00227 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE OF THE WHOLE (FY '03 BUDGET HEARING) - - - Monday, February 25, 2002 9:55 a.m. Room 400, City Hall Philadelphia, PA - - - BILL 020001 Proposed FY '03 Operating Budget PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE L. BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 00228 2/25/02 COMMITTEE OF THE WHOLE - BILL 020000 INDEX WITNESS Janice Davis, Secretary, Financial Oversight... 229 Robert Dubow, Budget Director.................. 234 Debra Lawton, Risk Finance Division............ 239 Nancy Kammerdeiner, Revenue Commissioner....... 244 D. Cermele, Office of Administrative Review.... 247 Joseph R. Perrello, Risk Management............ 290 Nancy Kammerdeiner, Revenue Commissioner....... 304 Denise Garrett, Water Revenue Bureau........... 310 Jim Haley, Deputy Revenue Commissioner......... 325 Vince Jannetti, Sinking Fund Commission........ 380 Joseph Faraldo, Acting City Treasurer.......... 384 Corey Kemp, Deputy City Treasurer.............. 385 William Gamble, Procurement Commissioner....... 403 Janet Hagan, Deputy Procurement Commission..... 408 Harry Hillock, Deputy Procurement Commissioner 431 James Roundtree, MBEC.......................... 451 James Kidwell, Board of Pensions and Retirement 514 Anthony Johnson " " " " " 521 Maxine Griffith, City Planning Commission...... 567 - - - 00229
Good morning, everybody. This is our continued public meeting of the Committee of the Whole regarding Bill No. 5 020001. The first department to testify this morning will be the Finance Department. (Witnesses come forward.)
Good morning, Council President Verna and other members of the City Council. I'm Janice Davis, the Secretary of Financial Oversight and the Director of Finance. On behalf of the employees in the Office of the Director of Finance, I am pleased to provide testimony on the proposed FY '03 Operating budget. With me are finance representatives who are available to answer any questions. As has been the custom, I will focus on the requested finance budget for FY '03. I will also provide the status of those initiatives begun by the finance group over the past year, as well as the initiatives to be undertaken during FY '03. The Office of the Director of Finance's FY '03 budget proposal for all funds totals 00230 $865,476,158. The General Fund Budget request is $664,023,977. The single-largest component of the budget is employee fringe benefits budgeted at $598,160,532. The General Fund funds $528,100,000 of the employee fringe benefits. 4 percent, increase over the Current FY '02 projection. This increase is due to increases in our health benefits and pension costs. Other large elements of the finance budget include: Legal services and witness fees, contributions to educational organizations, and refunds and indemnities. The Administration is proposing to provide the Community College with $272,067,924 in FY '03, an increase of $300,000 over the FY '02 funding level. The Administration has also increased the level of funding for the Defenders Association contract. This additional contract will bring the Association's attorneys' salaries in parity with those of the attorneys in the District Attorney's Office and the Law Department. The Office of the Director of Finance is comprised of seven divisions: Executive Direction, Office of budget 00231 and Program Evaluation, Office of Management and Productivity, Minority Business Enterprise Council, Accounting Bureau, the Office of Administrative Review, and Risk Management. The proposed direct appropriation FY '03 General Fund Budget for the office is $16,938,724, a decrease of $1,680,619 from the current projection for FY '02. This decreases is the result of reductions in appropriations across the division. This budget anticipates 171 full-time General Fund positions, a decrease of 11 positions from the FY '02 budgeted positions. In FY '03, the Risk Management Department will partner directly with medical providers in their ongoing effort to contain costs in the Worker's Compensation program. While the cost of medical services related to Worker's Compensation have risen statewide by percent 20 over the last five years, our case-management efforts have limited the City's average plan cost increases to only 7 percent. In order to create more opportunities for small and disadvantaged contractors to compete for City and private-sector construction work, Risk 00232 Management, working with Procurement, Minority Business Enterprise Council, and the Commerce Department is working to promote the use of a federal Small-Business Administration binding program. The SBA program assists small contractors who are unable to obtain the required performance bond on their own by assuming 90 percent of the associated risk. Bonds of up to $2 million will be guaranteed. The program will fund the training of contractors in business-plan development and financial record-keeping, and will hire a surety agent to assist them in completing bind applications. This initiative is scheduled for implementation in FY '03 and will be funded by Economic Stimulus Funds from the Commerce Department. The Office of Administrative Review continues its successful efforts with the First Judicial District to increase traffic-fine collections. Major accomplishments include cleaning out the outstanding backlog of delinquent fines, some of which date back to the early '80s. OAR's final notice mailed to violators whose fines 00233 have been delinquent from 1992 to present generated more than $1 million in additional revenue.
9 percent in FY '01, approximately 9 25 percent in FY '02, and over 30 percent estimated 10 for FY '03. 11 In January of this year, OAR 12 transferred responsibility for administrative 13 hearings on code violations from its Bureau of 14 Administrative Adjudication to its Master's Unit at 15 the Tax Review Board. This change will allow the 16 BAA hearing examiners to concentrate soley on 17 parking tickets and reduce the long waits for hearings due to the increased issuance of parking tickets by the Parking Authority. Others departments, boards, and commissions, under the direction of the Office of the Director of Finance, Procurement, Revenue, City Treasurer, Sinking Fund Commission, Board of Revision of Taxes, and the Board of Pensions and Retirements will provide separate testimony on 00234 their budgets and initiatives. I am happy to answer any questions you may have at this time.
Thank you very much, Miss Davis. The Five-Year Plan states that the Administration will continue to use target budget reductions which will require departments to spend below appropriation levels. What are the planned target reductions?
Good morning. We developed the targets towards June, so we actually don't know what they'll be yet. We go through a process later with departments later in the year to determine those targets.
When the departments come before us for their budget hearings, how do we know that they will be able to provide the service levels as delineated in their 00235 budgets and testimony?
One of the things we do with departments when we go through their target process is to make sure that they find ways of reducing their costs without impacting service, so we look at the service-level and performance-level reports that they give us and make sure that they are showing that they can maintain those services.
Miss Davis, what are the actions the Administration has undertaken to cut costs in reducing the City's pension payment? Explain what the minimum municipal obligation is.
It's the minimum amount required to fund our current costs, the current costs of pensions provided for employees.
Well, what is the impact of this action to the Pension Fund and to the financial soundness of the fund?
What we're doing -- the cuts that we've made are not to the MMO, or minimum municipal obligation. We fund at a much higher level. What we have done is to reduce our payment somewhere between the minimum municipal obligation 00236 and the amount that we would have done under the original plan. We will reap the benefit of $60 million over the Five-Year Plan, but then we'll begin to amortize that over 10, with percent interest, 7 which is the assumed interest rate that the 8 earnings in the plan now identify. The plan will 9 remain physically sound and above the 70 percent funding level.
Okay. Can you tell us how much the City -- how much does the City pay for financial advisory services? I see that we have two that are mentioned on Pages 8-19 and 8-20.
This year, in FY '02, the City identified contracts of $300,000, which is the level that we've been funding. Instead of doing it all with one provider, however, we've identified three providers.
They are PFM, Fairmount 00237 Capital, and PG Corbin. We have not incurred any expenditures under the Fairmount Capital contract yet.
Thank you. Can you break that down? Can you tell us --
But as we calculate, it would show 600,000. On , line 250, it's 200,000. And then on , line 250, it's 400,000. And I don't know that there's been any determination as to who the financial adviser would be.
That budgeted piece is for any incidental financial advisory work that may be used during the coming year. No provider has been identified.
So what is the figure; is it 400, is it 300? I mean, according to what our calculation is, it would come to 600,000.
On , would you please explain what the 350,000 for the 00238 management information consultants will be used for as well as the 200,000 for legal services.
Those are just to be provided -- those amounts are there if there is a need for consulting services in the management information systems area. Should the CIO have a need for additional funding, that would be available.
How much money has been appropriated in past years for this the management information consultants?
We'll have to get a definite number for you. There have been a number of contracts under different providers, so we'll get a number back to you.
I would appreciate that. And for legal services, why wouldn't that be handled by the Law Department?
There are some times when there is a need to hire legal services and there is insufficient funds in the Legal Department to cover it, and we'll pick it up. We will get information on the number 00239 of times we've done that.
Would you please explain the program that you are putting in place to help small contractors in getting performance bonds. You state that this initiative will be funded out of the Economic Stimulus Funds. What is the amount of the Stimulus Funds to be used, and how will they be spent? Also, will they be recurring expenses?
The amount is $300,000, and I will get someone from Risk Management who has worked on this to come up and testify to the specifics of the program. (Witness comes forward.)
I'm Debra Lawton from the Risk Finance Division, and I've been working with MBEC and the Small-Business Administration.
Excuse me, would you pull the microphone closer to you, please. Thank you.
I've been working With the Small-Business Administration and with MBEC to 00240 promote the use of an existing program that the federal government has to provide bonding to small contractors. Do you have any specific questions about it? I mean historically, small contractors have been unable to get public workshops because they weren't able to secure bonding. So we were looking for ways to help them without recreating the wheel. So we found out about the SBA Program through MBEC and so we've been working to promote that program.
Oh, the monies will be used for the marketing and advertising actually for assisting the contractors on completing bond applications, education, business-development information, accounting services, credit services.
And this money will come out of Economic Stimulus Funds?
Okay, thank you. The Chair recognizes Councilman Goode. 00241
I think you can anticipate a couple of my questions. I want to talk about the implementation of a few of my bills that are close to my heart, starting with Bill 165 that was signed by the Mayor on May 16, 2000, authorizing the City to invest in promissory notes issued by the U.S. Treasury certified community-development financial institutions. I want to know the status of CDFI investments since that bill was signed in May of 2000.
I don't know the exact date, but I believe it was in the second quarter of 00242 FY '02.
Thank you. The second bill, Bill 546, was signed by the Mayor on December 7, 2000, and that was creating the Philadelphia Community Investment Commission and charged that commission with creating a Philadelphia community-development financial fund, the first municipal fund of its kind. Can you tell me, what is the progress of the Reinvestment Commission and the what's the status of the CDFI Fund?
The Reinvestment Committee has met a number of times. We had a slight problem when there was a change at OHCD and Mr. Kromer left -- he had been the chair of the Reinvestment Committee. The Commission hasn't met since, but we should be meeting in the near future. We had a problem with the department that it was cited with, and since it was more of economic development instead of finance, we felt it would be of greater service to that community if it were housed in Commerce, so we've had some difficulties in getting everybody in their proper place, but we should be meeting again in the very 00243 near future.
For the record, I think that Mr. Kromer did a great job, although I never thought that he was the person because of his position. I thought he definitely should not have been a Housing Director, maybe he should or should not be a Commerce Director, but the executive order called for the chair being elected from the Commission, but the bill that I wrote called for it being co-chaired by the Finance Director and by a member of the banking community. In rethinking the executive order based upon what the bill originally called for. Aside from who in the Administration should serve in that capacity or not serve in that capacity, do you think it should be a private-sector member that actually co-chairs that commission?
Okay, thank you. The third bill, Bill 010541, created a tax-credit program for investments made in community development corporations over a ten-year period. Can you tell me the status of the 00244 tax-credit program in the development of regulations?
Nancy Kammerdeiner has been working on it, so I'll ask Nancy to come up. (Witness comes forward.).
Good morning. Nancy Kammerdeiner, Revenue Commissioner. We've been working on those regulations. Have conferred with the Department of Commerce and also the Law Department. We have a draft of the regulations that's going back to Law, I hope and expect, this week in order to get their concurrence that they're in proper form to be filed with Records, and we'll be happy to share that with you as soon as we get a little bit more input from the Law Department to make sure we are legally based on the what we've written to implement the legislation.
Okay. In terms of turnaround time, at what point will applications be available?
The regulations have to sit in Records for 30 days. If there are no 25 protests to those regulations, they become 00245 effective as soon as that 30-day period elapses. Should there be any issues filed during that waiting period, we'll have to hold a hearing and hear from the public about their concerns on that, resubmit regulations, and I believe the resubmitted regulations need to reside in Records for ten days before they're implementable.
Is a tax credit usually based on a fiscal year calendar year?
The business-privilege tax is a calendar-year tax and so it would be calendar year.
So this tax-credit program will be available for this year or will it have to wait until next year?
I expect it should be available for this year. The 2002 returns are filed on April 15th of this year, but we could deal with a credit for any business that would apply during that time period in terms of a credit on this year's return or a credit that would roll into next.
Thank you. No 25 further questions 00246 Thank you, Madam President.
Thank you. The Chair recognizes Councilman Nutter.
I made a note to myself. I wanted to get some information that I didn't see clearly in the testimony. what was what was the percentage of participation through all of the various contracting levels? I think there's professional services as a category; there's, I think, service, supplies and equipment or something like that as another category; and there might be a third one that is measured for participation by a variety of firms, whether they're disadvantaged businesses or minority businesses, female businesses. Do you know what the rate was in the last fiscal year?
No, I don't, but 00247 Mr. Roundtree will be available when the Procurement Commissioner testifies, and he will have those numbers or we can get them for you later.
Okay. On and going into of the testimony, there's mention made of the Office of Administrative Review. I think that used to be the Bureau of Administrative Adjudication?
It's the same thing, okay. And it looks like we're talking, apparently about, generally, I guess, delinquent funds. Does that also include tickets and everything, traffic tickets?
I'm Dominic Cermele, Executive Director of the Office of Administrative Review. The number that you wanted, Councilman, 00248 was that parking finance or moving fines or code-violations fines or all of them?
Okay, all right. If I just asked for one, would you -- (Laughter.)
I could give you a round number. What you want is outstanding numbers?
Thank you, Madam Chair. You would have the number on Traffic 00249 Court, though, wouldn't you?
Could you tell us what that is? I mean generally what --
Judge Cermele, in terms of your qualifier that it depends on what we consider to be outstanding, are you talking about a timeframe or up to a certain date or --
Yes. We in the past have terminated, you know, with the assistance of the Traffic Court, terminated some rather old records that were counted as accounts receivable, even though these were non-adjudicated records that go back to the early '80s and are no longer count as part of the -- see, at some point, we say this is what's active.
Right, you have to 00250 write it off. Why don't we just deal with whatever is outstanding ten years or less.
I mean, that's, I guess, still a fairly reasonable number. Okay, thank you. Miss Davis or Mr. Dubow, I think I heard this question either asked in part or in full earlier, but I did want to go back to it maybe in a slightly different fashion. Who has responsibility either to seek revenue enhancements or cost-savings in the government?
That's the responsibility of everyone in the government. (Laughter.)
All right, but is it one particular person's responsibility?
We encourage, and I would say Mr. Dubow is the head encourager of those in search of revenue and expenditure reductions.
Okay. And what was your answer earlier to the -- I think it's on 00251 Appendix 3, , line 20, "Future Target Reductions," do I read that for Fiscal Year 2004, the number is $12 million; is that correct?
It was a slightly different question before. The question was about target reductions in the '03 budget.
And the question was, do we have a number for that yet? and we don't, we develop that later in the year. And then the second question was, how do we ensure that the level of services that departments are promising as they come before you now, the global services they actually develop after taken target cut, and what we do when we go through their targets with them is have them submit to us performance-measurement reports that tell us what level of service they're going to provide so we can check to make sure that they'll be able to provide that level of service at the lower-budget level.
Well, what are you anticipating for FY '03 in terms of reductions in the cost of government? 00252
We haven't developed targets yet, but it's typically 1.5 percent below the budget level.
All right, but some of the departments didn't take the 1.5, right?
Well, I think we're talking about different 1.5 percents, but you meant the 1.5 percent Class 100 reduction? I was talking about the target reduction (indiscernible) later in the year. But I think what your question was about was the 1.5 personnel reduction that we asked departments to take as part of the budget process?
Recreation did not take the cut, the Free Library did not take the cut, Fire did not, Police did not, and the Park and L&I had portions of the 1.5 percent restored. 00253
All right. Well, maybe the easier way to ask it is, who did take it? since so many people are affected by this.
Well there are -- I mean, there are probably over 50 agencies, and I've just named 5 or 6 that didn't take the cut.
Okay, let's go back to the original question. Whose individual job or responsibility is it to seek revenue enhancements and cost reductions throughout the government?
How do you ever know you're going to do it? I mean, we all have a responsibility to try to make sure that the City is safe.
But we do have a Police Commissioner; that is that person's job.
We have an Office of Management and Productivity that looks at specific items that we may come up with, and there are --
I mean, we also put specific things in our budget and then we monitor whether make their budgets. I mean, that's really the global way in which we see whether people hit their targets.
Okay. In response to this question from a couple weeks ago at -- during the Capital Budget, I asked about a schedule of projected savings through efficiencies. The answer that came back was an example of the Free Library reduced costs by $210,000 by reorganizing some personnel. The biggest component of this response is anticipated savings through people participating in the DROP Program. I mean, is your testimony today and going forward that in addition, you're going to spend $300,000 to contract with Parente Randolph. Is that a firm or a person?
It's a firm. To do a thorough review of departments impacted by the DROP and to determine how to best redesign their business processes to allow the City to provide the same or improved services with fewer employees. I'm left with the impression that, at least for the short-term, the largest anticipation in terms of saving any money in the government is going to be from people leaving, not through management efficiencies or use of technology or figuring out different ways for us to do business, and then you're going to come back in a more medium term, but apparently during the course of this fiscal year, you're going to have a consultant give us some ideas as what we should do through the departments.
Well, the only way we can take advantage of people leaving is if use all of the things that you were talking about: If we use technology, if we use business process re-engineering, because we've committed that we'll make those reductions without impacting service.
Have we asked the departments for an individual plan of what they 00256 would do or how they would do it or not decide whether you have the bodies or not, just ask them, are there better ways for the government to function and operate?
We did that back in August. We met with all of our largest departments and had those discussions. That's where some of the stuff we listed in their, like the Library doing it through organization, Fleet Management saving positions; it came out of that. But we are also asking the consultant to work with our large departments to do the same kind of thing: To go through their processes to see where they can be done better. So the departments will all be engaged in that process.
Okay. So as we close out this particular piece, your expectation is that throughout the course of the year, you will figure out both some ways to reduce the costs of government or become more efficient, and we're going to experience the DROP Program and employees are going to leave, we're going to have a consultant work with the departments to figure out do what they do. 00257 But in the short term here, we do not how much we might be able to save dollar-wise in reducing the cost of the government
Beyond the amounts that are already in the plan, that's right, but we have specific amounts that are in the plan. I mean, the first question was, What are you going to do in the target this year? The answer is, we don't have that set yet.
But the question -- I mean, there are things like the DROP that are included in the plan, like reducing the size of the fleet. So there are things in the plan, but the things that aren't in the plan, we don't know yet.
Right. Well, why don't we do this: Maybe the answer to the question from a couple weeks ago was an attempt to kind of generally answer it and be more immediately responsive. For the things that you're saying that are in the plan that maybe are not in this answer, why don't you provide, through the Chair, the more extensive answer, and if you can tell me in the 00258 plan where those savings are and what the implementation of those proposals will result in, that would be helpful.
Miss Davis, let's go to -- I heard the tail-end of a response, I believe, to the question by the Chair. On 8-16 of the budget book, line items 250, 251, 252, and 253, am I reading correctly that in the budget here is $3,055,336 for professional services; is that correct?
Okay. And what's the breakout of that? Is that over on 8-19?
Okay. Although the number on 8-20, the total seems to be 4,828,000. Does that include some of the other --
Okay. And on 8-20, "Regional Economic Models," is that the name of a firm?
It's the REMI models that we use to predict how certain activities will affect our revenue base.
Mm-hmm. And on that same page, the 250, the 250, and the 253, those 3 in a row, 400,350 and 200, who -- I can read that it says "to be selected." Is that because we don't know at the moment who those people are going to be?
Does Finance usually need outside legal service? You don't use the Law Department?
Those tend to service contingencies for across the government, not 00260 necessarily for Finance.
No. We have on occasions required management information systems consultants outside of MOIS.
We're going to provide that information later because there have been a number of different vendors.
Now, Miss Davis, you wouldn't be following subject to a tendency by Mr. Dubow to try to hide money in various places in your budget, would you?
Are you being influenced by Mr. Dubow in that regard? 00261
Especially since it usually ends up being somebody else's needs that are satisfied through that line item.
Councilman, do you mind if we have a second go-around? We have other Councilmembers that would like to be recognized.
Thank you. The Chair recognizes Councilman Rizzo. 00262
Thank you, Madam Chair. I'd like to go back to the process that we use when we actually decide on what we're going to spend our money on in various departments. I recall a few years ago in a budget that there was a number of thousands of dollars for global positioning for the sanitation for the Streets Department so we could keep track of the trucks. I use that as an analogy to ask a question: Since we don't have a particular person that's responsible for -- well, let me rephrase that. I'll ask the question. When you sit down with a department like the Streets Department, Fleet Management, Police, Fire, you see these lists of things that we're spending our money on. How -- who makes the decision, since we don't have an overall person, one person we can identify that's responsible for -- for the -- and again, I'm having -- struggling with the word that Councilman Nutter was referring to. But when you sit down with those various departments, how do you decide what's in, 00263 what's out? Obviously, if you're going to give a pot of money to a particular department if they want to buy global positioning systems or other things that they claim they need, who sits down with a pen or questions each item that's in the budget with a commissioner of a various department?
During the budget process, we meet with departments, and when I say "we," it's a group of people from Finance, from the Managing Director's Office, from the Mayor's Office, from the office of Labor Relations, from Personnel, and we go through their budgets, you know, line item by line item, asking them why they think they need each contract. And based on those discussions, we decide what should be in and what should be out.
I'm not necessarily talking about contracts or legal --
No, it's -- we do it through Personnel, we do it through contracts, we do it through material supplies and equipment
In that whole group that you just mentioned, who has the expertise to request whether or not we need a global positioning 00264 system for sanitation vehicles? My point being is, how do we know that if we spend a half a million a million dollars a year with Verizon -- the Finance Director just said something that is a problem in our government -- That's the way we've done it, that's the way we do it. Well, again, if we're just going to spend money when there's a better way to do it, my question is, where's the expertise when a budget's presented to you? Who on that panel knows what a global positioning is and whether we need it or not?
The most likely expertise in that case would be people in the Managing Director's Office. I mean, that's why we try to have people at those meetings with a wide variety of expertise. But, I mean, our real excerpts in those items are the departments. You know, I mean, to some extent, we have to rely on them. You know, the Mayor hires people that he thinks can do the job, and we have to have some trust in them. But we also question them; we ask 00265 questions about each item. But we're not going to know more than the departments do about a number of things.
I'm familiar with corporate budgets and I think they're scrutinized a little more carefully. When the vice president or the overall executive sat down with the people and actually said, you know, what do you need this for? or why are you spending a half a million dollars for data transmissions when we have the capabilities for doing that within our own company? I just don't see --
I've talked to people that have gone through the process, that there were no questions, in many cases, asked.