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.
But none of this $45 61 BILL NOS. 000708 and 000709 million is going to go directly to educational programs?
Sure. I mean, for the city's Operating Budget, most of that Operating Budget is spent directly for educational programs. So in that sense it certainly does. And bonuses, one of the big costs of the educational program is teachers and other school-based personnel in classrooms and in schools. So in that sense, it fully funds School District programs, just not additional programs.
I will continue until the next one. I will save myself for the next round.
Thank you, Madam Chair. Just a couple of questions. I am curious to know, is this transaction, as you have outlined it, is it a first? Is there some other precedent that you looked to that guided you towards this type of transaction at this time? 62 BILL NOS. 000708 and 000709
I don't think that I am aware of any structured exactly like this. I do understand that the city -- and the finance director can speak to this -- has prepaid, I believe it is, some pension funds. But nothing structured exactly this way.
And in your view, what's the worst-case scenario, what's the fallout, what's the alternative should this not happen?
As I think I just stated, I think it is a significant problem for two reasons. One is that if the School District does not obtain this $45 million, as the chief financial officer testified, the district will run out of cash. And that has a whole series of repercussions which certainly she can speak to. It would increase the School District's deficit for this year by $45 million. And perhaps, you know, equally importantly, and most importantly, it would be an abrogation of the agreement that we had made and negotiated in the spring with the Governor in order to do the city's part to be able to keep schools open for all of our kids for the current school year. 63 BILL NOS. 000708 and 000709
Thank you, Madam President. In the event that this million and 20 9 million dollar transfer is passed, how will the 10 district cover the cost of operating the schools in 11 the evening and on Saturdays going forward? 12 From what the testimony has indicated to 13 me, the $25 million is going to pay for the bonuses 14 that you negotiated with the School District 15 teachers, PFT, without even having the money. So 16 you negotiated a contract that you knew you didn't 17 have the money for. 18 And then the other 20 million is going 19 to pay for, or it is going to try to plug a hole 20 that's already there. 21 So starting next month, when X school or 22 Y school or Z school is open to recreate kids in the 23 recreation department program or in come cultural 24 program or some approved use, how will the district 25 pay for the costs associated with the operation of 64 BILL NOS. 000708 and 000709 those schools going forward?
Just an answer to that really specific question is that, as we budget for next year and for the years beyond, we didn't anticipate that there would be an additional revenue stream to cover our expenses. What we budgeted is that marginal cost being uncovered in the future years because there's been a prepayment in this year.
But the prepayment is being used to pay for the bonuses and to plug the hole that's there. The hole that's a result of the operation of the School District facilities will obviously continue on, because we have already spent the money supposedly to cover part of that cost. So that 5.7 million -- and I want to get to the specifics of that in a little while -- the $5.7 million that the School District alleges this costs a year is still going to be an ever-gaping hole. So it is not as if we are taking the 20 million and we are earmarking it for use in overtime, engineers, security, and all the things 65 BILL NOS. 000708 and 000709 that relate to these after-school or after-hours programs. We are going to take that money that we're being asked to provide for that purpose and put it somewhere else. How are you paying for the 5.7, the 6 million dollars a year going forward over the next ten years that you are committing to do? Because my assumption is that, if we give you the 45 with the supposed purpose of paying for these programs, you are not going to cut those programs back, you are not going to limit the use of the schools. Because then you would be misleading people into believing they are paying for something now that may in three or four years from now say, well, we can't afford to do that anymore because we don't have the money to pay for it because we spent it in the first year we got it. How do I tell people in the community, running basketball programs, cultural programs, after-school programs that we can guarantee that you will have access to that school? Even though you are prepaying for ten 66 BILL NOS. 000708 and 000709 years of the use, I will have no way of guaranteeing as a Council member, no other Council member because it will be out of our hands by then, to go back and to ensure that the peanut league or some other babe group can use those facilities for the next decade, because I will have no ability to review. Or Mr. Trujillo says I can complain. I have been complaining about School District problems for the past decade, and to know avail. So where do we go to when the School District decides they are no longer going to give access to or reduce the amount of access of the school buildings to these programs? What happens then?
Councilman Kenney, your question is actually part of the broader question. That $5.7 million contributes to the gap that we projected for next year and the year after that.
And the School District's ability to provide all of its services is contingent upon plugging that gap.
I understand that. And I don't really disagree with it. 67 BILL NOS. 000708 and 000709 What I can't understand is, you are asking me to prepay for a service over the next ten years that I have no ability to ensure will continue beyond the time we agree and vote on this transfer ordinance. So this time next year, theoretically -- and you are all honorable people, and I am sure you are going to tell me don't worry about it, we are going to do that -- but next year or the year you may say, do you know what, one of the things we have to get rid of is the use of School District facilities after school and on weekends. And, you know what, Harrisburg didn't come up with the money. So, you know, we asked you for that prepayment for ten years, but tough. Now what?
And that's actually precisely why you have a licensing agreement. Because what the licensor here, the School District, has an affirmative obligation for which it will have been paid. And it has got a duty, an obligation, a contractual obligation, to make at its sole cost and 68 BILL NOS. 000708 and 000709 expense to provide the engineers, to provide the athletic fields, the parking lots, and the like.
What if the money is not there? I have already paid, our constituents have paid for a service that because of a dire financial situation next year, the year after, they are got getting. That's why two things are problematic with this. Number one, I would rather you come in here and say what it is. Just come in here and say what it is. We signed a contract with the PFT that costs $25 million more than we have, and we have a $20 million hole. We need $45 million of money from you, the city treasury, for the Grants Revenue Fund. When you set up this scenario of a licensing agreement with ten year, nine, one-year and nine renewable options, and all this other stuff, it is as if we are not that bright. Like we don't really know what this money is being used for, and we are going to vote for something that's not only going to do this, but take ourselves out of the process altogether. And 69 BILL NOS. 000708 and 000709 that's, I guess, what's problematic. And let me tell you something about Act 46 in my opinion. I am not a lawyer, but I have been around the legislature long enough to know how they act. If in fact the School District is taken over by the state -- which I think is almost an impossibility. The State of Pennsylvania has the ability to take over the School District of Philadelphia, they have the authority. But, let me tell you something, they are never, ever taking over the school system. My opinion, I have been involved and around the legislature, working directly for it for 12 years and being involved in this government for the last 10. I am telling you, they are not taking over the system. And in the event that they did and there became some dispute vis-a-vis Act 46 and whether or not we had contributed a grant or economic contribution, and whether or not there was an argument, they are going to win that argument anyway. Because all they are going to do is just take it from somewhere else and reduce that amount. 70 BILL NOS. 000708 and 000709 So that they will come, they will win the argument. Because if the $45 million, for example, now is in dispute under an Act 46 problem, they are going to take the $45 million from somewhere else and their gain will be zero sum. So trying to hide it, cloak it, maneuver it, it just isn't going to work from an Act 46 perspective. And I tell you, the thing that concerns me about doing it this way in this Council, if we in this Council allow us to be Mack-trucked over again on this kind of issue, by giving nine years, ten years of prepayment, then forget the contract language. You might as well take that contract language in the Charter out of the Charter and let the Administration, whoever it is, do whatever they want. Because that's basically what they have been doing anyway. We look at Vet's Stadium recently, with a three-year contract renewal on a vendor for food services and beverage services that was supposed to be a three-year contract, done unilaterally, without bid. 71 BILL NOS. 000708 and 000709 When I complained about it, all of the sudden it became a one-year with two-year renewals. This renewal option stuff is just a way to get around Council. And it is not this Administration. It has been previous administrations that have done the previous thing. But if we continue to allow this precedent to be set and continue to do it and play into it, we might as well just mail our votes in, because there is really no sense in us being here. And I am telling you, if I can't guarantee in some way through our legislative powers that the service that we are prepaying for for the next ten years is in fact going to be there for the next ten years, why don't you just ask for the money to pay for the School District contract, which is what this is all about. Just be honest with us. We signed a contract, we didn't have the money. Now we are coming to you for the money.
So don't give me a ten-year license agreement on how to get the money, because Act 46 I don't even think applies in this particular situation.
Councilman, several things 72 BILL NOS. 000708 and 000709 in response. First of all, again, for the record, the portion of the money, only a portion of the money, is for the contract, and the other was announced back in May.
I don't mean to interrupt you. But when you signed the contract, you knew you didn't have the money, and you didn't know yet whether or not we were going to approve the money. So, I mean, maybe the public sector is different than the private sector. But if you own a company, and you are doing a negotiation with the Teamsters, and you sign a contract with money you don't have, how does that company, this company, get that money?
Councilman, actually, the public sector is different. And most public sector contracts, governments negotiate all the time, and in future years they don't really know whether they are going to have the revenue or not.
And make commitments that the legislative body needs to approve prior to even consulting with the legislative body. 73 BILL NOS. 000708 and 000709 Because I don't remember being asked about the 45. I remember reading it in the paper, but I don't remember being asked about it.
As far as the larger issue goes, I think that we have, and our testimony will show, that we have said exactly what this money is for. And that's what we have been discussing. Again, the structure that we are proposing here is in response to all of the legitimate concerns expressed by yourself and other members of Council and by the Administration about the ability to try to protect these funds and not have them be recurring, to the best of our ability. These are exceptional circumstances, extraordinary circumstances. And we structured this proposed agreement in a way that, to the best of our judgment, would enable us to do that. I also think that -- and, again, the City Solicitor can speak to this better than I -- but simply by virtue of having this agreement, there is more protection than there otherwise would be for, in fact, the school building to be open and accessible, as we all want them to be, to all of the children in Philadelphia for recreational purposes. 74 BILL NOS. 000708 and 000709 Because if in fact the district finds itself unable to perform that obligation, the city does have the right to be repaid.
Wait a minute. Let me go back to that. September comes around. God forbid, we don't get the money from Harrisburg, the Governor wasn't being as forthcoming as we'd like, the legislature tells us to take a hike, and we can't open the schools in September. Do you mean to tell me that the schools will be open at night for basketball leagues?
They may not be. But that's when I am saying the city may well be repaid.
Where do I go to get my money back? Where do I get the refund the from? You don't have any money. So just be honest with us.
No. We are trying to frame this and craft this in a way that's cute and novel. But, guess what, it is what it is. If it is quacking and walking like a duck, that's what 75 BILL NOS. 000708 and 000709 it is.
Councilman, this precise kind of arrangement has been requested by the city controller four years ago. The fact that it overlaps with a need that the School District has now does not illegitimize it. The city controller suggested in 1997 and 1998 that this precise kind of arrangement be --
But, Ken, in all fairness, you are a smart, intelligent lawyer, I think you are a decent person. You are telling me a ten-year prepayment is not an odd thing? It is the oddest thing I have ever seen here.
I don't think it is the oddest things you have ever seen here.
Well, it is one of the top three. There are a lot of ties.
Well, what I really would like, just on the practical side, I would like to know, out of the 115 schools that are involved, I would like to know how many employees are involved 76 BILL NOS. 000708 and 000709 in this after school, after-hours issue. I want to know the list of classes of employees and what their hourly rates, overtime pay, are. And I would also like to know whether or not there are in fact electric and water meters and gas meters in every 115 schools that are involved. Because I don't know what the age of those schools were, whether those are all metered or not. Maybe they are, maybe they aren't. I know we had a similar problem with our electrical use rates when it comes to alley lights. They are not metered, but we negotiated a number with PECO. So I need to know, of those 115 schools, how many actually have water, electric, and gas meter readings we could look at. And that's it for right now. Thank you.
Thank you. Is Councilwoman Tasco in the chamber? No questions. Ms. Chatzkel, you state on your testimony that, quote, Based on our current 77 BILL NOS. 000708 and 000709 forecast, the School District would be unable to meet its cash obligation after June 21, end of quote. I am somewhat confused by your statement, since on one page of your testimony you state, Based on the projected cumulative deficit of $44 million, the School District is currently forecasting an end-of-year cash position of $60 million. I would think that if the $45 million was not forthcoming, then $60 million less $45 million would leave you with a $15 million cash balance. Am I missing something?
No. You are absolutely correct, Council President. What happens with our payments -- and we did provide daily cash flows. I don't know if you all have them. We get a payment from the state at the very end of the month. It is a special education payment. And for the end of June, it is projected at $38 million. It comes the same time every year. We 78 BILL NOS. 000708 and 000709 can't move that. The date that it is anticipated to be received is June the 28th. Between June the 22nd and June the 28th, we reach a negative cash position. We are not able to cover our bills during that time period. The other point to note is that --
Are you able to come back with a positive cash by the end of the year?
We get $38 million at the very end of the month. And that's what rebounds, that's what brings us back to only $15 million. But just to clarify -- because it is an important point for us as we manage our cash -- this is all based on an estimate. You noted in your earlier question that there is some projected improvement in the district's fund balance. Some of that we know for sure because it happened last year and was clarified in our audit. But $15 million of improvement is based on an estimate. There could be some variance. And we have to account for that, too, as we look for the required level of cash.
You know, as it stands 79 BILL NOS. 000708 and 000709 now, I don't think anybody at the table can tell us that the schools will open in September. Is that true? Are we getting that impression?
We can tell you that we are making every possible effort to have that happen.
See, I think that several Council Members feel that if this fact we approve these two ordinances and risk the city to a payment of $45 million a year, if in fact the state takes over the district, we are really committing ourselves to $60 million a year? It would be the 45, plus the 15? I somewhat agree with Councilman Kenney. The state certainly doesn't want to take over the School District. But if the City Solicitor can't tell me or any of us what a court would do, I don't think I could sit here and tell you that I'm a hundred percent certain that the state would not take over. What happens to our General Fund if that happens? I think we sat through budget hearings. It was indicated that cuts were going to be made. I think last year this time we also heard that the 80 BILL NOS. 000708 and 000709 School Board was going to be making, or the Mayor had asked the School District to make, what was it, a hundred --
I don't know that we have heard of any of the cuts that have been made. We don't know what you are doing. And apparently we come in here, ask questions. And all we are told is, we are working on it. Well, I think we are going to have to be given more information.
Actually, last year, as part of the budget process, the Board did approve nearly $30 million in proposed reductions in expenditures. And we do have --
But you were here this year for the budget, and we were told that cuts were going to be made. Can you give us some indication as to what cuts have been made or will be made or can be made?
We can answer for you the cuts that were made last year, as part of our -- 81 BILL NOS. 000708 and 000709 for this year --
For this year, the lump-sum budget, which is the preliminary budget that we shared with you, is due to be approved by the Board. It is just a start of a process that ends on May 31, when we adopt the final budget. What we are looking at, in general terms -- and I think that Mr. Goldsmith addressed some of these -- we want to look at, number one, ways to generate revenues other than tax revenues. That's the easiest thing for us to do, because it is not painful. There are Medicaid reimbursements that we hope to increase. The dollar amount for that could be anywhere between 5 and 10 million dollars. Then what we would look at as a district, and are looking at, are the expenses that are furthest away from children in the schools, which obviously starts with administrative expenses. And I think that there have been several meetings, internal meetings, to discuss how the 82 BILL NOS. 000708 and 000709 Administration can be reorganized, which should effect some savings. We don't know a dollar amount to those savings for two reasons. We don't know finally what the administrative structure will look like. There is a lot of detail to that. But the other question is, if this administrative restructure can free up some educators, whether the best thing to do might be to take educators who have a higher salary than we are used to paying for teachers in the classroom, but in theory -- and I hope in actuality -- earn that salary by experience, are redeployed back into the classroom. Which is why we can't give you a dollar on that. But I can say, of all the things that are being looked at, that's being looked at the most heavily. And then in terms of other cuts, we are looking department by department, but again our emphasis right now is on administrative areas.
And it is over the next four to six weeks that the intensive work of the School District's budget is always done. I mean, these are 83 BILL NOS. 000708 and 000709 the months. So, again, we have a problem of being a little bit out of sync with otherwise what is the city's timetable.
Right. Well, again, May 31 is the date by which the Board is required by the Charter to adopt its budget. So certainly, again, over the next four, six, seven weeks, up until and including May 31, a lot of that work will be done, but certainly the bulk of it over the next four to six weeks.
Is there anything to preclude the Board from taking action earlier?
Well, you know, because part of the issue is the state budget process. Which, again, their budget is often, I mean, sometimes not approved until June, but usually in May. And since the bulk of, 60 percent of, the School District's budget is state funded, it is 84 BILL NOS. 000708 and 000709 very difficult for the district to do a budget without knowing what its state resources will be.
Yes. I just have a question for the law department. How does this position us in terms of possible lawsuit in case the state does take over the School District, in terms of this money going to traveling this route, based on intent and this record that we are building today?
Would it still leave us open to a takeover, to being responsible for the continued funding of the 45 million?
I think that the licensing agreement that was entered into is -- or the proposed licensing agreement is not only defensible, but I think it is very appropriate. I believe that it is the most defensible kind of arrangement that can be entered into legally. And I am unaware of any other type of arrangement that would give us the kind of ability 85 BILL NOS. 000708 and 000709 to protect the city than this agreement does.
I want to go back for a second. There was at the tax authorization hearings, and it has kind of continued as an item of discussion, with regard to what the state may or may not do as it relates to the current fiscal situation. Now, I don't remember what the announcement was, but the Governor put out his budget maybe shortly after, I think, the Mayor announced the city budget. Now, were there dollar figures announced in that budget from the Governor that indicated increased support for Philadelphia?
Yes. There was approximately $67 million in additional revenues, new revenues, contained in the Governor's budget.
And what does that do in terms of the anticipated $235 million deficit?
Those figures are included, already assumed, what's ever in the Governor's 86 BILL NOS. 000708 and 000709 budget, within our forecast. So in that sense it made the problem $67 million smaller.
So when the President just asked the question a couple of different ways, I get the impression the response has pretty much been the same, you are working on it, you are looking at it, you are talking to people, a wide variety of things going on. What is the expectation out of all these meetings and discussions and the like?
What we would like to see is to get agreement among the parties over a series of years, which again we discussed at the tax authorization hearings, that we can put the School District on the road towards long-term financial stability and also towards improvements in education.
Well, okay. I mean, 87 BILL NOS. 000708 and 000709 that's a good answer. But are you expecting the 235 problem to be solved in the course of this year, between the additional state effort and city effort?
What does the path to nirvana look like? And what will we have to see over anybody's reasonable period of time? What kind of numbers are we talking about?
Because of the fact that the budget problems have really been a long time in the making, we are realistic enough to say that there is no way that they will be resolved within one budget year. So as we have already discussed, we are looking at a series of actions which may well have to include some deficit financing. But that can only be done in the context of knowing that there is a plan over the course of, again, maybe five years or more, where the district would come into balance.
And so we find ourselves now in a situation where we are just waiting to see what the result of the discussions and the meetings and the conversation in Harrisburg 88 BILL NOS. 000708 and 000709 is to then know what the game plan is going forward; is that --
Yes. I mean, every week there has been more activity and more parts of putting together this puzzle. We have had legislators into Philadelphia over weeks, you know, several important groups trying to gain common ground and increase their understanding. As you know, the House Appropriations Committee will be in Philadelphia on Wednesday and Thursday of this week, where several of us will be testifying. And they have come to look specifically at the School District's financial situation and consider those needs. And they preface that visit with open-mindedness and a willingness to look and to hear and to see what it is that -- to understand the problem and to see what contributions they can make towards helping to solve it.
And, I mean, just, you know, always hoping for the best, but, I mean, we do have to plan for the worst. Suppose out of all that they say, you 89 BILL NOS. 000708 and 000709 know, it is a really nice city, love coming here, you have some serious situations and challenges, and we are going to keep talking to you, but that for this year, nothing changes? What does that mean?
Well, I think that all of us in the City of Philadelphia have a huge problem in that event.
Tell me about the magnitude of the problem and the realities. Tell me about real-life situations that could result from such a scenario.
Real-life situations would be the question that's always asked, will you be able to open school and will you be able to keep open. I think the answer to that would have to be no, we couldn't. So we would have to see what the ramifications are. We would have great difficulties -- and again the CFO can speak to this -- in the bond market, certainly.
I guess what's the line or what's the dollar amount, what's the breaking point between open, no open? Because I have asked you about zero, and 90 BILL NOS. 000708 and 000709 I assume zero means no open. On the other hand, I am sure that if after all this process you go through with Harrisburg, and they said, oh, well, yes, you made a really good case, and I think we will send, we could throw another million in the 7 pot, I assume that there is a line somewhere that, 8 until you cross that line, you are not really doing 9 anything. Not that $10 million isn't a lot of 10 money, but it doesn't necessarily open the schools. So tell me what the line is.
The gap is -- and I would like to answer your question, Councilman Nutter, by talking about the four ways that we can close this gap, and also how much of the gap we have to close to operate, which I think was your first question. We start the year, as estimated -- and, again, this is an estimate -- of a little bit of a cash cushion. That little bit of a cash cushion means that for next year, we don't need to close fully $235 million. We have to close close to it. There are four ways to do it. And I don't want to make light of the fourth way. 91 BILL NOS. 000708 and 000709 Although it is not my favorite, I think it is going to have to be part of it.
How close is close? I just trying to keep track. How close is close?
I think that what we would like to have is $235 million. I think we ought to, for everybody's sake, we ought to wipe out the fund balance deficit. That's the way to operate.
Given the magnitude and given that this has been several years in the making, we should look at each of our four options for closing that gap, because all of them come into play.
The first is to have the School District effect cuts. What we looked at during the budget briefings with you was that we are already spending 7 percent less than the national norm on a per-student basis and percent than other school 24 districts in the Commonwealth. 25 That doesn't mean we can't effect cuts. 92 BILL NOS. 000708 and 000709 It means that we have to do so responsibly and make sure that we don't cut the spending on children between K and particularly, which is our core 5 mission. We will look at cuts. 6 To do those cuts responsibly, and to 7 generate new revenues responsibly, will probably 8 have to happen over many years, which is why Ms. 9 Kahn said we are looking at a five-year plan at this 10 point. 11 We look at two sources of revenues. We 12 look at local revenues. You have contributed, locally we have had 40 percent of our revenues come from local sources and 60 percent from the state. Those are obviously ways to close the gap. If those first things, three things, don't materialize to a full $235 million, which -- I mean, I would love to see that happen; I don't think we expect to see that happen -- the fourth means is deficit funding.
Wait a minute. I'm sorry. I must have been going slow. I thought number one was school district cuts?
Number two is local 93 BILL NOS. 000708 and 000709 revenues. Number three is state revenues. Ms. Kahn actually mentioned number four, which is federal revenues. And since we don't know yet what's going to be passed, I can't rely on that. But what we have heard is that there may be some additional special education funding, which would help as well. So, actually, reasonably we should add that to the mix.
Right. If in the aggregate we don't have enough to close that $235 million gap, we are going to have to look to deficit funding for the rest.
Deficit funding, it is not the end all and be all, obviously. It is debt. And in order to make it real, we would have to show a plan where, over a period of years, probably five years in our case, there is an ability through perhaps a right sizing or a rethinking district activities and through other revenue measures to close the gap. So that with deficit funding, the 94 BILL NOS. 000708 and 000709 largest piece of whatever is borrowed is used in the first year. And then the amount that's needed in the out years continues to diminish, until you finally reach a budget balance.
I mean, I know that the government is a lot different than our own personal financial circumstances. But, I mean, in less financial terms and kind of more street-type nomenclature, what we are really talking about is borrowing our way out of debt? We were going to borrow some money it pay our debt, and end up with more when all is said and done; is that what we are talking about?
We are talking about borrowing to fill our cash needs over the next couple of years. The idea being, though, that we balance. And, yes, there is absolutely, there is debt service on that, which is why it is not --
But in a current financial crisis, how do you pay that additional debt?
Whatever the debt 95 BILL NOS. 000708 and 000709 service is has to be added to the gap that you see in the years ahead. And as you look at ways to close the gap, the gap has grown by the amount of debt service. You are absolutely right.
Okay. All right. You mentioned about some cuts. I did have one item that I needed to ask about. It has to do with the Philadelphia High School Academies Program. And the district has funded that program, it is my understanding, for the past, I think at least, three years? Are you familiar with that particular program?
Now, it is my understanding that there has been funding provided to the organization for the past three years in the amount of $250,000, but that recently it was apparently revealed that this year, in the current '01 budget, the district is not going to make those 96 BILL NOS. 000708 and 000709 funds available, and we are now nine months into the Fiscal Year. Can you tell me what's going on with that, and why we would do that, and what happens to all these programs in our local high schools?
Well, several things. I learned about this arrangement that had existed under the prior Administration some months ago. And I have been in ongoing discussions with the executive director, who I admire greatly. And I am a former Board member of the Academies and a great fan of what they do for our kids and our schools. And we have been in those discussions. And, frankly, because of some other business, she and I have been staying in touch. But it was not something that I needed to resolve right away, in her judgment. So we have had those ongoing discussions. When I learned of how that arrangement had been done, I was frankly somewhat surprised by how that payment --
I don't know anything about the arrangement. What's the 97 BILL NOS. 000708 and 000709 arrangement?
Apparently, over the past several years, the money had come from the city to the Academies, and the money had been allocated as part of the $15 million grant.
We don't allocate the $15 million in any specific fashion. We never have. We have talked about that.
Are you saying to me that in the city's budget for the 15, which until, I believe, the current year, had always been a separate appropriation, a separate bill, for the $15 million, I believe that either in this current year's budget, or the one that we have just approved last week, the 15 was already in the budget? We didn't do it separately? Now, Madam President, if I can, I'm sure Mr. McPherson would know the details on our recent 98 BILL NOS. 000708 and 000709 situations with the $15 million. Is it in the current Fiscal Year that the money was already in the budget for the 15, and we didn't do -- MR. McPHERSON: 2001 it was in the budget, and 2002, also.
So in the past years we had a separate bill for the $15 million that the Council had to approve. MR. McPHERSON: Yes.
In the current fiscal year budget, it is already in the budget. Now, is it detailed in the budget what the $15 million is for?
Yes. In the current fiscal year budget, there is a $15 million item covering this, what had been a one-time grant, for the past five years to the district. In the previous four years, we had a separate bill, just for the 15. We voted for it separately. There was no specificity as to what the 99 BILL NOS. 000708 and 000709 $15 million was for. You can check all the notes of testimony over the past years, there was never an earmarking of what those dollars were for, other than going in the big pot to be used for whatever the district wanted. Now you are saying that that's part of what the money was for, this 250 out of the was 9 specifically for this particular program? 10
Again, the preliminary look 11 that I have had into it, okay, I am just saying that 12 I have heard something to the effect that maybe the 13 School District simply in some way looked at that -- 14 because they don't budget for particular 15 organizations to support. So that maybe to some extent those dollars were used in that way. But it was an arrangement that pre-existed this Administration.
I am just trying to understand why anyone would say or believe that some particular program was being funded from a $15 million grant, which was not specific in its designation for anything? And in the past when we asked about having certain items covered by a portion of the $15 100 BILL NOS. 000708 and 000709 million, we were specifically told that the money is for general operating purposes of the district, and is not specific to any program, project, activity, or anything else. So I don't know where someone would get the notion from that this particular program or any other specifically came out of the $15 million. It was $15 million that was going in a bank account somewhere and being used however it was being used in the School District's general budget.
Can someone tell me, over the past five years, give me an accounting for that $15 million on a program or project basis, and show how the money was spent? Then where does that answer come from?
Point of order, Councilman. Thank you, Madam President. Councilman, I have asked this almost every year we have done this $15 million, specifically for a breakdown of where and when, and I am still waiting. So, I mean, one of the problems that we have always faced with this is that, on one hand, if 101 BILL NOS. 000708 and 000709 we don't give them the money, we are being insensitive and unrealistic. On the other hand, we have no control or ability to talk about books or programs or certain academic subjects or parent co-op nursery or whatever it is, it is out of our hands once we give them the money. And I don't know, I think you have been here as long as I have, I don't remember anything we have ever done one time that's not been in perpetuity so far. So this 45, I put it in the same category. We may be asked to make this a regular number. But I have asked for it consistently and have received nothing in return.
I was just going to add that we transmit to the district $14.75 million, which is net of that 250,000. The 250,000 has been transmitted directly to the Academies by the city in the past.
So what's the situation now going forward? Are we transmitting 102 BILL NOS. 000708 and 000709 14.75 or are we transmitting 15? The money was, I thought, to the 4 district. Now we have got a slicing off of a 5 portion for -- I mean, I am supporting the 6 Academies. There is no issue about that. 7 But no one could ever say where the 15 8 was going, who it was for, a breakdown of the 9 programs. 10 And now we are finding that, I mean, 11 some net amount -- so was the check coming from the 12 City of Philadelphia off of the 15? 13
Councilman, all I can tell 14 you is that it is an arrangement that I learned 15 about some months ago. I had -- you know, was not a party to it, nor were any of the people sitting at this table. And it is just something that I need to look at. I had asked the School District -- and I believe I am getting the information -- just for some information on how the Academies are supported and how they in turn support the School District, in order to make a judgment as to whether or not, you know, additional funding would be appropriate. 103 BILL NOS. 000708 and 000709 But, again, that is not an arrangement that any of us had anything to do with.
I appreciate you looking into it and getting all of the analysis. But, I mean, a decision apparently has been made that no money will be forthcoming, before your analysis and before your --
Okay. Then maybe you can explain this to me. This is a letter from Mr. Goldsmith, to the Chair of the Board of the organization. The letter says, "I am also writing to follow up a recent conversation," this is to the Board Chair, "you had with Dr. Cassandra Jones of my staff regarding the Academies' requests for funds through the district's Operating Budget. The district enjoys productive relationships with a good number and variety of partner organizations. The Academies is one such valued partner. However, given the district's budget situation, in which we currently face a sizable deficit, our ability to identify $250,000 from our operating budget to provide one of our partners for its core operating 104 BILL NOS. 000708 and 000709 and/or unrestricted expenses is terribly difficult at this time. I hope you will understand that I wish the budget circumstances were different and that we could assist the Academies in this way. If the situation should change or if other solutions become available, I would be delighted to revisit this decision." Now, if you got this letter in the mail, does it sound like you are getting 250 or not?
No, it doesn't. And I will tell you, Councilman, we have a lot of things going on. And I will tell you personally I did not know that letter had been sent. And I had considered it as one of my to-do's on my pile. That's the most honest answer I can give you.
It sounds like you might want to check it off. It sounds like it is to-done.
I might be able to. I don't know. But I will certainly talk to Mr. Goldsmith and find out what the status is. I just don't know.
Let me ask this question: Let's say that you were in a situation with us and you had made some financial projections 105 BILL NOS. 000708 and 000709 based on what had happened in the past. I know nothing lasts forever. But let's say that you were in a little situation or relationship with us, and we had been doing certain things for a certain amount of time. And maybe you didn't have a full-blown contract like the $15 million a year that the district would budget every year and would expect to get, and then you find out in March that the is not 11 forthcoming. 12 Now, would you think that was fair? Is 13 that a way to do business with someone who is 14 actually doing things in the district? 15 We have 12 career areas, 19 high schools, 29 academy sites. I think they are kind of doing something with us. And you find out three-quarters of the way into the Fiscal Year that someone has pulled the plug on $250,000?
As I said to you earlier, that's why I had been in touch with Ms. Allen all along. And she and I -- and as someone who used to run a nonprofit organization, I think I appreciate it. 106 BILL NOS. 000708 and 000709 And she had and I had had the discussion about how much were they depending on this and what was the status. And I am just telling you that I personally, I think, spoke to her as recently as a week or so ago. And I did not know that letter had been sent. And, as I said to you, I had asked the School District to provide me with some information. And I will now follow up on it and see where we get.
Is this a valued program? You have got, it is called the Philadelphia Academies, Inc. You have got a couple of people who serve on the Board here, the officers. Now, this would be a guy named Paul, it looks like, Brideman. He would be the Chairman and CEO of Mellon Bank. The Vice-Chair is a guy Robert Fox, Manko, Gold & Katcher, law firm. Mary Gavigan, from Sunoco, and John Lucca from KPMG, LLP. Isn't this like a business-oriented entity that has some of the leading stars in the city from the business community on its Board?
Do they provide a 107 BILL NOS. 000708 and 000709 valued service to the district?
They provide a terrific service. But there are a number of nonprofit organization that also provide terrific services to the School District which the city does not fund directly. In some cases there are contracts --
To say whether or not they would be funded now on an operating basis is not to devalue the work that they provide for the School District. They have not always been --
What was the basis of the decision then, if not on a value basis? I understand you have a financial issue. But apparently that money was being covered out of the 15 that we were sending. Now, someone has now made a different decision about something. No discussion with us. I mean, you know, I understand that. But it is three-quarters of the way into the Fiscal Year.
That's correct. And we will look into it. 108 BILL NOS. 000708 and 000709
Are we going to get back? What are we going to do? I mean, is the district just dismantling programs and relationships, some of which are actually working? I mean, we can --
We can go back into PCN, if you'd like, and have some more of that discussion. We have that situation, now we are doing Philadelphia Academies. I mean, are there other people who we should anticipate being on the chopping block? Are we just getting out of certain core activities, or are we only doing certain activities? Why would we do something like this? What's the graduation rate in the School District?
Let me just say, there is no 24 core list right now of activities that we are necessarily getting out of. But I think as we work 109 BILL NOS. 000708 and 000709 our way through --
And I take particular note at your term "right now." I heard that.
And what I was going to say is, I think as we work our way through this budget process, and this workout, I think we can all expect that there will have to be changes. There is no way, there is just simply no 11 way that we will work ourselves out as a city, as a School District, of this financial problem that we all face in the School District unless we anticipate some major changes being made. It is just simply not practical and reasonable.
I understand we need some changes, as well. But it sounds like a decision had already been made before you even had an opportunity to investigate whether this is a change that we want to make. That's the part that I am not understanding. PEDRO RAMOS: President Verna, Pedro Ramos, President of the School Board. I have been listening in on part of this discussion. And I had an opportunity to call over 110 BILL NOS. 000708 and 000709 to the School District to talk to our CEO, Phil Goldsmith. And there are two issues we have been dealing with through the Academies. And one of them is resolved, and there is a resolution today on the Board's agenda. The second issue is this amount of the $250,000 in the city's million that I guess not a 10 lot of people knew about, and we have discovered as 11 the new team that was in there. 12 And Phil's intention in sending that 13 letter was, basically, $250,000, he is not -- you 14 know, just wasn't prepared to make that commitment 15 at that time. But I don't think that you can read into that any intention to dismantle anything, other than just trying to deal with, you know, the situation he has before him. From a Board perspective, the Academies' relationship --
I understand that. I guess I am just in a position where I would like to be maybe a little bit ahead of the curve, as opposed to every week, every month finding out, 111 BILL NOS. 000708 and 000709 start with the PCN situation, that was the last few weeks and the last couple of months, which is still unresolved, now we are talking about the Academies program. I would like to know, just give me the whole list at one time and tell me what business are we going to be in and what relationships are we going to have, especially with the groups and organizations that are actually doing something that seems to make a difference. Now, can somebody tell me what the graduation rate is overall throughout the School District?
I believe that on-time graduation in the School District is at the highest it's been in a long time, and it is still dismally low. I don't know if it is the high 50-something percent or low 60-something percent of graduation on time in four years.
If I can just answer your previous question. I ask your indulgence. The district and the Board, despite 112 BILL NOS. 000708 and 000709 whatever, you know, past bumps there may have been in the relationship with the Academies, my best sense of the Board is that the Board very much values the relationship with the Academies. So that this, you know, whatever communication has been had or hasn't been had, it should not be seen as -- it would be probably inaccurate to perceive that relationship as being where it was headed several years ago.
I don't know where it was. I don't know where it is today. I don't know where it is going. I hope it is going in the right direction.
And the other thing is, Councilman, that there is no list. But this school system, I mean, there is a surreal quality here. I mean, there is a lot that we are trying to get through in the district. And the Board and district Administration are doing their best to do that responsibly. And, you know, we are getting our budget process formally launched today with the adoption of a lump-sum statement. And we invite you to 113 BILL NOS. 000708 and 000709 participate, as you have in the past, in that process and bring it your concerns of your district and Council there. And we welcome the opportunity to continue to discuss with you. Because no matter what, the next several months, there's going to be a lot of pain and a lot of disruption until we get through that process.
I understand that. If it was easy, everybody would be doing it. And I would be glad to participate in that particular process. At the same time, I think I do have an obligation to participate in the one process where I actually get to vote on something. I don't get to vote on your budget. We are here today about the 45. I participate in that process. Last week we voted on 600-some million dollars in total taxes going to the district. I participated in that process. And now we have this particular issue. To go my to my earlier question, if the overall graduation rate, as you indicate, is maybe in the mid 50s or so, the graduation rate out of this program is in the 90 percent range. 114 BILL NOS. 000708 and 000709 90 percent of the students who participate in these programs graduate from school. And then they are tracked. And some 50-some-odd percent, close to 60, go to college or some post-secondary educational activity. I am trying to understand, what else do we have going on that either matches that or surpasses that, that gives an indication to not only these students and not only the participants, but the Board of this organization, made up of some of the leading citizens of this city, who could probably be somewhat helpful in our other situations and efforts, what is the message to them ?
The message to them is that the leadership of the Board and the School District feel that the children of the City of Philadelphia and the district has benefited from the relationship with the Academies. And as we move forward, that's the mindset with which we are looking at this specific request, which has been generated by a relationship that pre-existed some of us and that many of us didn't know about. It caught me by surprise when I heard 115 BILL NOS. 000708 and 000709 that in the past money had been earmarked in the $15 million for the School District, that there was some money earmarked formally or informally for --
Are you telling me that the person who gets the check in the mail didn't notice that it says $14,750,000, and they figured that the 250 got lost in the transaction, or we just took a slice off the top and kept it for ourselves? Didn't they wonder why they didn't get a check for $15 million? That's what we voted for. Did they not notice?
Councilman, I was referring to the Board and the new district leadership. And I can tell you that while putting in around 60 hours as a volunteer to this job, I am not yet at a point where I am opening envelopes to check numbers.
Mr. Ramos, I don't expect you to open envelopes. You shouldn't have to open envelopes. You have a Budget Office. And one day, a few times, the city sent a check. And the amount was supposed to be $15 million. And when the check came and when the 116 BILL NOS. 000708 and 000709 envelope was opened, someone should have noticed that it was $14,750,000. I don't think you, Ms. Rush, or anybody else over at the Board has to start opening envelopes to figure out is the money right.
There is an office of the treasurer who receives grants. I wasn't on board last year when that check came in. There may have been knowledge, but that knowledge wasn't transmitted to me.
You know, this is how PGW got started. So all I want to know is, open envelopes, not opening envelopes, 14.750, $15 million, the question of the day is, what's going on with the 250 and the nature of the relationship with this particular organization, and how much other stuff is coming down the pike in terms of groups and organizations?
A couple of things, Councilman. First, to just restate what I said earlier, I am not saying that School District management didn't know. What I am telling you is that, at least at the Board level, we didn't know 117 BILL NOS. 000708 and 000709 that this arrangement was there and that information wasn't transmitted. We are certainly aware of it now. And I would think that -- and you can probably confirm it with the Academies -- that there is a more positive relationship than there has been at some points in the past, and you have gotten as much as you know right now. I pulled Phil out of the Board meeting that I should be Chairing. And I take him at his word that that was the whole of it. Which was, this came on the radar screen, he said, 250, I can't make that decision right now. A lot of us didn't know anything of the political history here. And we will deal with it. We are not looking to burn bridges with the Philadelphia High School Academies.
What's the Board going to do about the situation with the parent cooperative nursery? And are you taking any action at the Board meeting today regarding that situation?
Council, I shared with the Board this morning the unanimous resolution by City Council asking that nothing happen. And nothing is scheduled to happen at today's meeting, although there are a number of speakers.
And are the items that we discussed in that resolution and the issues to still be discussed, and a report made to the Council President, is the Board and/or staff going to follow through on those items so that we can get a reasonable and complete and final resolution to this particular issue?
We certainly want to bring closure to this issue. And we will be communicating through the President.
Thank you, Madam Chair. I don't want to go back, but I would really would prefer to really to give you the $45 119 BILL NOS. 000708 and 000709 million, rather than go through this process that we are doing. I think it enters into a very dangerous delegation of authority of this Council. I think setting the trend and the precedent that you can prepay contracts, it is not about and the Board, but it is about our relationship with the executive. That giving that authority and delegating that authority, I think, is unwise, and really is an abdication of where we should be going in terms of that. If we need to have money, I rather would have a discussion, really, as to how much real funding we need to be giving the schools. I am sure it is not $45 million. But we are spending a hell of a lot more money on other issues and other programs and developments that do not lead to the quality-of-life improvement in the city and that do not really begin to entice other people to come in and move into the city. I don't think stadiums are going to do that; I think schools would. But be that as it may, Ms. Kahn, I would like you, we never got a full flow chart of the 120 BILL NOS. 000708 and 000709 School Board. And I would really like to begin looking at that. And I would like to look at three areas of the school structure. One is the Family Resource Network offices. I would like to find out how that is structured, how it is staffed, what contracts does it have, who is employed, what are the directions, what are the responsibility, and who do you respond to in that. Why don't you find out about the Equity Office. There is an equity officer at every cluster; right? Is that correct?
That office, the equity, and the contracts and grants that come under that, under that office. I want to see what the lines of reporting go to, who reports to whom, who staffs it. I would like to see a breakdown of the people and names of that. I would like to see the aspect of Teaching Learning Network; how that is structured, who reports to whom, who goes where, what are the contracts that go down. 121 BILL NOS. 000708 and 000709
Councilman Ortiz, is that the Office of Leadership and Learning?
The Office of Assessment, I think that's under the equity. I would like to see how that office is structured. I would like to see the structure of the Education for Employment Office; in terms of grants, monies, contracts, house staff, procedures, and protocols. And if you can give that information to the President, I would really appreciate it.
I think we will be able to see a lot more about where money goes, and how it is spent, and so on. And I would like an explanation of how do these offices relate to individual schools and to actual learning.
Councilman, we will be happy to that. And these are exactly the kind of reviews that we are undergoing in order to do our budget.
I would like for us 122 BILL NOS. 000708 and 000709 to be able to see where money is going and see how the money is flowing to the individual schools as much as possible. Because I would really like to begin a discussion as to really how much money this school system needs from the city. I don't think it is $45 million; I think it is probably much more than that. So if you can get that before we vote on this, this issue.
You are welcome. The Chair recognizes Councilman Kenney.
Thank you, Madam President. Could someone there tell me this cost associated with opening the schools after school time and at night? Is the most expensive element of that opening personnel or overhead as it relates to utilities?
The cost is broken down for last year, for 2000. I don't have this 123 BILL NOS. 000708 and 000709 breakdown yet for 2001. $3.4 million is personnel. That's on an hourly basis. It is for the hours that a building engineer is required at a rate of $30 an hour, since it is overtime. And there is an hour allocated between opening and closing. Somebody has to get there before the activity and be there to clean up and lock up, be sure things are secure afterwards. The utilities for Fiscal Year 2000 were $2.4 million, just under $2.4 million. And there is an assumption behind that. There was an analysis that was done by our energy manager. Looked at each type of school, and then looked at utility costs on a square-foot basis, assuming that percent of the school would 18 be open to support a given activity. 19
In the discussions 20 on the much touted and recently approved historic 21 reform contract, were there any discussions with the 22 unions involved relative to staffing of these 23 facilities as it relates to the potential for the 24 use of volunteers, people who were involved in 25 running the program? 124 BILL NOS. 000708 and 000709 Perhaps, for example, if a building engineer is required, could not the individual responsible for the athletic group be responsible for cleaning and/or opening up the building? And I tell you why I ask this. I have been at a number of schools as a result of my son's participation in athletics in the evening and on Saturdays. If you could find the door that's open, you are lucky. I don't really see a lot of personnel around. Now, granted, the building engineer may be in the engineering room in the basement. But I don't really see much else going on. The people who are in the building, involved with the recreation department or the private athletic association, are usually directing people, cleaning up, and the like. Have we looked at contract reforms in the last contract that would allow more volunteerism, and someone being more of a turnkey as relates -- especially if the person is running the organization that lives in the neighborhood where the school is located?
These employees, Councilman, 125 BILL NOS. 000708 and 000709 would not be members of the PFT bargaining units, so that wasn't a topic in the discussion of this last negotiation.
It was a four year -- I believe, I think it was a four-year contract.
I would have to -- I mean, I just don't know personally. I mean, I think a building engineer, I would think that if the building is going to be opened, because of the requirements with boilers and heaters and all of that, there is probably some need to have someone who is trained on site as long as the building is open. As far as the other duties that you talk about, the cleanup and other things, I would need to defer to -- I know our chief operating officer, Mr. McGlinchey, was here, but I believe he needed to go back because of the Board meeting. 126 BILL NOS. 000708 and 000709 But we would be happy to fill you in on what any of those discussions have been.
Is there a requirement that a building engineer be on site when the heater is not on?
I understand in big buildings like this, the heat goes on at a certain time of year and goes off at a certain time of year. And the gymnasiums are sometimes cold anyway. I am just wondering has this become an accepted overtime perc for some of these individuals, or is this something that could be worked through for a cheaper cost? $30 an hour to sit on a chair with a set of keys seems to be a bit much.
Hi, Councilman Kenney, Pedro Ramos. We are getting, trying to get, specific answers for you. But in the last contract with Local 1201, one of the things that was changed in that contract was, it used to be for activities like this you necessarily had overtime. 127 BILL NOS. 000708 and 000709 One of the things we did was add shifts. So now I believe there are three shifts that greatly reduce the number of overtime, the need for overtime. Among other things in that contract was the reduction of the number of trades, I believe from to 8. It doesn't affect this issue, but it 9 was all, just to give you an idea of the nature of 10 that contract, also provides for the opportunity for 11 privatization. 12 With respect to your specific question, 13 and only from anecdotal experience of visiting 14 schools and visiting some of these after-school 15 programs, as you have, some of it is, at least in 16 the winter, like you said, about heating, most of 17 them, however, have, especially in a sizable school, 18 has a pretty complicated HVAC system that's 19 operating even in different temperatures. 20 And I think the issue that I have heard 21 about, as I have inquired about groups wanting to 22 use facilities, it is opening and shutting down the building, the hallways are cleaned and the doors are locked.
What happens when 128 BILL NOS. 000708 and 000709 the school is not in use? Is there someone there hours a day?
When the school is 6 not in use, closed, no school, no activities, is 7 there an engineer there 24 hours a day? 8
Isn't there the same 10 maintenance requirements of a large building that 11 heaters and boilers are operating? I mean, we don't 12 shut the heat off. 13
When people aren't in the 14 building, you are less concerned about air, how the 15 air is circulating. 16 They get there early. I don't know what 17 the standard hour is, but they get there early in 18 the day to get the HVAC going, to run the water if 19 it is in the lead program, to make sure that the 20 building is clean and ready to start the day. 21
As a response to my 22 initial questions about the numbers of people and 23 the classes of job and the hourly rates, I would 24 like to know what their duties are, too.
Of whoever is required to be in the building being paid for that period of time.
While people from the community are using the building after school hours.
Does the recreation department have overtime standards as it relates to the operation of their facilities for athletic and/or cultural events on a Saturday? How does the overtime in the recreation department work?
For our program people, when they work on Saturday, it is a regular day, and in many cases they adjust their schedule.
How about when the individual is involved in the recreation program that's being operated in a public school; same thing?
The staff that is deployed to the public schools is staff that we have in our rec centers that we then deploy to the schools, 130 BILL NOS. 000708 and 000709 usually from October until the first week of April. And it is no overtime.
Would that not seem an opportunity -- I think a recreation department Leader 1, Leader 2, whatever the title might be, could be as effective or maybe even more effective in having a set of keys to open up a building and lock it up at the end of the day. I wouldn't expect the rec Leader 2 to be operating the boilers and the HVAC system. But certainly from a supervisory and/or security standpoint, since these people apparently do their duties for a lot less overtime than 1201, perhaps there is some way we could eliminate the duplication of employee status? I mean, I trust the rec leader to have the responsibility and the maturity to lock a door at the end of the day, or to make sure that the gym is cleaned, and they are not making $30 an hour overtime.
As I said, Councilman, just to interject, my understanding from the last 1201 contract is that a shift has been added. So that at this point I would expect overtime to be the 131 BILL NOS. 000708 and 000709 exception rather than the rule. And, as you know, some of the schools that we are talking about are also pretty big schools. And I like the concept of just kind of having the keys and locking up. I am not sure that in some of our bigger schools that it is that simple. And I don't know how much of that discussion has been held. And I do suspect, as you do, that there is probably a jurisdictional issue on who ends up locking the building at the end of the day.
Well, if I have a choice between someone making $30 an hour and someone working on their normal shift, I think I could find a way to perhaps investigate whether or not that rec leader could in fact do the work.
When will the results of the study analyzing how much can be saved if the cluster system is eliminated be available? Is there an ongoing study relative to the costs of operating the cluster system as it exists today? 132 BILL NOS. 000708 and 000709 And in the event that there is such an analysis, when would the numbers be available on the potential of eliminating the cluster system or downsizing it in an effort to save costs?
At this point, our chief executive officer is looking at the whole organizational structure of the district, including the effectiveness and viability of the current cluster structure. And he has not put anything to the Board yet, but I do suspect that we will have some proposals that will reflect a change in the organizational structure of the district. And part of that is, you know -- and there may be cost savings, as you are pointing out. But I think an important part for us also is making sure that we are as effective as we can, and that services, our business instruction, and we are trying to provide the support the schools need, the teachers need, that those services are getting there. And to the extent that some of those services maybe at the cluster, then that is not proven to be the most effective way of getting the 133 BILL NOS. 000708 and 000709 supports to classes. Moving that, to the extent that we figure -- that we determine that having units 5 doesn't have the, you know, the marginal value that 6 we would want it to have, then there may be a look 7 at the number of units that we divide the district 8 into. 9
Has Mr. Goldsmith 10 indicated a ballpark timetable as to when that may 11 be available? 12
He has talked to the Board 13 about doing that now, as we go through our budget 14 process. 15 But we don't yet have a proposal in 16 writing that has numbers on it that has a proposed 17 structure to it. 18
Before we conclude, 21 can you just tell us how many schools have gyms 22 where we would be having summer programs or after-school programs? And I think somebody mentioned swimming pools? How many schools do we have with swimming 134 BILL NOS. 000708 and 000709 pools?
Council President, we use six indoor swimming pools. The Department of Recreation uses six sites. Gymnasiums, I don't have an exact number, but I think we are approaching 135.
Okay. Are there any further questions? The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. We just, in fact, I think I mentioned this to many people, for Turner School we are always fighting for summer programs. We just certainly ask for your support there. Thank you, Madam President.
Thank you. This committee will stand in recess until the call of the Chair. Thank you all very much. (Hearing adjourned at 1:20 p.m.) - - - 135 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Monday, March 26, 2001, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COMMITTEE OF THE WHOLE _____________________________________ DEBRA A. WHITEHEAD, RPR