COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, March 24, 2010 10:25 a.m. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM GREENLEE COUNCILMAN CURTIS JONES, JR. COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN MARIA QUINONES-SANCHEZ COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO BILLS 100115, 100116, 100117, 100118, 100131 and 100141 - - - 2
Good morning. This is the continued public hearing of the Committee of the Whole. The first department to testify this morning will be the Finance Department. (Witness approached witness table.)
Good morning. Please identify yourself for the record and proceed with your testimony.
Good morning. My name is Rob Dubow and I am the Director of Finance. I am pleased to provide this testimony on our proposed Fiscal Year 2011 Operating Budget. The proposed budget for the Office of the Director of Finance supports a number of departmental divisions, and representatives of those various divisions are here today. The budget, as proposed, provides funding for the Office of the Director of Finance and totals $1.14 billion. That's an increase 3 3/24/10 - WHOLE - BILL 100117, etc. of $141 million from 2010. The increase is caused by a $130 million increase in pension costs, a seven and a half million dollar increase in indemnities costs and the creation of a small contingency line to cover unexpected costs, like those created by this year's snowstorms. The budget includes a little over 970 million in Class 100, and, again, that's an increase of 130 million over 2010 levels. The line pays for 143 Finance Department employees and funds fringe benefits for all City General Fund employees. There's 40.4 million in Class 200. That's a decrease of about $340,000 from 2010. The largest portion of this appropriation is nearly $36 million for legal services provided by the Defender Association and Community Legal Services. The 338,000 decrease results mainly from the transfer of technology contracts to the Division of Technology. About 113,000 in Class 300 and 400 is for materials, supplies and 4 3/24/10 - WHOLE - BILL 100117, etc. equipment, representing no change from 2010. There's 125 million in Class 500. That's an increase of 7.5 million. It includes 38 and a half million of our contribution to the School District. That's an increase of 60,000 over the 2010 level. There's $26 and a half million for Community College, million 11 for PGW. Both of those are unchanged 12 from 2010. And $42 million to fund 13 indemnities. That's an increase of seven 14 and a half million over the 2010 level. 15 This proposed increase is linked to one 16 case regarding work schedules for 17 paramedics, and then there's the four 18 million that I discussed before for the small contingency line. The Office of the Director of Finance has an overall 38.6 percent participation rate in contracting opportunities for minority and female-owned businesses. We're committed to supporting the Administration's 2011 5 3/24/10 - WHOLE - BILL 100117, etc. goal of 25 percent participation. Based on the availability of funding for contracting opportunities, we have an FY11 participation goal of 39 percent. I appreciate the opportunity to provide this testimony and I'm happy to answer any questions you may have.
Thank you. The Chair recognizes Councilman Goode.
There's growing concern and pushback on interest rate swaps, the notion that the federal government bailed out financial institutions and that those institutions are now financially exploiting city and state governments that are hurting from the recession by taking excessive profits from interest rate swaps. Even the 6 3/24/10 - WHOLE - BILL 100117, etc. Auditor General has cited the billion dollars the School District and DRPA. Can you explain our interest rate swap situation and whether we're at risk?
Sure. And swaps can be very good. They can help you hedge your interest rate risks, and that's the way we've used them, or they can be very bad if you don't understand what you're getting into, and particularly for some smaller jurisdictions, they've gotten themselves into real trouble with swaps. Our swaps right now are not actually costing us anything. They're helping us reduce our interest rate costs. We have not entered into any new swaps in this Administration, but there's existing swaps from prior years.
I'm sorry. I 7 3/24/10 - WHOLE - BILL 100117, etc. didn't hear you.
I don't believe they are. The Treasurer can answer that -- can give you a definite answer when she comes in later, but I don't think they are.
We have a swap policy that we've actually developed within the last year. We can provide that to the Chair. We have a new swap advisor, who was very helpful in developing that policy. So we have rethought it and we have a written policy on swaps.
You're welcome. Councilman Jones. 8 3/24/10 - WHOLE - BILL 100117, etc.
Thank you, Madam President. In your financial analysis and different scenarios as we start to consider different revenue enhancements, has there been any scenario that you can share that actually the economy improves and we start to realize some revenues from the sales tax, the transfer tax and the other related taxes that might trigger a formula by which we do a sunset to some of the proposed revenue enhancements? Is there a combination of factors that could say that we got through the rough patch and are able to then restore proposed trash fees, soda taxes and the like and even possible real estate taxes? Has there been an analysis that includes that scenario?
Our projections do assume that the economy recovers. So even to get to the numbers that we have in the Plan, we need the economy to get healthier. We haven't looked -- if 9 3/24/10 - WHOLE - BILL 100117, etc. you're asking what rates of growth we'd need to see before we could sunset revenue measures, we haven't done that, but if you'd like to see what rates those would have to be --
I mean, there has to be some scenario. I know that's optimistic, but it seems to me that we could at least look at what scenario of revenue streams that could recover, what that would mean to our treasury and, therefore, give some relief to some people in the community who haven't seen any relief, Wall Street, Main Street, my street scenarios.
Yeah. We can look at where those -- I mean, we can look at where those growth rates would have to be and what that would mean for the national economy, local economy.
I mean, a best-case/worst-case scenario and then somewhere in the middle that would trigger the possibility of sunsetting 10 3/24/10 - WHOLE - BILL 100117, etc. some of these things. Now, I know we have the authority to do it every year, but we also would like to do that in partnership and even give the taxpayers some anticipation of when that relief might happen.
You're welcome. The Chair recognizes Councilman O'Neill.
Thank you, Madam President. Mr. Dubow, it's Groundhog's Day a little bit. We're having the discussion we've had before, and it really boils down to what I refer to as true budgeting, because that's the only thing I can think of what I'm looking for. And I think everyone else does, except the City of Philadelphia, every 11 3/24/10 - WHOLE - BILL 100117, etc. other entity out there, not just governmental entity. If I'm wrong, I would welcome the correction. But there isn't a department in this city, including yours, that reflects its true budget. Prisons don't reflect their true budgets. We're having budget hearings and the very premise of what we're discussing is not correct. It's an incorrect premise. So we all look at budgets. The courts are the one that are always in the newspaper, because we have that newspaper waiting for us when we come in every day, the legal newspaper. And always has, Our budget can't go below $99 million, or 115 million was last year's can't go below. And we know that's not their budget. They legitimately believe that's their budget. And I use the courts as an example because that number has been thrown around so often. But it could be City Council, it could be the Finance 12 3/24/10 - WHOLE - BILL 100117, etc. Department, it could be the Prisons. For instance, as an example, because the Prisons is -- people talk about the courts, and, boy, if we only got reimbursed by the state for the courts because they're state employees and it's a state function and all that, where in fact -- when in fact we know that at least there's a substantial offset in the courts for the fees that we're allowed to keep that are collected. So whether their budget is $99 million or $99 million plus another 38 million, which is probably their true budget, now you're at 137, there's somewhere around 60 million or so that offsets that. So their real budget, even if you add in the benefits that are not in their budget now, it's somewhere 70-ish, 80-ish that is our true cost. Then you get to the Prisons, and their budget is approximately? I don't need exact numbers.
Two hundred and 13 3/24/10 - WHOLE - BILL 100117, etc. thirty, I think. I think about 230.
So if you asked the Prisons what their budget is, they're not going to give you their true budget, because we don't put their true budget in the budget book. We put their true budget, except for the 38 additional percent on average of benefits that are housed in the Finance Department. So when somebody is cutting their budget, there's not a true budget to start cutting from. Your budget, for instance, starts out with, the Finance Department, as a billion 143, up 141 from last year. If you're reviewing a budget of the Finance Department, to me the only way you can review it -- and this is true of 14 3/24/10 - WHOLE - BILL 100117, etc. any department -- what's it cost the Finance Department to run its budget based on the comparison to other departments? I don't want to hear about all the City's or see all the City's -- it's like the junk drawer. I'm seeing all the City's pension costs and medical costs in the Finance Department. In your home, that's the junk drawer. If you don't have another category for it, it's not the silverware drawer, it's not the place where you put your dishes or your towels or whatever. You put it in the junk drawer. So the Finance Department has become the junk drawer of the City budget, because City Council's budget does not reflect 38 percent of our budget, neither does anybody else's. And you are so far over your budget that we don't even really know what your budget is, because if I'm reviewing a budget, I don't want to know what Risk Management is unless it's separated. I don't know 15 3/24/10 - WHOLE - BILL 100117, etc. what the -- I want to know what the Finance Department is with its employees in Class 100 and what its 200 expenses are, and we don't get that. And you're not the first Finance Director that's done this, but we've never been under the crunch that we're under now either. The best example I can give is, if I have -- and I can be any department head. If I have somebody that could be on a contract doing the work and I can save the benefits, I might give the person a few thousand dollars more than their salary, but I'm saving 38 percent for the City. Same job. It's done all the time in the private sector. I lose. I lose money doing that. I don't save anything in my department. It's not real savings. And I can tell you there are departments that have told employees, We can't do that, that will cost us money. If your salary is $75,000 and we're going to give you 80, that costs us $5,000. It saves the City approximately 16 3/24/10 - WHOLE - BILL 100117, etc. $30,000, $35,000, but because of our antiquated, inaccurate budgeting picture, the model we use, that department is being honest with that employee, but it's hurting the City and its budgeting, because there's no incentive to cut real costs. If I cut a staff member whose salary is $50,000, I don't get 50,000 plus the 38 percent as a savings. It's never going to be reported in any story because it's -- that's all in the Finance Department. But when you boil it down, I don't even know what your budget is, because I've got this enormous one billion -- how many employees do you have, Rob?
A hundred forty employees and I've got a billion 143 million-dollar budget. Just tell me what your budget is if we're another department, whether 17 3/24/10 - WHOLE - BILL 100117, etc. you include the 38 percent before or after for fringe benefits. It just should -- there should be -- everything above those 143 employees and what it costs to run that department like any other department. And we can come back to this, because I don't know how we can continue to have a budget when we're trying to really save money and find savings that has 38 percent approximately sitting out there in space. No one else does it. We could do it whether it takes five minutes or 50 minutes or five hours. All you do is estimate it, what the fringe benefits are going to be for each department, the same way you estimate Class 100, and then you reconcile at the end of the year if it misses the original projection. But putting it all in Finance, it's sort of -- it's a lazy way of doing it. I don't know how else to describe it. It's a way that's easier, it's more complicated the other way, and if it were 18 3/24/10 - WHOLE - BILL 100117, etc. better, every government and every business would be doing it our way. There's a reason that everyone does it the other way. They know the cost in every department of the actual cost of that. They know what the cost to the Finance Department is separate from indemnities or Risk Management. Just what it costs for your employees, their benefits cost, your contracts. We don't have it here, and I thought after last year's discussion that we wouldn't be coming back with the same thing, because I thought we had come to an agreement that this wasn't hard to do. It wasn't hard to separate it out. Let the courts know what the real budget is, let City Council know, let the Mayor know what their real budget is, let the Prisons know. When the Prisons say, We don't get a dime of state help as a county prison as a state agency, that it's not 230 million, it's 230 plus almost 40 percent higher than 19 3/24/10 - WHOLE - BILL 100117, etc. that, which takes you over 300 million. That's significant. That's not a couple million that they're missing their real budget by. It's a significant difference. Is this too hard to do? I mean, is it impossible to have a budget that's accurate and reflects real departments' true expenses and savings if they decide that they want to try to do things that are done elsewhere, not just in the private sector but in the public sector? For instance, finding people who are willing to come in because of whatever reason and maybe work on a contract and save that 38 percent. Maybe you have to give them a little more than you would have with salary, but you're saving an enormous amount of money. And it's not the one person. Obviously if you do it system-wide, you have 20,000 plus people you could be looking at doing that as part. 20 3/24/10 - WHOLE - BILL 100117, etc. I don't know how we can keep doing it the old way when this is supposed to be the new day, and we're just doing things like we always did. This is not reforming anything.
Yeah. I mean, it is more complicated, but we are putting that data together and we plan to have it to you before next week's hearings. So you should have all your information you're looking for.
But will the budget be amended to show that -- will you be recommending the budget be amended to show the true cost of every department?
I think we'll give it to you separately. I don't think we'll actually amend the budget, but 21 3/24/10 - WHOLE - BILL 100117, etc. you'll have all that information.
But, Rob, if the departments still think their budget is X, not X plus 38 percent and we just have like internal information, I have that now. I mean, I know there's a fringe benefit that's not in the departments, but why don't the departments have it as -- when they come in and they say, This is your budget, this is what we need cut, tell us how you can do it, we're 38 percent off when we give them the number to start with.
Right. I mean, obviously it's not just fringes. It's things like rent and utilities. So, I mean, it's more complicated than just taking a fringe rate and applying it.
Yeah, but you know it's more complicated, but it's not complicated attributing real cost to each department.
There are parts of it that aren't complicated and parts that 22 3/24/10 - WHOLE - BILL 100117, etc. are more complicated. That's what we're working through.
Right. Can we start with that? And you can tell me or us what the complicated parts are and maybe we can --
-- work on that later, but the fringe benefits are a huge part of that.
Yeah. Right. Health benefits are relatively simple. Pensions are more complicated because you have the unfunded liability portion.
So health benefits, pretty simple. The normal cost portion of the pension costs are pretty simple. Unfunded liability --
Well, can 23 3/24/10 - WHOLE - BILL 100117, etc. we agree that unfunded liability, however you want to define how you would do it, is not part of a department's ongoing expenses? That's sort of like the indemnities or something else that's kind of --
-- something the City is responsible for, but it's not an individual manager's responsibility?
I mean, I understand. Pension costs would be for today's employees that we're paying it.
No. I just want you to understand that there are complications to it. And we've heard you and we know it's an important thing to do. It's just that it's not as simple as 24 3/24/10 - WHOLE - BILL 100117, etc. it seems.
And you could give it to us in a way that we could amend the budgets?
So that if a department comes in and they say, I am so-and-so, I'm the head of this department, my budget is, and we'd have the real number?
-- is after we get it to you and we look at it, we should talk about how it makes sense to you.
Because if it doesn't go to your managers and your department heads, it really doesn't mean 25 3/24/10 - WHOLE - BILL 100117, etc. anything.
Thank you. Mr. Dubow, on of your detail, you show a saving of $25 million in employee benefits for 2010 and 2011. Can you explain how you plan on achieving these savings?
Right. There are a few ways, and it's different in the two years. In '10, it's a combination of the changes that were in the FOP award and a sizable reduction in the workforce. I think those are the two biggest contributions. In '11, we hope to get that through the new collective bargaining agreements.
The City's indemnity budget has received large increases over the past few years. Can you tell us what steps, if any, the Administration has taken to reduce our risk and cost?
Let me first talk about kind of what's caused the increase. In part, it's just been an increase in the number of claims and in the cost per claim. So it's been both, but there have been a couple of big cases. The biggest single case was the paramedic award -- not award; paramedic decision where they got seven and a half million dollars overtime. So that will go away after '11 and you'll see a decrease. And there are constant action -- Risk Management always looks at ways to improve safety, to look at each department and figure out what they can do differently to try to reduce the City's exposure and to reduce the likelihood that there is exposure that would create for the public. So it's 27 3/24/10 - WHOLE - BILL 100117, etc. kind of an ongoing process.
Thank you. On of the detail, it reflects a transfer of $170,000 to other departments. Can you tell us whose salaries are being transferred and the department that they're being transferred to and their work product?
Yes. I think it's two employees. One is the Department of Human Services. It's essentially their Chief Financial Officer. And the other is to the pension fund. It's a person in their Investment Unit.
On of the detail, it reflects an almost $80,000 contract to Trustees of Boston College for a DROP evaluation. Can you explain the scope of their services and, further, can we have a copy 28 3/24/10 - WHOLE - BILL 100117, etc. of their work product?
Sure. We don't have their work product from them yet. They're still doing their work. But the contract is to do an analysis of the effect of DROP on behavior so that we can try to get a sense of what the cost, if any, there is of the DROP program.
When do you anticipate that the work product will be completed?
I think it should be done probably by the end of the fiscal year, this fiscal year.
Thank you. The Chair recognizes Councilman Green.
You have 40,000 in your budget for cost allocation, I believe. Is that to try to 29 3/24/10 - WHOLE - BILL 100117, etc. address the things that --
There's a cost allocation study that is done routinely that we use in determining allocations to department for charges to the federal government for grants.
Thank you. Just to warm me up, right? Setting me up for the things to come.
No. You've been here -- or I don't know if you've been here as the other department heads have testified, but basically what I have done is gone through positions that have been vacant for a while or newly created positions.
Ask what the job duties are, who has been performing 30 3/24/10 - WHOLE - BILL 100117, etc. that function otherwise and how they've been handled without that position being filled. And so that's what I'm going to do.
Administrative Services Center, there's an Executive Direction Division. There are two Account Clerk positions at 33,000 per year that were vacant as of the last run.
Right. In the Administrative Services Center, one of their functions is to provide administrative support for the Division of Technology. With the consolidation of the Division of Technology, they will have a lot more activities, a lot more support they have to provide. These positions are all related to that expansion of DOT's responsibilities.
Right, but every other department lost the people with respect to that, so were there -- 31 3/24/10 - WHOLE - BILL 100117, etc.
Right. We lost five people from the rest of the department, but this is just the actual support functions that are provided to DOT for their expanded work.
So we're replacing essentially five positions with two positions or five are going to remain unfilled and then we're --
No. Let me put it this way: There were five IT positions that moved over to DOT, but DOT doesn't do its own administrative work. The Administrative Service Center does that. So since DOT will be a much bigger department, they will need more administrative help. So this is the increase in that administrative help. But it's really for DOT citywide. It's not just for Finance functions. It's for everything DOT does.
There are actually 32 3/24/10 - WHOLE - BILL 100117, etc. four positions. The two Account Clerks, the Procurement Specialist and the Clerk III are all for DOT.
So we need four full-time people in the Finance Department to deal with administrative functions for DOT?
Correct. That was based on the number of transactions that are done citywide for technology.
How were those transactions handled before DOT was its own department?
They were handled in the individual departments that had that work.
With the same number of employees that those individual departments have. So this consolidation -- in this consolidation what you're saying is basically we've moved everybody over, created no 24 efficiencies as a consequence of that, because everybody who was IT is now going 33 3/24/10 - WHOLE - BILL 100117, etc. to be in DOT, with no identified redundancies or efficiencies to date? I know you're working on that.
Right. I mean, that's the Chief Technology Officer's assumption, is that he will find redundancies.
I understand, but this consolidation, which I think we all agreed would save us money, actually is causing us to hire four new people in addition to everybody who already performs that function citywide?
I think that's what it will mean in the very short run, but as the Chief Technology Officer goes through his department, I think you'll see a change in his staffing.
Okay. So what would be the consequence of us not allocating funding for all four of these positions?
Well, things like 34 3/24/10 - WHOLE - BILL 100117, etc. payments would take longer, processing transactions would take longer. There would just be delays in the IT system.
All four of the positions in the Administrative Services Center.
Okay. Does that include the Departmental Procurement Specialist?
And the consequence of not hiring all four of those people is that we'll earn interest on our money longer because it will take longer to make payments?
I mean, if that's your theory, we could just not pay people forever. We'd earn a lot of interest. We might have to actually pay more for 35 3/24/10 - WHOLE - BILL 100117, etc. our contracts when people realize what we're doing.
How about the Human Resources Professional position at 43K per year?
I'm looking at Human Resources Professional at 43K per year.
I think that's the Human Resources Associate III moved over. Give me one second. If you look at Line 13, that person --
No, no, but look at Line 13. See that position goes away? That person moved up to Line 24. So it's the same person with a promotion.
What's the salary change for that? 36 3/24/10 - WHOLE - BILL 100117, etc.
Okay. Budget Bureau, it looks like there was an unfilled Assistant to the Director of Finance position as of November.
That's been filled. That was sort of a receptionist position, although the person does more than just receptionist. She also worked on the Five Year Plan. So that's been filled.
Just a moment, please. Your time is up, so let that be your last question for --
That's fair, 37 3/24/10 - WHOLE - BILL 100117, etc. Madam Chair. I'd just prefer to wait until everybody else is finished so I can go through my questions serially, just like yesterday.
That's fine. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. Good morning.
Good morning. COUNCILMAN DiCICCO: Mr. Dubow, it's almost a year since I had asked this question, and I'm not sure if I had the answer to it. You and I discussed and I think I discussed with the Mayor those folks that are in DROP, about possibly offering some incentive for folks that were in DROP to leave sooner than their DROP date would reflect. Did we ever get an answer on that, or no?
No, we didn't, because I -- no. I forgot about it. 38 3/24/10 - WHOLE - BILL 100117, etc. COUNCILMAN DiCICCO: Let me just explain where I'm going. How many people are in DROP today, roughly?
I think it's like 1,600, but I could be wrong. COUNCILMAN DiCICCO: Well, we'll just say -- 10
Either there was 11 1,600 and 1,600 signed up last year and 12 we're like 3,000. I have to go back and 13 check. 14 COUNCILMAN DiCICCO: What I was 15 asking Mr. Dubow and the Administration to look at was a possibility to reducing our workforce without having to do layoffs, because layoffs are a lot easier said than done. Most people don't understand when they say just cut. We have bargaining agreements, contracts with unions, that we just can't arbitrarily lay people off. What I had suggested is that maybe the Administration look at offering 39 3/24/10 - WHOLE - BILL 100117, etc. folks who are in the DROP program a cash incentive for leaving earlier than the date that they would normally leave under DROP. Just by way of example, if you have two years left in the DROP program and using $100,000, which is the average salary of all employees when you add in salary, benefits and other --
Probably for people in the DROP since they're probably at a higher level. COUNCILMAN DiCICCO: So it's about a hundred thousand dollars. By way of example, if a hundred people were to take advantage -- and I'm just using numbers for example purposes -- were to take advantage of a cash incentive to leave two years before their due date, we would save $200,000, assuming that, again, their salary and the benefits equals a hundred thousand a year. If we gave them, again, by just way of example, a $10,000 bonus for leaving, you take the 40 3/24/10 - WHOLE - BILL 100117, etc. 10,000 two years, it's off of the 200, we would, in effect, be saving $180,000 in salary, but we'd also begin to reduce our workforce without having to do layoffs. And if you did that by a hundred, you would have a hundred million dollars. Right?
(Mr. Dubow nods 10 head in the affirmative.) 11 COUNCILMAN DiCICCO: So a 12 hundred people would take advantage -- of 13 the 1,600 who would take advantage of 14 that kind of incentive -- and, again, I 15 don't know what the number would be, but 16 I use 10,000 -- we would, in effect, be 17 reducing our budget by potentially a 18 hundred million or more, depending on the 19 number of people who would take advantage 20 of that. And, again, I ask that because I wasn't sure under uniformity, I know there's seniority issues that may have to be taken into consideration, but if you put it out there, I even think that the 41 3/24/10 - WHOLE - BILL 100117, etc. unions would be somewhat supportive of that, because we're not looking to reduce membership or employees by way of layoffs or any cuts, other than voluntary early retirement.
As you say, there are a lot of issues with it, and I have to admit, I kind of forgot about it, so we'll have to take a look. COUNCILMAN DiCICCO: I would ask that you just take a look. Maybe I'm missing something here, and if I am, I'll be the first to admit it, but I just -- I see it in raw numbers in very simple terms, and maybe I'm oversimplifying it. So I would appreciate it if you would revisit that and let's see if there is some way of doing that. Thank you. Thank you, Madam President.
You're welcome. The Chair recognizes Councilman Jones.
Thank you, 42 3/24/10 - WHOLE - BILL 100117, etc. Madam President. One of the things that we wanted to find out about is that last year, what was the total amount of money that we did in transfer ordinances?
Do you anticipate a fund balance this year and how much is that?
In the budget, we anticipated a negative fund balance at the end of this year, I think about 40 million.
So isn't that unusual or don't we usually try to factor in some cushion?
That's for 2010. For 2011 in the budget, we show a $64 million fund balance.
No. The GFOA, the Government Finance Office Association, recommends that you have a fund balance of between five and 15 percent. So on a $3.9 billion budget, 60 million is actually kind of low.
I'm aware that budgeting is a guesstimate and a work in progress always, but if we have a pattern of where we usually wind up at the end of the year with transfer ordinances at the end of the year, one of 44 3/24/10 - WHOLE - BILL 100117, etc. the things is that if we could kind of predict that a little better, then we can get a little closer on our projections and not have to burden people with that revenue enhancement that we're talking about. If we know what we have left over and what we need it for, I mean, can we get a little sharper in our predictions?
So to the extent that we can avoid doing them. That's not our goal, to have transfer ordinances.
The other issue is again of pattern bargaining. With the award to the Police, how does that factor in to where we're going to be? And to what degree do we mimic what we are settling with one union to the 45 3/24/10 - WHOLE - BILL 100117, etc. other and has that been factored in at all?
It's very -- in different years it's looked different ways. Sometimes contracts for one particular union can be really different from contracts for the others. So I don't think that you can --
In the average, let's go with what the extreme was, that the difference between what Fire got and let's say what 33 got. Over those contract periods, what has been the average by way of mean that we wind up -- how close do we come to one union to the other on average?
I don't think there's been a big tie between where Fire and non-uniform have wound up. For example, there have been a number of times where Fire will get a percent increase and the non-uniforms will just get a bonus. So I don't particularly know -- first year of a contract. So I 46 3/24/10 - WHOLE - BILL 100117, etc. don't think there's been a big link between --
Yeah. The labor people have. I mean, the labor people can give you excruciating detail.
You're not the labor people, but in the budgeting part of this, there's probably some predictability. And I know zero is probably, on the Administration's part, overly optimistic. So in that, we haven't seen any of this. So our true number is not here, and I don't know where that is in your budgeting and where it might be, and I know you may be holding a card back somewhere for that, but I know zero isn't going to be it. I can tell you that.
I guess I don't want to kind of sit here and speculate on what might be in the contract, because that might then wind up being what's in 47 3/24/10 - WHOLE - BILL 100117, etc. the contract.
I think, you know, we always look at a whole variety of scenarios for many different things.
Okay. I'll let you go with that. Thank you, Madam President.
You're welcome. The Chair recognizes Councilman O'Neill.
Mr. Dubow, you mentioned earlier today that in addition to the health benefits, which are the 38 percent or so that we've discussed many times, that --
Active pension costs rather than retirees' pension costs are not controllable by any manager that's in government right now. 48 3/24/10 - WHOLE - BILL 100117, etc.
Okay. And these are the areas like -- I know rent and utilities, I believe, get dumped, for want of a better word, into Public Property.
So now we have at least three junk drawers, the first one being yours with this enormous benefit and pension cost. We have Public Property that if I manage a building, I'm 49 3/24/10 - WHOLE - BILL 100117, etc. responsible for a building in my department and I leave the lights on all the time because I think it's cool that I can do it and not get charged for it, I don't get any penalty for that because it's not in my budget. It's in Public Property's budget. So it's kind of everything is lumped in there for rents, utilities. And then if I have ten cars in my department versus three cars, I get no benefit in my budget getting rid of the seven and going down to three, because it's in the third junk drawer. There might be other junk drawers. We're kind of developing --
-- the kitchen here. The kitchen is getting bigger because you need more drawers. But will those costs, when you give us this information in the next week or so, will they all be allocated that you're talking about?
I look forward to that, and I appreciate it. The other thing is something that came up last year, and I think it's a significant amount of money that could be generated. We discussed it at length. It has to do with waiving -- employees who are in a position to waive their health benefits because of coverage that they could be covered by either with a second job, more than likely a spouse's job. And spouses weigh these things many different ways in terms of who should waive or should either waive. Sometimes you just want to bundle for extra protection. It's not worth it and you bundle your policies and figure, I just got another level of protection if I need it, because there's not enough incentive to waive it. I can guarantee you there's no 23 incentive, no real incentive, for a City employee to waive $12,000 worth of coverage for less than a thousand dollars 51 3/24/10 - WHOLE - BILL 100117, etc. that's going to be taxed. And there aren't too many other spouse policies that are going to have that ratio, that imbalanced ratio, where the benefit if you waive is almost all to the employer. And I believe the number that we have, I forget if it's 750 or a thousand.
But it's a number that goes back when these weren't even a cost that were discussed at budget hearings. The health benefits back in the '70s or 60's, these numbers have not changed. There's no model on how many people might change their behavior. I do know there's an awful lot of City employees whose spouses have benefits, and they make a decision -- and I'm told just on a case-by-case basis when I ask somebody, Well, it's really not worth waiving the City's because there's not enough cost savings there. 52 3/24/10 - WHOLE - BILL 100117, etc. And we actually could incentivize, because often times while the savings might be higher on the spouse, the cost of the policy may be lower, because a lot of private-sector policies are much less expensive than ours because they don't have as much benefit. But there's still a higher waiver allowance because that private-sector employer, that other employer, could be a union that has their own health and welfare program, they have calculated that it pays them to give some decent percentage back to the employee of the savings if they don't have to pay for that policy. So we discussed it during the budget last year. All kind of guesstimates came out of some discussions here as to what might be our increase and what the impact of that is, and it can get into the millions of dollars if it's significant that the number goes up for people that waive. Can you tell me what's been done? I know from last 53 3/24/10 - WHOLE - BILL 100117, etc. budget to the end of the calendar year when people had to make this choice, nothing changed.
I know there was an analysis that was done. I'll have to go back and dig it out and get it to you.
Obviously the analysis was that we might as well leave it at the same place, because --
It was, and I forget what the reasoning was, but let me find out.
I just think intuitively you don't need an analysis to know that if you're keeping over 90 percent of the savings for the employer, that there's an imbalance in this decision, that people aren't going to do it unless there's absolutely no 21 other option. If you told me it was 3,000 against 12, I'd say, percent, 23 that sounds pretty low, could you go 24 higher. We're under ten percent of the 25 cost of the policy. 54 3/24/10 - WHOLE - BILL 100117, etc. So I'd love to see the analysis.
Maybe at the same time we get that other information, we can get that?
Thanks, Madam President. Real quick, just a couple quick questions. You may have answered this in earlier conversations. I just wanted to get some clarity on this increase in the indemnities fund.
The seven and a half million dollars? It really relates to one --
Did we do one transfer ordinance in this current fiscal year? 55 3/24/10 - WHOLE - BILL 100117, etc.
Well, there are two. There's been an increase in the number of cases and in the cost per case. So that's driven up overall indemnities costs. But in 2011, there's a specific increase of an additional seven and a half million dollars for one case that involved paramedics and their schedules. They were -- I think they had 42-hour schedules instead of 40-hour schedules. So they were concerning overtime. The seven and a half million is basically making that overtime payment as an indemnity payment.
So that's hopefully the last spike, because last year --
Last year's transfer was to cover just general cases that we lost? 56 3/24/10 - WHOLE - BILL 100117, etc.
Right. And so we've increased the base, and we think that we'll probably, unfortunately, stay at that higher base, but the seven and a half million is on top of that. So that should go away.
Okay. Is there anything that's going on with respect to our cases that we could adjust? I mean, if we're going to have this continuing increase -- I understand the paramedics.
Right. The Budget Office and Law Department have been looking at that and kind of working through the details, seeing what's driving it to try to figure out how we can manage it better.
I think some of it -- I think most of this is done in-house, but I'm not sure.
Is it less 57 3/24/10 - WHOLE - BILL 100117, etc. expensive to do in-house?
All right. You're right. I shouldn't ask you the question. I just saw the dollar signs and I obviously asked you the question. Mr. Dubow, do you believe that the City of Philadelphia has a structural deficit generally?
Actually, I think we had a couple of years where we did, and you see first our fund balance getting low and then our deficit getting larger. What you see in '10 for the first time in a couple of years is that fund balance actually gets a little better. So structurally we're actually -- our revenues are exceeding our expenditures in '10. And then we're projecting that again in '11 and again in '12. So we may have actually turned the corner on the structural problem. 58 3/24/10 - WHOLE - BILL 100117, etc.
Okay. So the thought is that we've reduced basically the workforce, which is the highest cost of our --
To the point where structurally -- and hopefully we've leveled off in terms of our reduction in revenues, because I think hopefully all the jobs that we were going to lose we've already lost and we won't lose any more.
Whoever decided to stay here, they said they're just going to tough it out and stay here, or they can't leave, right?
All right. I was just wondering, because -- and the only reason I ask that question is because this is the second year where 59 3/24/10 - WHOLE - BILL 100117, etc. we're hit with a significant --
-- increase in revenues. So at some point, we got to like -- let's just fix this.
Yes. I agree. I mean, there are some real structural problems. We have high level of fixed costs, high level of county costs. So we do have high level of costs, and when the economy weakens like it did, we're particularly exposed to a downturn in revenues, and we saw the results of those.
As anybody is, right. Could you, in a very relatively easy format, lay out the things that we would have to do as it relates to county, municipality costs, some of the things that we believe we should not be responsible for? Could you just lay out a chart for us, not right now but 60 3/24/10 - WHOLE - BILL 100117, etc. somewhere down the line?
Because I think there should be a strategy from all of us to just sit down, come up with a game plan on fixing some of these issues that continue to plague us as it relates to costs we're incurring and, frankly speaking, we shouldn't.
And I'm saying if we're going to increase the indemnities fund, I'd rather have to increase it for something like that if we're going to go after -- you know what I mean?
To the Council President, just a real basic format to lay that out.
You're welcome. The Chair recognizes Councilman Goode.
Thank you, Madam President. Mr. Dubow, I had questions for the Revenue Commissioner and the Treasurer, but I realize they somewhat fall under your jurisdiction and may be more appropriate for you as this whole issue of where some of my initiatives actually fall. They're housed in the Finance Department, but they're economic development initiatives and so where the follow-through takes place. The first is related to the fact that we've been discussing a lot recently about taxes and cuts, but not about economic and job growth, and during the Five Year Plan discussion, it was noted that the City's projections in 62 3/24/10 - WHOLE - BILL 100117, etc. terms of job growth are based upon federal indicators. We now have a new federal Jobs Bill that's been signed into law, and so there is actually a federal exemption on payroll taxes any job creation tax credit. About a year and a half ago or so we had a discussion about our own job creation tax credit based on the fact that the Obama Administration might be moving toward a job creation tax credit, which turns out to be what it is, an exemption in tax credit. The question is, are we looking to market and promote our enhanced job creation tax credit for 2010 and 2011 and putting the context of the fact that there is this federal exemption in the job creation tax credit now, and in the end, who would really be taking the lead on that matter and responsible for that? Would it be Finance or would it be Commerce?
The first answer is, yes, we are, and I think it would be 63 3/24/10 - WHOLE - BILL 100117, etc. a combination of Commerce and Revenue working together on that.
I mean, I guess we can -- as we're developing that strategy -- I mean, the Jobs Bill is relatively new -- we can meet with you. We can keep you in the loop on that.
But our enhanced job creation tax credit was always meant to be a counterpart to the Obama Jobs Bill. Even though we didn't know it was going to be passed, it was just meant to be a counterpart. But I'll move on to the second question. The second question is regarding the issue of fair lending, community reinvestment and the fact that there are a lot of cities and states now aggressively pursuing what requirements they put on their banking relationships, and I guess the question is, while we conduct an annual lending disparity study 64 3/24/10 - WHOLE - BILL 100117, etc. and there are other requirements in terms of submission of community reinvestment goals and fair lending strategic plans based upon the disparity studies, who is actually responsible for reviewing that information and then following up in terms of public policy, who in the Administration? Would that be Finance or would that be Commerce or some combination?
In terms of the banks that we use, it's really in the Treasurer's Office. And, for example, you probably know that Bank of New York didn't even -- didn't respond, so we eliminated them as a bank. So it's really -- that has fallen into the Treasurer's Office. I mean, one of the things that we've been looking at recently is -- we get that report every year. We look at whether people meet their goals and we act based on that. But one of the things that we're going to be more aggressive in 65 3/24/10 - WHOLE - BILL 100117, etc. going forward is looking at those goals and making sure they make sense. So there are banks who are making their goals, but their goals are so low that it's not as meaningful as it could be. So we want to kind of push them to be more aggressive in their goals.
That's why, to some extent, I look at the lending disparity studies as well and look at whether they're meeting pure lending performance. And, for instance, we just received a new lending disparity study.
I've compared some 2007, 2008 data. For 2007, Wachovia Bank, which is our depository bank, did 37.1 percent of its home mortgages in low- and moderate-income -- I'm sorry; in minority census tracts. Then for 2008 it dropped to 8.9 percent, and a drop from 37 percent to less than nine percent in one year is troubling. That's supposed to be addressed through 66 3/24/10 - WHOLE - BILL 100117, etc. their strategic plans that they have to comply with by law, but beyond that, who in the Administration is responsible for -- in between the submission of those plans from year to year and the submission of those goals from year to year, who is actually looking at it other than me?
The lending disparity studies, the strategic plans, not so much whether the banks are just in compliance but whether we need to be developing public policy around this. Who is looking at, and within the Administration, what public policy needs to be developed around this? Because actually there's a recent Associated Press story based on some things that happened with LA City Council saying that 67 3/24/10 - WHOLE - BILL 100117, etc. Philadelphia got it right and that the program is working. And then we turn around and we see this drop, which still may mean the program is working if Wachovia addresses that disparity. But who is responsible for that and who is actually doing that within the Administration?
Okay. I'm just confirming that. Thank you, Madam President.
You're welcome. Mr. Dubow, are all of the Class 200 funds that are to be made available to the Defender's Association and Community Legal Services coming from the General Fund?
I believe they are. I think they are, although I suspect you're asking for some reason.
Well, 68 3/24/10 - WHOLE - BILL 100117, etc. I know that I guess it was -- I don't know when it was, whether it was this week or last week, somebody did testify that CLS received some funding from the Grants Revenue Fund. Maybe it was MOCS.
I know they get some money from DHS, but I thought that was also General Fund money, but I didn't know they got grants money. We can look into that. It's not for this work. It's not -- this is for representation. All of this money comes from the General Fund.
Thank you. The Chair recognizes Councilman Green.
Thank you, Madam Chair. I cannot remember where we left off, but I think -- 69 3/24/10 - WHOLE - BILL 100117, etc.
We were in budget. We had just talked about the receptionist position.
Budget Bureau, Section 12, . It looks like there's an unfilled Assistant Director to Finance position.
Yeah. That is the receptionist position we were talking about before.
And what would be the consequences now that the Five Year Plan is done of not having that receptionist?
I think the receptionist also does -- kind of every payroll transaction that comes through 70 3/24/10 - WHOLE - BILL 100117, etc. goes through that receptionist. So it's really a receptionist --
And when you didn't have that position filled, how was that getting done?
I don't think it was vacant that long, actually. It really wasn't vacant. I mean, it just happened to be --
Was there a payroll cycle while that position was unfilled?
Well, I don't think it was more than -- I think there was a very small time when it wasn't filled. And I think that person who had the job before was still doing some of that function.
Was. But now she's sitting right back there taking all your questions down.
How much does that -- no. I'm just -- Okay. There are four new Assistant to the Director of Finance ARRA positions at a salary of 45K to 98K.
Is there no 15 way to use ARRA money to pay for this oversight?
My understanding, there is not. I'll let the Budget Director answer that one. (Witness approached witness table.)
Good morning. Steve Agostini, Budget Director. After spending many months going through the legislation and the 72 3/24/10 - WHOLE - BILL 100117, etc. guidance from OMB and actually having conversations directly with the federal Office of Management and Budget, it became clear to us that trying to get any kind of general -- any kind of ARRA funding for this was going to be really difficult and at the time looked impossible. We think moving forward there may be an opportunity for us to generate a couple of hundred thousand to pay for some of these positions. So it's our intent to try and do that, but until recently, it's been almost impossible.
There's no 17 provision for administrative overhead so that you can do the reporting that the federal government requires?
There is a provision that allows you to take up to half a percent of particular grants as long as your cost allocation plan for the City conforms to approved cost allocation plans that are used by the federal 73 3/24/10 - WHOLE - BILL 100117, etc. government. The federal government has approved one of our cost allocation plans, one that we use in our human services, but you can only use the grants associated with that area to draw down the half a percent.
Have we put together a cost allocation plan of half a percent for every grant that is eligible for such cost allocation?
And that's where I think we'll be able to generate some of the potential dollars to cover some of these costs. But the guidance and the assistance from the federal government on this has been limited and we just needed to fund a staff to do this.
-- that we will get reimbursement of up to half a percent?
That's certainly 74 3/24/10 - WHOLE - BILL 100117, etc. my hope and that's what we will work toward.
We're going to try to work with the half a percent from those that fit into the cost allocation plan that has been approved by federal HHS, which is OMB --
Outside of HHS, we have no cost allocation plans that have been approved, to my knowledge.
Have we prepared and submitted cost allocation plans for approval?
The cost allocation plan approval process with the federal government is very rigorous and lengthy.
I mean, in some cases could take years. 75 3/24/10 - WHOLE - BILL 100117, etc.
The Chair recognizes Councilwoman Sanchez for a point of information.
Thank you. On that note, the administrative cost that's allowed by the formula for CDBG and others, what are we doing with that?
The administrative cost allowed I think are up to percent for Community 17 Development Block Grant or Community 18 Service Block Grant. The ARRA funds 19 trump those rules. You have to use ARRA 20 rules, not those rules, for ARRA funding.
There are administrative costs in CSBG for those 76 3/24/10 - WHOLE - BILL 100117, etc. programs. There are augmentations to CSBG and CDBG that are ARRA funding. We have not been able to draw down administrative expenses support from those funding, because we don't meet any of the criteria that they've set.
My only concern is because if we have the same staff, only in a few instances where we've hired additional staff to manage ARRA funding, percent could be quite a 17 bit of money. So I'm wondering on the -- 18
Yeah, and we've 19 been told specifically -- and we're happy 20 to give you -- that we cannot use those funds for administrative oversight. In querying both the Recovery Office and the Vice-President's office and OMB, it's been clear that that was just sort of an oversight, that the support for those 77 3/24/10 - WHOLE - BILL 100117, etc. expenses were not included. They didn't include it.
Thank you, Madam Chair. Well, I don't know how long we're going to have ARRA money or how difficult it would be to prepare cost allocation plans or whether or not preparing them now will put us in a position to get cost allocation for future federal programs that may come after ARRA, like infrastructure bills or other things that Congress is talking about, but I'd like to see us at least try to apply to get some of this money.
Are we going to do that this year? What I heard you say was almost -- the implication of what 78 3/24/10 - WHOLE - BILL 100117, etc. you said is, Well, it could take years, and I thought the negative pregnant of that was that we're just not going to bother.
Well, there are a couple things. One, recall that in the plan, the ARRA funded positions go away in months. So that's one way to 10 address that. 11 Secondly, the cost allocation 12 planning process is really a rigorous 13 thing from the federal perspective. 14 Having done a cost allocation plan for 15 wastewater and sewage treatment plants on 16 the West Coast, it really does -- it's -- 17
I'm not 18 questioning that it's difficult or not difficult, but sort of with respect to these four positions, is there any thought to take Councilman O'Neill's suggestion, especially if we know these are temporary positions, and just hire consultants to do this?
We tried to do 79 3/24/10 - WHOLE - BILL 100117, etc. that. We actually had an RFP in the beginning part of Calendar Year 2009 where we tried to have a consultant. We received a number of bids that came back in the $250,000 to $350,000 range just for base price on an annual basis, and we rejected those because we thought the costs associated with that were too high.
Well, this is four people. What is the salary of these four people?
The range there shows the 278,000. So we're looking at positions -- one position in the mid 90's, one position in the low 40's and then two positions, I think, 65 and 70.
With fringe, though, these positions are far more than the bid that came in.
Right. And the 80 3/24/10 - WHOLE - BILL 100117, etc. bids that came in were -- that was with the base cost. There were costs that you would incur on top of that depending on what you had people do.
Okay. Fair enough. I mean, you looked at it. There is a new Assistant Payroll Manager position at 64K in the Accounting Bureau. Has this position been filled? UNIDENTIFIED SPEAKER: It's a filled position.
Yeah. If you look at Line 15, that person moved up from 15 to 16.
It's not a new position. It's someone moving from the Accounting Production Control Analyst, which is Line 15, to Line 16. So it's 81 3/24/10 - WHOLE - BILL 100117, etc. not -- same person, different position.
Office of Administrative Review, Assistant Director to Finance, Hearing Officer position. It looks like this is a newly created position. Has this position been filled?
Yes, it has. There was a -- helping us address a backlog there. You have to wait about 120 days for a hearing before. This brought it down to about 90.
OAR also is budgeted to spend 54K per year FY10 and FY11 in Class 200 professional services funding for contracted Hearing Officers. 82 3/24/10 - WHOLE - BILL 100117, etc.
No. It's in addition, and I think that 54,000 moved over from Executive Direction. So I think it used to be shown elsewhere. Yeah, if you look on .
Does it make more sense to contract out the full-time position such that we're not paying fringe?
There are some that it does, depending on how many hours we need, and some that it doesn't. So some of them are contract and some are not.
This $35,000-a-year person is fully employed eight hours a day doing hearings?
Risk Management, finally, starting with the unfilled Claims Adjuster I position, has it been filled?
Yeah. Both of the positions here, that and the Occupational Safety, they've both been filled.
Okay. What I'd like to request is a -- Councilman DiCicco mentioned the 1,600 people roughly in DROP right now. If you could identify the exact positions and what departments they're in so that we can get a sense of where that is.
And I said 1,600. I don't remember whether it's 1,600 or we had an spike of an additional 1,600 towards the end of the contract which brought it up to around 3,000. I have to go back and check.
Whatever it is, can you please identify what they are, what the salaries are, what the position is and why we would need to keep 84 3/24/10 - WHOLE - BILL 100117, etc. that position?
The Administration testified that in preparing the proposed FY11 budget it asked departments to prepare two and a half, five, seven and a half percent.
I've got your documentation, which includes 14 items totalling $921,000.
The current budget we have does not take any of these cuts; is that correct?
No, that's not correct. Some of them -- the transfer of the Treasurer's Office, that happened. The contracts happened. The DOT support of the Administrative Service Center 85 3/24/10 - WHOLE - BILL 100117, etc. happened. I think what didn't happen right there, the contracts down toward the bottom, the witness relocation. That's kind of a -- that hasn't been witness relocation in years. It's in our budget in two different places. One is the Aon contract and one may say "to be determined," but it's really probably going to be for looking at PGW.
I'm sorry. I didn't understand that last response. That money was unspent last year?
No. I'm saying it's really -- it was spent in -- it wasn't spent for witness relocation. It was spent mostly on Aon consulting on healthcare and pension expert services for arbitration and negotiations.
Okay. And can we cut -- is there a reason not to cut it this year?
Well, we still -- we would still use it for two things. One would be our negotiations aren't 86 3/24/10 - WHOLE - BILL 100117, etc. done, so I think we'll still have a need there. And the second big thing that we would probably use it for is some analysis at PGW.
And we can't get PGW to pay for that? Why would we do that out of the General Fund?
I understand that, but we can still have the Gas Commission or somebody authorize that PGW pay that bill, can't we?
Okay. The budget detail, Section 12, Pages 91 and 42 indicates that the Finance Department paid Maximus Financial Services, Inc. 40,000. I'm sorry. We talked about 87 3/24/10 - WHOLE - BILL 100117, etc. this.
indicates approximately 40K in recovery services to be provided by a vendor to be selected. Could you please describe this, the type of services to be provided? (Witness approached witness table.)
So originally we had anticipated that we would spend some dollars associated with doing some audit reviews and some reviews of our processes and actually hiring like one of the big firms, big accounting firms, to help us with the -- just review and to prepare for any potential IG or GAO audits. That's still what we are anticipating that we would do that, although we have taken -- to the positions you were asking about a few moments ago, we have bolstered the Chief Integrity Officer's office, as well as the IG's Office in 88 3/24/10 - WHOLE - BILL 100117, etc. order to be able to do a lot of that internally. Because we are sharing information with other cities, because we've had one review by a federal entity, we think we're a little more knowledgeable about what to expect and we can do some of this in-house, but we'd like to have this opportunity just in case, because one of these big six firms is going to be able to come in and we hope provide us with some information, some process review that we may not be able to do internally.
Yes. And the reason is that we want to prepare ourselves in the event the General Accountability Office does a review, in the event that the Recovery Oversight Board does a review, in the event that any of the federal agencies do a review. And just so that you know, we already 89 3/24/10 - WHOLE - BILL 100117, etc. have had a review by a few of those entities, a preliminary review, looking at our spending and looking at our grants.
Without having to touch this money. We'd like to have it available to us so that we can have sort of another set of expert eyes go over what we're doing in terms of process.
No. I understand. There's a lot of people who would like to have money available to them for various different things in Philadelphia and are having to tighten their budgets, and I would --
I would like the City not to run afoul of the federal government on this.
No. I understand. I bet we could get you those services for free from the Private Sector 90 3/24/10 - WHOLE - BILL 100117, etc. Outreach Board or other places if it becomes a problem.
The budget detail for Finance indicates a new four million reserve for unanticipated expenditures in Class 900. At the same time, the Administration's proposed Five Year Plan has fund balances of 64 million in '11, 164 million in '12, 197 million in '13, 206 million in '14 and 191 million in '15, and I'm having a hard time squaring the reserve with the fact that we have significant fund balances which, after all, sort of are there for contingencies.
I think we have this fund balance conversation every year, don't we? This is the third straight year we had a conversation about fund balance.
This is a question actually about reserving in the 91 3/24/10 - WHOLE - BILL 100117, etc. face of a large fund balance.
Again, if you look at where fund balances should be according to the GFOA, we're low. Sixty-four million is a very low fund balance on a $4 billion budget.
Oh, it is. You and I don't disagree about the need to build up fund balances once this recession is over.
Having a little bit of a contingency -- and four million is pretty little -- on top of the fund balance just seemed prudent to us.
Well, let me ask you -- no. I understand. How much are we raising taxes in each of the five years of the Five Year Plan, other than the first year? In the last four years of the Five Year Plan, how much are we raising taxes?
And how much 92 3/24/10 - WHOLE - BILL 100117, etc. is the fund balance --
Right, but basically we could get by in the Five Year Plan. Things would be tight. We may not be able to hire when we want to and other things, but there is the money every single year almost if we find a few more cuts of 20, 30 more a million a year. There is the money in each year of the Five Year Plan to not need taxes or fees; isn't that correct?
No, because it's 180 million per year, which means that over five years --
Can I finish? It's 93 3/24/10 - WHOLE - BILL 100117, etc. 90 million --
Yes. You're correct. I apologize. So still back to my $4 million question. There's $4 million reserved when we have a significant fund balance.
I think we just agreed that it's not a significant fund balance in the first year. I think you agreed that 64 million was a small fund balance.
So why would we put in a reserve for $4 million when we have the money available for the contingency, which is the whole point of a fund balance? 94 3/24/10 - WHOLE - BILL 100117, etc.
I think because it's a relatively -- it's a very small fund balance, and with a fund balance that small, we thought it was prudent to have a small contingency.
Okay. What would be the consequence to City services of Council removing that $4 million contingency?
It would just mean if you had something like snowstorms this year, you would have to find the money somewhere else.
Okay. Thank you. Thank you for your time today. I appreciate it. MR. McPHERSON: Councilwoman Brown.
Thank you very, very much. On the question -- good morning, first of all.
On the 95 3/24/10 - WHOLE - BILL 100117, etc. question of snowstorms, what are some other unexpected costs other than snowstorms that may arise throughout the year for Class 900 funds?
To give you an example, this year one of the things that happened, we were -- the state implemented a new billing system for reimbursements from the federal government for costs in the Department of Human Services. Because of some implementation problems and because of some changes in how the feds do things, our reimbursements have gone down there. So that created a little bit of a problem for us. There have been years, not this year because of what happened with population, but let's say the prison population goes in a direction we didn't expect it to, you might have more prison overtime than we thought.
You could have some 96 3/24/10 - WHOLE - BILL 100117, etc. kind of incident that required Police overtime. There are lots of different things that can lead to spikes in costs for us.
So are contingencies put in the budget to anticipate unexpecteds like that?
No. I mean, there probably were three or four years ago, but as departmental budgets have been squeezed year to year, there's less in that and then really none of that, and that's what you saw happen kind of with snow this year. I mean, we'd never have enough to cover this year's storms, but in the past there had been some room in the Streets Department budget to cover a regular amount of snow, but that's not really there anymore.
Okay. Lastly, in the budget it seems that the 97 3/24/10 - WHOLE - BILL 100117, etc. Fellowship Program has been discontinued.
And that's really the reason. The obvious reason is the only reason.
So it's gone forever, at least for this budget cycle?
Yes. And we understand that that was a really valuable program, and if we get to the point where we can put it back, we would really like to put it back. I mean, not just for kind of the short-term benefit, but we'd like to develop talent that can either work for the City or work elsewhere in the City. So we think it's a really important program. It's just --
The reality we're living in or trying to live through.
Okay. You state in your testimony that the School District received a payment of $60,000, was it?
It's an additional $60,000 to the usual subsidy. The way it works, if the wage tax goes down, the school income tax goes down, and we have to compensate them for that decrease. And the wage tax is going down because of the state money we get, so that means the school income tax goes down, and we have to compensate them for that.
You're welcome. Are there any further questions from members of the Committee? (No response.)
Seeing none, we will break for lunch until 1:30. (Luncheon recess.) 99 3/24/10 - WHOLE - BILL 100117, etc.
The Committee of the Whole is now back in session. We will hear from the Revenue Department. ) COUNCIL President VERNA: Good afternoon. Welcome. Please identify yourself for the record. COMMISSIONER RICHARDSON: Good afternoon, Council President Verna. Keith J. Richardson, the Revenue Commissioner for the City of Philadelphia. Again, good afternoon, Council President Verna and members of City Council Committee of the Whole. I again am Keith J. Richardson, the Revenue Commissioner. With me today to my left is Frank Breslin, the Deputy Revenue Commissioner, and to my right, Michelle Bethel, the Deputy Revenue Commissioner for the Water Revenue Bureau. We are 100 3/24/10 - WHOLE - BILL 100117, etc. pleased to be with you today to discuss the proposed FY2011 Operating Budget for the Department of Revenue. The Department of Revenue is responsible for the collection of all revenue due to the City and for the enforcement of tax ordinances for the City and School District of Philadelphia. The Water Revenue Bureau is specifically charged with the collection of all water and sewer payments. The Department performs these duties while delivering quality customer service to all customers and taxpayers. The FY11 General Fund appropriation request for the Department of Revenue is 15,049,812. This is a decrease of 3,718,398 from Fiscal Year '10 estimated obligations of 18,768,209. 6 million, and the transfer of funding for the Department's information 101 3/24/10 - WHOLE - BILL 100117, etc. technology requirements of 1,045,795 to the Division of Technology. The Department is requesting 12,463,851 in Class 100, personal services, to fund 262 full-time and one part-time position; 2,074,783 in Class 200, purchase of services; and 511,178 in Classes 300 and 400, materials, supplies and equipment. The FY11 Water Fund appropriation request for the Department is 15,144,046. This is a decrease of 3,514,734 from FY10 estimated obligations of 18,658,780. This decrease reflects the net effect of the following: The transfer of water funded information technology requirements of the Water Revenue Bureau to the Department of Technology, which is $4,125,020; the full funding of annual personnel requirements of 405,719, along with funding for two initiatives in the Public Service Concourse, a professional security assessment in the payment 102 3/24/10 - WHOLE - BILL 100117, etc. processing/cashiering area estimated at 70,000 and an analysis of space utilization in the same area, also estimated at 70,000. The Department is requesting $10,649,066 in Class 100, personal services, to fund 260 full-time positions; 3,578,000 in Class 200, the purchase of services; and 913,980 in Class 300 and 400, materials, supplies and equipment; and 3,000 in contributions. The FY11 Acute Care Hospital Assessment Fund appropriation request is 45,000 and is intended to cover the Department's cost to administer the new assessment. The assessment is levied on the non-Medicare net operating revenue of acute care general hospitals located in the City. The Hospital Assessment Program is intended to generate revenues to fund Medical Assistance expenditures for hospital emergency department services in 103 3/24/10 - WHOLE - BILL 100117, etc. the City. The program is also expected to generate additional funding to support the City's public health clinics. The FY11 appropriation is 30,000 Class 100, personal service; 15,000 in Class 300 and 400 for materials, supplies and equipment. The FY11 Grants Revenue appropriation request is $10 million, the same funding level as Fiscal Year 2010. The funding levels in FY10 and FY11 represent a contingency appropriation for the fees to the Administration of the Tax Amnesty Program for the City. The Tax Amnesty Administrator receives a contingency fee based on actual collection of delinquent taxes collected on behalf of the City.
The Department expects to collect the bulk of the revenue associated with the upcoming Tax Amnesty Program in Fiscal Year '10, but may see some collections associated with the Amnesty Program received in Fiscal Year 104 3/24/10 - WHOLE - BILL 100117, etc. 2011. In order to improve taxpayer accessibility to the Department, the following enhancements to the online experience were implemented: The Department added a business privilege tax/net profits tax fill-in form to the Department's website to improve return scanning for taxpayers who retrieve tax returns online. We added the capability of online filing of the business privilege tax long form for 2010. Added online filing form for non-tax liability for businesses that do not have payroll for a given period. This eliminates the downloading of a form, manual completion by the preparer and processing by the Department. This new function enhanced the Taxpayer Information Processing System in realtime and prevents the issuance of erroneous non-filer notices due to realtime processing. 105 3/24/10 - WHOLE - BILL 100117, etc. To prevent delinquency before it happens, the Department of Revenue is working to make Philadelphia's taxes easier to understand and pay. The Department, with the assistance of the Mayor's Commission on Literacy, updated the Philadelphia Tax Guide to improve its understandability and has increased the accessibility of the City's tax collection information by placing monthly revenue reports online. In 2009, the Department eliminated the mailing of tax returns to taxpayers who did not use prepaid returns mailed out in 2008. These taxpayers received coupons only and 62,000 less returns were mailed in 2009 for postage savings in excess of 75,000. Eliminated mailing of wage tax coupons to taxpayers who file ACH payments for 2010 mailings - 5,077 fewer books were mailed for a savings of $3,177 in printing costs and $5,114 in mailing costs. 106 3/24/10 - WHOLE - BILL 100117, etc. Focus on improving collection rates: The Department launched a number of initiatives designed at improving tax collection rates. For example, we're in the process of implementing the tax compliance program partnerships with the Philadelphia Parking Authority, the Pennsylvania Convention Center, the Redevelopment Authority and the School District of Philadelphia. Prior to businesses contracting with the aforementioned, a tax check will be conducted to ensure potential and current businesses are current with all the Department of Revenue tax requirements and liabilities. Working with the City Controller, the Department of Revenue initiated the Employee Indebtedness Program. million in revenue. 107 3/24/10 - WHOLE - BILL 100117, etc. 9 million in tax debt. 6 million. We have also been able to increase our audit staff. Other compliance activities have focused on increasing collections from parking lots, which has generated $176,411 in Fiscal Year 2010 and totaled 742,259 in Fiscal Year 2009. 3 million in new revenues over the 18 months through December of 2009, and collections from utilizing IRS audits, which contributed more than 50,000 to the City coffers so far this fiscal year. We launched the Tax Fraud Hotline in May of 2009. Leads generated through the hotline have resulted in 272 108 3/24/10 - WHOLE - BILL 100117, etc. tips, $143,000 in assessments and 6,000 in new revenue. The Water Revenue Bureau continued its efforts to improve on collections with the following: Launched a nine-month pilot outbound calling campaign to targeted commercial water customers who were one cycle or more behind in payments and residential accounts that were $500 or more past due. The pilot commenced in late March of 2009 and ended in late November of 2009. I am pleased to report that the program resulted in the collection of $830,865 in delinquent water/sewer revenue.
Implemented the automated movement of cases to collection agencies and Municipal Court from basis2, which are the enforcement tools utilized in our partnership with the Law Department. In July of 2009, the Water Revenue Bureau successfully introduced a new water bill design that customers are 109 3/24/10 - WHOLE - BILL 100117, etc. finding more informative and easier to read and understand. The upcoming Tax Amnesty Program: As you know, the Department will be administering the Tax Amnesty from May 3rd through June 25th of this year. We estimate that the amnesty will result in an additional to 30 million 10 in Fiscal Year 2010 collections, net of 11 all costs associated with this 12 initiative. The amnesty will be 13 available for all tax types, except the 14 sales tax, which is administered by the 15 Commonwealth and will be eligible for 16 amnesty under the state's program running 17 concurrently, and the recently enacted 18 Acute Care Hospital Assessment. 19 To ensure the success of Tax 20 Amnesty, we solicited requests for 21 proposals through eContractPhilly and 22 received responses from some of the top 23 tax collection firms in the country. I 24 am happy to report we have engaged the 25 services of General Revenue Collections 110 3/24/10 - WHOLE - BILL 100117, etc. to act as the City's administrator for this initiative. We have also engaged the services of the Star Group, a leader in the advertising field, to raise awareness of this limited-time opportunity and to motivate participation in the amnesty. The Department's professional services contracts: To assist the Department in fulfilling its mission to collect revenues for the City and School District, the Department contracted for $9,123,230 with eight firms for professional services in Fiscal Year 2010. 4 percent are with WBE. 4 million contract with a locally based woman-owned firm that is awaiting City WBE certification. percent are MBE, 111 3/24/10 - WHOLE - BILL 100117, etc. are WBE, of professional services contracts for normal operations in Fiscal Year 2010 are with MBE/WBE firms. 94 percent, respectively. Thank you for your time and this concludes my testimony. We are available to answer any questions you may have, and should any Councilmember wish to engage in further discussions on any of these matters, we are more than happy to meet with Councilmembers at their convenience.
Thank you very much. On of your testimony, you deal with, quote, "focus on improving collection rates," end of quote. What are the Fiscal 2011 initiatives that you will be undertaking to generate additional revenues? COMMISSIONER RICHARDSON: What we're looking at working on right now for 112 3/24/10 - WHOLE - BILL 100117, etc. Fiscal Year 2011, we're hoping -- we're working on an ordinance right now, potentially working with City Council, trying to make mandatory electronic payments by the taxpayers, and we're looking to do that, phasing them in, for those taxpayers who are paying us monthly about $15,000 a month on various taxes, to make them mandatory that they're paying us electronically and phase it down as we move forward with other businesses. We're looking also to move forward with potentially electronic mandatory e-filing of your tax returns. Everyone right now is probably filing federal and state electronically, which is ease of convenience, and that will also assist our department as well. Again, we're looking at also researching potentially what will be the advantage of having an outbound call center. Again, when you're making outbound phone calls to taxpayers or 113 3/24/10 - WHOLE - BILL 100117, etc. water customers, it's about who gets there first. So if they're hearing from us first, they may pay us first before they may pay their Visa or Sears or Penney's first as well. We're going to continue to engage in looking at doing outside audits, going outside of the Philadelphia tri-state area, more travel audits as well. I think also as the Amnesty Program will come to an end, we'll have more new data on a lot of taxpayers, and it will help us to start looking at potentially scoring cases that may be more readily available for us to collect on as well.
As you're well aware, City Council has had extensive hearings dealing with delinquent taxes. There has to be some initiatives that you can undertake to generate additional revenues. My question is, how can we help you in this effort? 114 3/24/10 - WHOLE - BILL 100117, etc. COMMISSIONER RICHARDSON: Good question. I think partnering with City Council I think most importantly is getting the message out to the taxpayers that now is the time to take care of your responsibilities. We're not trying to be Monty Hall, Let's Make a Deal. We want to work with folks. I think if you have folks that are on the phone that are delinquents and they want to contact or work with us, we want to hear from you and/or them. Have them come over to our office or set a time that they can come in, because we want to sit down with each and every one possible to work on what is delinquent with them and try to move forward with this. Again, as we said several weeks ago, if you see activities out in the communities or the districts that you're in and you're suspecting of it, please let us know. I mean, we can't cover everywhere every day, but the more you give us, the more opportunity we have to 115 3/24/10 - WHOLE - BILL 100117, etc. go out there in the communities, look at the construction sites where there may be folks doing things illegally, looking at various businesses that may be in the communities, and you may have in your mind and say, Are they registered, let us know if you think about it. If you see something in the paper that you're reading, let us know. I mean, the more ammunition we have, it's better for us to go out there and attack the delinquents in the City.
Thank you very much. Can you explain how the delinquent tax collections contained in the Five Year Plan were estimated? COMMISSIONER RICHARDSON: Can you reframe your question again, please?
I wanted you to explain how the delinquent tax collections contained in the Five Year Plan were estimated. (Witness approached witness 116 3/24/10 - WHOLE - BILL 100117, etc. table.)
Hello. The Revenue Department really doesn't do them, and we talked to them about where they think collections will be. What we assumed is that we would see a spike in '10 from the amnesty with a little bit on the property tax and a little bit of a spillover into '11, and then we would probably go back to kind of fairly normal delinquencies. And if you saw any kind of benefit of the amnesty, you'd see that in more people going up to paying current amounts. So you wouldn't see a big run-up in delinquent collections in the future years. It would be relatively level.
Mr. Dubow, you might as well stay there. Something just occurred to me and I don't know whether the Administration is doing anything about it. When we did in fact have the hearings regarding delinquent taxes, we were told that some of the delinquents on file were approximately 30 117 3/24/10 - WHOLE - BILL 100117, etc. years old. And I know that there are times when I receive calls from my constituents saying, There's an empty house in my block, the owner has died, his children have died, and yet that property sits there only to gather more delinquent taxes. What are we doing about that? The average person reading the paper says, Oh, the City wants to raise $300 to collect trash. Why don't they go out after the tax delinquents? What are we doing about that? Because people read that, and here we are holding on to -- and I don't know of any business that does that -- holding on to delinquent taxes for 30 years.
Right. Well, the first thing we did is took a look at those numbers and did what you're talking about, say, Well, it doesn't make sense to count as collectible something that's been owed for 27 years, 28 years. So we took -- and that doesn't mean that we won't still try to collect, but carrying 118 3/24/10 - WHOLE - BILL 100117, etc. it on our books doesn't make sense. So we looked at what that number -- I guess the famous number is the 955 million -- would look like if you really looked at General Fund collectible items for the last six years. The principal amount of that is about $200 million, but that's really just kind of the first cut. The other thing we need to do -- and I think we actually have a meeting scheduled this week to do it -- is then look at that $200 million and look at other factors that may make that not really collectible. For example, the scenario you gave. If someone has died and the house is just sitting there, we're not going to collect. Or if a business has gone out of business and the principals are gone, we're not going to collect. So we've taken that first cut to get the number down, but we need to take a deeper cut, which we plan to do this week. 119 3/24/10 - WHOLE - BILL 100117, etc.
Thank you. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. I'm going to read this because I want to be right on the money. When a non-profit or a community development corporation acquires a property from an entity such as the RDA, there are often prior delinquencies such as taxes or water liens associated with that property. The non-profit -- am I correct that the non-profit or CDC is not responsible for those delinquencies? DEPUTY COMMISSIONER BRESLIN: I'm Frank Breslin, Deputy Revenue Commissioner. In many cases, that is the case, that the current owner/purchaser is not responsible for the prior debts.
Could you 120 3/24/10 - WHOLE - BILL 100117, etc. please confirm that a tax clearance can be issued based on proof or history that the delinquency cited is for prior and not the current owner's responsibility? DEPUTY COMMISSIONER BRESLIN: Yeah. It generally comes down to responsibility, not necessarily the date of acquisition, and I don't understand all the intricacies of all of the liabilities there, but generally what we do is, if there's debts that are deemed not to be the responsibility of the current owner, then we usually run it through our Law Department and a tax clearance is issued.
Do you know if the RDA maintains a complete list of the properties that we just described? DEPUTY COMMISSIONER BRESLIN: I'm not sure if they have a complete list of the properties. I mean, I know they are in the process of -- or my last conversation, they were in the process of researching all the properties that they 121 3/24/10 - WHOLE - BILL 100117, etc. had a list for.
Well, wouldn't you think that Revenue would need a list to expedite tax clearances for those properties? DEPUTY COMMISSIONER BRESLIN: And we have requested a list from the RDA.
So presently we don't, but -- DEPUTY COMMISSIONER BRESLIN: That's correct.
-- you need that to do your work? DEPUTY COMMISSIONER BRESLIN: That would assist us, yes, in the tax clearance process.
So there's no list at all. So what happens? You have to go one by one when you have a situation like that? DEPUTY COMMISSIONER BRESLIN: That's correct.
Let me see. 122 3/24/10 - WHOLE - BILL 100117, etc. You just mentioned that the Law Department is part of the process? DEPUTY COMMISSIONER BRESLIN: They are.
Well, that answers some questions. And by the way, I want to thank you for your help with the zoning variance legislation. I appreciate it. DEPUTY COMMISSIONER BRESLIN: You're welcome.
I just wanted this to get on the record, because there's some confusion on exactly whose responsibility it is and who it isn't, because I think there's some misinformation about this particular issue. Thank you very much. DEPUTY COMMISSIONER BRESLIN: You're welcome.
You're welcome. 123 3/24/10 - WHOLE - BILL 100117, etc. The Chair recognizes Councilman Greenlee.
Thank you, Madam President. Good afternoon, everyone. COMMISSIONER RICHARDSON: Good afternoon, sir.
Question about the Tax Amnesty Program, and as one of the many co-sponsors, I'm certainly a supporter of it. The question on the advertising, the Star Group, do you know how much is being paid to them and could you -- do you know generally what their plan is to advertise? COMMISSIONER RICHARDSON: The advertising cost approximately for that contract is going to be about $1.4 million. The tag line for amnesty is, "Now is the time."
"Now is the time." COMMISSIONER RICHARDSON: They primarily would be working to get the 124 3/24/10 - WHOLE - BILL 100117, etc. word out. They're working with our administrator for this, setting up with the website as we speak right now. We will be doing mailings within water bills that are going out, trying to work with SEPTA potentially on their monthly and weekly TransPasses getting the word out. They'll be working with eight various electronic boards, 95, different highways throughout the Southeastern Pennsylvania area. Again, they will be getting the message out sponsoring traffic. You'll be hearing this on the radio stations within the City of Philadelphia as well. So they will also be working with us to do our public relations meeting with various associations like the Bar Association, state and local tax, PICPA and other entities as well.
That sounds great. Thank you. I know there's questions come up, I guess, every year about how quickly the Department deposits money that they 125 3/24/10 - WHOLE - BILL 100117, etc. get, funds that they get, and there seems to be some concern that sometimes it doesn't get deposited right away. What officially is the policy of the Revenue Department as far as depositing checks, however they're gotten, first of all, money, however they're gotten? COMMISSIONER RICHARDSON: If you're getting the check to us, by example, for Monday, it is in the bank by Wednesday or Thursday at the latest. That right now we'll say is our non-peak season. After April 15th, again, you have to understand we're getting about 70,000 or more returns are in, plus checks, and unfortunately a lot of businesses will send their returns in and send their check somewhere else to another post office box. What the concern for us is, again, as we said it to you last couple of years, we have a lot of exception processing. So, for example, the last two months we have over 56,000 checks 126 3/24/10 - WHOLE - BILL 100117, etc. that have come in. They may come in with just an amount. There may be no BRT number on there. There may not be an address on there. So we have to do a lot of research. So when you have a unit of six people doing 55,000 exception processes, that slows the process of getting that money in the bank. So, again, for last year, we got everything within the bank within four weeks. Again, my goal is, again, I told you in 2008, was to cut that down from eight or nine weeks and cut it in half. We do also have two timeframes. We have folks working an evening shift as well now to get more money in the bank. And you have to take into account also we have to take care of the Water Revenue Bureau at the same time getting their money in.
Sure. So those checks that are -- where they don't give the proper information, account 127 3/24/10 - WHOLE - BILL 100117, etc. numbers, addresses, that kind of thing, is that separated so the others that are gotten properly go in right away? COMMISSIONER RICHARDSON: Yes. Again, that goes to the Exception Processing Unit. When we get a coupon and a check, that goes right through our RemitPro system. That is not a problem, but it's those who send us a check without the coupon that takes the -- or they send us a check and a coupon and they say, I want to pay principal only. Then we have to make another coupon sometimes.
You have to separate that. COMMISSIONER RICHARDSON: And, again, this is a situation that Council can help us with their constituents. You have to send in the coupon with your real estate or your BPT to make sure that it will get into our system much more faster than the several weeks you may say it's happening. So it's kind of a two-way 128 3/24/10 - WHOLE - BILL 100117, etc. street. You have to ask them, What did you send?
No. I appreciate that. In all those years of constituent service, I do ask those questions, and the back of the check when they say it was paid and all like that. Online payments, can bills be paid online? COMMISSIONER RICHARDSON: Bills can be paid online, but you have to pay with credit card. And, again, it's the service fee. We're trying to move forward with that direction working with the Department of Technology.
And is that all taxes you could do that or all payments? COMMISSIONER RICHARDSON: You can pay your taxes online, yes, and water also.
And how does that change as far as depositing? What timeline is that? 129 3/24/10 - WHOLE - BILL 100117, etc. COMMISSIONER RICHARDSON: It's about a day process. When it's going online through the credit card companies, then we have to get the information from them to get into our banks as well.
One last question on a little different area, the WRAP program, which I know is a good program. We've gotten people in -- worked with them. I ran into one situation. This could just be an exception, but I know every year there's supposed to be an annual sort of reapplication; is that right? Is that pretty much happening? Because I had one situation where a person at least doesn't realize they even entered into the program supposedly, and we're working on this like 1998 or something, and said they never got the bill, were never told that they had an outstanding balance, was never asked to reapply, and just late summer got a bill 25 for like $4,000 and it was like, Where 130 3/24/10 - WHOLE - BILL 100117, etc. did this come from, you know? DEPUTY COMMISSIONER BETHEL: My name is Michelle Bethel. I'm the Deputy Revenue Commissioner. And, yes, there is an annual reevaluation of WRAP applicants, and what that person was talking about is, in our previous water billing system, when a person would go into the WRAP Program, or Water Assistance Program, and they went into a specific program called the Water Revenue Bureau Conference Committee -- WRBCC is how we call it -- what happened is that balance went into what we consider a suspended account. On the old water bill they did not see that amount any longer. So let's say, hypothetically, someone came in and they owed $5,000 in the '80s and then we keep moving forward. They didn't see that bill. Well, now with the new bill that started in July, we are now showing our WRAP customers what that bill -- what the old bill was. 131 3/24/10 - WHOLE - BILL 100117, etc. So although we may not be enforcing on it, it reminds people what their delinquency really was when they first entered WRAP, although they're only paying their current bill now and their payment plan. It didn't really go away. So now with the new bill, it's reminding people so that when they will go to settlement -- let's say, for instance, something happens and they went to go sell the property, the next time they will hear about it was at the title search at the table. So now that it's on the bill, everyone should hopefully see what their old balance was and they can always pay toward that and what their WRAP payment is.
I think I'll have another question on that, but my time is up, so I'll wait. I mean, it's a follow-up.
Just real 132 3/24/10 - WHOLE - BILL 100117, etc. quick, then. Does the person -- like in this case, the person doesn't remember at least ever entering into it. Is there some evidence of that? Is there a copy of their original application or contract available? DEPUTY COMMISSIONER BETHEL: I guess it would depend on how far back they actually entered into the program. So our retention -- we don't keep -- we have people say they didn't have the balance and was years ago, but in our 14 system, we would show that they entered 15 WRAP on this date. So we do have -- and we had people come forward who forgot, and once they got -- that bill was a shock, it was a sticker shock, and those people who came in, we were able to produce the information that indicated that when they went into the program.
The 133 3/24/10 - WHOLE - BILL 100117, etc. Chair recognizes Councilman Clarke.
Thank you, Madam President. Hi. How you doing? COMMISSIONER RICHARDSON: Hi.
Just a couple of quick questions. In the City -- actually, I think in the State of Delaware they have an accelerated penalty process where on an annual basis the fees for penalties for vacant properties increase automatically, and I don't know if within our government we are allowed structurally to do something like that without having to introduce an additional ordinance. Would you know? COMMISSIONER RICHARDSON: I couldn't -- I could find that out. I could talk to the Law Department and Mr. Zwolak or somebody in the office there about that. I don't know.
Could you also find out if we can do that, if you had the technology to implement such a 134 3/24/10 - WHOLE - BILL 100117, etc. program so those bills would automatically increase in agreed-upon increments? Because I want to ask that before I put the bill in to implement such a program. COMMISSIONER RICHARDSON: We can speak to the Law Department for you to find out.
Okay. Last week when we had the community testimony and there was a lady here -- actually, I think she's from Council President's district, Tracey Gordon, and Tracey came in, it was formatted as a press release, but it was an analysis of, I think it was, two square blocks. COMMISSIONER RICHARDSON: I think this was 91 properties in Southwest Philadelphia?
Okay. Is there any validity to that? 135 3/24/10 - WHOLE - BILL 100117, etc. COMMISSIONER RICHARDSON: It could be very valid. I think one is, this is a Revenue and L&I issue to work together because of the properties, and they probably have more than three different units in there. L&I may be going out to look at those units. First of all, are they registered with the City. We need to find that out. Are they registered through L&I. A lot of the situations, properties may need to have mandatory hard-wiring of the fire alarm systems. So that's something that L&I can go out and look for, for code violations. A lot of times we find when people have rental properties, they're designed for minimal tax that they're going to pay back to us, because of all the expenses they're going to incur for using or having properties. So we've looked at this several years ago. It wasn't like it's going to bring millions of dollars in. However, on the licenses 136 3/24/10 - WHOLE - BILL 100117, etc. side, the $300 up front, the $50 per unit, that's where the revenue will be generated more for that. But that's something I sent to Commissioner Burns last week.
Right. And the reason why it piqued my attention is because there is an area -- several areas actually, but primarily around the Temple University area where a number of people have converted single-family dwellings into multi-family dwellings to take advantage of the need for student housing, and I know, one, they haven't gotten zoning; two, they have not gotten it obviously because they don't have the zoning, the proper permits, and I'm wondering if there is a way, without using a significant amount of person power, to determine when a property becomes a multi-family unit as opposed to a single-family dwelling; therefore, skirting the ability to pay or the requirement to pay the additional fee for 137 3/24/10 - WHOLE - BILL 100117, etc. having commercial property. COMMISSIONER RICHARDSON: We can research that. Again, we will talk to L&I about that. We don't really know when properties are changed unless we get the deed information that's come across --
Is there any way -- let me ask you this: If a person takes a unit and they convert it to a multi-family unit and the assumption is they might actually have different meters -- because I see different mailboxes, so I'm assuming they might meter them -- is there a way when you get multiple meters in a property that Revenue is alerted that this has been converted to a multi-family unit? COMMISSIONER RICHARDSON: We would be known of that on the Water 138 3/24/10 - WHOLE - BILL 100117, etc. Revenue side because they may be converting also for the water.
Well, normally water wouldn't be the case, because most tenants don't pay water. COMMISSIONER RICHARDSON: Right. Most of the times it's probably a single meter. But, no, we really wouldn't get notification of that. If they got the zoning permit and approvals that way and things were changed, the BRT would have the information, then we would get it that way, but if they haven't, we don't really know.
Is there a way -- and I guess gas since we own gas and the fact that we don't own PECO, is there any interaction between the two or a way for you to contact them that there's a way that you can be -- the City can be alerted when there's a conversion to multi-family units? I'm assuming that most of them would have gotten the proper zoning permits, but with that snapshot 139 3/24/10 - WHOLE - BILL 100117, etc. that she showed, that was a substantial number of properties in that targeted area. So you have to think that in a number of areas, that the possibility that it would be similar numbers in some other areas. COMMISSIONER RICHARDSON: We can reach out to our sister agency, PGW, and talk to them.
And can you get back to us before we conclude our budget hearings -- COMMISSIONER RICHARDSON: We will do our best, sir.
-- with whatever response? COMMISSIONER RICHARDSON: Yes, sir.
140 3/24/10 - WHOLE - BILL 100117, etc. You're welcome. The Chair recognizes Councilwoman Sanchez.
Thank you. Good afternoon. COMMISSIONER RICHARDSON: Good afternoon, Madam.
I just want to say for the record I appreciate all of your hard work and cooperation. We've been working a lot on this revenue collection side, and although we don't always agree on everything, I appreciate the fact that we can work through some of our challenges. I wanted to start off with your MBE pieces. I want to congratulate you, because I think you're one of the few departments that kind of had a real number that you could really meet. COMMISSIONER RICHARDSON: Thank you.
So in 141 3/24/10 - WHOLE - BILL 100117, etc. light of the fact that you met your goals, I wanted to know what are your goals for next year since we're moving up. COMMISSIONER RICHARDSON: Our projected goals for FY11, the total goal is 23.7 percent, of which is 9.1 percent in MBE, 14.6 percent in WBE. So those are our goals for next year.
Why aren't we being more aggressive there if you've done so well? COMMISSIONER RICHARDSON: Well, I think what you will find again is because this year with amnesty that's involved, that's why we've had --
Right. And I'm separating that one. If I were 142 3/24/10 - WHOLE - BILL 100117, etc. to count that one in your number, it's not -- COMMISSIONER RICHARDSON: Again, the Department doesn't have a lot of contracts, and, again, moving forward, the Division of Technology is taking over our contracts. We don't have many contracts that are coming to the table like a lot of the other departments do during the course of a fiscal year.
Okay. Let's talk about the amnesty. The first thing that I will say, especially as it relates to the PR campaign, it is very important that that campaign provide for different languages. So I want to say that now. COMMISSIONER RICHARDSON: Well, just to let you know, we already recognized that and we're hoping from discussions with you back in January 13th in your office that it will give us the opportunity to come on your radio station when you're speaking one day, too. 143 3/24/10 - WHOLE - BILL 100117, etc.
Well, more than my radio station, because that's free. COMMISSIONER RICHARDSON: Yes. We are --
You are welcome, and we will continue to do that. Absolutely. As it relates to the amnesty and our current outside providers, what's going to be the communication and the interactive on those accounts that they're currently managing? COMMISSIONER RICHARDSON: The current providers that the City is using, the Law Department sent a letter to them to know that as of March 31st, they're to cease and desist their collections of letters going out. Our vendor will start on April 19th with a location here in Center City. They will start sending out letters. They will send out about four letters during the amnesty time, and they also will be contacting the customers by 144 3/24/10 - WHOLE - BILL 100117, etc. phone as well for outbound calls.
So those folks are going to lose the ability to manage those contracts? If folks come in and want to take up amnesty, they can't issue those? COMMISSIONER RICHARDSON: No. 9 We need to work with one vendor and not with five or six different vendors.
How has been the impact? What has been their response to that in light of the fact that they've worked with us for many years? COMMISSIONER RICHARDSON: Unfortunately, it's the cost of doing business. They don't like it, but they understand it, and the clause in the contract is that the Law Department has the right to pull any cases at any time.
So at the end of the term, they can resume their collections? COMMISSIONER RICHARDSON: After 145 3/24/10 - WHOLE - BILL 100117, etc. amnesty is over and we do some post-amnesty work, we look forward to getting the cases back to the Law Department to get back out to the collection agencies sometime in July or so.
Are there going to be lots of gaps in time between those transitions? COMMISSIONER RICHARDSON: There should not be a lot of gap in time. We're hoping that a lot of folks pay off so they won't get as many cases, but there won't be that big a gap in time.
As it relates to going back to the questioning of Councilman Clarke, are we -- and I notice we've been doing a lot more cross referencing in BPT and others. Are we cross referencing with use and occupancy? COMMISSIONER RICHARDSON: We cross reference with all our taxes in the system.
So use 146 3/24/10 - WHOLE - BILL 100117, etc. and occupancy is one of them, because I figured that may be another way to get at your question about when folks do the conversions. You mentioned this quickly. How much do people actually pay right now for online payments and stuff? COMMISSIONER RICHARDSON: Right now I think it's a 2.49 percent fee that is paid for a credit card. Again, the folks are going online -- or not online. They're paying through their bank. There's no fee for that. But, again, through official payments, it's a 2.49 percent fee.
Yeah. It's important that we continue to tell that to folks. Councilwoman Tasco and I were just talking about if you use Philadelphia Credit Union and some other folks, it's free. I'm trying to encourage folks to do that. And you mentioned the fact that we're moving to be able to have that 147 3/24/10 - WHOLE - BILL 100117, etc. internal capacity to process these so we don't have to charge -- have an outside vendor charging the fee? COMMISSIONER RICHARDSON: Well, any time a business comes to us and wants to set up ACH debit or credit, we can do that for them, and there's no fee at all for doing that with us. So, again, that's something we're looking hopefully to move forward in the Fiscal Year 2011, hopefully sometime in January to move forward with that happening.
Now, we talked a little bit -- and this is more for the record, and I was encouraged by what I heard Rob Dubow mention about what our real debt is, because we all get slammed for that number, and you and I had the conversation about what's a real number and what's just this number that we've put out there that now we got to own all the time, that that is our aegis. I still have a concern with the large number of delinquency. For my 148 3/24/10 - WHOLE - BILL 100117, etc. colleagues' knowledge, I have ten percent of the City, but percent of the 4 delinquency at the tune of $50 million. 5 I'm very interested in figuring 6 out, as you guys narrow down those 7 numbers, if there is a way that we can 8 track either large increases of 9 delinquencies so that we can come up with 10 a preventive strategy in making sure that 11 people are signed up for our low-income 12 program, because there is going to be a 13 large amount of money that's just going 14 to be left out there with these folks. 15 So, again, as you guys narrow down that 16 field, I'd be interested in figuring out 17 how do we do some pilots around getting 18 some folks to pay some of that debt, 19 because, again, as I expressed to you, my 20 concern is if you owe 800 -- and of that 50 million, 10 million is in fines and fees, but the number gets to an amount where people just give up because they don't think there's no hope. So, again, I'm looking for -- 149 3/24/10 - WHOLE - BILL 100117, etc. COMMISSIONER RICHARDSON: Just for the record, you're talking about water or taxes?
I'm talking about water. COMMISSIONER RICHARDSON: Again --
That's my water delinquency. COMMISSIONER RICHARDSON: Okay. We want to work with all the Councilmembers and your constituents. Hopefully you'll be getting brochures from us in your office in the next week or two in regards to the various programs that we offer as well. Again, as we said to you back in January 13th, we are more than willing to come out to the various Council districts when you may have a town hall meeting to talk to your constituents about the various programs that we do offer.
Maybe we can use the Tax Amnesty PR campaign as an 150 3/24/10 - WHOLE - BILL 100117, etc. opportunity to go out as we're talking about that and then also kind of tack in the water piece as we inform people. Since we're going to have a campaign and I encourage you to look at when we're sending out Tax Amnesty information, to use those mailing opportunities to maybe include some of this water stuff since we did not include it in the water amnesty, because you asked me not to, that we figure out a way. I'm just saying, it's a campaign and it's an opportunity to send another message to people that we want you to pay and we want to work with people as they pay. I don't know what that response is, but that's what PR folks are paid to figure out. So I'm sure they can come up with something. I'll wait for my next round. Thank you.
Thank you. The Chair recognizes Councilman 151 3/24/10 - WHOLE - BILL 100117, etc. Jones.
Thank you, Madam President. Good afternoon. COMMISSIONER RICHARDSON: Good afternoon, sir.
First of all, I think I should say that whenever we call your office with a constituent service issue, you are responsive. We always don't get the answer we want, but we always get an answer, and usually it is a fair answer, considering all of the circumstances. So I wanted to put that on the record and say that you've been responsive. In our earlier hearings, I mentioned to you about the ratio of hiring internally collectors versus the yield that each collector brings versus things like one-time amnesties where we're talking about gearing up $10 million to get back somewhere around 25 to 30 million, one time, when we can do 152 3/24/10 - WHOLE - BILL 100117, etc. this in an internal manner and get that all in time. And before you tell me why you're putting bad receivables on the books, some are uncollectible, but even if we discounted it by half, that's a half a million dollars in revenue per revenue examiner we hire, and I'm just vexed about why we don't do it that way versus farming it out. COMMISSIONER RICHARDSON: Well, again, we're looking at it in the department about what does additional staff have. Again, you have to realize an auditor is great to have. All they're going to do is continue to do maybe 750,000 to a million dollars in assessments. That doesn't mean the money has been collected. Now, I assess you. You may go to the Tax Review Board to fight your case. That may take six months or so. We may lose that case. So that's not real money. Again, as I said to you before, we're looking at the idea of a potential 153 3/24/10 - WHOLE - BILL 100117, etc. call center. When you're making an outbound call to the taxpayers who are delinquent or we got your non-filed information, that hits the point. That's more of the hammer that gives us an opportunity to collect more money.
Even if we discount it further, even if I say we only get real money, a quarter of the money that that million dollars represents, it does bring more revenue in on a consistent basis. The other issue is that -- and I was surprised that my colleague Councilwoman Sanchez didn't raise this -- when we start talking about revenue enhancements, the automatic issue that arose by some of the stakeholders that this impacts is that we don't collect the revenues that we have on the books and that in fact it is common knowledge in some of the stores that it is better to take the lottery chance that you will come there versus actually owning up to 154 3/24/10 - WHOLE - BILL 100117, etc. all that they may be liable, responsible to give to you. And if we hire those people internally, those percentages of them getting an actual audit goes up and it goes out into the community that, Hey, I better pay up now before I get caught, and it sends out a deterrent, if you would, to those other people who kind of say, I'll just take my chances. And so, again, even if we get just a quarter of it, it does so much more by sending out the fact that we are looking, we are monitoring, we will come knock on your door. COMMISSIONER RICHARDSON: Duly noted.
All right. So I don't know what that means. Does that mean that's something that we're going to seriously look at? COMMISSIONER RICHARDSON: Well, again, as we embark on the next fiscal year, we're hoping to partner with some agencies like L&I, for example, going to 155 3/24/10 - WHOLE - BILL 100117, etc. start looking at various business districts and maybe going out there doing a sweep for the day. When you do that, it let's folks know that you are out here and about. I think, again, a lot of initiatives that we have taken on in the last fiscal year or so has started to get out there; for example, the parking lot audits that we have done, being out at the stadiums. The word gets out there and tells the association members, the liquor tax audits that we do. Folks start talking. Well, the Revenue Department was here, I wasn't expecting this. So the word gets out. So, again, we're going to continue to move in that way of doing things, be more on the spot. We want to be on Cecil B. Moore Avenue. We want to be on 60th Street. We want to be on 52nd Street. We want to be on 22nd Street. We want to go do Aramingo Avenue or Bustleton Avenue. So we have to do those 156 3/24/10 - WHOLE - BILL 100117, etc. in pilots in the various projects and things.
I just think that it gives us cover when these interest groups tell us, Well, look, you have enough revenue enhancements on the books. We are liable for this, that and the other, but we don't have to pay it. And that kind of common knowledge scares me by way of what -- if we put something else on the books, okay, that's nice, it's a paper revenue enhancement, but until it is collected, it doesn't do us any good. So at least that you're giving thought to it gives me some degree of confidence and also come-back to them that we are going to aggressively go after revenue that is owed us. Because when we don't, I mean, they're looking at us like, Okay, we'll just ignore that too. And so I appreciate that you are at least considering it, and I'm not going to forget. I'm going to ask you that and 157 3/24/10 - WHOLE - BILL 100117, etc. how we're progressing on that. So at least if we do the analysis and you can give me some real kind of quantitative analysis that says this is not good for us, but this process of outsourcing gives us greater yield, I mean, I just want to really kind of take that -- COMMISSIONER RICHARDSON: Well, let me say it to you this way again. You have to realize once the case is delinquent, after 90 days, it goes to the Law Department. Again, we can try to do much up-front compliance as possible on audits. Again, as I said, we're looking at research of making those outbound calls, which are very proactive and help out a lot. To sit here and give you an analysis today or tomorrow if you want responses back as part of this hearing, I can't really quantify it and analyze it for you. Will I say collection agencies are good? Yes, I will say that, because there's more in the collection agency 158 3/24/10 - WHOLE - BILL 100117, etc. company who can make those outbound calls, because they're using a predictive dollar system. After they hang up with you, they're on the phone with the next person.
What I've been saying to all Commissioners is, outsourcing versus in-sourcing, it's not a given to me and I don't think to this body that that always creates the greater yield for the City. I always want to check, double check what the market is bearing and what our own internal staffing costs would compare to that and see which one actually is better. And if we do that as a city every time we do that analysis and if you're right or if I'm right, at least the City gets it right by way of which one is a better course of action. And that's all I'm challenging all Commissioners to do. So don't tell me that we can't build a rec center cheaper than what we're getting based on ten years ago analysis. We know 159 3/24/10 - WHOLE - BILL 100117, etc. things change, and we want to constantly check the meter to see if we're on the right course, and that's -- not today or tomorrow, not today or tomorrow, but in our long-term planning and thinking. Whether it's your department, whether it's the Solicitor's department, it doesn't matter to me. It comes into the same kitty and pays for the firemen, policemen and librarian. Thank you, Madam President.
Thank you. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. I just want to go back. I didn't want to take too long in the first round, so I just have a couple more questions about the conversation that we were having earlier about the RDA. Is there some timeline or deadline that you believe that you will 160 3/24/10 - WHOLE - BILL 100117, etc. have the information that you need to resolve some of the problems that we've discussed today? DEPUTY COMMISSIONER BRESLIN: I believe we should have that relatively soon. I don't have a definite date. I know that they're analyzing the accounts, and my understanding was, they were three-quarters of the way through the process. So I would anticipate in the next few months, but it's dependent on them.
In our business it's always nice to hear a number. So in the next few months. That's great. Is the only -- I think that probably answers the question. I just wanted to nail you down to the point where we can have a reasonable timeline on having that process work. As you know, we're trying to make some amendments to the legislation where in fact you cannot get a zoning variance 161 3/24/10 - WHOLE - BILL 100117, etc. without your taxes being paid, and there were some legitimate concerns about the relationship, but I think today you've explained that that problem of acquiring a property through the RDA for a CDC should not, again, be the problem -- be a problem for a person since they will not be responsible for any of those back revenues. DEPUTY COMMISSIONER BRESLIN: Right. They should be able to -- if they have no responsibility for the debt, they should be able to get a tax clearance and should not be held up in the process.
You're welcome. Commissioner, what are the anticipated revenues from the Acute Care Hospital Assessment Fund? COMMISSIONER RICHARDSON: I'll get back to you with that answer. I do not have it in front of me. 162 3/24/10 - WHOLE - BILL 100117, etc.
Thank you. In your testimony, one of the bullet points was increasing collections from parking lots, which generated $160,000 in FY10 and totaled 742,000 since FY09. Can you elaborate on that, please? COMMISSIONER RICHARDSON: Yes, Madam President. Again, we took an aggressive approach in Fiscal Year '9 of starting to look at parking lots. We currently have under the program, as you said, the collections, we have several parking lot cases in front of the Tax Review Board coming up, which will probably hopefully net the City well over a million dollars or more if they find in favor for us. Again, as we said, 742,000 has been collected since we started this in September of '08, I think it was, during the football season, but it's been progressive. But, again, we think we will be well over the million-dollar 163 3/24/10 - WHOLE - BILL 100117, etc. mark.
Does that include parking lots in the City? COMMISSIONER RICHARDSON: That includes parking lots in the stadium, within Center City and other parts of the City, yes.
Wonderful. Thank you. COMMISSIONER RICHARDSON: You're welcome.
Are there any other questions from members of the Committee? (No response.)
Commissioner, it's my understanding that Councilman Green has a number of questions. I have suggested he forward them to you in writing. Would you please make certain that your response goes to every member of Council, please. COMMISSIONER RICHARDSON: Yes, ma'am. 164 3/24/10 - WHOLE - BILL 100117, etc.
Thank you. Councilwoman Sanchez, did you want to be recognized?
Yes. Just one last thing. As we look at our housing redevelopment strategy, particularly in neighborhoods, the water piece -- and I had this conversation with Mr. Richardson, and I just want him to know that I followed it up all the way up the chain of command and will circle back down. Our ability to look at water debt as a vehicle for redevelopment is very, very important, and I had an opportunity to spend time with the Mayor and the housing folks, RDA and the Office of Housing and Community Development, and I was encouraged, because they did have a conversation with you about -- at least they mentioned that they had been talking about the water debts, tax delinquencies and so forth. 165 3/24/10 - WHOLE - BILL 100117, etc. So I wanted to let you know that we will continue to work at figuring out how we can turn these properties around and get both property taxes and water collections from them, but understanding that our keeping these bad debts slows up our opportunity to redevelop, particularly in challenging neighborhoods. So I appreciate your willingness to look at that from a broader perspective. I know it's hard to look at the Water Department and their silo, Water Revenue being another silo, but I can tell you that you could add tremendous value to that discussion if we put all those numbers together and look at how government sometimes is in the business of creating blight if we're not willing to look at these debts in a different way. And I was very encouraged by the Mayor when we had the broader discussion around let's line up all these issues. And I say that only because both you -- and I'll say the same thing to the 166 3/24/10 - WHOLE - BILL 100117, etc. Public Property Commissioner. If you guys are given a revenue goal, you're going to do your job, and unless we can articulate a more comprehensive articulation of, yeah, we want to collect revenue, but we also want to realize that our hammer sometimes does not help in the other work we're doing in neighborhoods around neighborhood redevelopment. So I just want to thank you and commit to continue to help all of you break down those silos so that we don't give you an unrealistic revenue projection if then at the same time we're asking you to help us on neighborhood redevelopment. And I get that, and I think people are starting to get that. So I appreciate, again, you're willing to listen and work with us on that. Thank you. COMMISSIONER RICHARDSON: You're welcome.
Councilman Jones. 167 3/24/10 - WHOLE - BILL 100117, etc.
Under your scenario, if we do not -- are you preparing a possible seven percent cut or are you one of those departments that they're going to be spared that no matter what? COMMISSIONER RICHARDSON: We have looked at the scenario, so we are prepared if it has to come down to that.
Just on that comment, I just think it makes no sense. You're the --
That's what I was about to say. Through all these cuts we've made over the last year and a half, one of the things that we've tried really hard to avoid is cutting anything on the revenue collection side, because we thought that would be counterproductive. So while Revenue did do an analysis of what that will look like, we never had 168 3/24/10 - WHOLE - BILL 100117, etc. any intention of cutting anything connected to collections.
Just for those listening, I'm not the Sheriff of Nottingham or anything, but when it comes to revenue collections, you're the guys and gals that go out and actually bring the money in, and it just seems counterproductive to do anything like that. I always felt that way about you and Licenses and Inspection. To cut inspectors at a time when they can actually do two worthwhile things - one, correct some of the blight in our community and also in the process receive fines and get revenues - just is counterproductive to me and I'm glad that you are one of the departments that are going to hire internal folks to go out and collect that. I'm glad to put that on the record. Thank you.
Any other comments or questions from members 169 3/24/10 - WHOLE - BILL 100117, etc. of the Committee? (No response.)
Seeing none, thank you very much. COMMISSIONER RICHARDSON: Thank you, Council President Verna. Have a good afternoon.
Thank you. We will now hear from the City Treasurer. (Witness approached witness table.)
Thank you. Good afternoon. My name is Rebecca Rhynhart, City Treasurer.
We'll do this very quickly. Please proceed with your 170 3/24/10 - WHOLE - BILL 100117, etc. testimony. Good luck to you, hon.
Thank you very much. Good afternoon, Council President Verna and members of City Council. I am Rebecca Rhynhart, City Treasurer of the City of Philadelphia. I am pleased to provide testimony on the proposed Fiscal 2011 Operating Budget for the Office of the City Treasurer. The City Treasurer's Office is responsible for the distribution of checks and electronic payments and the investment of bond funds and operating funds not needed for daily requirements. In addition, the City Treasurer's Office is responsible for new bond issuances and the management of over seven billion of outstanding debt, including debt issued for the General Fund, Water Fund, Aviation Fund and Philadelphia Gas Works. The Fiscal 2011 budget, as proposed, provides the necessary funding for the City Treasurer to accomplish 171 3/24/10 - WHOLE - BILL 100117, etc. these core responsibilities. The City Treasurer's Office is assuming complete responsibility of debt management during Fiscal 2011 with the transfer of debt contracts from Finance to the Treasurer's Office and the transfer of the one remaining debt-related position from Finance's budget to the Treasurer's Office. The highlights of the Fiscal 2011 budget request by proposed expenditures are as follows: The $745,937 in Class 100 funds represents 82 percent of the Treasurer Office's proposed budget. The 136,538 in Class 200 represents an increase over the $73,088 in the Fiscal 2010 adopted budget because of the transfer of debt-related contracts from Finance to the Treasurer's Office. The combined Class 300 and 400 amount is $22,224 for supplies and equipment, which is a slight reduction from the $24,224 budgeted in Fiscal '10. 172 3/24/10 - WHOLE - BILL 100117, etc. The City Treasurer's Office is focused on efficiencies in the distribution of payments as well as efficiencies in the deposit of revenue into City bank accounts. Direct deposit for City workers and pensioners is encouraged, and we have seen a steady increase in participation from 70 percent in Fiscal 2004 to 75 percent in 2007, 78 percent in March 2009 and 79 percent as of March 2010. There is an even higher participation among pensioners, as about 85 percent of pensioners receive payments through direct deposit. In addition, the Treasurer's Office has actively been working on analyzing fee structures across banking and money manager arrangements and negotiating new fee structures which are more beneficial to the City. The Office has been successful in negotiating more beneficial money manager fees through a request for proposals process completed during the last year. 173 3/24/10 - WHOLE - BILL 100117, etc. The credit crisis which began in 2008 caused the variable-rate bond market serious market difficulties which affected the City of Philadelphia. 9 billion of outstanding variable-rate debt, including General Fund, Water, Aviation and Philadelphia Gas Works when the problems began in the market. 9 billion since 2008, with 750 million being restructured or refunded during Calendar Year 2009. In addition, the Office coordinated the issuance of 145 million of Water Revenue bonds in May 2009 and 275 million of tax and revenue anticipation notes in October 2009. The Treasurer's Office plans to issue 145 million of general obligation bonds as early as fall 2010 to fund capital projects throughout the City. The Treasurer's Office 174 3/24/10 - WHOLE - BILL 100117, etc. commissions an annual study that analyzes the lending practices of the authorized depositories for the City. The most recent study for Calendar Year 2008 was delivered to members of Council in mid March. The Treasurer's Office issues an annual request for information to be completed each year by the authorized depositories in which they must state their community reinvestment goals, respond to the lending study and address any disparities in lending.
Fiscal 2010 appropriations supported one Treasurer's Office contract with Econsult Corporation and MFR Consultants in the amount of $47,500. The Office had a 50 percent participation rate in contracting opportunities for MBE and WBE firms in Fiscal '10. In Fiscal 2001, four additional contracts have been appropriated because of the transfer of debt contracts from Finance, to bring the total to 112,250. With the inclusion of these contracts, the Office has a total 175 3/24/10 - WHOLE - BILL 100117, etc. 3 percent for WBE firms. The Office also has a longstanding practice of hiring co-financial advisors and co-bond counsels on bond transactions. Thus, there have been minority or women-owned financial advisory firms, as well as minority or women-owned law firms on virtually every City bond transaction for the past five plus years. I appreciate this opportunity to provide testimony regarding the proposed Fiscal 2011 budget for the City Treasurer. I will be happy to answer any questions that Council may have regarding my testimony.
Thank you very much. The Chair recognizes Councilman Jones.
Thank you, Madam President. 176 3/24/10 - WHOLE - BILL 100117, etc. Recently in the papers it was reported that we received $3.4 million in federal checks that went uncashed for a year. Can you explain what happened?
I'm actually not aware of 3.4 that remained uncashed, but --
Yes, paper checks. And I think it was Item 14 of the Freshmen 15. We recommended electronic transfers for funds, particularly from the state, where we had realized that because of slow cashing and processing of checks, that we were missing close to a million dollars in revenue that we could have. And in this case, the Department of Defense had to reissue the checks and --
It was 3.4 million 177 3/24/10 - WHOLE - BILL 100117, etc. in wage tax checks that the Department had sent in 2005, and I think as part of an ongoing investigation, the IG discovered that that had never been deposited, contacted the Department of Defense and got the checks reissued.
So how much did we lose in interest payments based on that?
Based on three million over several years. Yeah, I mean, there is some lost money. I could speak to the bigger issue of direct deposit and funds coming in from the state and progress we're making on that. We're currently getting about $2 billion in direct deposit from the state, which is over 92, 93 percent of the total amount coming in. There still is over 100 million that we're working on getting moved over. A lot of that is smaller payments, but we are making progress.
We do sweeps. We do all kinds of nice neat 178 3/24/10 - WHOLE - BILL 100117, etc. fiscal stuff. Is that going to realize additional revenue over time? And do you have any idea what that means by way of additional revenue to us? Have you calculated that at all?
We haven't calculated it on a per-day/month basis, but I would say that the faster we can get the checks in, we want to do it. We get the interest rate on those monies. So if we can get it in two, three weeks faster by direct deposit, that's something we really want to do.
Well, I appreciate the progress, because that was something that came to our attention from the state, and when we're looking for every penny to count and we're talking about the dreaded revenue enhancements, these are efficiencies that we can do. And so I'm thanking you for doing that. What is the challenge to getting the other payables that the state has for us or reimbursables into that 179 3/24/10 - WHOLE - BILL 100117, etc. kind of electronic system? What is that challenge?
I think the challenge is really that a lot of them are smaller payments and we need to get the word out to the departments, which we've been doing, that they need to fill out the paperwork to get it moved over to ACH, to get it moved over to direct deposit from checks. So the Treasurer's Office has actively reached out to the departments. I know that the Grants Unit, when they receive paper checks, they call the departments and say, Here's the paperwork, fill it out, and we help them process that. So it's really just getting through -- some of the payments are on the smaller side. Every payment counts, but some of them are smaller and so it's just working around --
Well, we got the larger ones already in that system. I would anticipate DHS is such a large 180 3/24/10 - WHOLE - BILL 100117, etc. kind of reimbursable that we get from them. So is there a goal of a time when we will actually achieve that for the smaller payments?
We're continuously working on them. It's an ongoing process to get them all in the system. So there's not a set goal, but it's something that we work on on a constant basis.
Well, we'd appreciate it if you, as you make these benchmarks, to let us know, because we think that those are the kinds of efficiencies that I think mean so much. As the world looks to us to try to sharpen our pencils and get our act in order, these are steps that have been made to improve efficiency, and I think they should be noted.
Point of information. 181 3/24/10 - WHOLE - BILL 100117, etc.
What amazes me through this whole missing check thing is that the federal government never stepped forward and said, We have these checks that have never been cashed. You would think that their auditors would have picked up. And I want to turn it around a minute, and that's why I asked Mr. Dubow. If we sent someone a check and it's for a hundred thousand dollars and it never gets cashed, do you have a process to notify a vendor or someone that in fact -- maybe not a hundred thousand dollars, a $250 check that's still outstanding. How do we do business and are we paying with direct deposit transactions rather than paper checks? Are we trying to eliminate the amount of paper that we handle in that manner?
We are. I can speak to that. We do encourage -- in 182 3/24/10 - WHOLE - BILL 100117, etc. terms of the direct deposit, we encourage our vendors to go on to direct deposit. We encourage people, our employees to go on direct deposit. Whenever there's a check lost or stolen, we say to them that, Can you please go on to direct deposit. So we make efforts in that way. In terms of if a check hasn't been cashed, we do reach out to all people that haven't cashed their checks after, I believe it's, a year and we send them information saying that you need to contact us, we have on the records that this is an uncashed check. If it still goes uncashed, it gets sent to unclaimed monies at the state level.
How old does a check have to be before it's stale? Is there something on the check that says after six months, 90 days?
You mean that it's not cashable anymore? I believe it's four months. Four months, yeah.
Well, that's 183 3/24/10 - WHOLE - BILL 100117, etc. good to hear. But, Mr. Dubow, can you imagine the feds not contacting this government telling us that that money -- that those checks weren't cashed?
Mr. Agostini, who worked for the federal government, is nodding his head yes.
That makes me feel real confident. Thank you. Thanks, Madam Chair.
You're welcome. Councilman Green, our witness here is very pregnant.
So I am suggesting you keep your questions brief.
Madam Chair, I'm going to ask my questions just like everybody else.
But in the sweet tone that I have asked them to everybody else this budget season. Good afternoon.
Big day coming up. I will try to keep these questions less painful than your upcoming 185 3/24/10 - WHOLE - BILL 100117, etc. day. Last Thursday, the PhillyDeals column in the Inquirer reported that under pressure from Congress, rating agencies plan to increase their credit ratings for state and local governments. The column reported that Moody's plans to recalibrate ratings for states and cities starting next month, resulting in, quote, an upward shift for most state and local governments' long-term municipal ratings by up to three notches. The columnist noted that if Philadelphia's ratings rose from BBB to A, the City could achieve over one million per year in savings from lower interest rates on its upcoming $145 million general obligation bond offering. In addition, it may be possible to refinance existing debt to achieve a better interest rate as a consequence of locking in a lower rate as a result of the increased bond rating. So if Moody's makes this 186 3/24/10 - WHOLE - BILL 100117, etc. change, how do you anticipate this impacts our plans for next year with respect to borrowings, and also what is our plan for the $1 million that this would save us?
Sure. Well, on Moody's announcement, it's a very positive development. We welcome it wholeheartedly. It's still -- while it's positive, we still have to wait to see how the market will take it into consideration. So if we get upgraded by Moody's, if we get upgraded the three notches, we'll still have the lower ratings on our bonds from the other rating agencies. So we're hopeful that the market will look at that higher rating from Moody's and give us the benefit of that in terms of interest costs, but they might also look to the lowest of the ratings, which unless the other rating agencies follow suit, which we're hopeful and we hope they do, but at this point, they haven't said that they 187 3/24/10 - WHOLE - BILL 100117, etc. will. So I think in terms of reduced interest costs, we're hopeful. If we get the full benefit, that would be great, but we still have to wait to see how the market reacts to it. In terms of refinancings, if the market does give us that benefit, as bonds become refundable -- and that depends -- we can't just go out to the market and refund all of our debt, because there's certain call dates, legal requirements that we have to wait for, but at those points, we would continue to evaluate that and see what benefit that would bring us. So it's positive, definitely.
Okay. Following the -- I don't know if you've been watching, but basically for every department, I've gone through vacant positions, unfilled positions, newly created positions and tried to figure out what the job duties are, how they were 188 3/24/10 - WHOLE - BILL 100117, etc. performed during the period of vacancy and/or why we need new positions.
So with respect to that, there appears to be a new position of Assistant City Treasurer. Is that position currently filled?
Yes. That's actually not a new position. That's the Executive Director of the Sinking Fund that was moved over from Finance to the Treasurer's Office. So that is filled.
Okay. And there appears to be one vacant position, the $31,000-a-year Management Trainee.
The budget impact statement from the Treasurer's Office stated that 75,000 is a conservative estimate of savings that could be expected from this position annually. That's an impressive return on investment.
Right. I can 189 3/24/10 - WHOLE - BILL 100117, etc. explain that a little bit, if you want.
When I became the City Treasurer last year, we started looking at banking analysis and fee analysis and looking more closely at what we're actually paying on a monthly basis line item by line item, and we found that there's a lot of money to be saved. And last year just from basic analysis, we saved about 175,000 in the General Fund alone just in terms of going through and correcting fees that might have gotten raised from one month to the next which shouldn't have been or various different things or just looking at fees and saying this should be lower because another bank offers something lower. So given that, the Management Trainee position, that person's job will be to really go into that in detail, and I think that they will really be able to get some efficiencies, because it hasn't been looked at in the level of detail 190 3/24/10 - WHOLE - BILL 100117, etc. that it could be.
So it was 150,000 savings last year. Is 75,000 or 150,000 in savings to the General Fund reflected anywhere in the budget?
It would come in as increased interest earnings. So it wouldn't be in the budget. I would have to -- I'm not sure exactly where that would go, but it would come in as increased interest earnings, which are pretty low right now, but that's where it would show up.
But the savings I talked about last year would have already been shown.
Sure. And you would anticipate similar savings this year?
So it would be fair to book at least $40,000 in 191 3/24/10 - WHOLE - BILL 100117, etc. additional revenue or reduced -- or lower a department's funding by $40,000 as a consequence of this?
In other words, I can't force the Administration to make a revenue estimate that's reasonable. It sounds like a reasonable revenue estimate. They're not going to make it, because it's not in the budget and nobody is going to change that. So essentially if I lowered your budget by $40,000 --
Well, then she wouldn't have the appropriation to hire the person and we wouldn't get the savings.
Well, where should I lower the budget by $40,000 contingent upon replacing it from these identified savings later? Because it sounds like a reasonable revenue estimate. If you're not going to make 192 3/24/10 - WHOLE - BILL 100117, etc. it, I have to take it out of somewhere and --
When looking at the revenue estimates for the interest earnings, we tried to capture those kinds of things, but the basic overall story with interest earnings is because interest rates have been so low in combination with where our balances have been, that overall we've had to lower the interest rate earning. So there's an increase, if you will, based on the savings that you've been discussing here with the Treasurer, but by the same token, we've had to lower the interest rate earnings across the board just because the rates are low and what we've had to invest has been smaller.
And to speak on interest earnings, those are way down. I mean, the interest rate we're getting right now is under one percent, and a few 193 3/24/10 - WHOLE - BILL 100117, etc. years ago it was at three and a half percent. So if you look at our con cash balance, which right now has about 300 million in it, that's $7 or $8 million less than we were getting two or three years ago in interest earnings.
Okay. I'd like to make sure it's reflected somewhere. If Mr. Agostini says that it's reflected in the current estimate of interest earnings, that's good enough for me.
The Administration has testified that in preparing the proposed FY11 budget, it asked departments to prepare two and a half, five percent, seven and a half percent. The document we received lists 40K in revenue initiatives and 96K in expenditure reductions for the Treasurer's Office. I trust the revenue initiatives, which include 12,000 in 194 3/24/10 - WHOLE - BILL 100117, etc. savings from moving from a phone to an online stop payment system, are already included in the proposed budget; is that correct?
The phone to the online stop payment for the court system has already been implemented.
Could you go through the other five items listed in your Expenditure Reduction column describing what the item is and what impact it would have?
Sure. Well, the first one was the reduced banking fee on court accounts, which we just talked about. We had the additional banking fee savings from analysis, $20,000, and that's what we were talking about, increased analysis.
Well, because if -- the thought is if the Treasurer's Office can increase interest earnings, 195 3/24/10 - WHOLE - BILL 100117, etc. then it's similar to taking a cut in some way, because overall we're helping the budget.
I can just clarify. When we sent out instructions to departments, we also asked them for ways to generate additional revenues, because what we were looking for were ways to reduce the overall General Fund support by either reductions in expenditures or increases in revenues. So, for example, yesterday with Records, you discussed briefly the Records proposal to increase the fee, which would have raised a little over a million dollars. So we were looking for all kinds of things. In those instances when, like in the case of the City Treasurer, if there were some items where they could provide us with revenue, we also tried to take that into account.
We also had the 196 3/24/10 - WHOLE - BILL 100117, etc. 8,000 for the new fee for vendor stop payments. That actually, after we looked at it in more detail, doesn't look like it would be that feasible. But I do think what we talked about, that there'll be increased savings from banking fee analysis, would still hold and I may make up for that 8,000. The 75,000 or so from the transfer from Finance is a position that we're taking from Finance. So that's not -- it shows as an increase to the Treasurer's Office budget, but it is not an overall increase in the budget. And then we had the elimination of the Management Trainee position, and that's what I spoke about in terms of if we reduce -- if we cut that position, we're really hurting ourselves, because they won't be able to do the analysis to save the City money.
Okay. Your testimony indicates that direct deposit continues to rise, 79 percent of 197 3/24/10 - WHOLE - BILL 100117, etc. employees and 85 percent of pensioners. This brings me back to a question I asked last year about the cost and potential savings from also offering electronic pay stubs for employees and pensioners or in fact requiring people to get electronic pay stubs, where they'd have to go online or whatever to see their pay stub. The written response I received indicated that the cost would be a hundred thousand dollars to implement and the savings, if all employees who currently have direct deposit switch to electronic pay stubs, would be 40,000 a year. In other words, the investment would pay off in under three years. As part of the planned IT reform, is the City planning to move to electronic pay stubs?
That's something I would need to talk to IT about. I 198 3/24/10 - WHOLE - BILL 100117, etc. talked to them initially about a year ago to see what the cost of implementing that type of system would be, but I can't answer. I'd have to get back to you on that.
Is it something that the Administration would be comfortable mandating for everybody that currently has an e-mail account with the City?
I think the issues that have come up in the past -- and this was talked about a year ago and hasn't -- so I'm going off of my memory from that point, but that when you mandate direct deposit, there's some sort of obligation --
Electronic pay 199 3/24/10 - WHOLE - BILL 100117, etc. stubs?
Yeah. Seventy-nine percent already have direct deposit. With respect to those people, mandating electronic pay stubs assuming they have an e-mail account.
Assuming they have an e-mail account? Because I think that was the issue about getting access to the people that don't have an e-mail account and how much the kiosks would cost and those issues became, I think, somewhat problematic and that's why we decided to encourage it instead of mandate it.
Rob brings up a good point, that it was found that subject to -- mandating direct deposit is subject to collective bargaining, so we don't have the ability.
Once again, I'm not -- 200 3/24/10 - WHOLE - BILL 100117, etc.
I'm not talking about direct deposit. I'm talking about electronic pay stubs, and 79 percent of our workforce already has direct deposit. With respect to those people, those who have e-mail addresses already, why not require that they -- essentially send them an electronic pay stub rather than a paper pay stub?
So in the federal government, a large portion of federal government paychecks are distributed by the U.S. Department of Agriculture. They have a processing center. And what the federal government does is, it does not push an e-mail to you. It gives you access to a website where you can then draw down your pay 201 3/24/10 - WHOLE - BILL 100117, etc. stub as well as W-2 information, but you have to have access.
And one of the things that we've been discussing to your earlier question with DOT is, in the process of moving from a recruitment to retirement payroll and human resources system, can we look at that kind of delivery. It's one of the things we're going to look at. It's not something that has been decided. We need to know what it's going to cost, what we can do with it, but that is one of the things we're looking at.
It's what we looked at last year, that exact system you're describing. The cost was a hundred thousand dollars estimated by the Administration and the savings estimated by the Administration were 40 a year. So what I'm saying is, it seems to me to be very low-hanging fruit. Even if it's 20,000 a year for the people who would be 202 3/24/10 - WHOLE - BILL 100117, etc. eligible, we ought to be doing it. And if we can't get there, we can certainly just send an e-mail in the interim, save on paper.
Again, we were looking at it, and implementation is part of what Allan Frank is working through right now. And I'll remind him that we've got that cost estimate.
Thank you. Good afternoon, and I'll be brief. One of the things you mention here -- and I was talking to Councilwoman Tasco, so I apologize if this was asked. It says the Office has a longstanding practice of hiring co-financial advisors and co-bond counsels for transactions, but you don't list the minority 203 3/24/10 - WHOLE - BILL 100117, etc. participation in them. In light of the fact that in 2008 we did 1.8 billion in refinancing, 2009, 275 million and we're scheduled this fall to do 145 million, do we have those numbers and do we have goals as it relates to minority participation from legal and on new money market managers?
Sure. In terms of for our bond deals, we pick -- I said we pick a co-FA and a co-bond counsel. So that -- in terms of the actual firm number, there's 50 percent on each bond deal. If you're asking for --
Basically there's a majority firm -- there's two firms. So there's two financial advisors, one that would be minority or women-owned, and two bond counsels, one that would be minority or women-owned, on each deal.
And 204 3/24/10 - WHOLE - BILL 100117, etc. what's their level of participation and what are we doing to graduate those guys to become lead managers on these deals?
Well, our hope is that by giving them the experience of working on the deals, their level of expertise will grow and will continue to get more business.
Can you provide for the Chair -- because you mention that for the last five years, we've done well. I'd be interested in looking at who is majority and who is minority and what the actual fee -- what their actual take on the deals are.
Thank you. 205 3/24/10 - WHOLE - BILL 100117, etc. Are there any further questions from members of the Committee? (No response.)
This Committee will stand in recess until Wednesday, March the 31st at 10:00 a.m. (Committee of the Whole recessed at 3:20 p.m.) - - - 206 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on March 24, 2010, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)