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.)