COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, March 10, 2010 11:00 a.m. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILMAN CURTIS JONES, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN MARIA QUINONES-SANCHEZ COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO RESOLUTION 100141 - Resolution providing for the approval by the Council of the City of Philadelphia of a Revised Five Year Financial Plan for the City of Philadelphia covering Fiscal Years 2011 through 2015... - - - 2
Good morning, everyone. Sorry for the delay. This is a public hearing of the Committee of the Whole. I would ask Mr. McPherson to please read the title of Resolution No. 8 100141. MR. McPHERSON: Resolution 10 100141, providing for the approval by the Council of the City of Philadelphia of a Revised Five Year Financial Plan for the City of Philadelphia covering Fiscal Years 2011 through 2015, and incorporating proposed changes with respect to Fiscal Year 2010, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority pursuant to the Intergovernmental Cooperation Agreement.
Thank you. Mr. Dubow, are you going to be testifying? Oh, Mr. Armbrister. And I guess Steve wants to join the party. 3 3/10/10 - WHOLE - RES. 100141 (Witnesses approached witness table.)
My name is Clarence Armbrister, Chief of Staff to Mayor Michael Nutter.
Good morning, Councilwoman Tasco -- I notice that Councilwoman Verna has left -- and other Councilmembers. I'm Clarence Armbrister, Chief of Staff in the Office of Mayor Michael Nutter. On behalf of the Mayor, I am pleased to provide testimony on the FY11 Proposed Operating Budget and the Proposed FY11 through FY15 Five Year Financial Plan. As is clear to most Americans by now, the nation remains in the grips of a severe economic recession, marked by housing foreclosures, credit tightening and severe job losses. Here in 4 3/10/10 - WHOLE - RES. 9 percent, higher than both the national average and the level in our surrounding suburbs, and unfortunately many residents have simply given up looking for work. But I am not here today to talk about how and why the global economy got to its current state. That could take hours and wouldn't change anything. What I would like to do today is explain how the Great Recession has impacted the City of Philadelphia's budget, what the Nutter Administration has already done to address the significant deficits we have faced since September 2008 and what we propose to do now to correct the current projected gaps. My testimony will also describe why we have chosen these specific remedies described in the Five Year Plan and in the Mayor's address to you last Thursday. The Great Recession has impacted our local budget in two major 5 3/10/10 - WHOLE - RES. 100141 ways. It has caused tax and other revenues to decrease and it has caused the pension fund's unfunded liability to exceed 50 percent. 1 percent in nominal terms, with even greater downturns experienced in the local construction and manufacturing industries. This had a ripple effect on the local taxes we collect. Wage tax collections, which make up approximately 32 percent of total revenues generated by the City, increased by less than two-tenths of a percent last year, well below the rate of inflation. 8 percent even with scheduled tax rate reductions. Revenues from the business privilege tax are expected to decrease by nearly $10 million this year versus last year, with an additional 6 3/10/10 - WHOLE - RES. 100141 decrease expected in the coming fiscal year. Since Fiscal Year '07, the total decrease in BPT revenue receipts has been nearly $60 million, or percent. The 6 realty transfer tax has also suffered, 7 decreasing $116 million below its 8 historic high of $236 million in Fiscal 9 Year '06, and sales tax revenues did not 10 perform as projected last summer when 11 Council approved our request to the State 12 Legislature to increase the local tax 13 rate by one percent. Part of this is due 14 to the fact that the General Assembly did not approve the rate increase until more than three months into our current fiscal year and part is a result of the continued weakness in the economy. Given the decreases in revenues, this Administration has done what many local families have done, it has tightened its budget. Since Fiscal Year '08, excluding pension and debt service costs, the Administration has decreased its discretionary costs by 7 3/10/10 - WHOLE - RES. 100141 roughly $160 million per year, or nine percent of the total discretionary budget outlays. Let me say, it's not easy to shrink government and I give a lot of credit to my colleagues in the Administration, including our Deputy Mayors and Commissioners, who stepped up and managed their departments with less money, finding efficiencies and rethinking processes so that service delivery would not be adversely affected in a significant way. In fact, a recent poll of Philadelphians commissioned by The Pew Charitable Trusts found that an overwhelming majority of residents had not even noticed a decrease in service levels, and more than a few even thought City services had improved. A significant portion of our reductions over the past two years has come from personnel costs. Since December 2008, the City's General Fund workforce has shrunk by about 800 8 3/10/10 - WHOLE - RES.
100141 full-time employees. When part-time and temporary positions are included, there are 1,250 fewer employees now than there were at the end of 2008. And, since I know you'll ask, the Mayor's Office has been part of these cuts. We have decreased our personnel budget by nearly $2 million, or 38 percent, since FY09 and we propose to decrease it even further in the coming fiscal year. At the same time that the City has been shedding workers, it has also been slashing overtime. For the first half of this fiscal year, overtime costs were down by a third from where it was last year. Specifically, spending will be down in nearly every City department next year versus last year. The Free Library budget will be down 18 percent; Parks and Recreation down by 11 percent; Sanitation, 14 percent; City Planning, 23 percent; the Finance Department, 38 percent; Managing Director's Office, 18 9 3/10/10 - WHOLE - RES. 100141 percent; Procurement Department, 11 percent; Records down 50 percent; and Public Health down by approximately seven percent. In addition, Police overtime was cut by 33 percent in the first half of this fiscal year versus the same time last year. Overtime in the Fire Department decreased by 27 percent during this same time period. And let me say again, services have not decreased. In fact, one might argue we are doing even better than ever. Violent crime rates are down by double digits. The number of deaths caused by fires is the lowest number in history. Wait times in the concourse for L&I service is now counted in minutes and not hours. And last year our health clinics served 15,000 more people. We are delivering better services for less money. So if the Administration has been doing its part to make significant 10 3/10/10 - WHOLE - RES. 100141 cuts in amounts in excess of the revenue decreases we've experienced, what's the problem? Why did we face a gap that exceeded $120 million as we put the FY11 budget together? I have already touched upon one major reason, the fall-off in our revenues. There have, however, been causes on the expenditure side. There have been two large and recurring reasons - pension obligations and debt service. A third reason, historic snowfall, we hope will never reoccur in the amounts we've endured this winter. Therefore, I'll address only those first two in my statement today since a lot has already been said about the Herculean effort our staff did regarding snow removal this winter. When the stock market crashed in the fall of 2008, the City's pension fund took a severe hit, as did nearly every other institutional endowment and individual retirement account in the 11 3/10/10 - WHOLE - RES. 100141 country. While the pension fund has begun to earn back some of those losses and we expect it to earn back more, we are obligated by law to make additional payments into the fund now in order to support the pensions of current and future City workers. Although we were able to defer some of those payments over the next two years, thanks to Act 44, which was passed by the State Legislature in October, we find ourselves still having to pay $130 million more into the pension fund in FY11 than we did in FY10. Even with a partial deferral of our payment, next year's pension costs will be higher than they have been in any previous year. They will, however and unfortunately, also be substantially lower than in any of the years covered in the FY11 through FY15 Five Year Plan. In addition, required debt service payments will increase by $13 and a half million in the coming year. Simply put, $150 million of the 12 3/10/10 - WHOLE - RES. 100141 deficit we face in FY11 was for two costs over which the Administration has limited control. And I'm sorry to say it's not going to get any better in the out years. Pension obligations are projected to increase to $562 million in FY12 and will be even higher in the following years. To say that these payments are strangling the City budget would be an understatement.
We were, therefore, encouraged by the Police Union's new contract that gave new employees the choice between increasing their pension contribution rate to six percent of their salaries or entering into a hybrid defined-benefit/defined-contribution plan. These are steps in the right direction and will ultimately save the City a significant amount of money. The Administration is now hoping the other three unions will agree to similar money-saving retirement benefit preservation measures. 13 3/10/10 - WHOLE - RES. 100141 As an aside, the other employee benefit costs such as health insurance also contribute to the deficit. Our anticipated obligation will be $485 million in Fiscal Year '11, increasing to $508 million by Fiscal Year '15. The good news is that the Administration has taken action to reduce these costs by moving its non-union employees to a self-insurance plan. A similar arrangement for the Police Union will be implemented this coming fiscal year. As with pensions, we hope the remaining three unions will follow suit. But as I indicated above, those savings will come in the future. And we are here now facing a budget gap of over $120 million. Before I turn to what we propose to do, let me first describe what we decided we wouldn't do. First, we were committed to holding our wage, business privilege, sales, realty transfer and property taxes at their current rates. 14 3/10/10 - WHOLE - RES. 100141 Second, although departments presented scenarios for decreasing their budgets by seven and a half percent and laying off even more workers, the effects would have been severe. In the Police Department, for example, a seven and a half percent reduction would lead to almost 900 positions being lost, 850 of which would be uniformed officer jobs. In the Department of Parks and Recreation, a seven and a half percent cut would close outdoor pools and eliminate more than 500 seasonal worker positions. In the Fire Department, a seven and a half percent cut would deactivate four engine companies, two ladder companies and five advanced life support medical units. In the Free Library, all Sunday service and Book Mobile service would end. Given the significant amount of money that we have already cut out of the 15 3/10/10 - WHOLE - RES. 100141 budget, we were not willing to cut more deeply and start slashing services to the residents of this city. We have already cut the meat and now we'd be chopping into the bone. Ultimately, we have proposed over $30 million in budget cuts in this budget. Those cuts will be incurred in a number of departments, including the Prisons, which worked with the Criminal Justice Advisory Board headed by Deputy Mayor Everett Gillison and President Judge Pamela Dembe this past year to reduce the speed in which the system processes criminals and lower the head count at local jails. These savings of nearly $15 million will continue into Fiscal Year '11. The remaining budget gap will be plugged with two proposed fees. The Healthy Philly tax will place a two cent fee on every ounce of soda or other sugary drink sold in the City of Philadelphia. Businesses will 16 3/10/10 - WHOLE - RES. 100141 remit the fee through their business privilege tax payment based on their annual sugary drinks sales volume. I realize that there are many people in Philadelphia unhappy about this proposed tax, saying that it will hurt our most vulnerable citizens. But obesity and the diseases it causes, like diabetes, heart attacks and strokes, disproportionately affect our most vulnerable citizens, the poor of Philadelphia. Sixty-four percent of people in Philadelphia and a shocking 56 percent of our children are currently obese. This percentage rises to nearly 70 percent of the children living in the City's predominantly African American and Hispanic upper North Philadelphia neighborhoods. We hope that this new tax will induce people to switch to diet soft drinks, juice and water, alternatives that are all bottled right here in Philadelphia.
And if someone who drinks a bottle of soda a day gives up just two 17 3/10/10 - WHOLE - RES. 100141 sodas per week, they could lose nearly seven pounds over the course of the year. The second revenue source that would enable us to save our essential services is the Keep Philly Clean fee, which would assess every property with City-provided trash collection approximately $6 per week. Low-income homeowners would pay only $4 per week. The Administration estimates that these fees will raise approximately $107 million per year, a significant portion of the City's total $140 million sanitation budget, and will enable the City to preserve once-a-week trash and recycling collection. It will also allow the Streets Department to restore services such as leaf collection and street cleaning, as well as maintain and expand the CLIP program, which cleans the City's many vacant lots. And let me be frank, without this fee to support our General Fund, not only would trash services need to be cut, possibly scaling 18 3/10/10 - WHOLE - RES. 100141 back to twice-a-month pick-up, for example, we would have to look to slash services managed by other departments. I am proud of the accomplishments made by my fellow City employees over the past year. They worked hard through a difficult time given the uncertainty of last year's budget. To give but a few examples, the Mayor's Homeless Initiative increased the number of permanent affordable housing and helped drive a percent decrease in 14 the number of people living on the 15 street. Greenworks Philadelphia, our 16 plan to make Philadelphia the greenest 17 city in the country, was launched to 18 great success. Single-stream recycling 19 has increased our recycling rates to more 20 than 18 percent, saving us millions of 21 dollars per year. The Commerce 22 Department has launched the Business 23 Services Center, a one-stop shop for all 24 business-related information and 25 assistance. PhillyGoes2College is 19 3/10/10 - WHOLE - RES. 100141 helping to connect more local students to college education and convince older adults to return for their degrees. While the list could go on and on, I'll end by highlighting the work done by the Office of Economic Opportunity, which released its strategy to build up the capacity of local minority, women and disadvantaged-owned businesses in Philadelphia and connect more such firms to City contract opportunities. OEO staff met with each City department over the past few months to determine the goals they would set for themselves going forward. The results of those conversations and collaboration will be included in the departmental testimony you will hear over the next few weeks. We based our decisions this year on the questions we will continue to ask going forward - can we perform this service with fewer resources, and, if so, how? What investments should we make now 20 3/10/10 - WHOLE - RES. 100141 to produce savings in the future? With regard to that second question, this year's Capital Budget proposes significant investments that will yield essential operational improvements in a few years to come. We will make a $25 million investment in our IT infrastructure so that processes like HR time sheets will no longer need to be done by hand and data collected by one department can be seamlessly shared with another and help the government run more effectively and efficiently. We propose spending $17 and a half million to pave our streets, two times the amount in past years. And we will free up operating funds by moving tree planting activities to the Capital Budget. This reallocation will enable us to more than double the amount of the tree planting budget next year. Finally, we will make $14 million in much-needed improvements to our rec centers, investing City capital dollars that will be leveraged by the money that 21 3/10/10 - WHOLE - RES. 100141 City Council members have graciously agreed to contribute to that effort. And for that, we say thank you, City Council.
Let me close with this: The Administration's proposed budget seeks to preserve strides that Philadelphia continues to make and to maintain the positive momentum we see occurring all over the City. Make no mistake, these are trying times for many of us. The City budget reflects the damage the Great Recession has caused to our revenues and our pension costs. We have already eliminated $160 million a year in spending. For us, cutting an additional $30 million and introducing two new fees were the best alternatives to plug this year's gap. We are also open to suggestions. If a member of City Council or the public has a better idea to bring our Budget and Five Year Plan into balance, we are more than prepared to listen. Thank you for this opportunity 22 3/10/10 - WHOLE - RES. 100141 to speak with you. I'm happy to answer any questions you might have.
Thank you very much. I note that a number of Councilmembers would like to be recognized. So, again, we'll have the first go-around. Each Councilperson will be given five minutes, then we'll have as many go-arounds as required. Can you tell us what are the alternatives that the Administration will be proposing if the trash fee and sugar tax are not approved?
Council President Verna, as you are I'm sure aware, we're all hopeful that we don't come to that, but as I mentioned in my testimony, some of the things that we would have to consider are some of the cuts that were proposed by the departments when we asked them last fall to consider what would happen in the event of a two and a half, five and a 23 3/10/10 - WHOLE - RES. 100141 seven and a half percent cut. We would have to consider -- I'm not sure we would want to propose these, but we'd have to consider the things that I mentioned, including layoff of uniformed personnel, the closing of fire stations, limitation on hours for library and facilities. As you know and as the Council knows, much of our costs is rooted in personnel, and we would have to probably significantly reduce the workforce in order to meet that big budget hole.
Thank you. The revenue estimates show a line, quote, "state-proposed expanded base for the sales tax." The revenue estimated to be collected is $20 million a year starting in Fiscal 2012 and every year thereafter. How was this amount calculated? The City sales tax rate is reduced from two percent to one percent by state law in 2015. Shouldn't that amount be reduced to $10 million for that 24 3/10/10 - WHOLE - RES. 100141 year?
To answer the last part first because it's simpler, yes, it should be. In 2015, that should be 6 million, not 20 million. 7 The second point, to figure out 8 what the impact would be for 9 Philadelphia, we looked at the 10 calculations that the state did for the impact on their revenue and assumed it would have the same percentage increase at the local level.
On of the Plan, you mention that you will save $4 million in 2011 and another $5 million over the following four years by leasing certain vehicles. Can you explain how this program will work? Will the City be issuing bonds or leasing from a third party? I would like to know how these savings were calculated.
Madam President, Steve Agostini, Budget Director. The $4 million estimate for 25 3/10/10 - WHOLE - RES. 100141 Fleet was arrived at with discussions with Fleet, along with some consultants that Fleet has used over the years. It's our view that if we are to lease-purchase a number of vehicles; most notably, fire apparatuses like trucks and ladders, as well as compactors, as an example, in Sanitation that is more closely tied to the useful lives, that we would be able to save cash and smooth out the expenditures for these vehicles over time. We have not made a decision as to whether we are going to use an external party to provide the financing. That may be the most advantageous thing for us to do. We may also try to do this with other lease arrangements like we have entered into with Motorola with respect to our 800 megahertz replacement. Those are still things that we're discussing, and we would love to have discussions with Council about that.
Thank 3/10/10 - WHOLE - RES. 100141 you. Can you tell us what are the Plan assumptions with regard to the Board of Revision of Taxes' budget?
The Plan leaves the budget for the Board of Revision of Taxes the way it is now. If the voters approve the legislation, obviously there would be two bodies instead of one and then we'd want to be able to come back and move that money around to create the two new departments.
The Plan assumes that their budget will be reduced by $1.1 million in Fiscal 2011. What are these reductions and how will they be achieved?
The reduction is part of the IT consolidation. You'll actually see in a number of departments that there are reductions in their expenditures, and then if you look at the line for the Division of Technology, you'll see a substantial increase. So 27 3/10/10 - WHOLE - RES. 100141 that's just taking their IT money and moving it over to DOT.
Based on the revenue estimates and the number of employees reflected in the Five Year Plan, you have not included the School District employees; am I correct?
Why haven't we done that? Why haven't we included?
I think it's part of what we would want to straighten out once the vote took place.
It seems that we're giving consideration to things after we pass the budget.
Well, the problem with the BRT issue in particular is that it depends on a vote that will happen after we consider it. I mean, I guess we could give you kind of a pro forma of what we think those two offices would 28 3/10/10 - WHOLE - RES. 100141 look like and supply that to you during this process before the BRT comes so that you can see what that would look like.
Thank you. Appendix 4, of the Plan shows that Finance will be getting $4 million in 2011 and every year thereafter as a reserve for unanticipated expenditures. What are these funds for and why are they needed? I'm assuming that we're not putting in anything for snow removal and perhaps this money would then be used for snow removal?
That's exactly right, Madam President. It's for miscellaneous expenditures. Snow may be one of those. As you know, in prior years we didn't spend very much for snow removal, in the hundreds of thousands as opposed to the millions that we have spent in this past winter. So we thought it was prudent to have a reserve, but not only for snow, in the event that there 29 3/10/10 - WHOLE - RES. 100141 are other miscellaneous expenditures that come forward.
For an example, in this year we had two and a half million budgeted for our unemployment compensation. That number spiked to seven million. If we had such a reserve, it would at least allow us -- we could have some assistance because we had a reserve to go to. I'm not saying it would cover all of those unexpected expenditures, but at least it would give us something.
Thank you. I have several other questions, but I'll give the other Councilmembers an opportunity to ask their questions. The Chair recognizes Councilman Goode.
Thank you, Madam President. Good morning. 30 3/10/10 - WHOLE - RES. 100141 (Good morning.)
Many of our financial problems have been attributed to the Great Recession, as noted in your testimony, and we are hopeful that we will recover from that recession by the Fiscal Year '15, the end of the Plan, and we know that there is no such thing as recovery. It's actually a jobless recovery. So my first question is, by the year Fiscal Year '15, will there be a net job gain in terms of more private-sector jobs created than lost?
Councilmember Goode, yes, there is a projection. If you were to look at the economic projections that are in the beginning of the book, we do anticipate some job growth, but as you pointed out, to date it's been a relatively jobless recovery. 31 3/10/10 - WHOLE - RES. 100141 We're hoping that we start to see job growth towards the tail end of '10; if not, in '11, but if that gets delayed --
There are several different projections in terms of economic growth. My specific question is about net job creation and whether there will be more jobs created in the private sector than jobs lost by the year Fiscal Year '15.
And how many more jobs will be created than lost by the year Fiscal Year '15?
In the estimate that I have -- and, again, this is very preliminary -- we are assuming someplace between two and a half and three percent more jobs will be added to the economy in '14 and '15.
And how will that be achieved and is that part of your 32 3/10/10 - WHOLE - RES. 100141 five-year strategy or is that just as a result of changes in the national economy?
According to the Plan, the City's annual share of real estate tax revenue will be increased by less than a million dollars from Fiscal Year '10 to Fiscal Year '15. It goes from $407 million -- $413.4 million to $414.1 million. Why is that?
In the Plan, we assumed that the moratorium on assessments would, in essence, create a flat growth plane for property taxes. What we did show and as you've noted, in FY14 and FY15, those are years we actually show growth. I believe the growth is approximately three percent in those years.
But the growth overall between now and then is really only $700,000 more in real estate 33 3/10/10 - WHOLE - RES. 100141 tax revenue in terms of our local share?
The other thing to add on the moratorium is that based on where the market is even without the moratorium, we probably would not have been projecting growth.
Well, I guess the question is, we're talking over a five-year period. I don't know how long the moratorium is supposed to last, but does this figure take into consideration full valuation? Will full valuation happen within the Five Year Plan?
It assumes that we will have full valuation and that once full valuation is in place, you'd see normal growth tied to what was going on in the market.
And so with full valuation, we're still projecting only to have $414 million in our share of the real estate tax revenue?
If and when full valuation takes effect, is it the Administration's plan to promote the Keep Philadelphia Clean fee?
Because just having full value in place won't necessarily result in an increase in revenue. That will depend on what happens in the marketplace, and I don't think you'll see a substantial enough growth in the real estate market to see $107.7 million in new revenues.
Well, if we're going to embark upon full valuation, why not then roll that fee into full valuation and make it tax deductible?
I said if we're going to embark upon full valuation, why not roll that fee into 35 3/10/10 - WHOLE - RES. 100141 full valuation and then make it tax deductible?
You're asking why not do -- I mean, you're asking why not do the increase as an increase in the real estate tax as opposed to doing it as a separate fee? Is that the question?
That's not the question I asked, but that will be an appropriate question also. My question is, if we're going to embark upon full valuation within the Five Year Plan, the point at which we embark upon full valuation, why not then roll that fee into full valuation and make it tax deductible?
You could. I really think it's a separate question from full valuation, because full valuation is about getting the assessments right. So if the issue is should it be done in a way that's tax deductible, you could do that independent of moving to full valuation. 36 3/10/10 - WHOLE - RES. 100141
I agree, and I believe that if we did it that way now as opposed to a fee, not only would it be tax deductible, but it would be far less regressive. Okay. There's a $25 million increase in wages in Fiscal Year '12 that stays flat for Fiscal Year '15. What is that?
Are you asking about the '12 to '13 estimate that shows in '12 1.16 billion and then 1.2 billion in '14 -- I mean, in '13?
In Fiscal Year '11, it's 1.376 billion, Fiscal Year '12, it's 1.4 billion and continues at 1.4 billion through Fiscal Year '15.
Wages, okay. So the increases that are shown in there are for -- 37 3/10/10 - WHOLE - RES. 100141
The question is, what is the $25 million increase that stays flat from '12 to '15?
Yes. What the wages show are an increase to reflect the FOP arbitration award that had wage increases.
So it had increases in '11 and '12. So those are both shown in the budget. It doesn't reflect any other wage increase.
You're welcome. 38 3/10/10 - WHOLE - RES. 100141 The Chair recognizes Councilman Jones.
Thank you, Madam President. This year I added my own timer just to get accuracy. I guess in reading your testimony and hearing it, two things -- three things I'm encouraged about. One, that you looked at efficiencies; that you considered, number two, cuts second; and that you are considering revenue enhancements as a last option, having exhausted some of the others. So that is good. But I guess when I read some of the letters I've gotten and the comments I've gotten and the walk-ups in the grocery store, it begs the question, last year at this time we were talking about a one percent sales tax that would save us from ever having to be in this kind of desperate straits again and here we are talking about taxes again. So the simple ask is, why are we here? 39 3/10/10 - WHOLE - RES. 100141
Good question, and the reason is -- I attempted to lay it out at the beginning of my testimony -- is that when we talked about a one percent increase in the sales tax, you assume a certain state with respect to the rest of your revenues and economy. Unfortunately, it was not a steady state. What we discovered was that the wage taxes, which were a big culprit, continued to go down significantly, which had not been anticipated at the time, and our --
But in your scenarios, best case/worst case, did we not --
We assumed a certain level of wage tax revenues that didn't materialize. Similarly, with the sales tax, in large part because of its implementation, because it was three months later than we had anticipated being implemented and passed by the General Assembly, but also as a result of 40 3/10/10 - WHOLE - RES. 100141 the economy, we have not, even in our estimates taking into account the delayed start, hit our projection with respect to the sales tax revenue, which is further evidence of the weakened economy. So I think those are the primary reasons.
I just needed that on the record, because a lot of people come up and just ask the simple question. They aren't as complex as we understand and all the intricate details, but they just want to know.
It's always -- the simple answer is, we expected the economy to be weak, and it was weaker.
Okay. Second thing, as we look at options and all things are being considered, I've heard counter-proposals being floated around, have we done a matrix on two things: One, a matrix of surrounding counties on who charges fees on trash collection and what they are, because a lot of people, the first counter-argument 41 3/10/10 - WHOLE - RES. 100141 is, I'm going to move to a surrounding county where they don't have it. And is that in fact true and have we done that comparison? And then on the soda tax, what other municipalities, states have implemented this and what has it done for obesity and what has it done for revenues? And you make a certain assumption that people based on increased costs are going to change their behavior for the healthy, and if that is true, what does that do to our projections on how much money we're going to get?
We're going to let -- we have the surrounding counties information, and I'll ask Dr. Schwarz to come to the table to talk about the sugary drink tax. In terms of surrounding counties and municipalities that charge for trash or fee collections, Bucks County have rates ranging from $250 to $350 per year, plus extra fees for bulk 42 3/10/10 - WHOLE - RES. 100141 collection at $50 to $75 per collection. Cheltenham Township has a $233 tax-based payment. Upper Darby, $130 per year billed annually, plus a $10 fee for bulk collection. Marple Township, $160 per year billed annually. Lower Merion Township, annual fees based on volume from $192 a year to $322 a year. Abington Township, annual fees based on volume, $200 to $250 a year. Lower Moreland Township, $295 tax-based payment. And Chester County, 90 percent direct billed to all of their customers. Rates range from $250 to $350 a year.
Do you also have where they make exceptions, exemptions for particular classes?
It's not included in this information, but we certainly can try to get that information for you, Councilman. And I'll let Dr. Schwarz answer your second question.
Good morning. Don Schwarz, Deputy Mayor for Health and 43 3/10/10 - WHOLE - RES. 100141 Opportunity. I believe there were two questions, just so that I'm clear and answer them. One was where else in the country do people have a tax on sugary-sweetened beverages and where is it being considered. And the second was do we know the connection between an increase in the cost for sugary beverages and obesity. For the first one, let me say that there is one other city in the country that has had a longstanding excise tax actually on sugar-sweetened beverages, and that's Chicago. And there are seven states currently that have taxation in place around sugar-sweetened beverages. A number of other states in particular and municipalities are considering sugar-sweetened beverage taxes at the moment. The interest in these taxes is twofold: One, as in Philadelphia, to raise revenue; and, two, to do something 44 3/10/10 - WHOLE - RES. 100141 about the epidemic of obesity, as was mentioned. We know that about 56 percent of children in the City are either overweight or obese, and in parts of North Philadelphia, for children the rate is almost 70 percent. In terms of the impact on obesity, as you may have seen in the Inquirer yesterday, there was a study that came out from the Archives of Internal Medicine yesterday that looked at a 20-year set of data on the impact in differences in price of sugar-sweetened beverages, both on consumption and on obesity, and it is probably the most compelling data we've had to date to show the direct relation of price to obesity and the potential impact for us on obesity in Philadelphia should we increase the cost of sugar-sweetened beverages.
And I'll end on this. Some of the counter-arguments were -- and I won't name my source, 45 3/10/10 - WHOLE - RES. 100141 Councilman Clarke, until you tell me I can. But some of the counter-arguments were that if they go away from soda, that they go to juice, which has higher sugar content, or milk that has higher calorie content, and are we -- unless they choose water, the options actually spiral upward, and what would be your response to that criticism?
One, I hope people choose water. I'm a pediatrician and have worked with children now for a quarter of a century and always reminded parents that children should be drinking four to eight servings of water a day. So my advice to everyone is drink more water. Philadelphia tap water is good and clean and works very well. In terms of juice and milk, juice and milk per calorie have other nutrients. It's not just hollow calories. So the calcium content in milk in particular is very valuable, not just for children but for older 46 3/10/10 - WHOLE - RES. 100141 Philadelphians. There is an argument that the sugar in milk, lactose, isn't digested well by some members of our population because of genetic reasons. We now have milk alternatives either that are lactose-digested or lactose-free, and you also have soy milk, which is calcium fortified. So I believe we have to think not only about caloric content, but also the other benefits of drinking milk.
Thank you, Madam Chair. I'll wait for the next round for other questions. Thank you.
Thank you. Mr. Armbrister, by the time we have our public hearing on this last bill 19 that was being talked about, I would appreciate it if we could have a City Solicitor's opinion.
On the sugar-sweetened tax, that we're able to levy that as a gross receipts tax?
Thank you. The Chair recognizes Councilman Green.
During, I guess, your testimony, you mentioned that there's a -- you've taken a look at the various departments and discussed what a seven and a half percent cut in those departments would mean. I think the departments were required to submit to you a two and a half, five percent and seven and a half percent bunch of scenarios as to what they would recommend cutting at each of those levels. Did 48 3/10/10 - WHOLE - RES. 100141 they do that in writing?
Councilmember Green, for the most part, we were either given tables as we had asked them to be presented on particular forms or narratives. We have summarized that all in a table that runs about or pages 9 as well. If your question is would you 10 like to see that and see the summary 11 documents, we would be happy to provide 12 that to you.
I'd like to see the summary documents and the documents that back them up that were the original submissions by the department.
You can e-mail them to me. And I'd really like to get those prior to the departmental hearings so that we can discuss the different savings with the departments.
If that information could be provided to the 49 3/10/10 - WHOLE - RES. 100141 Chair.
At this point, we're all relying on the Administration's determination that even a two and a half percent cut in each department would be, quote/unquote, Draconian, and the decision was made not to take those cuts, and I'd like to be able to evaluate that myself.
Councilmember, if I might just to elaborate. What we received from departments totaled about $124 million, and that's what we have there. Just keep in mind that the level of gap that we had to close would have still required us to contemplate other measures even if we had accepted all of that.
No. I understand that, but it's fair to say 50 3/10/10 - WHOLE - RES. 100141 that based on your review of the responses from every department, the Administration determined that cuts that you have not proposed to this point would not be appropriate?
They would have been very difficult, but, again, let us give you the list and you can do the review as you desire.
Okay. I think what you've proposed is a 0.85 percent reduction in costs, and just it kind of doesn't square with other parts of your testimony where you refer to the Pew poll where you basically said people hadn't noticed a decrease in service and some people even thought that the service had gotten better, and that suggests to me that there may be more of a public appetite for some cuts as opposed to some of the taxes and fees that have been proposed. I talked to Mr. Agostini prior to Council, and I understand that you are 51 3/10/10 - WHOLE - RES. 100141 about to hire some consultants or potentially going to hire some consultants to look at revenue estimates which you haven't had an opportunity to do. Would that mean that you would be revising your revenue estimates during the budget process, or what's your plan with respect to that?
Councilmember, we hadn't planned to revise the estimates during the process. It was our intent always to have them in hand to assist us with sort of economic projections. For a variety of reasons, that hasn't occurred. We hope to have them on staff within the next three to -- two to three weeks.
But presumably, we won't put our head in the sand if they have significantly different revenue projections?
No, Councilmember, definitely not. This morning I received the new Blue Chip Economic Indicators, and I pored over 52 3/10/10 - WHOLE - RES. 100141 that on my way over here. So I'm constantly looking at the information.
Okay. Well, once we get those people on board, I look forward to talking about that more. With respect to Councilman Goode's question about property taxes, how much has the decision -- how much did the moratorium on taxes decision cost us on an annual basis through the Five Year Plan?
I'm going to let Steve give you the details, but I want to say first that that makes an assumption that there would have been growth in assessments even -- in the value assessments even if we didn't do the moratorium, and I don't know that that's a valid assumption given where the market is, but I think what we can tell you is what the change in our projection is from what the growth rates what we assumed last year was.
And I don't have the detail here and it's easy to provide to you. I will tell you that for '11, the loss of revenue was approximately 21, million in property taxes. I can show 7 you the details. I can give you the 8 details. Actually, I have the details 9 here. Sorry. It's 13.7 million in '11. 10 It was 37 million in '12, sorry, and then 11 for '13, it was about 50 million, and 12 then we've made some growth projections 13 in the subsequent years. But this was an 14 early draft. I have all the details. 15 I'd like to bring that over to you. 16
Okay. 17 Great. If you could submit them to the 18 Chair. 19 Thank you. 20
Thank you very much. In your discussion of the pension contribution, what is the annual 54 3/10/10 - WHOLE - RES. 100141 required contribution?
Our pension contribution, it's kind of -- it varies a lot through the course of the Five Year Plan because we have that deferral that was part of the budget balancing actions we took last year. So for 2011, the pension payment itself is $381 million. Plus the pension obligation bonds are about another 97 million. Then it goes in '12, the pension portion, to 459, with the pension obligations being 102 million. In both '13 and '14 when we repay the deferrals, it's between 570 and 580 on the pension obligation bonds and close to -- I mean on the contribution and close to 110 on the pension obligation bonds. Then after the deferrals go away, 2015 is the first year with no impact to the deferrals. The pension contribution is about 490 million. The pension obligation bonds are about 112 million. So together our pension costs that year will be $600 55 3/10/10 - WHOLE - RES. 100141 million. It's about and a half percent of our budget.
How much 5 of the cost -- well, this is before you 6 got here -- is attributed to low 7 contributions through the years? 8
There are a number 9 of things that contributed to the funding 10 percent, which is in the low 40's, and 11 that, in turn, relates to how much we 12 have to pay to make up for that unfunded 13 liability. There were years when there 14 was underfunding. That was kind of decades ago. There were investment losses. Most recently last year there were significant losses. There was also a change in 2003, 2004. We went from a funding policy that would have amortized our unfunded liability more quickly to paying the minimum amount allowed under state law. So we pay the amount we're required to pay, but it doesn't amortize the unfunded liability as quickly. All those things together add 56 3/10/10 - WHOLE - RES. 100141 to the amount that we have to pay and to the funding percent. I don't have a breakout of what each thing did.
You talked about the insurance costs. We are hearing during this debate, the health insurance debate from the federal government, that individuals' insurance costs are going up annually. How about the City? When we contract for health insurance, do we have a set amount that we pay, and what impact would -- I guess I'm asking, would our employees be subjected to increases or are they caught into the contract that the City has with the insurance company that we contract with?
They're covered by our plans, and I don't know what the latest version of healthcare, what passes, will do with "Cadillac" plans. I think there were some versions that may have caught people that are in our plans into "Cadillac" plans, which may have 57 3/10/10 - WHOLE - RES. 100141 meant that they would have had to pay taxes on their healthcare, but I don't know where that sits now. But I think they'd still be covered under our plans.
So employees who are personally employed by the City can't be billed an increase for their health insurance because you come under the City plan?
Based on what's going on in the national healthcare debate, I don't think so. I can double-back and make sure that's right, but my understanding is it would not affect their coverage.
So at the rate that I pay or we pay for an individual, that individual doesn't get an increase during the course of the year in their insurance costs because they pay a flat rate to the City? They contribute something.
Right. Yeah. I mean, for what each individual pays is 58 3/10/10 - WHOLE - RES. 100141 really determined by collective bargaining. So I think that would be separate from the national healthcare.
So if the City's rate is up, is that because the rates are rising as you negotiate with the various insurance companies to provide the coverage?
Yes. Rates have gone up not just for us but for businesses and governments across the country as healthcare costs have increased. So our costs have gone up. For a lot of the employees, it hasn't had an impact, for the union employees, but not all of them. Some of them, they're separate from that, because we make a set contribution each month for them.
In your testimony, Mr. Armbrister, you talked about the trash fee would be $6 a week and low income 4. In the Mayor's speech, it was $5 a week, if I understand it 59 3/10/10 - WHOLE - RES. 100141 correctly, for households. Now you're saying it's $6 a week.
Well, I think it was $5.77, I believe is what he said. I think I rounded it off to about $6, but it came out to about $300 per year for the maximum fee and $200 a year for the minimum fee. I think it was $5.77, if I'm not mistaken, what the Mayor might have indicated.
Thank you. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. I met with these recycling people this morning, program, and I will say that some people approached me who had heard the -- and this sounds like a great program, but some people who contacted me thought that this program 60 3/10/10 - WHOLE - RES. 100141 would mean there would be a direct credit or cut in this $300 fee. Was that considered?
I think it's under consideration as we speak. As initially proposed, the RecycleBank coupons were not a direct credit to the fee, but I take it that that may be under consideration now, Councilwoman.
I don't know if that's possible, but I think they are looking at that.
We will certainly keep you apprised of those discussions.
Thank you. Also, we understand that the funds that run the Clerk of Quarter Sessions court have already been 61 3/10/10 - WHOLE - RES. 100141 transferred to the courts. I did speak with Judge Dembe after the Clerk's announcement of her leaving office at the end of this month, and we want to be assured that those workers will not lose their positions.
We don't -- I mean, those funds haven't been transferred. If we transfer, we'd have to come here.
And there's no plan for that, right? We really just want to protect those people that work there, that work for Vivian Miller. We know that she's leaving, but we want to make sure that the -- because obviously the job still has to be done, and we just want to make sure that the workers are protected. (Witness approached witness table.) DEPUTY
Good morning, Councilwoman. Everett Gillison, Deputy Mayor for Public Safety. Councilwoman, both issues are 62 3/10/10 - WHOLE - RES. 100141 basically correct. One, we would have to come to Council obviously before we transfer any monies. We would not do that. That is quite clear. And we've been working to make sure that everyone is given the information that they need in order to make an appropriate decision. And, two, the Mayor has made it clear that those jobs are going to be protected no matter what happens, and that's also something that we're going to work together on as well.
Thank you. I mean, Judge Dembe did say to me that she needed the jobs, so it has to be done, so she would need the workers, but I just wanted that on the record. Let me try to get in one more question during this first round. Is the tax on sweetened beverages triple taxation of such beverages, once under gross receipts, again under net profits and yet again at two cents an ounce?
Councilmember, 63 3/10/10 - WHOLE - RES. 100141 I'd like to go back to the Law Department, but I think the way we were structuring this is that there would be some form of either a credit or some other acknowledgment of the tax, the two cent tax being paid in the remission of the business privilege tax, but I'd like to go back to the Law Department and review how that legislation was written.
On Mr. Gillison. Would you come back, 64 3/10/10 - WHOLE - RES. 100141 please. Could you tell me how many of the positions in the Clerk of Quarter Sessions are civil service and how many are exempt? DEPUTY
The last count that I had, although I was at a meeting this morning, but I believe it's 114 are civil service and somewhere between four and five as exempt.
So the notion of the duties of this office will continue? DEPUTY
But it will be under the jurisdiction of the courts? DEPUTY
So you really have to determine what happens to the exempt as you move forward? DEPUTY
We're moving forward on all these -- 65 3/10/10 - WHOLE - RES. 100141
Oh, you're doing it with the entire staffing of the department? DEPUTY
The entire staffing of the department is the idea, but we have a lot of things we have to work out in the next coming days, weeks and maybe even up to a month. But we're planning on the entire functions being absorbed pursuant to the Chief Justice --
What does "absorbed" mean? Does it mean that you will find other people in the courts to do those jobs? DEPUTY
Or that those people who are currently in the employ of the Clerk of Quarter Sessions, do they go away? DEPUTY
No. 23 No. The current people who are in those jobs will be doing those jobs.
They will 66 3/10/10 - WHOLE - RES. 100141 be doing it? DEPUTY
So none of that changes. The only thing that changed was the elected official resigned? DEPUTY
Mr. Gillison, while you're there, will the 114 employees maintain their civil service status? DEPUTY
That is something that we're getting and we're researching now. There is a split decision at this point, but I'm going to -- I'll reserve my comment until I get 67 3/10/10 - WHOLE - RES. 100141 further information.
Thank you, Madam President. Good morning, gentlemen. (Good morning.)
In your testimony you stated that Parks and Recreation will be decreased by 11 percent. They will be spending down by 11 percent.
Have been already. They have been reduced. This budget does not reduce them. There's one cut, which is removal of tree planting money from the Operating Fund, but it's replaced with money in the Capital Fund, actually by more than was taken out.
Oh, okay. You also mentioned again with regards to Recreation that $14 million will be used for needed improvements to City rec 68 3/10/10 - WHOLE - RES. 100141 centers. I would presume those improvements are stipulated by District Councilmembers?
Right. Parks and Recreation Commissioner DiBerardinis has met, I think, with every District Councilperson and utilizing money that we included in the budget has at least made some arrangements with each Councilmember to invest in parks in their particular districts. He's here and available to address that.
Good morning. COMMISSIONER DiBERARDINIS: Good morning. Michael DiBerardinis, Commissioner of Parks and Recreation.
And so according to your colleague here, you've met with District Councilmembers to determine what those improvements will be 69 3/10/10 - WHOLE - RES. 100141 that equal to the amount of $14 million? COMMISSIONER DiBERARDINIS: Right. There's been -- over the last three weeks, I met with all of District Councilmembers in an attempt, at a very successful attempt, to leverage our dollars that the Administration has with the capital authorizations that District Council folks have, in addition to outside donations, outside monies that are coming in. So roughly that whole process, we started out with 5 million from the City's side, from the Administration's side. Matching that with City Council allocations and with corporate and other foundation dollars, we've come up to approximately $14 million of programs that we think are important for the rec centers and the Department, that are important to the Councilpeople and I think really overall significantly increase the operational capabilities of the Department - lighting, safety manning, spray pools, 70 3/10/10 - WHOLE - RES. 100141 swimming pools, security cameras. I mean, a whole range of very important projects that both the District Councilperson and the Department agree serve the interest of the operations of the center and all the user groups.
Brief update on the Dell, and brief only because the clock is running. COMMISSIONER DiBERARDINIS: I'll be quick. We fully expect to have an exciting season at the Dell this year. We're beginning to move our contracts forward. The capital restoration and renovations are on schedule to be completed this spring, and we're very excited about reopening the facility this summer.
Thank you very much. Dr. Schwarz, if you can come back to the witness table. The question is around the sugar tax. (Witness approached witness 71 3/10/10 - WHOLE - RES. 100141 table.)
Thank you. You state in your testimony that currently there's seven states and the City of Chicago currently considering the sugar tax.
So have they been in place long enough for us to have evidence that the imposition of the tax actually led to behavioral change?
In Chicago, the answer is, it's been around for a long time. No one collected data before.
More than a decade. For the other seven states, the answer is, I don't know whether anyone has recent data. I have not seen anything published as yet, but I'm happy to look again. We are in touch with a 72 3/10/10 - WHOLE - RES. 100141 number of groups around the country who monitor pretty closely obesity outcomes and there's been, as you might imagine, a lot of interest in the impact, but I haven't seen anything out yet. The article that came out yesterday was the first that nicely tied obesity, consumption of sugar-sweetened beverages and price.
Okay, then. Thank you. It looks like I have one more question. What linkages has the Administration made with the 2010 Census operation to put a dent in this huge unemployment number we have here in the City? What tangible linkages has the Administration made with the 2010 Census employment pool operation to address the huge unemployment?
Well, we've created the Census 2010 team, which is working actually down in City Hall on the first floor, and we are working very 73 3/10/10 - WHOLE - RES. 100141 closely with the regional Census Office. I forget how many people that we've employed downstairs. It may be five to seven folks that are working pretty much full time on the census downstairs. And I think we're making linkages in terms of trying to get counters and things like that working with the regional office, because that's really their responsibility, is my understanding.
So when City employees are -- when you're taking the various actions you are in government to trim the fat, as is stated, are you creating opportunities for those former City employees to link up with?
Well, we certainly have made the regional office of the Census, which is responsible for hiring the counters, yes, we are trying to make sure -- we have a very close working relationship with them. We do.