additional $25 million will provide cash to cover the one-time bonuses of $1,000 each that were paid to all PFT members on December 1, 6 BILL NOS. 000708 and 000709 2000, pursuant to the terms of the new contract that was approved by the School Board on November 3 of last year. The Department of Recreation's use of School District facilities is an example of a successful partnership between the city and the district that goes back for years and that involves the efficient use of facilities for the benefit of all of Philadelphia's children, even those who do not attend our public schools. The idea of having the city pay the School District for the Department of Recreation's use of district facilities was first proposed by the city controller several years ago. In his 1997-'98 mid-year special report on the School District, the controller recommended that the city pay the district for the Department of Recreation's extensive use of School District properties. 7 million, based upon the hourly cost of overtime pay for the building engineers and the cost of heating and lighting facilities. 7 BILL NOS. 000708 and 000709 Needless to say, this represents a significant expenditure for the district for which there is now no dedicated funding source. It also represents an expenditure for a very desirable public purpose, but for one that is not the district's core purpose of educating more than 200,000 of Philadelphia's children. Although the district invoices the city for the recreation department's use of these facilities, the city has not paid these bills. We are proposing that the city pay for the Department of Recreation's use of School District facilities through a license agreement.
This agreement would formalize a long-standing relationship between the parties and would reimburse the district for the costs associated with providing facility, services, and personnel to the city. Under the license agreement, the city and the School District would enter into a one-year license with nine one-year renewal terms, under which the city will pay for services related to the use of School District property by the recreation department. 8 BILL NOS. 7 million, but the city would receive a discount for prepaying the renewal terms. Under this scenario, the city would pay the district a fee of $45 million in the first year of the agreement. In exchange, the city would be given preferential rights to use the facilities when they are not in use by the School District on an unlimited basis over the ten-year term of the agreement. In the unlikely event that the School District exercised its right not to renew the license, the city would be repaid the unused balance of the licensing fee with interest. I will now ask Deputy Commissioner Carapucci to explain how the Department of Recreation uses the School District facilities. Rhonda Chatzkel will then explain how the district calculates the costs associated with this and review the School District's current cash flows. And, finally, Ken Trujillo will discuss 9 BILL NOS. 000708 and 000709 the structure in terms of the license agreement. We thank you for the opportunity to be here today. And we will of course be glad to answer your questions after our presentations. Thank you.
Thank you. Mr. Carapucci. BILL CARAPUCCI: Good morning, Madam President Verna, and honorable members of City Council. I am Bill Carapucci representing Commissioner Richard of the recreation department. I am here to present testimony for Bills 708 and 709, which will transfer $45 million to the recreation department's FY 2001 Class 200 General Fund appropriation. As Ms. Kahn, the Secretary of Education, explained, the appropriation transfer of $45 million to the recreation department will fund a facilities usage lease agreement with the School District of Philadelphia. The department uses the gymnasiums, auditoriums, ball field and six indoor pools. Approximately 81 elementary, middle, and 11 high 24 schools conduct recreational programs throughout the 25 year. 10 BILL NOS. 000708 and 000709 In FY 2000, the School District permitted school facilities for recreation department use on over 240 occasions. Some of the occasions are for one-time activities; such as, a use of school auditorium for plays or recitals. Most school facility usage occurs because of the department's ongoing community recreation program, which expands the provision of sports and cultural programs to 115 school facilities during nonschool hours. By using School District facilities, we are able to extend the reach of our recreation programs in a way that involves a broad range of community groups and keeps our children safe, productive, and engaged during after-school hours. We have every reason to expect the Department of Recreation will want to continue this arrangement with the School District. The recreation department has historically not received funding nor paid for the use of school facilities to conduct recreation activities; however, the School District has for years invoiced the department for use of district 11 BILL NOS. 000708 and 000709 facilities. Madam President, this concludes my testimony. I will be happy to answer any questions you or members of City Council may have for the recreation department.
Thank you. RHONDA CHATZKEL: Good morning, Council President Verna, members of City Council. My name is Rhonda Chatzkel. I am the chief financial officer of the School District. I have been asked to testify on two issues. The first is the methodology behind the School District's billing for city recreation department usage of School District facilities. The second is the School District's cash need for a payment of $45 million from the city in order to operate through June 30 of this year. The recreation department's use of School District facilities is extensive and continues to grow. For Fiscal Year 2000, the School District calculated a usage fee of approximately $5,765,000. 8 million, just year to date. 12 BILL NOS. 000708 and 000709 The usage fee is derived in accordance with the School District's Board Policy No. 707, use of school facilities. Any organization wishing to use School District facilities completes a request to use school facilities form and submits this form to the School District. This request identifies the applicant, the facilities needed, and the pertinent dates for usage. And by signing this form, the applicant agrees to comply with all rules and regulations set forth in Board Policy No. 707. Per the policy, organizations are responsible for paying the personnel and utilities costs related to use of these facilities. It should be noted that the School District bills for only the marginal cost of using School District facilities. Charges are based on the actual costs of overtime for a building engineer when the facility is in use and the hourly cost for heating fuel and lighting. The hourly costs for these utilities is calculated by our energy manager and is based on the 13 BILL NOS. 000708 and 000709 total cost of fuel and lighting for each type of school, elementary, middle or high school, divided by the total hours of operation. The usage fee as billed by the district does not and has not included the cost of wear and tear on a building or facility. The School District absorbs that cost. As you know, the School District is currently projecting a cumulative deficit of $44 million for the current Fiscal Year ending June 30, 2001. This projection assumes that the School District will receive a payment in the amount of $45 million from the city. $20 million of this payment was budgeted as part of a joint effort among the state, the city, and the School District to narrow the projected gap between revenues and expenses so that the district would have sufficient cash to operate through Fiscal Year 2001. An additional million is required in 23 order to allow the district to cover the cost of 24 bonuses and other obligations which were not 25 budgeted relating to settlement of the PFT contract. 14 BILL NOS. 000708 and 000709 Based on the projected cumulative deficit of $44 million, the School District is currently forecasting an end-of-year cash position of $60 million. This positive cash position assumes that the School District will receive a $45 million payment from the City of Philadelphia on or before June 1. The School District's cash flow projections are, however, only projections. They are based on our current estimate of operating results for Fiscal Year 2001, which would be expected to show some degree of variance, either to the positive or to the negative, between now and June 30. They are also based on our estimate of when payments will be received. For certain grants, for instance, the date of receipt is not built into the grant, and there may be a timing difference of between one and two weeks from when the grant was estimated to be received and when it is actually received. Because our cash flow projections are subject to these possible variances and timing 15 BILL NOS. 000708 and 000709 differences, the School District's cash management practice is and has been to maintain a cash cushion of at least four days cash on hand at all times.
For the School District, this represents approximately $30 million. If the $45 million payment is not received by the School District on or before June 1, as projected, the School District's estimated cash position declines to a level of only one day cash-on-hand during the second week of June. More significantly, the School District will run out of cash during the third week of June. Based on our current forecast, the School District would be unable to meet its cash obligations after June 21. The School District does, however, show an ability to meet all cash obligations through the end of this Fiscal Year, if the $45 million payment is received from the city on or before June 1. Thank you.
Thank you. KENNETH I. TRUJILLO: Good morning, Madam President. My name is Ken Trujillo. I am the City Solicitor, and I am here to provide testimony 16 BILL NOS. 000708 and 000709 and respond to any questions that this body might have with respect to Bills No. 708 and 709. My written testimony has already been submitted, and I would be happy to read it into the record. I would also be happy to just be available for questions, if that is Madam President's preference.
Does everyone have a copy of Mr. Trujillo's testimony? Well, do you want to abbreviate, please, since everyone does have a copy and the stenographer is given a copy, so she will actually transcribe it in full. (Copy of Mr. Trujillo's full testimony is attached.)
The Administration is seeking a transfer in the two bills of $45 million in order to fund a proposed licensing agreement between the city and the School District. The city, acting through the Department of Recreation, and the Stool District of Philadelphia would enter into an agreement that would allow the department to use the School District facilities and ensure that the School 17 BILL NOS. 000708 and 000709 District would be properly compensated for the use of those facilities. The term of the agreement would be one year, but there would also be nine additional one-year renewal terms, potentially making the agreement continue for a total of ten one-year periods. Both the city and the School District would have the option not to renew the agreement at the end the initial term or any of the renewal terms. Under the agreement, the Department of Recreation would be granted a license to use all available School District buildings, playgrounds, and other similar facilities operated by the School District for Department of Recreation events and programs. The Department of Recreation could also arrange for the use of the school facilities on behalf of community groups. The recreation department would pay a license fee of the $5,765,000 for the initial term and for each renewal term under the agreement. That fee is based upon the School 18 BILL NOS. 000708 and 000709 District's calculation, as earlier testified, with respect to the School District's costs and expenses that arise from the use of its facilities by the Department of Recreation during the 1999 and 2000 school year, and its reasonable estimates as to the cost that it will incur in making the licensed facilities available into the future.
Thank you. Ms. Kahn, when Mayor Street committed to asking City Council for an additional $20 million for FY 2000-2001, what was the district's projected deficit at that time?
Last May, when the budget agreement was announced, it was $80 million.
What is the district's current projected cumulative deficit for FY 2000-2001 school year without any additional funding from the city?
Without any additional funding from the city. 19 BILL NOS. 000708 and 000709
It would then be 90 million. We had testified at the budget hearing that the projection was 44 million. But that assumed, included in that projection, was the appropriation of these additional revenues.
Okay. You state that the $20 million was to buy the district some time while they developed a comprehensive, long-term solution to the School District's funding problems. Has the district developed the solution yet?
It is still in progress. We have been working very hard. This is a very complicated, large, difficult issue. We have been making the kinds of changes that we needed to over the course of the past year with the management structure, negotiating a new contract. And we are taking a very hard look at what we need to do on the administrative side of the School District, the programmatic side, recognizing that there are a lot of constraints and challenges. And we are in the process of doing that. We are working with the Governor, with 20 BILL NOS. 000708 and 000709 the legislature. And we hope shortly -- we understand that the state budget process is underway. We are also going to be working with the federal government and looking at all possible revenues and programmatic changes that we can make to be able to work out a long-term solution.
Can you tell us when the Administration proposes to have the School District's financial strategy completed?
I would say that, you know -- again, we are working on it. We certainly need to do it in ample time for the budget, the state budget, process, which we expect that the state will adopt its budget some time in May. And so prior to that time, we will have, you know, more information that we can share, certainly, with you, because that's our intention, and also with the leadership, both the Governor's, the Administration, and the General Assembly.
Can you tell us how the district plans on opening the schools in September?
Well, we certainly need -- 21 BILL NOS. 000708 and 000709 we can't do that unless we have the revenue that we are talking about, and that we are on our way to a long-term solution.
When are we going to know? We are being asked to put up $45 million. And we ask questions, and the answers are, "Well, we are working on it." When do you think that you will have a strategy? When will we have a solution?
This $45 million is, of course, for the current Fiscal Year. And it was an important part of keeping --
And then we read that we are going to be asked to give more money next year.
Is the city then going to be required to give the School District more money next year?
I can't say yet what that might be and what subsequent requests we might have. The Mayor did say when he introduced his 22 BILL NOS. 000708 and 000709 budget that right now -- and as you know in the budget bills that you approved, there was continuation funding. But he did say that everyone knows that we need to do more. And as we discussed at the budget hearing a couple of weeks ago, that's an ongoing issue in Harrisburg and an issue that we have to deal with, the city's support of --
Ms. Kahn, you state that the additional $25 million will provide cash to cover the one-time bonuses of $1,000 paid to all PFT members on December 1, 2000. Why is the Mayor requesting the city's General Fund reimburse the district for this payment?
Well, I don't know -- it is not a reimbursement, per se. But it was part of, as we did the negotiation for the contract, it became clear that there were, you know, additional revenues that would be needed. And this was part of the Mayor's very active and very successful involvement in the negotiations which avoided a strike and which 23 BILL NOS. 000708 and 000709 avoided students missing not a single day of school, which students did not have to miss any school. And it was a successful major reform contract. And as part of that, the Mayor committed that he would ask City Council that -- the bonuses were an essential part of getting that resolution. And he committed to ask City Council for the funds that would enable the School District, knowing that the district did not have those revenues to be able to supply that bonus in the current Fiscal Year, and that we had committed that we would not have a contract resolution that had any impact on the current year's budget.
Mr. Trujillo, Act 46 of 1998 relating to distress in school districts of the first-class provides in pertinent part that, for the Fiscal Year or part thereof of any Fiscal Year thereafter in which the School District is declared to be distressed, the amounts appropriated or paid by the city or county to the School District shall be in an amount not less than the highest amount paid by the city or county to the School District during any of the three full preceding Fiscal Years. In addition, the city of the first-class 24 BILL NOS. 000708 and 000709 will provide to the School District all other available local nontax revenue, including grants, subsidies, or payments made during the prior year. In the opinion of the law department, does entering into a ten-year lease with a lump-sum prepayment of $45 million to the School District avoid the danger of having this prepayment of a lease being held to be a grant, subsidy, or payment to the School District; which, if such a determination were made, would become a recurring grant, subsidy, or payment in the event of a state takeover of the School District?
I probably years ago 15 quit trying to predict exactly what courts would do. Because as a lawyer sometimes you win cases you should lose and sometimes you lose cases you should win. In crafting the licensing agreement -- which is, again, it is a one-year term with nine renewable terms -- one of the principal focuses of the law department was to avoid any danger that Act 46 posed. And I will tell you, there is no 25 question that the word "paid" can be viewed by some BILL NOS. 000708 and 000709 as a broad word. And what we looked at was the notion that the legitimate purchase of goods or services is not included as part of what Act 46 was looking at. In other words, if today the city were to purchase a car from the School District or to purchase the services of an accountant from the School District, it is, in my view, not likely that that is the kind of goods or service that was included in Act 46. And in our review of its legislative history, in the law department's view and in my view, this vehicle -- that is, this licensing agreement -- which is an arm's length transaction between the School District and the city, is a legitimate and -- a very legitimate vehicle for the city to pay the money for the services that the School District is providing with these facilities.
Can you tell us what services, if any, does the city perform for the School District that are not reimbursed?
Well, sitting right here -- I know that I can get more detail. But some of them are even closer to BILL NOS. 000708 and 000709 mind; which is, Secretary of Education provides significant services to the School District.
Can you tell us, if the city is now reimbursing the district for its costs, then the question becomes, shouldn't the district be doing the same?
In terms of the policy question, both as to the payments, I will let the School District respond to that. And part of this, as I was thinking about this over the last several months, I have a nephew who went to stay with my mother for a week, and he stayed there six months. And he stayed and he stayed and he stayed. And my mother never charged him rent, she did his laundry, she did all kinds of stuff for him. And then after about six months, my mother finally got hired of it and said, do you know what, you are going to have to start paying for it. Some of these payments are ultimately a government making a decision as to what it can and cannot provide, or a School District deciding what it can or cannot provide. 27 BILL NOS. 000708 and 000709 But I will let the School District respond to the specifics on the payments.
Specifically to your question, services that the city provides, other than the Secretary of Education, are school crossing guards, which are estimated to be about $13.3 million. 90 percent of that is for public schools, percent of that is for nonpublic schools. 10 Tax collection services, our prorated share, in that we receive about 55 percent of real estate taxes, is $3.7 million. There was also a $1 million forgiveness of licensing fees which was negotiated as part of an approval of a TIF, apparently, several years ago. But there are also about $16 million in services for which the School District reimburses the city this year.
Thank you. Does City Council have to approve the licensing agreement? And if not, why not?
The licensing agreement does not have to be approved by City Council. Section 8-200(3) of the Home Rule Charter states that the city may contract for the purchase of 28 BILL NOS. 000708 and 000709 services over a period of more than one year only when permitted by ordinance. But since the initial term of this agreement is a one-year term and renewal term is a one-year term, City Council approval is not required for the licensing agreement.
The Charter limits the duration of contracts that the city can enter into to four years or less.
How are we permitted to enter into a ten-year leasing agreement?
Under the terms of the agreement, it is a one-year term that has options of one-year renewals on an annual basis. Both the city and the School District have the option to terminate.
Then are you telling us that that means that the Administration can enter into contracts exceeding four years without getting Council approval? 29 BILL NOS. 000708 and 000709
No, I am not saying that, Madam Chair. It is entirely appropriate, it is entirely appropriate, to enter into a one-year -- and to enter into a one-year agreement that's got renewal periods which are no more than one year each.
In terms of prepayment, we looked at the issue and have not found --
I have not seen any prior agreements in which there was a prepayment made when you had renewable terms like this.
Well, tell us, what ability does City Council have to determine on a year-by-year basis, considering that Council Members are elected to four-year terms of office, to allow future City Councils to make judgments regarding the advisability of long-term financial commitments?
I think you do. 30 BILL NOS. 000708 and 000709 And we do have a number of Council Members. I have many more questions that I would like to ask, but I don't want to dominate. However, before we go on to asking other Council Members' questions, we do have a letter which I would like Mr. McPherson to read into the record from the City Controller. MR. McPHERSON: Dear President Verna: After speaking with you regarding the concept of the city entering into a licensing agreement with the School District that would allow the city to prepay the district in exchange for having access to district facilities into the future, I write to provide my views on this matter. As you know, Ordinances 708 and 709 would transfer appropriations for Fiscal Year 2001 from the Grants Revenue Fund to the General Fund, Department of Recreation, for the purpose of assembling funding which would then be paid by the City of Philadelphia to the School District of Philadelphia for future city use of district facilities. While I believe that such forward funding of future obligation represents questionable 31 BILL NOS. 000708 and 000709 public policy, and while I believe that such an action raises complicated questions about the city's liability for past usage of district facilities, I understand the unique circumstances that make such a payment appealing. Ultimately it is up to the Mayor and City Council to approve this policy and the legislation that would accomplish this transaction. Assuming that this occurs, and also that the law department does not offer an opinion that such an action is improper, and assuming that the city provides evidence that the amounts stated in any requisition created pursuant to such an agreement is justly due and is for purpose comprehended by the appropriation against which it is drawn, the controller's office would process the appropriate payment vouchers when submitted. Notwithstanding any of my comments above, I want to stress that I consider this action to be a one-time payment carried out under exceptional circumstances. It is my hope that in the future the city will avoid any further use of forward funding to grant money to the School District or any other 32 BILL NOS. 000708 and 000709 entity. Sincerely, Jonathan A. Saidel.
I think there is a little bit of both somewhere along the line. It reminds me of the stadium situation. I think it is a similar situation there.
Thank you, Madam Chair. Mr. Trujillo, I heard the first part of your response to the Chair's question about Act 46, and then I was slightly momentarily distracted. And so I know I must have missed the punch line on that. What struck me, I guess, about the first part of your answer was that even though the President's question was somewhat comprehensive, I thought the answer would be more in the realm of yes or no. 25 Are these dollars subject to Act 46 or 33 BILL NOS. 000708 and 000709 not?
I think you know me well enough not to expect a yes or no response on a question like that. In my judgment -- and I can't give you a yes or no answer to that. In my judgment, they should not be, and a court should not find them to be subject to Act 46.
Because this is not a payment as part of a general appropriation by the city or the School District; this is the purchase of goods and services.
What's the source of these dollars? Where is this coming from.
It is my understanding that the dollars ultimately come from the General Fund.
I understand that. But, I mean, was this budgeted in the 2001 General Fund budget that we passed last March of 2000? This is '01 dollars; right?
So tell me where it 34 BILL NOS. 000708 and 000709 was in the FY '01 budget that we passed March of last year. Where would I see the $45 million?
I am advised by the city finance director it was from the Grants Revenue Fund.
Was it in the Grants Revenue Fund when we passed the budget?
Does anybody have a budget? JANICE DAVIS: Janice Davis, Director of Finance. It was included in the larger total, not specifically identified as a grant to the School District.
So are you saying now that back in February or March of last year, when we had budget hearings on the FY '01 budget, that it was planned or anticipated or contemplated as far back as that time that there would be a $45 35 BILL NOS. 000708 and 000709 million appropriation to the School District?
No; it is from a general pot of funds available to be granted.
From a general pot of funds. Get me one of those. Where did this money come from?
And some we keep in a pot called "Grants Revenue" that we might need from time to time for unanticipated circumstances?
Or to be provided in anticipated circumstances, if there is a grant that is anticipated. But it is from a general pool of funding.
What was the grant that was anticipated? This is now really becoming interesting.
I would have to get someone to give us delineation of that at a later time. I will be glad to provide you that information; I don't have it with me.
Let me go back to, I 36 BILL NOS. 000708 and 000709 thought your earlier statement was that this money was in that pool of funds, grant revenue pot, and anticipated back when we did the budget in February, March of 2000 that there would be a distribution at this time?
It is available for distribution. The distribution is not determined that it will be in the entirety of the amount within that fund.
What was in the Grants Revenue Fund when we passed the budget last year?
I don't have that information; I would have to get it for you.
Okay. But there was no testimony about it at that time?
I don't know what the specific testimony would have been. I wasn't here at that point.
That's right. I 37 BILL NOS. 000708 and 000709 forgot. Okay. All right. So we have this pot of money for undesignated purposes. And in the budget that we passed last year, there was, for the moment, an unknown amount of money. And somewhere in the course of time we determined that we could -- let me ask this question. Because I thought there was one set of testimony that talked about what this was really about, and then everybody else has been talking about recreation and after-school programs and kids and the like. Now, the real purpose of the 45 is to cover the previous $20 million request which never really came over or kind of disappeared into the night, I think, back last February of last year. And then the new is to cover the 20 bonuses. That's what the 45 is really for; is that 21 correct? 22
It is money that's needed to 23 meet the obligations for the School District for 24 this year. 25 But it specifically grew out of the two 38 BILL NOS. 000708 and 000709 purposes that you just cited and that I cited in my testimony.
The city-should-pay-for-recreational-facilities idea. Where did that idea come from?
The issue that members of Council have raised both publicly and privately about the potential capture and the recurring nature of this due to Act 46 is an issue that is very serious to this City Council and one that's a great concern to the Administration, as well. The intent was always to make this a one-time appropriation to the School District, and not intending to have it be recurring. So it is something that we are in agreement on and a concern that we share. So in the course of thinking about how we could meet the desired obligation to provide the School District with an additional $45 million, but at the same time, in the best of our judgment, to be able to protect it, as the City Solicitor has said 39 BILL NOS. 000708 and 000709 in his best legal judgment, in the course of brain-storming, this idea surfaced. There is this ongoing expenditure on the part of the School District for this terrific use of School District facilities for city kids. And it just, as we talked about it and developed the idea, we thought maybe this is a good way to meet all of the objectives.
Let me ask this question. Because, I mean, it is certainly not by way of any questions that I have asked today that there's been any particular revelation. I mean, this whole situation has been known for some time. This was announced, I mean, the concept about the paying for the facilities and the $45 million and all, I mean, this has been out for a while; right?
The ordinances were introduced back in what was October, November. So, I mean, certainly at that time.
Well, now, if for 40 BILL NOS. 000708 and 000709 some reason there was some challenge, or if we found ourselves in an Act 46 circumstance, which generally I hope that we don't, but, I mean, what would anybody say, I guess, about what, you know, on a good day, in a nice way, is a fairly blatant attempt by all of us acting in concert to purposefully and circuitously avoid what may have been the spirit and intention of the legislature by engaging in this? I mean, there are no secrets here. You are laying out the route to the bank before you do the bank job. And then say, well, but, you know, I mean, we weren't absolutely sure that we were going to do what we did in the bank. But, you know, we did announce that we were thinking about taking the El down there.
You are correct that there are no secrets in terms of that this is certainly a very public crafting of this agreement. But there is, in my judgment, nothing untoward or no 21 artifice in this agreement. And all you have to look at, all you have to look at, is what if the School District did not make available to the city all of its recreational facilities, period? 41 BILL NOS. 000708 and 000709 If tomorrow the School District --
Oh, it does. It absolutely does. But it also does not have the obligation to do it, and it could tomorrow stop doing it. If it did --
Let's follow that through. Let me try to understand this. The district would say that the city -- and it is really not so much the city. I mean, I don't personally necessarily need to book a School District building. Because maybe I should have spent a little more time in class, but we will put that aside. I am probably too big for the desk. But let's say that the School District for some reason said, you, city, and your people and all your folks, you have some commendable things you want to do, but we are not going to let you use our facilities anymore.
For free. Who uses these facilities? Aren't they City of Philadelphia kids and parents who actually 42 BILL NOS. 000708 and 000709 go to the school in the daytime?
And they are paying taxes and they are paying the tab for all of this, and all of the sudden the district is going to say, oh, no you can't use our buildings anymore? Whether you have the legal right to do that or not, you would probably agree that that's pretty stupid.
We will just follow it out to its dumbest conclusion, and then we will come back and have some additional conversation.
I am happy to jump off any bridge you wish, Councilman. But, again, your are talking about the policy, and then we are also talking about the legal matter. And what I am suggesting to you is, on the legal issue --
And common sense, we will throw a little bit of that in.
And my concern, and our concern, in drafting this was about legal liability, 43 BILL NOS. 000708 and 000709 or ultimately about minimizing the danger to the city of making this a recurring kind of payment. What we looked at was whether this is an arm's length agreement, which the law department believes that it is certainly an arm's length agreement; whether this is a legitimate purchase of goods and services, which we believe that it is. And so that's why we were looking at that. We were not looking at it in terms of, you know which kids are going to be using it or which community groups. We were looking at it in terms of whether it is legal and appropriate.
Because they are all the same people. We serve all the same folks; right?
They are all the same people? We serve all the same -- I mean, your constituents are our constituents, and vice versa; right? I mean, they are all the same people paying all the same taxes to governmental entities; right?
I mean, there is no 44 BILL NOS. 000708 and 000709 intent -- and I don't want this to be misunderstood -- there is no desire on the School District to certainly close its doors and say, no, you can't come in. In fact, these school buildings and other facilities are used not just by School District of Philadelphia kids who go to that school. As you well know, there are active recreation department programs around the city. And all kids, as it should be, in the city are eligible now to participate.
We don't know of any sites that we use. We use city services, certainly. But we don't know --
Do the kids go to the library from time to time? I mean, don't they go to rec centers in the summertime?
Sure, children who are public school students go; but not as an official, I don't believe, activity, you know, that's part of the School District's.
I am just trying to 45 BILL NOS. 000708 and 000709 understand again how far this is going to go and why one side pays and the other may not. I mean, it is stunning to me that the School District in some way, shape, or form doesn't use, quote, unquote, city-owned facilities.
What we are trying to do, as a matter of course, is, in fact, to encourage these kinds of partnerships and cooperation and collaboration. So that's good public policy that I think we all agree to. The problem here is that there is an out-of-pocket cost that we can document, that totals, as we have testified, close to $6 million for last year and on its way there this year. And that's the concern.
And, Councilman, if I might add, the fact that children who attend Philadelphia public schools use the Free Library, that does not make the Free Library a School District facility. You still have --
That makes the library a city facility that is hosting, I would -- I obviously would never suggest such a thing. I'm 46 BILL NOS. 000708 and 000709 just asking the question in the reverse. I mean, if it is okay or it is appropriate or required that the, quote, unquote, city pay the School District for the use of its facilities, primarily in most instances for City of Philadelphia kids, I mean, in the realm of what's good for the goose is generally good for the gander, why isn't the district paying for any use of our facilities? I am just trying to understand. I know the district is always concerned about fairness and equity and all those kinds of issues.
I think the distinction, and I was just verifying this, but the usage for which we are billing is after normal school hours. So we are billing for a marginal cost. And I don't know if there are classes held in a library, but it would be during library hours. What happens here is, there is an additional utility cost because the school wouldn't be open, and there is costs of bringing in personnel. And that's all that's billed for. It is just that marginal cost. 47 BILL NOS. 000708 and 000709 And I think that's a fair distinction.
Excuse me, Councilman, would you make this your last question on the first go-around?
I am sorry, Madam President. I get talking to the solicitor here, and it just gets to be a love fest. I was also intrigued by the one year with the nine one-year renewals. This may be leading the pack on how many renewal years you can get off of a one-year contract. Why didn't you just do a ten-year contract with great terms or something?
Well, I think there is a number of reasons, not the least of which --
Neither of these entities is going anywhere. I understand where if we are contracting with some, you know, Joe's Auto Body or something, and we want to make sure that we are doing whatever we are doing, I mean, you know, Joe might go somewhere, or we stop liking Joe, or whatever we are doing with Joe. 48 BILL NOS. 000708 and 000709 But, I mean, I think the two entities that have no chance of ever picking up and leaving are the City of Philadelphia and the School District of Philadelphia. So why don't you just do a ten-year contract?
Part of it has to do with risk management, part of it -- and I would, frankly, prefer to defer that kind of a question into a session, where I would be happy to speak with you about this.
I didn't hear what you said. Defer the question to who?
Not defer it, but defer it in time, and I would be happy to talk to you individually. But some of the issues we looked at include making this an agreement which had the greatest ability to survive legal challenge. And so, in my judgment, this has a greater chance of surviving a legal challenge if we do end up in an Act 46 situation. And that was a considerable part of the thinking on that front.
Okay. Thank you, 49 BILL NOS. 000708 and 000709 Madam President.
Let me just piggyback on that. How are the nine years of prepayments authorized under the city's Charter? How could we continue to approve balanced budgets in the future, when the city has expended the total amounts, but we carry the value of prepayments as an asset until the appropriate year it covers? How do we do that?
For legal or budgetary purposes, the money is spent in this year. For GAAP purposes, it becomes an asset and it is carried over time. We do a reconciliation, our annual report, every year that reconciles the legal or budgetary basis to the GAAP basis. It is simply a difference in presentation. One is accounting versus the budgetary. But for budget purposes, it is in fact spent in the year that the payment is made.
Excuse me. I assume Councilwoman Krajewski left the room, the chamber? 50 BILL NOS. 000708 and 000709 The Chair recognizes Councilwoman Miller.
Thank you, Madam President. I have a question regarding the leasing agreement and what it specifically means to community groups. When someone puts in a request, a community group that wants to use the school building has to pay the personnel expenses. This agreement means that they will still have to pay that, the personnel expenses of security and whomever it is that's going to be there to open the building?
If a community group comes to us directly, rather than through the recreation department, they will continue to pay as they have paid in the past.
So this leasing agreement does not relieve any of that burden from community groups, even as relates to liability insurance?
Okay. And does it 51 BILL NOS. 000708 and 000709 change anything for when people want to use a building on Saturdays?
I don't think any change was contemplated for other community groups wanting to use our facilities.
Okay. And I just have one other financial-type question. With this 45 million, you will still have a 44 million deficit?
Thank you, Madam Chair. Following up on trying to get an answer on the President's question and Councilman Nutter's question, we are entering into a licensing agreement ten years. In essence, we are giving and delegating our powers over to the Mayor for the next ten years to carry forward and appropriate this money on a yearly basis to the Board of Education. Is that somewhat a right interpretation 52 BILL NOS. 000708 and 000709 of what we are doing here?
Well, we have no 6 power of review, right, on a yearly basis, the Council doesn't?
Once we pass this, it is done. We cannot come in and say, we want to obrogate this contract with the School Board next year when it comes up for renewal?
The city, as the agreement is defined, is actually defined --
I understand. And I am trying to respond to you, Councilman. But you are correct. Because the city is defined as the Department of Recreation, that is who is the signatory to this agreement.
So we delegate that power away. And we have, again, what I am saying is, this Council, at the moment that we do this, we 53 BILL NOS. 000708 and 000709 terminate our role in the process?
I disagree with your characterization. I do not think you are delegating the authority to the Department of Recreation, because the Department of Recreation has the --
I don't see it as the Department of Recreation; I see it as the Mayor's Office. And the Department of Recreation, the Mayor just appropriates money to it, and they do whatever it is that they do in terms of their planning. So, in essence, what we are doing is, we are giving the executive this power, not the Department of Recreation. The money is going to the Department of Recreation, but it is the executive that is going to be able to exercise the power to give this contract out and the payments and so on?
If I might, the ability to enter into this agreement, or the power to enter into this agreement, is not a delegation. The Department of Recreation has the ability to enter into a one-year agreement with renewal terms, and so there is no delegation there. 54 BILL NOS. 000708 and 000709 What is before you are two ordinances which are to appropriate the funds.
Exactly. And at the moment we do that, we have no 9 aspect of review because we are delegating, and we are passing, and we are giving a -- we are not here today approving a ten-year contract; right?
However, we are giving the power for you to enter into a ten-year contract without any review from us on that contract from here on in?
Well, again, it is not a ten-year contract. And certainly Council does not have an ongoing role over the next ten years in the implementation of that contract. Council obviously does have significant ability, if it ever -- and it does. I have been here and I have answered questions from you on some ongoing things. And Council always has the ability to bring either the Administration, School District, 55 BILL NOS. 000708 and 000709 Department of Recreation to answer on these issues.
Again, we are giving you the authority to enter into a ten-year contract. And we cease our role, and we give you the money to be able to fund that ten-year contract as of today; correct?
That said. However, you are not entering into a ten-year contract.
We are not entering into a ten-year contract, and I disagree with the way you are posing it.
Well, of course you disagree with the way I am putting it forward. But our power, in essence, to me, we are delegating a power to the executive to be able to do certain things. And we will not have a role in terms of deciding whether this was a good decision or not next year. That decision will all be in the executive branch of government. And we are tying up the future Councils with a decision that this Council has made today, or whenever we pass this legislation.
And, again, I disagree 56 BILL NOS. 000708 and 000709 with the way you have posed it. I think I testified earlier that both sides have the ability to terminate the contract. I believe it is on 90 days' notice. Both sides do have the ability to terminate the contract.
Again, it is both sides. But I am talking about this side of the aisle.
We have no say within the termination or continuance of that contract?
That's correct. And that's also the case with many other contracts that are one-year with renewable terms. In other words, this is not unusual.
Ms. Kahn, I think I heard you say that this $45 million was part of the process. Or I believe you said that it was already within the structure of the concept of you reaching agreement with the PFT, that the bonuses and -- I am trying to get back to what your testimony was -- the bonuses and so on were all contingent on the $45 million that you are going to 57 BILL NOS. 000708 and 000709 get from us at a later date in this year?
As far as the PFT contract goes, when we set out to negotiate that, we had made it very clear, partly because of the budget agreement that had been struck in May, that there would not be a financial impact during the current Fiscal Year, there was not the budget allegation for that. We knew going forward, of course, that the contract would have a financial impact; but that, for the current year, it wouldn't. And when it became apparent that one of the things that would be needed to be done in order to settle the agreement, and get the very good result that we did for all parties, was to introduce these bonuses shortly after ratification, which would, of course, then have a financial impact on the School District's budget for the current Fiscal Year. The Mayor at that point had said that he would go to City Council and ask for the funds to be able to cover the cost of those bonuses, which, again, resulted in a very successful contract for all parties and which was done without ever missing 58 BILL NOS. 000708 and 000709 a day of school.
So this $45 million is going to cover the bonuses? What else?
million of it is for the 6 bonuses. 7 And the original 20 was part of the 8 School District's Operating Budget to be able to 9 just, again, have schools open for the full school 10 year this year. 11
So $25 million will 12 cover the bonuses that were promised to the 13 teachers. 14
And $20 million will 17 go to just cover expenses to maintain the schools 18 open until June 30? 19
And all of this was 23 included in the year budget that we approved in the 24 year 2001. 25 And I think Councilman Nutter asked a 59 BILL NOS. 000708 and 000709 question that he doesn't remember discussing these $45 million as a contingent basis for this and for this use in terms of when we approved this budget last March.
Well, that's right. When we were here a year ago in March, we didn't have any of these conditions present. We knew at the time that we were certainly facing a serious financial problem. We knew that we had a contract to negotiate. But we did not know the particulars of what requirements there would be. And because the School District's budget cycle is on a different budget cycle than the city's, as you know, and the Board doesn't adopt its budget until May 31, when we were in early March last year, that was the very beginning, as it was again this year, of the School District's budget process. So there was no way at that time to foresee with any specificity what would be required.
So, in essence, we are not really here discussing a ten-year contract to buy services in order to use the schools for 60 BILL NOS. 000708 and 000709 recreation purposes after school, because we already do that with our pay. We are just here to put forth $45 million so we can cover the contract; right?
We are absolutely here to discuss the financial obligation and the financial requirements and the needs of the School District that this $45 million is absolutely needed to fill.
And this does nothing in terms of fixing the overall structural deficit that we have or bringing any more services in terms of the public school children of the city?
Unfortunately, it does not provide any additional services. And, no, it doesn't -- this is not intended to help with the long-term structural problem. Although, if we don't do it, that problem will be exacerbated in a number of ways. One is that, because we would not have fulfilled our commitment made as part of the budget agreement last May. And the second is simply, as we testified earlier, it would add to the deficit for the current year.