Ñ›-œ COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE OF THE WHOLE - - - Room 401, City Hall Philadelphia, Pennsylvania Thursday, November 30, 2000 9:30 a.m. - - - BILL NOS. 000721, 000722, 000723, 000724, 000725, 000729, 000730, 000731, 000732 and 000733 PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN DARRELL L. CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DI CICCO COUNCILMAN WILSON W. GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN W. THACHER LONGSTRETH 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 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 (215) 561-2220 Ñ›-œ I N D E X WITNESS: MAYOR JOHN STREET ...................... WILLIAM HANKOWSKY, PIDC ................ 25 MARK ROSENTRAUB, Consultant ............ 47 ROBERT DUBOW, Budget Director .......... 143 WILLIAM HANKOWSKY, PIDC ................ 145 CRAIG MARTIN ........................... 313 3 11/30/00 - STADIUM HEARINGS
Good morning. Because of the importance of the issue of providing public funding for the development and operation of sports facilities, I have placed this issue before the Committee of the Whole. The purpose of this hearing is to receive testimony, both negative and positive, regarding the appropriateness for which and the extent to which public funding should be used to finance public stadiums, to determine the sites for these projects and to receive reliable information to provide assurances that the City's financial obligations will remain finite, that the citizens of the City, in particular, the citizens in the vicinity of the stadium complex, are protected from unwarranted intrusions resulting from the operation of the facilities. This hearing is to provide an opportunity to all witnesses to express their opinions in an open and congenial form. To this end, I want to establish certain ground rules regarding how this hearing will proceed. Anyone who wishes to testify will certainly be given the opportunity to do so. If necessary, time limits may 4 11/30/00 - STADIUM HEARINGS be placed on the testimony of witnesses. The audience will treat all witnesses with respect and shall not be allowed to interrupt testimony. If the audience does not maintain order, any individual causing a disruption will be asked to leave the Chambers. If a person fails to leave on their volition, that person will be escorted from the Chambers. If they resist removal, they will be subject to arrest. I am insisting that we have to quorum in this session. At this time I would ask Mr. McPherson to please read Bill Nos. 000721, 000722, 000723, 000724, 000725, 000729, 000730, 000731, 000732 and 000733.
Bill No. 000721, an ordinance authorizing the Commissioner of Public Property and the Director of Commerce, on behalf of the City of Philadelphia, to enter into a Ground Lease Agreement with the Philadelphia Authority for Industrial Development providing for the leasing by the city to PAID of certain parcels of land owned or to be acquired by the City, and further authorizing said officers to enter into a Prime Lease Agreement between PAID and the City providing for the 5 11/30/00 - STADIUM HEARINGS subleasing by PAID to the City of all or a portion of such land and certain improvements to be constructed thereon, including a football stadium and accessory and related amenities, improvements and infrastructure and the payment of certain costs for such stadium complex and further authorizing said officers to enter into a Leaseback-Lease Agreement. Bill No. 000722, an ordinance 11 authorizing the Commissioner of Public Property and the Director of Commerce, on behalf of the City of Philadelphia, to enter into a Ground Lease Agreement with the Philadelphia Authority for Industrial Development providing for the leasing by the City to PAID of certain parcels of land owned or to be acquired by the City, and further authorizing said officers to enter into a Prime Lease Agreement, the Phillies Prime Leas, between PAID and the City providing for the subleasing by PAID to the City of all or a portion of such land and certain improvements to be constructed thereon, including a baseball ballpark and accessory and related amenities, improvements and infrastructure and the payment of certain costs for such stadium complex 6 11/30/00 - STADIUM HEARINGS and further authorizing said officers to enter into a Leaseback-Lease Agreement with the Phillies Leaseback. Bill No. 000725, an ordinance 6 authorizing the Philadelphia Authority for Industrial Development to file an application and enter into a grant agreement with the Office of the Budget, Commonwealth of Pennsylvania, under the Capital Redevelopment Assistance Program to provide partial funding to assist in the development of a professional baseball stadium and a professional football stadium and training facility in the City of Philadelphia. Bill No. 000729, an ordinance 16 authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to acquire by amicable negotiations or by condemnation fee simple title to a certain parcel of real estate with the improvements situated thereon and any covenants, restrictions, easements and other matters that burden said parcel of real estate and/or the improvements thereon, located on the southerly side of Pattison Avenue between 11th Street and Darien Street and extending southwardly to the Delaware 7 11/30/00 - STADIUM HEARINGS I-95 Expressway, Philadelphia, Pennsylvania. Bill No. 000730, an ordinance 4 authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to acquire by amicable negotiations or by condemnation fee simple title to a certain parcel of real estate with the improvements situated thereon and any covenants, restrictions, easements and other matters that burden said parcel of real estate and/or the improvements thereon, located on the easterly side of Darien Street south of Pattison Avenue, Philadelphia, Pennsylvania, and to transfer that parcel to the Philadelphia Authority for Industrial Development in fee for nominal consideration. Bill No. 000731, an ordinance 17 authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to acquire by amicable negotiations or by condemnation fee simple title to a certain parcel of real estate with the improvements situated thereon and any covenants, restrictions, easements and other matters that burden said parcel of real estate and/or the improvements thereon, located on the northeast corner of Pattison Avenue and Darien Street, 8 11/30/00 - STADIUM HEARINGS Philadelphia, Pennsylvania. Bill No.
000732, an ordinance 4 authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to acquire by amicable negotiations or by condemnation fee simple title to a certain parcel of real estate with the improvements situated thereon and any covenants, restrictions, easements and other matters that burden said parcel of real estate and/or the improvements thereon, located on the northeast corner of Pattison Avenue and 10th Street, Philadelphia, Pennsylvania. Bill No. 000733, an ordinance 15 authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to acquire by amicable negotiations or by condemnation fee simple title to a certain parcel of real estate with the improvements situated thereon and any covenants, restrictions, easements and other matters that burden said parcel of real estate and/or the improvements thereon, located on the easterly side of Darien Street, north of Pattison Avenue, Philadelphia, Pennsylvania.
Thank you. 9 11/30/00 - STADIUM HEARINGS Our first witness will be the Mayor. I believe he's on his way up. (Pause.)
Good morning. Thank you so much. Thank you very much. I actually have a few notes. First of all, my name is John Street. I'm a former member of the City Council of Philadelphia for years, 19 of the proudest years 13 of my life. I'm now the Mayor of the City of 14 Philadelphia, thanks to, I guess, a little luck and 15 a little hard work. And I'm absolutely delighted 16 and pleased to be here today to speak in favor of 17 the bills that are before you that have been 18 transmitted by the Administration, all of which are 19 calculated to put this City in a position to have two brand-new stadiums at a stadium district located in South Philadelphia. First of all, I'd like to thank a few people for helping bring us to this moment. I'd like to thank Governor Ridge for his support of this project in the very early days when there were some 10 11/30/00 - STADIUM HEARINGS people who believed that we either shouldn't do it or that no matter what the State did, it probably wouldn't happen anyway. Governor Ridge was very supportive, and we appreciate that. I'd like to thank the members of the Pennsylvania General Assembly. There are too many to name. But they, over years, have been very, very supportive, and I'd like to thank them at this time. Of course, I want to thank the Council President who, as usual, has been there both night and day, sometimes very late at night and very early in morning, helping bring us to this moment. Special thanks to Councilwoman Blondell Reynolds-Brown who sort of worked with us to create this concept of a Children's Fund, which I think is very, very important to what we're doing, and Councilman Clarke and Goode and others who have worked with us to make sure that we have a minority business and a women business program and a jobs program that I think we all will be proud of. Council President, I think this is a very special moment for us in this City, and I am enormously pleased and proud of the program that we have in front of us. This is a program that is good 11 11/30/00 - STADIUM HEARINGS for the people of this City. And although I will not go into great detail about all of it, I would like to highlight some of the things that I think are most important and things that I'd like to call to our attention. This is what I refer to as a deal that doesn't cost, but pays. There are some people who have speculated that if we do build stadiums, will there been a necessity for a real estate tax increase or any other kind of tax increase. And my position has been and continues to be that this deal not only will not cause us have to raise taxes, but this deal will help pay for the quality of services that we need to be delivering in our City because we do have to continue to fund public education, we have to continue to fund basic services, and we can never, ever do too much to improve the economy of our City and improve its tax base. This deal will allow us to have an additional $159 million to spend in the City's General Fund after it pays for itself. It will provide an additional $70 million of new revenue for the School District of Philadelphia. It will provide $60 million in a Children's Fund that will 12 11/30/00 - STADIUM HEARINGS provide desperately-needed services for the children of our City. And it will pay for a sports district, a special service district in our sports area, stadium area, that will help us monitor the area to the great benefit of people who live in South Philadelphia, around the district and to the general public. And I think that's very good news for the people of this City and the people of this region. But as life would have it, we have a choice to make here and, you know, most of us who are in public office today are responsible for making decisions on the basis of the information that we have and we make decisions on the basis of a situation that confronts us. And although we might wish we had a different situation, we don't.
We have a situation where -- and by the way, it was a very interesting tour that I took of the Veterans Stadium this morning. And I did it because I wanted to have the conditions of that facility fresh in my mind at the time I came to talk to you and came to make my comments about this proposal. And I have spoken to folks in the Recreation Department, the Managing Director, and if anybody wishes during the course of these hearings to take a peek at what we 13 11/30/00 - STADIUM HEARINGS saw today, we can make those arrangements. But this is a very significantly deteriorated facility that we need to take out of service as quickly as possible. But, you know, not only does this proposal have a great upside, there is a serious downside to be considered if for any reason we decide not to go forward. And not to go forward, I think, creates a lot of losers. We lose the $170 million that the Phillies are prepared to invest in the stadium. We lose the $310 million that the Eagles are prepared to invest. We will ultimately lose the $159 million that the -- the economic benefit to the City. We will lose all of the existing revenue that we are generating out of the Veterans Stadium. We will lose the $170 million in state money that the State has voted to put in the development of new stadiums. And I think we will lose the car rental tax. And I'd like to be very clear about this because there seems to be some confusion and I have asked some questions to try to get some clarifications. It is my understanding that when we asked the Pennsylvania General Assembly and Governor 14 11/30/00 - STADIUM HEARINGS to allow us to impose the car rental tax that our former Mayor made an absolute commitment both orally and otherwise that we would not use the car rental tax to repair the Veterans Stadium. That's the commitment that was made. And I think it will be hard for us to maintain credibility with the people who we asked to help us if we tell them we will do one thing and if we tell them we will not do another thing and then in the heat of doing what it is we do, we decide, oh, what the former Mayor said, the commitments that we made are not important and we are not going to keep them. I think that is a terrible way of doing business, and I think that if for any reason we do not choose to go forward with this proposal that we have to have serious reservations about whether or not we are going to be able to use the car rental tax to fund any kind of renovations at the Vet because I think we lose our credibility. This is a great opportunity. It's a great opportunity to fund the sports complex at the Veterans Stadium. But, you know, this is a huge, huge deal. And as is always the case when you have these deals, they require a lot of evaluation. And 15 11/30/00 - STADIUM HEARINGS I would be the last person that would want to discourage anyone in this Council from doing your job, and you should test the credibility of the assertions that are made by witnesses representing the Administration and the teams and others as they sit here and testify. You should ask any and all reasonable questions and you should demand reasonable answers. But I will tell you, the nature of this proposition is such that it is possible to nitpick it to death. There are an unlimited number of Dooms Day propositions that could be put on the table that could create in anyone's mind any kind of question that people want. And, whereas, I think you should test the credibility of everything that's said here, but at some point in time you have to draw a line in just how far we go in speculating about what bad could happen if we proceed with this project. And, you know, I believe in it and I think those people who testify will believe in it. And I think if we give it the good thorough investigation that you have been known to do, then all of us will be able to be comfortable.
Now, there's one issue that you will get to that I'd like to comment, and I'm going to 16 11/30/00 - STADIUM HEARINGS restrain myself and try not to cover everything that I know that you will cover in great detail with people who are prepared to ask and answer all kinds of questions, and that's this question of the funding gap. " There's probably a time when I was the only one in this City who believed it could happen. And I firmly believe that this can and will and should happen, but I cannot tell you that we will know without a doubt exactly how this funding gap will be met. I can tell you and I will fully support an amendment to make sure that it happens that the City will not pay. And we are working diligently to fill that gap, but I don't want anybody to believe that I think it is going to be possible before we finish these hearings to say "This is where every dime is coming from, this is how it's going to all happen," because I don't think we're going to be here. I 17 11/30/00 - STADIUM HEARINGS believe that we will be there in plenty of time to make a billion-dollar deal happen for all of the people of this City. And I guess what I'm asking you to do is just to have some small confidence that as between the teams and those of us who are working with them, we can make this happen and it doesn't have to in any way require any further commitment from the City and will not in any way enhance our risk. Now, as is always the case, this deal is going to have its nay-sayers. There are going to be people who will come in here and they're going to say all kinds of things. You know, as part of my preparation for all of this, I reflected on some of the other great projects that we have done in this City and I thought a lot about, you know, the consideration that we went through when we did the First Union Center. And there were people who said, "We should never be doing this. Why should the City be in it? Why should we be putting up money? Why should we give them a loan? " You know, there were some of us who 18 11/30/00 - STADIUM HEARINGS believe that this was an idea whose time has come and that this would be a great thing for this City. " And I remember the debate we went through when we talked about doing a convention center. There were people who said, "We should never do it. What are we doing? " Well, we're doing it because we have a City that has to have an economy engine. We have to be able to create jobs. We have to be able to provide opportunities for people. And by the way, there are a thousand people who currently work at the Veterans Stadium right now who, if we don't do something, and I say if we don't do something today, they're jobs are going to go away. They're jobs are going away because that facility is not going to be able to 19 11/30/00 - STADIUM HEARINGS exist in its current condition. We are not going to be able to put enough money in it to make anybody want to stay there any longer than is just absolutely necessary under the law. But I remember and I -- actually, a former colleague of ours, I read his comments with great interest, and it is always difficult for us to take the leap when it comes to doing these kinds of developments. You know, we're going to talk a lot more about it very shortly, but I wanted to call to your attention some of the yet-to-be-released economic impact information from the Republican National Convention. There was an overall economic impact of $350 million or the creation of almost 5,000 full-time jobs as a result of that convention coming here. There were more than 111,000 room nights were sold generating a total room revenue of almost $25 million. 8 million between July and August as compared -- over and above as compared to the same period in 1999, a growth of almost 30 percent. 6 percent increase 20 11/30/00 - STADIUM HEARINGS over the prior period.
There were 19,000 news articles that were written about that convention or 128 billion impressions of what was happening in this City, and the overwhelming majority of it was all positive. An evaluation on all of this was done and it would have estimated that it would cost us about 75 to 100 million dollars to buy that kind of publicity. And it was good for this City. You know, this is a good plan for this City. I think to be able to say that we're going to create the jobs that will be created. We're going to have a $60 million Children's Fund. We're going to be able to boost out economy. We're going to be able to create economic opportunity for minorities for women businesses and jobs for people in the neighborhoods. I think that's a wonderful opportunity. This proposal is good for our teams. Our teams will be able to be for the first time in years in decent facilities. I mean, if you take a tour -- and I don't know how familiar you are with it. Some of those facilities in that place are absolutely outrageous and risky. This proposal is good for the neighbors. 21 11/30/00 - STADIUM HEARINGS As a part and parcel of going down there this morning, I stopped and took another little piece of a tour of the residences just around the facility, and I had an opportunity to see just what those neighbors are going through. Under this proposal, the nearest residence to the Phillies facility will be over 400 yards away. I told one of the residents, I said, "You know, you're going to have to figure out what you're going to do without this. " I just think that this is going to be great for the South Philadelphia community that has had to endure some really, really horrible conditions down there. And the Council President and I have been meeting with them on a regular basis. As a matter, we were meeting with them last night, Council President, until what time?
Until midnight. And they are getting very comfortable with the plan and I think they're going to be in full support of it. So I think that this is great for the City of 22 11/30/00 - STADIUM HEARINGS Philadelphia. The other thing that is troubling me just a little bit is there are people who really want to say, Well -- and I was at a parade yesterday. They said, "Well, why aren't we putting this money in education?" Folks, we would love to be able to have this money to put in education, but if we don't do what we have to do to create this district, this money is going to go away. It's not like we are sitting here with a pile of money and we have a choice, are we going to put it into stadiums or are we going to put it into education. That's not the issue. The Phillies, the contribution from the state, the contribution from the Phillies, the tax revenue that we will capitalize to put in here, that money won't exist; it will not be available for education, it won't be available for libraries. And not only that, if we don't do something, there's going to be less money available for education and less money available for libraries and less money available to fund all basic City services that we hold so important. So this is a defining moment for us 23 11/30/00 - STADIUM HEARINGS because more than just people in this City are watching what we do, more than just people in this region. The country is watching, what is Philadelphia going to do. And I believe that -- I believe it is possible for us to set a standard here. It is possible for us to say to the world "We're not finished yet. Yes, we had a Republican National Convention; and yes, we have great facilities here in this City, but we are going to do more and we are going to do better for people in this City and this region." So I ask that as you grapple with some of the risk involved in all of this that we not get caught up in the Dooms Day propositions and that we look at what a great opportunity this can be for this City. You know, one of the folks at one of the press conferences talked about the possibility of getting the Good Will Games and getting the Olympics and getting some things here that could really distinguish this City in a very positive way. Folks, I think that this is a great opportunity for us. I know that you care about the City and you care about our prospects and our 24 11/30/00 - STADIUM HEARINGS opportunities. And I would respectfully ask that you favorably report and vote each of the bills that are in front of us because I think this is really a great opportunity for the City of Philadelphia. Thank you. (Applause.)
I believe you may. Thank you so much for coming up.
Our next witness will be Bill Hankowsky. (Witness comes forward.)
Bill, before you start your testimony, I would just like to say what we will be doing. You will testify. After your testimony, we will hear from Dr. Mark Rosentraub who is the professor and associate dean of the School of Public and Environmental Affairs in Indiana at Indiana University. Dr. Rosentraub will have to take the plane. So what we will do is hear 25 11/30/00 - STADIUM HEARINGS your testimony, then ask Dr. Rosentraub to testify and then we will get back to the Administration's testimony.
So you want me to go through my whole testimony and then we'll do questions after.
Good morning, Council President and members of City Council. I'm William Hankowsky, President of the Philadelphia Industrial Development Corporation, and I'm here today to testify in support of Bills No. 000721, 000722, 000723, 000724, 000725, 000229, 000230, 000231, 000231, 000232, and 000233 which allow for the construction of two new world-class sports facilities in the City of Philadelphia. These bills are the result of an intense effort by the City of Philadelphia and the Philadelphia Phillies and the Philadelphia Eagles to locate these new stadiums on sites that are neighborhood-sensitive and to craft a financial transaction that is sound and feasible. What I'd like to do this mornings is go through quickly the attached 18-page transaction summary and financial analysis to provide you with 11/30/00 - STADIUM HEARINGS an overview of the overall project and the financial consequences of proceeding or not proceeding with these new stadiums. My testimony includes this attachment and we'll also be using the power point presentation to put it up for Council as we as for the audience. Let me begin then with the first slide. Let me first talk about the legislative package that is before you, which includes the following ordinances: There are five ordinances, 000729, 000730, 000731, 000732 and 000733, which authorize the City to acquire the Jetro, Triple 7, Maggio Cheese, T-Warehouse and Acme Warehouse parcels in the South Philadelphia area. There are three ordinances that deal with the rezoning of the Naval Hospital and the newly acquired sports district which are the subject of a separate hearing of Council later, so I will not be talking about those further this morning. There are two ordinances that authorize the City to ground lease the Eagles and Phillies parcels to PAID and further authorizing PAID to construct the stadiums and lease them to and lease them back from City. These ordinances create the 27 11/30/00 - STADIUM HEARINGS financial structure that allows for the financing of the transaction, and these ordinances are subject to the attached term sheets that go with them which constrain what PAID can do in the leases between it and the teams. And those ordinances are 000721 and 000722.
It has been distributed, Councilman. And if you look at the screen I think you can follow what he's saying. This is the legislative package and Mr. Hankowsky was explaining that.
Thank you. There's on ordinance that authorizes PAID to apply to the State, the Commonwealth for 170 million in funding under their Capital Redevelopment Assistance 28 11/30/00 - STADIUM HEARINGS Program. That's 000725. And there are two ordinances required to authorize funding by the City for the land acquisition and they deal with amending the Capital Budget; they're 000723 and 000724. We will be submitting friendly amendments to those ordinances to lower the dollar amount simply to the amount necessary for the land acquisition. Then we execute the transaction. The City will buy five properties, the ones I listed earlier. We will then relocated Jetro to Acme, and the estimated cost of the acquisitions and the relocation is $95 million. This would expand the existing 125 acre sports district by 74 percent to 293 acres and increase the available parking to -- and I'd like to slightly amend this due to last evening's discussion, somewhere between 20,000 and 22,000 parking spaces. I think now is a correct number, which is roughly a 40 percent increase. The City will then ground lease the properties to PAID. PAID will own the new stadiums and lease them to and lease them back from the City. And the City's rent would become the obligation to make payments worth approximately $394 million on a 29 11/30/00 - STADIUM HEARINGS net present value basis, $304 million for bond proceeds and a net present value of $90 million for payments for a portion of the Eagles operation and maintenance cost to their facility. We would then have the teams begin to execute their responsibilities. The Phillies will perform site preparation and construct parking on the north or what some of us call the Vet lot, the Jetro area, the Triple-7 and Maggio properties utilizing 85 and a half million dollars of the bond proceeds and and a half million of the other 14 funding that we're currently working on that the 15 Mayor discussed earlier. 16 I want to point out here that we have 17 made it the responsibilities of the teams to do this 18 site work. They will get the sites as-is. They 19 will do the environmental remediation, the 20 demolition, the site work, and they will be 21 responsible for any cost overruns related to that. 22 The Phillies will then construct a new 23 baseball stadium using $89 million of City funds, 85 24 million of Commonwealth funds, and 172 million of 25 their own funds for a total stadium cost of $346 30 11/30/00 - STADIUM HEARINGS million. The Eagles will perform similar work. 7 million. The Eagles will construct their 9 football stadium using the state funds of 85 million 10 and 310 million of their own funds. 11 PAID will provide $10 million of the 12 bond proceeds to the Eagles for a one-time 13 contribution to a capital maintenance reserve for 14 the capital upkeep of the new the stadium. We will 15 then have no additional responsibilities to either 16 teams for capital expenditures for those stadiums. 17 Those are the responsibilities of the teams. 2 million. We'll retain 10 million of our bond proceeds to cover and contingencies, which might include, for example, a Board of View award on our 31 11/30/00 - STADIUM HEARINGS acquisition or should the site cost of the Navy Hospital work be greater than our current estimates. Both teams are responsible for the cost overruns on the stadium costs and on the site costs. I can't emphasize enough that the City is making firm, finite -- I think it's very consistent, Council President, with your opening comments that we are going to limit and cap what we're doing in this transaction. Both teams will then have full operational rights and responsibilities with respect to the stadiums. There will be 10 City and 10 Commonwealth-use days for each stadium. We would contribute 90 million towards the Eagles operation and maintenance costs in lieu of investing directly in their stadium.
They will be responsible for all additional costs O&M costs, and the Phillies would be responsible for all operation and maintenance costs. Both teams have agreed to fund a Children's Fund at a million dollars a team per year over the 30-year term of the lease or $60 million in total. Both teams have agreed to a special 32 11/30/00 - STADIUM HEARINGS service district to be formed in the South Philadelphia area with each team contributing $375,000 a year or a total of and a half million 5 over the 30 years. 6 We have clause that provides if in the 7 next five years if there's a sale of the franchise 8 that after certain deductions for outstanding debt 9 losses, et cetera, that should there be profit that 10 the City could participate in that and that that 11 would also go to the Children's Fund. 12 Both teams must submit MBE, WBE, DBE 13 plans. And I want to emphasize these need to be 14 meaningful and real, and I believe this is in the 15 category of one of the aspects of this transaction 16 that we realize we must have in front of Council as 17 a final document before you finally vote on this, 18 and we're working on that. 19 The City would then maintain the Vet for 20 the next three years at an estimated cost of 20 21 million. We talked about this for a couple hours 22 yesterday. Both teams will be obligated to play in Philadelphia for the next 30 years. It's actually 33 years because they'll play the 3 years remaining 33 11/30/00 - STADIUM HEARINGS in the vet and then start a new 30-year obligation, so well have these teams for 33 years. Let me talk a little bit about the financial analyst, which I gather will be the subject of much of the discussion over the next several days. What we have done is we engaged Arthur Anderson to do an analysis of the benefits that come from these new stadiums, and we've also looked at the risks of having the teams play out there lease terms at Veterans Stadium. We think that the benefits from this transaction could be summarized as follows: One, obviously, we retain the teams for the next 33 years. Number 2 is we obtain state-of-the-art facilities which allow us, for example, to retain the Army-Navy game, which we will lose without a new facility, and attract new events at our four facility sports complex which is unmatched in the United States. This is basically the point the Mayor made a few minutes ago. We don't know today what opportunities lie before Philadelphia that we could attract if we have facilities, if we invest in our hospitality infrastructure. We don't know if 34 11/30/00 - STADIUM HEARINGS there's a World Cup Game, a Pan-Am game or some type of NCAA championship. What we do know is that if we don't have world-class facilities we will not compete into 21st century in this business. We also leverage our investment to obtain significant team contributions to new stadium development, 172 million from the Phillies for the cost of their stadium, 302 million from the Eagles for the cost of their stadium, plus all of the capital and O&M costs that the teams make on top of our contributions. We end forever our operational and capital obligations at Veterans Stadium in 2004. You will no longer see in the Recreation Department the expenditure of General Fund dollars to maintain the Vet. You'll no longer see in the City Capital Budget the use of scares Capital Budget resources to repair the Vet. We create our Children's Fund of $60 million. We create our Sports Stadium Special District. We expand the complex. We create more parking. Again, that should probably read 20,000 to 35 11/30/00 - STADIUM HEARINGS 22,000 spaces. We capital our exposure, again, with the sole caveat of the potential Board of View awards on the land acquisition. We obtain, if you go forward with new stadiums, $159 million of revenue for use in the General Fund over the next 33 years. We obtain for the School District a net new amount of $70 million over the next 33 years of funds for the District.
And the teams end up with the stadiums. The new revenues remain competitive and remain here. There are risks which will happen if we don't proceed. And in a few minutes, I'm going to walk you through sort of the way we've looked at the down side of not proceeding. Let me talk about some of the very substantial risks that we face. One is we currently are talking about the need to spend some like $80 million to keep the Vet up over the next 10 years if we simply play out the remaining 10-year lease term. But suppose that number were different. Suppose it was either a determination by the City, a determination by an engineer because they found something, a 36 11/30/00 - STADIUM HEARINGS determination by a court that we should be spending another or $40 million to keep the Vet up. The 4 impact of having to spend that kind of money on the 5 General Fund over the 10 years will be a net hit of 6 50 to $100 million. 7 The Mayor mentioned the issue of whether 8 the vehicle rental tax would really be available to 9 us in the future if the legislature became so 10 annoyed that we were trying to use it not for new 11 stadiums but for repair that it was repealed. If it 12 were repealed, then the future world for the General 13 Fund would be down by $237 million. 14 If the teams that remain at the Vet, 15 it's difficult to understand how the Phillies would 16 be able without additional revenue to deal with 17 player salaries. The team would become less 18 competitive. A less competitive team would draw 19 less people. If you assume simply a 20 percent 20 decline in attendance by the Phillies, the General Fund would take a $12 million hit. We all know there's been much discussion about the revenues we'll receive when the skybox revenue flips to us. We have projected that historically about $4 million. The teams believe 37 11/30/00 - STADIUM HEARINGS it's more like a million and a half. Maybe we're right; maybe they're right. If they're right, it would have an impact on the General Fund of $26 million. What I have attached now, which is difficult to read on the power point because of the detail on the table, is in the attachment to my testimony are a series of tables that extract the relevant information in our analysis that I'd just briefly like to comment on versus putting it all in my new detail walking through it. The first table, Table 1 simply restates where we stand in terms of where we're getting the money and how we're using the money in the transaction, between us, the teams, and the Commonwealth for the stadiums, for the site costs, et cetera. As the Mayor indicated, we need to attain an additional $53 million to fund all of the activity that's involved here. We are working aggressively to do that. And what is absolutely clear and is categorical is that we're not going to increase our column, called the City column here, to make up for any shortfall in that number. 38 11/30/00 - STADIUM HEARINGS The next table, which is Table 2, takes a look at what happens to the City over the next 33 years if we build new stadiums. What we have done is looked at the projected new tax revenues of a football, projected new tax revenues of a baseball stadium, the use of the vehicle rental car tax. We have subtracted out the loss of tax revenue from the buildings that we're acquiring. We take those revenues, we pay for our obligations and 304 million in debt and the operation of maintenance payments to the Eagles and we then look at what happens to the General Fund, which is cumulatively every year positive and one year on an annual basis negative, but every other year is positive. And say that we can obtain somewhere in the neighborhood of $159 million. I really want to stress what this number is and what it is not. We have not counted in this number, we have not counted in this number, any out-of-stadium benefits.
To a degree a visiting team stays at a hotel and eats a meal in Philadelphia, to a degree of fan comes and stays at a hotel room to go to a game, those are called out-of-stadium benefits. Those are on top of this 39 11/30/00 - STADIUM HEARINGS benefit. We've not included any multipliers, meaning that you spend money and create jobs and spend up more money in the economy. We have, in fact, also downsized some of the assumptions that the teams have given us about what's going to happen in the building. 8 million. 5 million. So we've attempted to be realistic in what might happen. The result of which is there is an upside potential to the 159 million that is not showing here. There clearly is a downside potential because everything might not happen exactly as you plan it, as the Mayor indicated. But in the new world scenario, you have an opportunity you do have also the possibility of a downside exposure. The next table, which is Table 3, looks at what happens to the School District. The District is a significant beneficiary of the transaction because today whereas they get a single revenue source out of stadiums, which is the liquor-by-the-drink tax, in the future, they would 40 11/30/00 - STADIUM HEARINGS receive more of that. More of that is a function of more fan attendance, more consumption, more pricing. They will also receive new use and occupancy taxes. The would also receive a portion of the payment in lieu of taxes, so the result is about the sixth year of the transaction, the District begins to receive about two and a half million dollars a year in new revenue they're not receiving today. We then walk through a series of tables, starting with Table 4 that simply gives you the background behind the numbers I've just used. We first look at what happens in a football stadium, what the Eagles will generate, what other events at the Eagles stadium will generate. On Table 5 we even break down further the taxes you'll get from the Eagles by source. And here again I want to make a single point. You see a lot of columns here. The reason you see a lot of columns here is because stadiums, somewhat like hotels, are significant tax generators for the City of Philadelphia. And they're significant tax generators because every activity that happens in the stadium we tax. We tax the parking when you bring your car. We tax the ticket when you come in, 41 11/30/00 - STADIUM HEARINGS the admissions tax. We have a 1 percent sales tax on what you consume. We have a liquor-by-the-drink tax on what you drink. We tax the wages of the workers, of the coaches, of management, of the players, and even of the visiting players. The result is, and you're going to hear later, I gather, testimony about displacement effect economically, et cetera. This argument is very simple. These are the taxes the City of Philadelphia gets that come here, come to our treasury. I know it's kind of interesting to talk about what might happen if somebody doesn't go to a game and instead goes to a movie or goes out to dinner because it's interesting to talk about it if it happens in Cherry Hill or Valley Forge or Media. It doesn't get us any of these taxes. And in fact, somewhere in the neighborhood of 70 to 80 percent of these taxes are created by non-Philadelphians that come to events. Basically what we're doing is taxing outside spending that occurs in the City of Philadelphia. Table 6 shows the revenue streams from a tax perspective for the other events at the football stadium. Table 7 looks at what happens with the 42 11/30/00 - STADIUM HEARINGS Phillies in a baseball stadium in terms of tax revenue. Table again shows that in detail by 5 tax stream for Phillies stadium. 6 Table 9 is the set of assumptions used 7 in the Arthur Anderson analysis that goes through 8 how we've arrived at these numbers. Table is a table I'd really like the 10 Council to focus on. Table 10 is what happens if we don't build new stadiums.
Table 10 says assume that our teams play out the remaining 10 years at the Vet and let's look what might happen in this world. First, our assumption is that the Phillies will continue to simply kind of be where they are, not do any better, so that our tax revenues would basically be flat. You can assume that the Eagles would move their practice operation out of the City and take away wage taxes we collect today, so we subtract those out. We look at the revenues we get today from the Vet. We assume that we get the skybox revenue the way we think we will, not the way the teams think we might. We look at the expenses we spend today. Then we say to ourselves, well, as the Mayor indicated basically the teams in the City have 43 11/30/00 - STADIUM HEARINGS simply let the Vet go on the anticipation of new stadiums. No one's going to be able to do that in the future if they believe they're there for the next years and new stadiums are not a possible. 6 We believe that there would be a significant 7 increase in the expenses to operate the Vet that 8 would be required either as a practical matter or 9 even conceivably being forced on us in order to be 10 landlords in good standing and not expose ourselves to team being able to leave. Assume that that's simply a 50 percent impact on current expenses. We also know from the consultant report that look at capital status of the stadium that we need to spend at least another million six a year just to maintain elevators and escalators, transformers, electrical system, the HVAC systems in a way that would be prudent just to protect the 80 million that you're investing. This assumes that you keep the vehicle rental tax and then you spent only 80 million to fix the Vet and another to buy back the practice 22 facility. This says your best case for th General 23 Fund over the next 10 years is $78 million. The next table with the assumptions behind that, and let me take you to the last table, 44 11/30/00 - STADIUM HEARINGS Table 12. This table looks at what happens to that assumption of $78 million if anyone of the following contingencies might occur. Suppose it cost more to maintain the Vet another million in capital. 6 We'll lose $50 million of that benefit. If the 7 numbers actually 40 million more in capital, you 8 lose the entire benefit and in fact the General Fund 9 goes $23 million negative. If Phillies attendance 10 declines, you lose ear $12 million to the General 11 Fund. If the skybox situation goes against us, we'd 12 lose 26 million. And if you lost the vehicle rental 13 tax, you'd lose 237 million. If all of this 14 happened over the next 10 years, the General Fund 15 would have a $300 million negative impact over where 16 we are today. 17 I'm not here to tell you all of this 18 going to happen. I would hope none of it would 19 happen. All I'm saying is that the future world 20 without new stadiums is a world with no upside potential, none. And the only possibility you have in a future world without new stadiums is a downside potential at the Vet. It could be as catastrophic as a $300 million impact on the General Fund. Our position is very simple. The City 45 11/30/00 - STADIUM HEARINGS faces a choice between the future with new stadiums earning the possibilities of significant upside potential or a future without them and significant downside exposure. Let me close my comments with a few final remarks. First, I want to join the Mayor in thanking you, the Council President and all members of City Council for your patience and indulgence in dealing with this large transaction on such an expedited basis. Second, I want to emphasize what I consider to be the key provisions of the transactions that are before you. The City is absolutely capping its financial contribution at 304 million in bonded investment and a fixed Eagles O&M schedule with only one exception, Board of View awards on property acquisitions. The City is transferring the risk on this transaction to the teams.
The risk of cost overruns on site development and stadium construction, the risks of operation in capital upkeep of the new stadiums. We've created a Children's Fund and a special service district funded by the teams. We've obtain significant team contributions, the highest 46 11/30/00 - STADIUM HEARINGS in the NFL and one of the highest in major league baseball. We'll have new state-of-the-art facilities to compete nationally and internationally for the events. We'll retain our two teams for the next 33 years and we obtain new funds for the General Fund and the School District with significant upside potential. In closing, the option to building new stadiums is the preferred choice for the City versus the downside risk of having our teams remain in the Vet for the next 10 years. And we request your favorable consideration, and I'll come back later to answer question.
Councilman Clarke, I notice that your light is on. We're going to refrain from asking questions of the Administration at this time because Dr. Rosentraub must go back to Indiana.
You're light's on, keep it on so you will be considered first. 47 11/30/00 - STADIUM HEARINGS
Our next witness is Dr. Rosentraub. (Witness comes forward.)
Thank you very much. My name is Mark Rosentraub. I'm a professor and associate deen at the School of Public and Environmental Affairs in Indiana University. I have been involved in the study of Cities and professional sports now for more than years. 12 I've been a consultant to several cities, including 13 Los Angeles in their effort to retain the Los 14 Angeles Lakers and the Los Angeles Kings. I've 15 worked for the City Indianapolis. I've worked for 16 Buffalo's County that was involved with the Buffalo 17 Bills and several others. So I thank you for the 18 opportunity to review the proposals in my role as a 19 consultant to the Council. And I want to state two 20 points to start with and to develop these points for 21 you. 22 First of all, there's absolutely no 23 disagreement about the need for new stadiums. The 24 Mayor and the previous speaker both identified why 25 the City of Philadelphia needs to do it and that the 48 11/30/00 - STADIUM HEARINGS teams do actually need the potential to earn additional revenue to, in fact, remain competitive and to bring pennants and championships to Philadelphia. The question before the Council is not whether to build or not to build. The question is whether or not the existing partnership as proposed treats the taxpayers as fairly as it does the teams owner. And as I'll try to take you through in some detail, I have a report here that I have prepared and I would ask that it be circulated for members of the Council who have not received it, which does, in fact, document exactly my points about why the stadiums do need to be built because of the changing economics of professional sports, but it also carefully tries to take the Council through the finances of both Major League Baseball and the NFL, the financial positions of both the Eagles and the Phillies to indicate that the partnership that is before you today would actually make Philadelphia to provide three times the public support that has been provided to other teams by other cities who have built successful partnership with their team. Now, there's been a lot of discussion 49 11/30/00 - STADIUM HEARINGS about averages; is this a better deal than the average. And the problem, Madam President and members of the Council, is that when you think about the term average, what do you consider average? For example, there have been 31 facilities built across the last few years, from cities ranging in size from Green Bay, Wisconsin, which you probably know just recently approved a tax increase to redo Lambo Field, to cities like Nashville and now, of course, we have Los Angeles and Philadelphia. What I'll submit today and what is part of my proposal is that the Philadelphia market is so large that relative to when we use the term average, you should compare yourselves only to the deals done in Boston, Chicago, and San Francisco. It makes no 17 for you to compare yourself to Nashville or to Green Bay or to Milwaukie. In fact, if we added Green Bay and Milwaukie population and wealth together, they would be the size of one-half of the market in the Philadelphia region. So consequently, one might expect what Philadelphia needs to do and what Green Bay and Milwaukie needs to do is radically different. And that's the point that I really want to focus people attention on. 50 11/30/00 - STADIUM HEARINGS Again, it is not a question about whether or not you need to build new facilities; you do. It is not a question about whether or not a partnership should be formed; it should. It is question of how much tax money do you think is necessary to take from taxpayers of Philadelphia to increase the rates of return to the owners of the Phillies and the Eagles. Now, with those as my opening remarks, let me take you through a couple of points. The key issues when you look at what a community needs to do for its professional sports teams has to focus on the potential for profit that exist for those two teams.
3 million residents and 370 firms that employ more than 500 employees. Large firms are obviously quite critical for the fiscal success of professional sports teams because they are the primary consumers of luxury seating. And the need to build new facilities is, in fact, to satisfy that demand for luxury seating. Of all the markets that have built new facilities, Philadelphia will rank third to fourth in terms of both its size and the number of wealthy firms. 51 11/30/00 - STADIUM HEARINGS What this means, for example, when we talk about building a facility in Green Bay or in Milwaukie for the Bruins, there you might have about 50 to 75 that are as large as the 370 firms that are located in Philadelphia. As a result of selling luxury suites, the demand is both higher in Philadelphia and the price one could charge is also higher. One also has to look at the amount of money the owners have paid for their franchises because this is another important variable in terms of figuring out what is an appropriate element of return. One. Of the issues that I focussed on in my report for you to consider is that the Philadelphia Eagles --
Doctor, excuse me. I'm just being told that you're too close to the mike and it's not being carried properly. Thank you.
In my report I had asked the Council to take a look at the different purchase prices that owners have paid for their various franchises and to realize, for example, to 52 11/30/00 - STADIUM HEARINGS compare the City of Houston and Harris County did for the new Houston, Texas, franchise would have to be radically different from what Philadelphia needs to do because Mr. McNair in Houston paid $700 million for his franchise. Obviously, then, he needs a rate of return on that investment that would be drastically different from the ownership of the Philadelphia Eagles which paid $185 million for their franchise. If we assume just for the sake of argument that both owners should make 10 percent returns on their investment, Mr. 5. If you, in fact, develop a partnership which matched the one in Houston, you could potentially create an environment in which the Eagles would earn $70 million in profit or effectively create for themselves a 45 percent rate of return on their investment. I'm not suggesting that that's what this partnership does. But I need for you to keep that in mind as we go through these elements and we start talking what becomes important. Now, what I've broken our for you in the report is what will happen to the finances of both 53 11/30/00 - STADIUM HEARINGS the Eagles and the Phillies if new facilities are built and they perform at the levels which the previous speaker indicates we should consider they would perform. 4 million in excess revenue after they meet all of their obligations to pay the players, pay management, and deal with the construction and any cost overruns. million per year. percent annual return on the capital at risk for the Philadelphia Eagles. 1 million. This will yield no less than a percent 18 rate of return for the ownership of the Philadelphia 19 Phillies. 20 I want you, please, to keep these figures in mind because they will become critical as we go through a suggested alternative that I'd like you to consider which I want to underscore for everybody here only refers to how the new stadiums would be financed, not whether or not the facility 54 11/30/00 - STADIUM HEARINGS should be built. There's also been discussion this morning already about the issue of how much money the owners will, in fact, pay the players. I want to bring the Council's attention an article that appeared in all of the papers in morning, that the NFL is about to adopt new guidelines that if any team pays more than the salary cap, they will be fined by the league and will have to forfeit draft choices. This is absolutely critical for the Council to understand, because currently in the Veterans Stadium, the Philadelphia Eagles pay their players just $4 million below the legislated cap. In other words, if their revenues increased by $43 million they can only spend $4 million additional for players. If they would spend one dollar over that, they would be subject to the new penalties that the NFL has decided to impose on all teams. Some of you football fans may have recently followed the San Francisco 49ers' situation, and for violating the cap several years ago, they have not only been fined a certain amount of money, but they have now forfeited two draft choices in the third round. They are now talking about if teams violate 55 11/30/00 - STADIUM HEARINGS it after this year, it will be two draft choices in the very first round. So please understand that in terms of revenue you will create through your partnership for the Philadelphia Eagles, they cannot spend that money on the players. If they do, they risk both financial penalties as well as the loss of draft choices. When we turn our attention to the Philadelphia Phillies, and I would bring this up for your consideration as part of the partnership, the Philadelphia Phillies are the poorest performing team in their industry, Major League Baseball, not over the last few years, Madam President, but over the last century.
There is no guarantee that you have in the current partnership that if these revenues do materialize that they will in fact pay it to the players. And as I've spoken with members of the Council before, you need to be sure, based on the performance of the team in its own industry over the last 100 years, that you get a kind of commitment from this team and its ownership in writing about the revenue that it will invest to bring you a competitive team. As the previous speaking already indicated to you, if the Phillies 56 11/30/00 - STADIUM HEARINGS fail to compete, they will not bring you the attendance that is driving much of the economic model they're talking about. And again, this is a team with a 100-year track record of failing to perform in its industry. That's a very different situation than the Philadelphia Eagles, of course, who have not only brought championships to Philadelphia, but continue because of the NFL's requirements to spend an extraordinary amount of money for the playing talent. Let me focus with you for a minute now on what I consider average deals and public sector participation because there's been a little bit, I'm afraid, Madam President, of misinformation that's been brought to the Council in documents that I have reviewed. The three deals that are most comparable in terms market size for you to compare yourselves to would be the deal that the State of Massachusetts together with Foxboro and the support of the Boston City Council put together to retain the New England Patriots. Football fans will remember that the Patriots were thinking of moving to Connecticut before they partnership was put together. The 57 11/30/00 - STADIUM HEARINGS second deal is the deal that the State of Maryland put together in Southern Maryland to permit the Washington Redskins to build their new facility which is now the FedEx Complex. The third deal, of course, is the most recent one completed by the San Francisco Giants in partnership with the City and County of San Francisco. I want to under score for the Council that in none of these deals was more than $71 million of public money involved in the entire construction of the stadium, the building of the infrastructure, the acquiring of land, the clearing of the land, the site preparation of the land. Total public investment was $71 million in these three deals. The partnership that is proposed here for both teams would be at least three times that great. And what you should know is that Massachusetts, Foxboro, and Boston were able to secure a profitable deal accepted by Mr. Craft and the NFL to retain the Patriots on an amount of money that is less than what the State of Pennsylvania has already committed. You should also know that the San Francisco Giants this year appeared in the 58 11/30/00 - STADIUM HEARINGS championship playoffs, having one their division, having built a stadium where they not only assumed 100 percent of the responsibility for the capital construction, they assumed 100 percent of the responsibility for the operations and maintenance and had a player payroll, Madam President, that exceeded the Philadelphia Phillies. These factors are important to remember because you're asking taxpayers here to pay three times as much as the taxpayers have paid in other markets. I also detailed for the Council the deal that the Chicago White Sox retained in securing their new facility, Kominsky Park 2. If we index that deal to the current construction prices, the State of Illinois would have committed but 200 million towards the deal of the Chicago White Sox that is one-third less than the total public investment that is anticipated here. As you'll see in my recommendation to the Council, I would urge you to follow the model that the City of Chicago and State of Illinois did follow with regard to the Chicago White Sox. I am also aware that there is a new proposal circulating by the City Chicago involving 59 11/30/00 - STADIUM HEARINGS the Chicago Bears.
This may involve utilization of state money to build an entire new facility for the Chicago Bears. This would be a remodeling of their existing Soldiers Field. One version of the proposal has it that the City Chicago would not put any of their tax money into that it, that it will all come from the state share of the hotel tax. But we will have to wait and see, in fact, what that deal looks like as it is only now being submitted to the legislature in Illinois. The Mayor also made an important point that I would ask you to keep in mind. The Mayor ask for you to think about the impact of what you do and what message you generate for other cities. If in fact a large metropolitan market like Philadelphia, in fact, provides the level of tax support for this partnership has indicated, you will actually set back the fiscal health of all other cities in the United States, because this will become the new standard. You will have, in fact, undone the work that Boston, Massachusetts, and Foxboro did. You will undo the work that San Francisco City and San Francisco County did to protect their taxpayers, and I do well fear you may have undone some of the 60 11/30/00 - STADIUM HEARINGS efforts and success that Chicago has achieved in building affective partnerships for professional sports. Let me now talk a little bit about the return to the City of Philadelphia, and there's been great deal of discussion about that. There's been discussion, for example, about a Children's Fund that the teams will commit over time to a total absolute number of about $60 million. I want the Council to keep in mind that the return to the teams will be exactly times this commitment. While I 13 certainly applaud the need for this kind of 14 investment by the teams in their communities, 15 allowing them such a small investment in exchange 16 for a return that is 20 times that magnitude seems 17 to me to be a little bit unbalanced. 18 I want to also bring to Council's 19 attention to a point that was made by our last 20 speaker about sharing in the wealth from imputed or increased value of the team if the teams are sold. And I want to bring out three points from the current proposal for you to consider: One is the owners do not have to sell all of the team to get some benefit. In fact, your 61 11/30/00 - STADIUM HEARINGS share only takes effect if they sell controlling interest. So they would be able to sell minority shares and recoup a certain amount of return without invoking any of the penalties described in the clauses. Second of all, you should be reminded that this provision only exists five years after the proposals are signed or approximately three years of playing time in the new facilities. All the owners have to do is to avoid any penalties whatsoever is to complete the period of service, whether it's interpreted as three or five years, and then sell the team. Lastly, I will also tell you that in terms of definition of profit, the definition of profit is worded in such a way that the return that the City of Philadelphia could share in will be drastically different. The accountants will frame it such a way, I would predict, that the teams will be shown to be less than as profitable as they usually are. There are a series of tax revenue gains that have been discussed. I want to comment very briefly on them for you to put them in perspective. 62 11/30/00 - STADIUM HEARINGS While I do believe some of those returns will occur, they will not occur at the robust levels predicted. One, the Army-Navy game is only committed, as I understand it from documents to the Philadelphia area for three of every four years. If they would decide to stay, I think they would, one needs to adjust that. Second of all, there's a projection of attendance levels at soccer that we have not yet seen from Major League Soccer in any market across the United States. As a lover of soccer as well as basketball, I certainly hope those attendance levels happen.
But I have to report to you as your consultant they have not happened anywhere in the United States, outside of selected games in selected areas during selective seasons, not for annual averages. Attendance levels that are projected for the Phillies are wholly dependent their ability to field competitive teams. In the past, playing at Veterans Stadium when the team was competitive, they drew an excess three million people. However, the ownership has been extraordinarily reluctant to invest in the team, it is not fielding competitive 63 11/30/00 - STADIUM HEARINGS teams of late. If, in fact, they do not do that and you have no commitments that they will, you may not see those attendance levels. As the last speaker mentioned, there's an overestimation in my point on the substitution effects. I don't want to quibble about that because that's not issue you should really bog yourself down with. The key issue is what is the appropriate amount of money the teams ought to invest in these facilities given the rates of return they will earn. In terms of the financial report also that were introduced this morning by the Anderson Consulting Firm, please remember to read the letter itself Anderson transmitted with that document in which they did not endorse or review in any manner, shape, or form any of the assumptions and methodology. They were essentially given a set of numbers, discussed it with the teams, and ran those numbers out for you. They are not evaluating whether or not those numbers are valid and whether or not those conditions or the assumptions underpinning those numbers, in fact, have any validity. Now, let me get to what I would ask for 64 11/30/00 - STADIUM HEARINGS you to consider as a way to make this deal or this set of partnerships similar to those that Boston, Chicago, and San Francisco have been able to negotiate for their taxpayers. I would ask that you remove the support that the City is committed to for operations and management for the Philadelphia Eagles facilities. This will save taxpayers 90 million. I would ask that you remove the construction support, the additional construction for Philadelphia Phillies Stadium. 5. Essentially, what I am proposing to you today as a consultant to you is that if in fact you could reduce when we pass what has been submitted to you, simply removing those two items you will save taxpayers of Philadelphia $179,500,000. The partnership will still be twice as large as any public partnership negotiated by large market to date. So this will not put you behind the support that San Francisco's provided. It will not put you behind or even equal to the support that Massachusetts has provided. It will not put you equal to or behind the support that Maryland has provided for the Washington Redskins. 65 11/30/00 - STADIUM HEARINGS You will be providing twice as much support but still saving taxpayers $180 million. What will it mean for the teams if this was the proposal that you, in fact, agreed to today? 5 percent. 5 percent per year from what I project would be and a half percent if you go ahead with 10 the current proposal. 11 The Phillies return, in my view, may 12 well if they field a competitive team and if they 13 pay the players what they should pay as a large 14 market team, their rate of return would exceed 15 15 percent, and in my estimations would be as high as 16 18 percent. 17 Again, I just want to make sure the 18 Council is clear on what my recommendations are. 19 The need to build stadiums is there. Producing a 20 hundred $180 million of taxpayers commitments will 21 simply reduce the teams' profit levels to very 22 handsome and robust levels of 16 and a half percent 23 and at least 18 percent. There's been -- when these conversations always take place in communities, there's always a 66 11/30/00 - STADIUM HEARINGS fear tactic that's introduced about what happens if the City would fail to act. I do not urge you not to act.
I urge you to act and I urge you simply to follow the recommendations I make. But let me point out a few things that give you more time if you feel more time is, in fact, needed. One is, the team have leases. They are, in fact, contractually bound to play in Philadelphia for several more years. While it may be a need to repair the Vet and do things, there is time, in fact. These are not teams that can leave in the morning. For the Philadelphia Phillies, please understand there is no other market left in the continental United States that they could play in that would generate for them anyway near the profit they could earn if they stayed in Veterans Stadium and you did nothing. They can't move to Charlotte, even if Charlotte were to build them a stadium and hand them the keys. There simply is not enough money in the Charlotte economy to give them the same profit levels here. So there's no place else for them to move. The Eagles, in fact, could try to 67 11/30/00 - STADIUM HEARINGS relocate, but if you carefully review the provisions that the NFL has established itself governing the issue of movements of teams, neither of the conditions that would support such a move do exist. And while the Al Davis precedent does give some fear that they could still try to circumvent those, courts have shown now greater interest in looking at what the NFL does. And what I want to point out in terms of what those two elements are, fan support for the Philadelphia Eagles has robust for decades. You currently have an average attendance in excess of 65,000. That does not meet the NFL criteria of a community failing to support its team. Second of all, you do not meet the criteria of failing to negotiate in good faith for a new stadium. There is a proposal of partnership before you right now. I am urging you, in fact, to consider an amendment to that proposal, but that could not be considered evidence of a failure to negotiate in good faith because you as a Council could turn to any court, could turn to the NFL, could turn to the ownership of Philadelphia Eagles and say to them "We are prepared to offer you more money than was offer to the Washington Redskins or the New England Patriots 68 11/30/00 - STADIUM HEARINGS to maintain a presence in the City of Philadelphia. That is certainly negotiating in good faith. It has also been discussed, well, what happens if Philadelphia did nothing and the teams went to the suburbs? Madam President, I point out to you that in terms of the performance of teams, the only team to build a new stadium in a suburban location is the Texas Rangers. They are having the greatest difficulty selling luxury seating. The teams themselves have a vested interest of being near the consumers of luxury seating. And therefore, while it is conceivable that some suburb could make an offer that would dwarf what the City of Philadelphia might or could offer, the teams in the long run, simply put, cannot earn the revenue that they can earn in their locations by going to suburban locations. Lastly, I want to close by saying to you a few things. Build the facilities. They're needed. It's overdue. And much of the dreams and the hopes of the future of what you achieve in fact you may well achieve if these facilities exist. Form partnerships that treat your constituents, businesses, taxpayers, and unions as 69 11/30/00 - STADIUM HEARINGS well as you treat the teams owners. The current proposal does not do that. The current proposal treats the team owners much better than it treats the owners, the taxpayers, and the people who will ultimately be responsible for ensuring that financially these deals can be met. I also urge you to consider with your own attorneys the implications of entering into a deal when there is a shortfall of $54 million. I will not pretend to say that I understand Pennsylvania's laws or Philadelphia's own ordinances, but you already have, as the previous speaker noted to you, one downside liability.
You are responsible for acquiring the property and you do not know what the property will cost you. You, therefore, must consider the possibility of a contingency fund in case those costs exceed what's currently projected. That I would think would be a reasonable approach for you to take. You also have an unfunded liability currently of 54 million. You are entering, therefore, into a partnership in which you actually are not capped. You have some liabilities. I urge that you not add to those liabilities by providing 70 11/30/00 - STADIUM HEARINGS the team owners with rates of return that are exorbitant. I appreciate the opportunity to work with you.
Thank you very much, Doctor. Can we have an opportunity for some questions? I know you have to take a plane.
Thank you. Councilman Clarke, I know you wanted to be recognized. Do you want to recognize this witness or the City witnesses.
My question was originally for Mr. Hankowsky. I think there are other members that may have had some questions.
I can also stay through the early afternoon, so if you want to wait for questions, I'll be here.
Thank you, Madam President. Mr. Rosentraub, in your analysis you 71 11/30/00 - STADIUM HEARINGS discuss the disposable income of immediate markets as it relate to the construction of new stadiums. However, you ignore the amount of public finances versus team financing. Did you take into consideration that the Eagles contribution to the stadium is the greatest of any NFL team and that the Phillies are the third highest of any Major League Baseball team? Who is right, you or the teams? And you state that these deals involve far more public money than any other project across the country.
Councilman, I point out to you, the teams are wrong and there's no way to -- let me point out to the information they're giving you with regard simply to the deal here in Philadelphia. The information they are circulating, which is what I call misinformation, and I apologize I'm going to push back pretty hard on this, they are saying that the only public money in the deal is the $85 million from the State. Sir, that's patently absurd. You're buying land. You're dealing with infrastructure. You already said you're committing money. For them to report on a document that therefore the only public money and construction of the stadium is the $85 million from the State is, 72 11/30/00 - STADIUM HEARINGS simply put, a -- I don't know how you would define that as such, sir. No one in professional sports would define the cost of construction -- that would be as if you were to talk about the construction of your home and say it cost you nothing for the land. So in effect, just looking at that one piece of information on the table, we show you that this is misinformation. If you like afterwards, I will go through every single one of those deals, and I have the information here for you. I have it not from me, I have it from audited accounting firms that will show you exactly the total public commitment in every single deal. I can refer you to two other sources for that that will give you every single deal. This is simply wrong information.
Maybe you can stay around this weekend, go to up to Juniata Park with me, hope on the L and go down to the Eagles game.
I have another question for you. On , you breakdown the Phillies expenses and you have them in a fashion similar to Eagles expenses. You simply assume based 73 11/30/00 - STADIUM HEARINGS on Cleveland that the annual cost based on salaries and other teams expenses is 112 million. Could you break down those other expenses out for me in terms of dollars and how they sent to us? Can you do that this afternoon?
Absolutely. I've just summarized them here, but I can give you every single category. Let me also remind the Council where this comes from and why. The NFL and Major League Baseball are privately owned companies. They have no legal responsibility requirement and their privacy should be respected and protected and divulge some of these figures. Much of what people like me and other accounting firms and consultants work with is information from the Cleveland Indians because they were for a period of time publicly traded. As a result, each year they had to file 24 financial statements with the Security Exchange Commission which it give us a very good idea. The 74 11/30/00 - STADIUM HEARINGS only information that we actually have that is 100 percent accurate are the player salaries because the union does divulge those. So we know, in fact, what they pay their players. Everything else we're either getting from what they choose to release or based on the figures once released by the Cleveland Indians.
Okay, my next question, on you discuss the Phillies market size and the household income of the market related to your efforts to build a new stadiums. What I don't see there is a consideration of the teams' annual revenue and broadcast revenue. Did you consider that Philadelphia, we live in one of the wealthiest regions and the fifth largest Media market and the Phillies out of 30 teams in 18 revenue 13 out of 30 in broadcast revenue despite 19 your factors? Did you figure that in? 20
Yes, I did, and that's 21 what I was saying to you what I view what the 22 profitability potential of the Phillies is is that 23 baseball fans, like all consumers, and since I'm a 24 huge baseball fan I can tell you this, that when 25 teams win, more people watch. If in fact the 75 11/30/00 - STADIUM HEARINGS Phillies do as well as they should have done, and I pointed out that they're the worst performing team in Major League Baseball in the last century --
Did factor the Larry Bowa factor into that, too? (Laughter.)
Seriously. It's not a joke. We got a guy that was on the last championship team here in the '80s, he was a sparkplug, he was here, you know, he couldn't hit but he could field. He's probably going to be a great manager. The people are going to come see Larry Bowa. Did you factor that?
I track one loss attendance player payroll every year for every team, so the Bowa effect is in the models.
Do you factor also into that like young guys might want to play for a Larry Bowa as compared to someone else?
The great thing about statistics in sports is we can look at the bottom line, how many games did you win. And, yes, we've got it. And that's why I do believe the profits of the Phillies should be at about 18 to 20 percent. 76 11/30/00 - STADIUM HEARINGS
Can I assume you're saying that these intangibles, the Larry Bowa factor, as I call it, he can come here and light this team and we can see profits with this new stadium that even you -- you could admit it is possible, it isn't out of the realm. You know, we are dealing with something here that's emotional and a national pastime as opposed to numbers?
Again, Councilman, if that occurs, then the situation with the Phillies will be even better than projected. I'm giving you a very conservative approach on what the Phillies are so that you understand the magnitude of what that subsidy means.
A couple other questions. You talked New England, you talked about Washington. It's hard for a Philly guy like me who grew up in the and still lives in the City. When I go like to New England, it confuses me like I'm in Boston, I'm outside of Boston, they got a football team and Boston's City Council is paying for it but it's in Foxboro. You know, there's a lot of things into the factor, you know, we're the County of Philadelphia, the City of Philadelphia. Can you 77 11/30/00 - STADIUM HEARINGS actually compare our scenario with Foxboro which is not really Boston but it is. They let their police live out of the city; we don't do that. The same thing with Washington, D.C., and I saw Hankowsky make a little face there, you said that Texas is the only one building a suburban stadium. The new ones?
Right, the facilities that -- and the reason it's important to break that out is, you're correct --
The new ones tend to have the luxury seating. The Patriots now, of course, would be the exception in trying to do it. But the baseball teams, it's the Rangers that have had the problem. Go back to your question, though.
These are suburban stadiums, basically. Did take into --
Right, when you're dealing. 78 11/30/00 - STADIUM HEARINGS
Right. When we're dealing with football and you look at the placement, for example, of where the FedEx Redskins facility is, you're right in the sense it's not inside the inner city, but the key element is the market and what it will do. Football teams have a little more success at selling in more distant locations than do baseball teams because baseball, of course, you're selling 81 products. So you have a little bit more -- less risk in that regard. With baseball now we're pretty confident in telling you that if you put a baseball team in the suburbs, you're running some very high risks of meeting your revenue goals.
Let me ask you my final question. You talked a little bit about soccer. Do you know who Chris Albright is or Bobby Convey are? Did you ever hear of them names? I mean, this isn't a soccer quiz. Chris Albright and Bobby Convey are professional soccer players that play for the Philadelphia Metro Stars. Both of them were high school stars here. Bobby Convey is 16 years old. He plays professional soccer for the 79 11/30/00 - STADIUM HEARINGS Washington Metro Stars. Bobby Convey and Chris Albright will playing here for the Philadelphia whatever we're going to call them. I'm assuming that there's going to be a professional soccer team here. How can you count revenue that comes from the Bobby Convey factor and the Chris Albright factor?
Again what I advise you, simply, is to look at -- you and I may be strong soccer supporters. I've been a girls soccer coach for years, so I know that well and I've 12 analyzed the potential of soccer as an entity. I 13 hope it's successful, I really do. But the long run 14 data right now in terms of what you can charge does 15 not augur well currently. We have been trying, as you know, by hosting the World Cup here in the United States to get that extra kick up. It has not materialized to date. As you probably also know, the newest proposals from both the women's soccer leagues and the men's soccer leagues is to build and play in much smaller facilities. And one of the elements the Council would need to factor into those projections is the recommendations from the soccer associations themselves is that we probably need 80 11/30/00 - STADIUM HEARINGS venues under 30,000. You also are probably aware that the NCAA men's final four in soccer, it's still considered the premiere event. They tried for several years to hold it in Charlotte, play it at the home of the NFL franchise in a hope to attract 50, 60, 70,000. And I know you follow it as closely as I do. You know that they were less than halfway to their target goal and are now considering leaving Charlotte after this year to return to smaller venues. So I bring this information to the Council only to say that current market data doesn't sustain attendance levels in the long-run event magnitude.
And I wouldn't pretend to be an expert on any of these subjects. I know a little bit about a lot of things, okay? But what I'm out here with the soccer point is the Kensington factor, you know, that's stuff that you can't factor in to it; I can't. That was a big immigration thing and it was big and it happens here. That's my whole thing. I mean, I hope some day you can come back and tell us what's going on. 81 11/30/00 - STADIUM HEARINGS Thank you. Thank you very much.
Thank you. The Chair recognizes Councilman Goode.
It's good to finally meet as our consultant before you fly back out of town. Can I ask you first off, did you consult with any members of Council on what this review should include?
Did you consult with any members of Council on what this review should include?
No. Let me back up. When you say what it should include, the charge was to look at the partnerships.
So you would agree this is a very narrow analysis of a billion dollar 82 11/30/00 - STADIUM HEARINGS economic development project?
I looked at a $1 billion -- it's in excess of $1 billion proposal to create two partnerships.
Let me ask you why there is no public benefit analysis in terms of construction jobs, permanent jobs being created or other economic opportunities? Why is there no 16 public benefit analysis of a $1 billion economic development deal?
No, I'm asking a question. Why is there no public benefit analysis?
It's not a public benefit -- it's private benefit to construction I'm saying it exists.
I'm asking why is 83 11/30/00 - STADIUM HEARINGS there no public benefit analysis in terms of construction jobs, permanent jobs, other economic opportunities that will come from this deal? Why is that not included in this 16-page document?
Sir, I accept the fact that if you build the buildings, and I've recommended that be done, that those benefits will happen. What I'm -- Councilman, let me return, I'm not disagreeing. I'm agreeing that those benefits exist, and it would help, as I said, I think I started my presentation by saying the stadiums ought to be built and the jobs ought to be created. What I'm asking you to consider, and I would pose my question in this regard to the Council, is why should you, in fact, take taxpayer money to subsidize some of wealthiest people in our society, taxes that union members will have to pay, taxes that people who rent cars will have to pay.
My question was why is there no public benefit analysis. You didn't see a need for it. My next question is why is there no-- 84 11/30/00 - STADIUM HEARINGS
Please don't -- if you're going to ask me a question, sir, please let me answer it.
I answered the question by saying to you, point blank, that I started my presentation today by saying that I agree that the stadiums should be built, I agree that those things create jobs and those benefits. I asked you to focus on who should pay for those benefits, sir, not whether they exist or -- I'm not opposing the stadiums. I'm not opposing this.
Why is there no 19 allowances included here of participation goals for minority, women, disabled businesses? Did you look at participation goals in other cities in terms of what economic benefits those economically disadvantaged businesses might have? Did you even take the time to examine that?
I respect the 85 11/30/00 - STADIUM HEARINGS Constitution which requires that to be done. I would not think the City of Philadelphia would violate that. So that's not relevant to the proposal.
This is very relevant to the proposal. One last question. If we were to spend a billion dollars on the stadiums and 50 percent of the contracts related to those stadiums' construction went to economic disadvantaged businesses, minorities and women, would that change your analysis?
And 50 percent of those contracts went to minority and women businesses, would that change your analysis?
Thank you, Madam 86 11/30/00 - STADIUM HEARINGS President. Madam President, I just wanted to follow up on a question that Councilman Mariano asked with respects to the FedEx field and it was kind off minimized in terms of the response. On a daily basis we here wrestle with the issue about companies making that decision to build within the city limits or build outside the city limits in Montgomery County and other surrounding counties, and invariably they talked about the cost of doing business in the City of Philadelphia versus the outlying counties, and I think that your response kind of minimized the decisions that we have to make when we talk building the Eagles facility in the City of Philadelphia versus building it on the outskirts. When we talk about whether or not we would ge certain revenue associated with the facility being built in Montgomery County versus being built in the City of Philadelphia, I think you kind of minimized that and I don't just don't understand. Did you take that into account when you referenced that in your speech? I do believe that FedEx Field is in the suburbs.
It's in the suburbs, right. As I said, where I might quibble with what 87 11/30/00 - STADIUM HEARINGS the previous said in terms of the exact magnitude of what this extra spending would be, I'm not -- the point of my report to you was to say it would be fine if you wanted to accept it. I wouldn't. I would tell you to look at his estimates with caution. But again, we're off to and onto other elements which I know critical and important. So let me go back again and try to keep it, I think, on a much more narrow track. I agree that there will be tax benefits from building a stadium here and I think I've spoken directly to the fact in everything I've ever written that they would be in Center City, so we're not disagreeing there. I resent the fact that I don't consider coming out of an entire family out of unions that I'm being categorized as in some manner, shape or form as opposing the creation of union jobs. Nothing can be further from the truth.
I didn't characterize you that way, sir. I just asked about the economic benefits.
So I'm saying the economic benefits, while I think they're less, I'm willing to accept in terms of this report to you that there are there. But, Councilman, that still 88 11/30/00 - STADIUM HEARINGS doesn't get to the central point that if you are concerned about what businesses have to pay in taxes, if you pass this proposal, you are raising the tax bill of every business and every resident of the City of Philadelphia.
Sir, you can't make an analysis and not reference the fact that there are certain revenues associated with building this inside the City of Philadelphia versus Montgomery County. You were talking about a FedEx versus an Eagles facility.
Councilman, if I as not clear when I opened my presentation and if I wasn't clear in that section of the presentation where I told you that yes there will be economic benefit, there will be taxes, I'm agree with each of those points. I might disagree on the magnitude and I'm asking you to look at it cautiously.
You already have the 89 11/30/00 - STADIUM HEARINGS documents. I said to you Arthur Anderson did it. I am willing to state that I understand the figures --
I don't see the analysis on your behalf of what that is.
I'm accepting Arthur Anderson's analysis with a caveat which I reported to you, sir. That's still not the central issue before you today.
No, the central issue is whether or not you're going to tax --
Whether or not you're going to pass taxes that increase the rate of return to some of the most privileged members of our society while asking lower and middle income people to pay higher taxes and ask businesses in Philadelphia to pay higher taxes; that's the issue, not whether or the benefits exist, not whether or not jobs are going to be created. We want the jobs created. We want the facilities built.
Sir, you have 90 11/30/00 - STADIUM HEARINGS admitted that you haven't done an analysis on the stadium in the City of Philadelphia. What you're talking about is the City's contribution.
So how can you stand here and talk about the split-offs associated from the building of a stadium in the City of Philadelphia, i.e., taxes and new income individuals?
Sir, I analyzed the reports from Arthur Anderson. I analyzed the reports submitted to you by the Development Corporation. I saw their projections. I have told you that I am not here to contest them. I have told you that I would offer that you put caveats on them. I accept those benefits.
And you reference other stadiums that do not have the same environment that we do here in the City of Philadelphia. And that's very important in your testimony. I mean, you referenced those other stadiums in your analysis. And you talk about Philadelphia's contribution versus these other stadiums. 91 11/30/00 - STADIUM HEARINGS
Are you saying to me, sir, that you don't think the state of Maryland had any requirements what so ever about creating construction jobs and minority representation?
I don't know about that. Were they all union jobs? That's what I'm saying, I don't see that in your analysis. Were they all prevailing wage jobs?
Yes. To the same extent that the requirements you're placing on them, the construction in Maryland reflected it and the construction in San Francisco.
Were the requirements as it relates to where those jobs were and where they were coming from, who the participants were? Were there MBE, WBE requirements, were there city requirements, residency requirements?
In San Francisco the 92 11/30/00 - STADIUM HEARINGS answer is absolutely yes. I have to check and go back and look at all the exact documents in Maryland. I didn't look at that.
Sir, if you're going to use every stadium in the United States, you can pull one thing out of every stadium and obviously we can't meet the goals associated all of the stadiums in the United States.
What we're looking at are the stadiums in similar market sizes.
You're welcome. Councilwoman Tasco, your light is on. Do you want to be recognized?
The Chair will then recognize Councilman Nutter.
Thank you, Madam President. Dr. Rosentraub, let me try to understand the tail end of your testimony which was Item No. 6. I took from your testimony, I did hear you say that 93 11/30/00 - STADIUM HEARINGS you basically support having new stadiums but you have some concerns and, at least according to my reading of the testimony, it seems that the main point that you're trying to get across is on the financials of the deal and it seems to be in the middle paragraph in Item No. 6 on . Your statement talks about a different scenario with a savings to the City of the proposed $90 million in operating and maintenance cost, $10 million the one-time contribution to the Capital Fund, and the $89 million to the Phillies, and you end that paragraph saying, "My proposal is to reduce the burden on Philadelphia's taxpayers by $189 million." Now, does that represent, for the most part, your basic recommendation to the Council as to what, if anything, should be done with regard to this particular proposal?
And my question is, how did you arrive at the decision that those are the areas that either should be reduced or should be cut versus any other area.
By, again, looking at what governments trying to, again, generate the same 94 11/30/00 - STADIUM HEARINGS sense of benefits for jobs and things of that nature that I have been able to forge relative to building of new facilities. Again, I'm not trying, as I think was alluded to, pick deals around of the 31 new facilities built, but to focus on market sizes that are similar to Philadelphia. So the decision rule was what are the cities that are similar in regional size to Philadelphia, what did those communities do to create the same kind of benefits we're talking about here, and how much tax money do they have to invest in those partnerships.
And in those cities where you tried to make the straight-on comparison, did they have somewhat similar features in their deals to of the proposals that are in deal in front of us today?
Absolutely. The only part that is different here is with regard to the potential possibility of profit participation, but the clauses here, of course, extend that for a very short period of time.
The five-year cap on 95 11/30/00 - STADIUM HEARINGS that. That is a sizable difference in terms of what it could be avoided. But that's a different addition to these partnerships than most other communities have. The standard 30 years term of lease where the teams commit to stay for that period of time is similar. Job creation is similar. Minority projections are similar.
So, in essence, what you're saying is that rather than the City having an overall commitment of $394 million, it's the 304 plus the 90 in operating and maintenance that the City should seek to try to reduce that in your estimate by $189 million and have a commitment of $205 million; is that the essence of your proposal?
And what kind of deal if we stayed in that area in this hypothetical, what is your estimate of what kind of deal would be put together under that scenario and what does that do to any of the other projections that are part of the ordinances or term sheets that are in front of us from your perspective?
It would change nothing other than, of course, the team profit levels. 96 11/30/00 - STADIUM HEARINGS
Is your assumption that the $189 million that the City would not be spending would then come from the teams in their proportionate shares?
What are the other cities that you used to compare Philadelphia to and what is an appropriate comparable under these circumstances?
As I laid out on this tables, Philadelphia's market region is 7.3 million. That makes it the fourth or fifth largest media market in the US. The comparable cities that have built facilities at this time or have proposals underway would be the Boston market with the New England Patriots, the San Francisco market with the San Francisco Giants, and of course the Washington, D.C. area with a facility that's in southern Maryland.
Yes. And I've listed for you the market sizes of each of the others that have built facilities or have recently passed 97 11/30/00 - STADIUM HEARINGS legislation to build facilities.
Well, it appears that our players enjoyed playing in the Redskins' facility fairly well the other week there and we look forward to their continued success against the Redskins. Have you looked at -- in any of the other deals, were there any participants in terms of funding for any of the other deals across the country other than either the respective local government or county government or state government and the teams?
There have been in some communities philanthropic foundations that have participated in the building of facilities. There have also been corporate councils, groups of corporations and individual corporations that actually pledged a certain level of support for the building of certain facilities.
That wasn't necessarily anticipating that we might kind of have a bake sale with our foundation community. I was talking more about either investor groups or serious financial people who participate in deals at a 98 11/30/00 - STADIUM HEARINGS significant level.
There have been finance people like you're describing, financiers who have gotten involved in the building of facilities.
Councilman, are you finished with your line of questioning?
Thank you. The Chair recognizes Councilman DiCicco.
Thank you, Madam President. I have a few prepared questions, but I want to go back to a couple of the, what I think I heard correctly, remarks you made in responding to Councilman Clarke where you said that -- I know the issue here is how deep the public contribution may be towards and I understand that you fully do support building them it's just how do we get there and how much money is invested. But you made a comment a couple of times I think during that conversation that the taxpayers of the City will have an increase taxes. Do you know something I don't know because I haven't seen that any of the 99 11/30/00 - STADIUM HEARINGS reports submitted by the City or the teams? Where do you come up -- I mean, that's probably the most alarming statement that has been made this morning and probably will be made when the press is here and the public probably viewing what we're doing now that there is an increase in taxes to the residents.
There is a report that I believe was already submitted to the Council as was some of the documents that was shared with me on the analysis of the auto rental tax.
But auto rental tax is not really a tax increase to the residents. I mean, if someone chooses to go rent a car, then they would pay, but that's -- I mean we can argue how many citizens of Philadelphia rent cars versus people who travel to our City and our guests tourists. The burden would basically be on them, I think you would agree. But you consider that a tax increase to the residents?
Yes, when it affects somebody, for example, if their car is in an accident and they have to rent a car, a replacement car.
Most people have 100 11/30/00 - STADIUM HEARINGS insurance that cover that. But that's a rare -- that statement that we're increasing taxes for the residents of Philadelphia really kind of sends up a flag here that gets everybody on the edge of their chair, including me. I thought I was missing something. The numbers provided to that there will not be a tax increase accept for a tax on rental cars. I don't see any need for any taxes.
If you're going to define -- if all the numbers that were done, if we take all the economic projections that were done, as I said which I urge you to put some question on that, but let's assume for the sake of argument that all the projections from the previous speaker do come to pass. And if you're going to define an automobile income tax -- tax on the rental of cars as not being a tax paid by people in Philadelphia or if it, it's voluntarily and therefore doesn't represent an increase in taxes to them, if those are the two assumptions you're willing to make, then I think you can say that it has a potential to be revenue neutral.
I don't think it's an assumption; I think it's a fact. 101 11/30/00 - STADIUM HEARINGS (Applause.)
I make a choice to rent a car. It's my choice; no one's forcing me to. The tax collector is not sending me a bill at the end of the year saying, this is increase in your taxes. We're not there. I just wanted to make that clear before it's reported that there's something in here that maybe the public isn't being made aware of.
Let me respond a little bit in a sense in a court situation that if in fact the City of Philadelphia uses the voluntary tax, as you're calling it, and we can question whether it's voluntary --
It is voluntary. You don't have to rent a car. I didn't own a car for 13 years. I finally bought a car. I mean, you decide if you want a car. It's voluntarily, it is.
Let's accept for the sake of argument for you position, Councilman, it's 102 11/30/00 - STADIUM HEARINGS a voluntarily tax and if somebody wants to rent a car, they'll pay it; and if they don't want to rent a car, they won't pay it.
Let me ask you. Not to interrupt you. You come from Indiana?
I don't think we need to belabor the point. There's no real estate tax increase, there's no sales tax , there's no wage tax. That's what I consider a tax increase. We're not talking about that here.
Let me add just as a 103 11/30/00 - STADIUM HEARINGS footnote is that if you in fact take this money from the voluntary tax, would you also agree that if in fact you wanted to have any other service funded, whether it's a capital improvement for the library or other things, that that option of using the car rental tax would now not be there.
Well, it's my understanding that we can only use it for new stadiums. That's my understanding based on what I've been told, and the Mayor was here this morning and spoke to that also. And we're not going to debate that any more. I just want to make sure that the press gets it correct that we're not here raising taxes today. (Applause.)
While we're on the subject of taxes. I want to refer you to your discussion of the expenses of the Eagles and the Phillies. The Eagles appear, I think, on Table 6 of and the Phillies on the last page on 13. As you may or may not know, Philadelphia highest business and individual taxes in the country. We have a wage tax, a net profits tax, a 104 11/30/00 - STADIUM HEARINGS gross receipts tax, an amusement tax, a parking tax, a liquor tax, a liquor-by-the-drink tax, and voluntary car rental tax, a hotel tax, et cetera.
You don't have to stay in a hotel and you don't have to buy liquor.
Unless you're a visitor and you have friend or relative whose home you'll stay in, you're kind of forced to live in hotel. We have enacted a sidewalk behavior law which no longer allows you to sleep on our streets in Center City.
Where on your expense performance for the teams do account for extraordinary Philadelphia tax burden and does Philadelphia's relatively high tax rates affect your comparison of the deals to suburban deals like Washington and New England?.
Where it's reflected, sir, is in the gross revenue returns on investment 105 11/30/00 - STADIUM HEARINGS that the team gets. In other words, when you figure out the net money and you net out what's left after ticket prices and things of that nature, while I will agree with you completely that the tax structure here is higher than some of the other markets we look at. Because the incomes are also higher, the teams actually will have an effective rate for luxury suites and other goods and services that higher, too. So it's my view, in fact, the teams in effect pass to cost along and the net prices there are such. In fact, sir, if looked at the rates charged for luxury seating in those markets with the highest tax structures which would be San Francisco and New York, you'll find that their luxury suites and seat prices are highest in professional sports. In that regard, if the wealth is there, these taxes don't affect consumption.
So when you do your performance, do you also take in what the taxes on those goods and services that are being supplied to Veterans stadium outside the facility? My point being, when we talk about the public investment, and I've had a number of these 106 11/30/00 - STADIUM HEARINGS bills before me by way of tips because of the district I represent, there's always a debate in Council as to whether or not we should fund these wealthy developers. In this case we're talking about wealthy franchise team owners and whether the public should make any contribution or what portion of that contribution should go towards the project. It's been my contention and always has been always and it probably will be that you've got to look at the greater benefit. When you make an investment, and I'm sure the debate before I was here on the convention center was very similar to what we're talking about today. How much public contribution should be made? And the argument goes to what the other benefits to having a convention center are to the goodwill to the City of Philadelphia. There are small middle-sized companies that would supply goods and services to the two new stadiums. These are folks who employ people from the neighborhoods. Many times because of the expansion of business and the tourism in the City of Philadelphia by way of Convention Center and the ripple effect cause us to want to build new hotels and more hotels. Businesses that feed into these 107 11/30/00 - STADIUM HEARINGS facilities do get a benefit to them and to the City because if they have to employ additional folks to work for them to bring the food in from the food distribution center, the linen services and all the other things that go into a hotel and/or a stadium, do you factor that into your performing, the other jobs outside of the box that you're talking about and the taxes that would be generated into the City's General Fund by way of that?
Yes, we do that in terms of the multipliers, absolutely. And that's what said when I started by saying, which I guess is still a point of confusion, the previous speaker already introduced that information to you.
And that gap is still not where you believe it should be?
Again, based on what other large markets have done, sir, it's not. 108 11/30/00 - STADIUM HEARINGS Because all the points -- just let's make sure that we're clear. We may disagree, but let's agree on what we disagree on. Every point that you just stated occurs in San Francisco City and San Francisco County, occurs in the great Washington area, suburban Maryland area, occurs in Chicago. All these same benefits are there. So we understand, one, we need the stadiums built, we need to create the jobs, we understand that there are going to be supplier linkages and things of that nature. But again, if we come back to the fact of the wealth that exists and the ability of the team to charge the price which we've seen that they are able to do in these markets, then we are reaching the same conclusion that you're at, which is to say there is that money there, that these costs will be there and those benefits will be there. So they are factored in.
Could you please tell us where in your analysis you account for the following, if you have because I didn't see it in there: Payments by the teams of $1 million each per year for the Children's Fund. Payments by the teams of $374,000 a year each for the Special Services 109 11/30/00 - STADIUM HEARINGS District, and payments by the teams of $3 million a year in pilot payments.
The Children's Fund dollars and the other dollars you're referring to are in there when I put in the calculation both of -- the Children's Fund money I put in as direct operating expenses. And you'll see, in fact, in the language when we talk what the remaining funds would be in terms of rate of return that it's in there. Let me direct -- let me find that for you because when I calculated the rates of return, and you're quite right, that amount of money needs to be in there and it is there. I just want to make sure if it's missed that everybody is clear. Give me a minute to find it for you. I've got to find the exact sentence. When I step out, let me go through it and I'll underscore it and get it back to you. I'll show you exactly where it is.
Two other quick questions. On you state that the $89 million contribution by the City to the Phillies Baseball Park approximates the O&M obligation for the team over the 30 years of the lease. Yet according to the information provided by the 110 11/30/00 - STADIUM HEARINGS Phillies and the City, the present value of the Phillies O&M payments is $243 million or more than $150 million more than you report. Can you explain why that discrepancy is there?
I didn't see that report, but I'd like to take a look at it.
I think that would be very important to your analysis.
It would not change the analysis, sir, because, again, even if you concede again -- and we have to go back to this point which I know we're struggling over. If you concede the point that they will pick up some of the maintenance, which they should, in a market this size, that cost is factored into their income in terms of what they charge for the suites. So the question would be where do you want it, above the line or below the line. Whether or not it is exactly equal to present value makes no different if they can sell in a larger a suite for about 30 to $40,000 dollars a year more, then you can sell it in a smaller market. And these costs of O&M as well as taxes are reflected in that.
My final question, 111 11/30/00 - STADIUM HEARINGS Madam President. Are you aware that the Eagles have invested $20 million in a new practice facility located in the City?
Have you made any accountability for that in your analysis?
The operating expense of the team. That operating expense occurs. All teams have practice facilities.
But not necessarily the City in which they play. That was major consideration for us when we were considering doing new stadiums.
And I've endorsed, and as I said, I started out, Councilman, by agreeing with you that we need to build the facilities.
And I understand that we agree on that. But one of the conditions was a new practice facility, and we understood at the time and we still believe that a practice 112 11/30/00 - STADIUM HEARINGS facility has an economic benefit as well.
In terms of accepting, what I've said I accepted are the economic benefits projected as done by the previous speaker and in documents that were submitted to the Council.
I did not question and you do not see in my report, sir, in any manner, shape, or form that I am questioning the benefits of return on that money to the City of Philadelphia.
You're welcome. The Chair recognizes Councilman Rizzo.
Thank you, Madam 113 11/30/00 - STADIUM HEARINGS President. Professor, based on your assessment, I don't think two new stadiums could be built anywhere.
I beg to differ, sir. They have been. Have you been to San Francisco.
Maybe in the past tense, but I'm talking about today. I don't personally believe that these stadiums can be anywhere based on your assessment. I'd like to ask a question. If these stadiums aren't built, what consideration have you given to the possible 80-plus million dollars that might be needed to build or to repair Philadelphia Veterans Stadium.
Again, I apologize, Madam, but read my lips. Build the stadiums. I am not going to debate what I've already agreed to. What I'm asking you to think about is how it's financed.
Sir, do you think -- do you really believe, Professor, that based on the deal that we have in front of us with the recommendations and that the changes that you suggest that this deal could happen? 114 11/30/00 - STADIUM HEARINGS
It has happened, sir. It has happened in New England. The Patriots are currently building their facility. And there will be a facility built if you followed the discussions that occurred two days in the Boston City Council which is wrestling with the exact same issue before you today. They've completed their deal with the New England Patriots that involves the State of Massachusetts. The facility is being constructed as we speak. They are negotiating a facility right now with the Boston Red Sox. And, sir, the only thing the Council in Boston has debated is not whether or not the Red Sox need a new facility, but whether or not they need the public to provide taxes at the level requested by the team. So when you say to me that you think it wouldn't be built, we have one that just opened. We have one under construction. We've another one that's being debated. We have a third that include Kominsky 2. We have new football facility that Mayor Daly is taking to the legislature in Illinois. The City of New York is negotiated at the current time, again, debating how much they need to provide tax support to build a new facility for the Mets, a new facility that hopefully 115 11/30/00 - STADIUM HEARINGS will attract the Jets back to New York, and they are considering, of course, renovations or a facility for the Yankees. So these deals are going on as we speak.
Thank you. And also I disagree with your assessment of our Phillies also. Thank you. (Laughter.)
To restate it, we are going to build two stadiums in the City of Philadelphia.
And I look forward to coming to being allowed back to buy a ticket. (Laughter.)
And to pay an automobile tax and I will stay at a hotel and pay the hotel tax. (Laughter.)
I think what has not gotten through is how is it that the public interest 116 11/30/00 - STADIUM HEARINGS is leveraged against the private interest of the teams? I think in terms of your message, that has not really come through. I think the issue of minority participation is something that has to be included in the lease. And obviously, if minority participation within that lease is not of those percentages that we believe, this Council believes to be acceptable, obviously, a lot of us are going to have problems with that. The issue in terms of how other businesses in Philadelphia benefit out of selling hot dogs and the beer distributorship that is sold at Vet or the new stadiums, the Eagles stadium and the new Phillies stadium, obviously, that is going to be bought, hopefully, not from New Jersey companies but from Philadelphia companies. Hopefully the individuals and the huge majority of the individuals that build the stadiums are all union workers and are all individuals and the majority of them, hopefully, will live in the City of Philadelphia. So you have included that in your analysis; is that correct.
So you have included in your analysis the fact that there are going to be 117 11/30/00 - STADIUM HEARINGS the ripple effect of the teams playing in those stadiums. You have included in your analysis that we are going to have, because that is not part of what you were supposed to have been doing, the issue of the $1 million a year in terms of the Children's Fund that they're supposed to be giving the City of Philadelphia.
But I did include that as an expense to the teams. I did do that.
And you made a statement that in terms of the contribution that they make, it is times -- the teams will receive 14 a benefit 20 times greater than they will give in 15 terms of the Children's Fund; is that correct? 16
So in essence, the 18 teams put all of that investment in terms of their 19 expenses? 20
And you're including all of those expenses when you said that the return on investment that the teams get, including all of these peripheral aspects, are all included and the return in investment is greater for the Phillies and 118 11/30/00 - STADIUM HEARINGS the Eagles and it is greater given the amount of public subsidy that they are getting that other teams in generally comparable markets did not get; is that correct?
So if we bring our public subsidy down to a level that would be comparable, not to eliminate, but to be comparable to other markets, that does not preclude the two teams from making a profit that would be equal or comparable to teams in similar situations?
So what we're saying and what I think you're trying to say is that the public subsidy that we are putting forward should be reduced, not that we do not build the stadiums, but that the mechanism and the negotiations that we have really be presented to the public because I think the public have an idea that this is going to be a done deal, that this Council doesn't want to have any questions answered as to the relative impact of public subsidy on our budget and I believe that there is going to be, given the current situation 119 11/30/00 - STADIUM HEARINGS that we have with PGW, with the Board of Education, and it's already projected, it's already projected and it's something that this Council has to take very seriously to consideration that our five-year plan if we keep the level of subsidy at the level that we have, we already have a $22 million hole. And if they admit to that, if the Administration admits to that $22 million hole, I believe that that hole is probably bigger.
When I raise the point -- and I appreciate you bringing it up because I failed to do but it's in the analysis. When I raised the point about taxes going up, one of the issues that you're directing our attention to is the five-year plan in terms of documents I've seen from the Controller's Office has in the revenue that will no longer come to the City of Philadelphia as Veterans Stadium will be demolished. That shortfall may well in fact lead to a new set of tax obligations.
So in essence, the questions that were given to you and what you're trying to bring to us is that we have minorities in San Francisco, we have minorities in the Boston 120 11/30/00 - STADIUM HEARINGS area, we have minorities in the Washington D.C. area.
And in Chicago. In all these areas, if there is a public subsidy, minority set-asides have been included as part of the lease agreement.
And also contractuals set-asides have been included if there's a lease agreement.
So you have taken that as a given in terms of what we're talking about.
That's correct. There hasn't been a stadium built that didn't have that.
So what we're talking about, and we go back again, what is the leverage and what should be -- and that is the question this Council has to answer, what should be the amount of public subsidy to probably one of the wealthiest, richest corporate institutions and socialist, I may 121 11/30/00 - STADIUM HEARINGS add, the NFL because they do share the wealth, what should be our assistance to them in terms of their profit margin and what is it that the taxpayers in the City, the citizens of Philadelphia, will be getting in return for that subsidy? So if you can talk to me and answer me that question. Over a 30-year period what, besides feeling good if the Eagles win the Super Bowl, besides feeling good if the Phillies manage to be a playoff team year after year and if we get Gonzalez or Igor or one of those Puerto Ricans or Dominican players to come here, what is the return on our investment as a City over that period of years? Because we're already going to make the an investment; that's a given. The public will invest some money on both the Eagles and the Phillies. The issue is, should it be so large and if it as large as it's going to be, how are the citizens of Philadelphia ever going to get a return on that investment other than feeling good?
As we discussed when you invited me to come in, I think it was June, and this why I want to make sure everybody's clear why I'm not saying provide no public money for the stadium. And I know here are people on the Council 122 11/30/00 - STADIUM HEARINGS who would argue we should provide absolutely nothing, let them build them themselves with the money from the state. I argued in June and I've written extensively that these benefits the teams generate are the enhancements to the quality of life, they provide great opportunities for recreation, and lots of people -- we have to realize this. Lots of people enjoy it. So there is nothing negative here that we should be focusing on. When you say, what's the return over time? It will establish Philadelphia sports life as an integral ongoing part of the community for 33 years. That's an important asset and one in which I have argued, believe it or not, that this Council ought to make an investment as did the State of Massachusetts when they feared the Patriots would go to have Connecticut. But what they were not willing to do is to give an investment of a magnitude that exceeded these benefits or increased the wealth of the team owner. When San Francisco developed and gave --
What the State of 123 11/30/00 - STADIUM HEARINGS Massachusetts decided to do was to protect those benefits was to, in fact, make an investment of $70.5 million to ensure that the New England Patriots would remain in Boston. I mean, talk about a voluntary tax, they could have just driven to New Haven and watched the games there, but they wanted it in Massachusetts for the quality of life. The Boston City Council has made the same since the statements. They want the Red Sox in downtown Boston. They are going to ensure that the Red Sox are in downtown Boston, but relative to how much money the Red Sox make in downtown Boston which, by the way, is as high a tax area as is Philadelphia. They are not going to provide 300 to $400 million in public support.
What is the Boston City Council, which is very similar in terms of population to Philadelphia, what does the Boston City Council considering? And Fenway, I don't see why they're tearing it down. What is the City Council of Boston considering in terms of a subsidy to the Boston Red Sox?
At the current time, as I said, the proposal was about 300 million. And 124 11/30/00 - STADIUM HEARINGS there were some Councilmembers have been reported as saying that they would certainly be comfortable with something in a total of a hundred million, but they're not at 300 million. So there's a gap right now. And there are some members of the Council who are taking the position no support. So it's under conversation right now. What was rejected at the meeting as I understood it two days ago was the $315 million proposal.
And our proposal right now in terms of the contribution of the total subsidy of the people of Philadelphia towards this project as currently presented by the Administration is at what level right now?
Is in that range. What I wanted to point out and make sure everybody's taking away is that if the 89 and a half million in construction was taken out, you would still be offering in the same general level of money as Chicago offered to the White Sox in the State of Illinois, much more than San Francisco offered the Giants which turned a profit this year and, of course, went into the championship series, and would be in league right now to be a bit more than what 125 11/30/00 - STADIUM HEARINGS the City of Boston is anticipating that they will do. But they may end up there. That conversation is a work in progress.
The Chair recognizes Councilman Cohen. (Audience reacts.)
I have no objection, Madam President. This will be preliminary to a much larger "boo" about to erupt as I make it very clear that the one disagreement that I had with the professor is the fact that I think he is far too generous in his analysis toward the concept of public financing. I think that rich sports teams ought to be held to the very same standards that homeowners are held, and that is, build what you can afford to build. Don't come to the public treasury to ask for help. And that is my position clearly, and the boos, if you so choose, please make them and make them loud. I can hear them. Now, having said that, I want to just 126 11/30/00 - STADIUM HEARINGS first make a couple of short comments because we're talking here as if there are specific proposals, as if there is something that exists in writing, as if there is something already agreed to by the teams and the Mayor. More than 60 years ago when I first became a lawyer, the first thing I ever learned was to make the advice clear to a client, never sign anything unless all the terms are there. And this City Council sits by quibbling about details that don't even exist because part of this deal is the effort to get this City Council to abrogate all of its duties and to agree to something not in writing, something to be determined at some future time by the Mayor and people only part of the Mayor's team and to develop from that an agreement which will last for 30 years completely insulated from any ability of this City Council to ever change even a comma in the agreement. So that what you're talking about in answering all of these questions, you're dealing with something that is not even real because right now Bill Hankowsky who gave us these specific terms on that sheet cannot show us any agreement that the teams and City have agreed to that because 127 11/30/00 - STADIUM HEARINGS very likely as usually happens and is happening now with that $4 million payment that was originally, incidently, when we signed the original Veterans Stadium agreement and gave the lease to the teams, it was supposed to be $6 million a year that the people of Philadelphia were to receive from the current super boxes beginning February next year. And Mayor Goode, not Councilman Goode, but Mayor Goode was the one who sold us -- not that Mayor, the Mayor who told us that said, sign this agreement, you'll get the benefits later, just like Mayor Street said, the benefits are going to come later. And just precisely as the City of Philadelphia is supposed to get 4 to $6 million from the super boxes, we're told that the City is going to enter into a new agreement for the three years. And, sir, I have to tell you in my judgment a new agreement is required only, only if the teams are seeking and have the Mayor's approval to eliminate that $4 million payment. That's a giveaway to the teams if nobody wants to talk about, everybody tries to evade. Beginning this February by the teams own estimates, we were supposed to get a minimum of four. The then Mayor said $6 million a year. Now I 128 11/30/00 - STADIUM HEARINGS understand the teams are talking maybe it's only a million and a half because already they're beginning to manipulate how they should determine the payment due to the City in February. So I want to first point out, there's nothing in writing, there's no lease whatever that we're even talking about, and the City Council is being ask to agree in advance to write off, pass this bill by December 14th with no lease agreement that we can approve or have anything to say about. And I say that I would ask if I were not in City Council, I would ask as a resident of City of Philadelphia and as a voter what do we need a City Council for if all it does is it takes all of its powers, put them a basket, wrap it up neatly in a package and turn it over to the Mayor? We've been elected to make these decisions.
That's why we're going questioning the team as you've been questioned here today because what we need is the best deal for the taxpayers of Philadelphia. Now, it's strange, you know, on this issue I'm a fiscal conservative and all the people that have been lobbying me on the tips and the 129 11/30/00 - STADIUM HEARINGS abatements who call themselves fiscal conservatives are in here arguing, let's give the teams all the money they want. You know, the Mayor could have ask for double. I don't know why he didn't because I can tell from these questions nobody wants to even question a penny of the amount of money, indicating that this is sacred money. It is sacred money, but it should be sacred for the taxpayers and not for the teams. Let me take talk about the issue of potential tax increase. Councilman DiCicco, I think that ought to be clearly on the table. Andrew Casell, The Inquirer reporter, business reporter for The Inquirer has long advocated serious questioning by municipal governments of public subsidies for sports teams. He points out all the time that all that happens is not new economic development, but very largely a transfer of money being currently spent for one purpose, being transferred to be spent on stadiums, that there is very little new money that comes in. And he argues very eloquently from time to time and has done it for years as a fiscal conservative, he says it's a question of priorities. He says if we take out this money and pay the bond 130 11/30/00 - STADIUM HEARINGS debt which the City, as I understand from Mr. Hankowsky, intends to become the principal person responsible for the payment. In other words, if all these plans go awry and the teams have bad years and they don't go to attendance, there is still an approximately somewhere between and $30 million a 8 year in debt payments. If all these things go bad, 9 do you know who pays? The City of Philadelphia 10 pays. We take all the risks in this deal. Now, 11 that's why we've got to be so concerned about the 12 potential tax increases. 13 Yesterday there was a wonderful hearing 14 in this City Council, and I commended Councilman 15 Kenney for conducting it and for mainly being 16 responsible for it on the refurbishing of the Free 17 Library in Philadelphia. And I notice in this 18 morning's paper, the Mayor said, "Well, we've got to 19 be careful, that's $60 million over 30 years for the 20 Free Library, that's an awful lot of money. You 21 know, we have a lot of other problems in the City of 22 Philadelphia. " But a billion dollars from the General Fund 24 for the stadiums, there's no problem about that. 25 It isn't 394; I want to dispute that 131 11/30/00 - STADIUM HEARINGS figure. Who pays for the bonds, the debt each year there's a debt service? My calculation is that that figure of $394 million is a figure about $1 billion, probably over $1 billion because take the bond payments over the life of the 30-year bond and I'm told the total figure that the City will pay comes to somewhere between $950 million or $1,050,000,000 depending upon the interest rate. So I don't know why the City through Mr. Hankowsky when he talks about the money income on the car rental tax, he adds up the full 30 years of the revenue. But when he talks about expenditures, he omits entirely the annual payments because it isn't the original $394 million of City money that's going in. It's going to be, in my judgment, well over a billion dollars over the life of this plan. Now, is there anything I've said other than our basic disagreement on public? Is there anything I said that's unsound? Well, won't payments from the General Fund guaranteeing this bond liability make it more difficult for the City of Philadelphia to decide to invest in the libraries and educational system, in the areas where the police work? You go into most of the police 132 11/30/00 - STADIUM HEARINGS stations today, they're awful.
They should have been refurbished and revised and replaced maybe 75 years ago. They work with archaic furniture, archaic typewriter equipment, all that kind of thing. The City's ability to deal with all of its other problems is going to be sharply reduced by the stadium deal. Maybe we will vote to do that. That's within the orbit of the power of the City Council. But I think we've got to get all these facts right on the table so that Council can make an informed decision rather than advocate its responsibilities to the Mayor. Thank you, Madam President.
You're welcome, sir. The Chair recognizes Councilman Goode.
Thank you, Madam President. Professor, I just have one more question. You started in your review of this proposed partnership to do stadiums with the fact that we absolutely should build new stadiums; is that correct.
Yes. A slight 133 11/30/00 - STADIUM HEARINGS amendment. It actually would be possible -- and I indicated this which may not be absolutely desirable. Both teams cannot play in the Vet. It is possible and some cities done this, as you probably are aware, where if you built one facility for the other team and then to massively change the layout of Veterans to fit the other team, that could be done. So I just want to be sure we're clear for the record that it's stated here, two facilities are needed, but it would be conceivable to do it if you said, let's build one for the Phillies on Position A and then when that's built we will totally change the configuration of the Vet to meet the needs of the Eagles.
So you are starting the proposition that we need to construct at lease one new stadium.
And substantially remodel -- at a minimum, substantially remodel the second.
And that is your advice to this Council. Is that advice based upon examining the current lease?
It's based on looking 134 11/30/00 - STADIUM HEARINGS at the current leases, the changing economics of professional sports, what having the teams means in terms of jobs and things of this nature. And if no 5 facilities were built and you showed no commitment to build new facilities, it is conceivable you could lose the teams.
So what do you determine the current tax burden on Philadelphia residents to be under the current lease?
The tax burden that we took a look at was on the future --
Yes, because the tax burden would be, as I referenced in the document, would not be a burden but would be an asset, as Councilman Cohen talked out. In other words, given 135 11/30/00 - STADIUM HEARINGS the commitments made, and now we've heard that those commitments may not be honored, but if you go back to the original commitments that beginning on the 1st of February of 2000 --
Excuse me, Professor. I'm asking in your determination that we build at least one new stadium, did you examine the current tax burden under the current lease?
And you determined that it's a better public investment of tax dollars to spend what amount on new stadiums versus what amount under the current lease? What is the current tax burden under the current lease?
It would be as estimated by the Controllers Office under the current --
Six million dollars positive. Not negative, sir, it's a positive gain. 136 11/30/00 - STADIUM HEARINGS
I'm talking about the amount of tax dollars we will spend between now and the year 2000 --
That factors in the tax dollars spent. It's not negative, it's positive. It's a cash flow to the City beginning on February 1, 2001.
I'm not questioning about tax benefit. I'm talking about tax burden. You're saying the taxpayers should not pay this amount of money for this deal. I'm asking you, if we did not deal -- I'm not starting where you're starting. I'm here actually at a hearing on pending legislation which I may vote for. But what I'm saying is that if this legislation did not pass, what would be the burden of the taxpayers under the current lease?
In the documents I looked from the Controller, the answer is zero.
That is a ridiculous 137 11/30/00 - STADIUM HEARINGS statement. Are you an economist by trade?
I teach everything from case studies to economic principles.
BUT you're not really an economist by trade or economic development practitioner?
You're welcome. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Doctor, I did want just to ask a couple other questions with regard to the analysis, some of the factors that may have been in the analysis or not in the analysis. These are purely informational questions. 138 11/30/00 - STADIUM HEARINGS With regard to the document either that you've provided or any other materials that you may have, did you look at the issue of any potential liability currently at Veterans Stadium or going forward or the continued operation of Veterans Stadium as a part of any of the analysis of the present deal that's in front of us and whether or not that is good deal or not, or was your analysis primarily limited to this deal as it's laid out and the factors and components of this particular deal in putting all other issues and circumstances to the side?
The issue that I did look at was the projections that were issued on what it would mean if no facilities were built, the current lease is continued, and the payments that were received were equal to the commitments made, yes.
And what was the conclusion, I guess, of that analysis?
That through the period of the ending of the leases by both teams, the City of Philadelphia would actually net money.
I'm sorry, would you 139 11/30/00 - STADIUM HEARINGS say that again? Are you talking about at 2010 or 2011.
I'm sorry. I couldn't understand that. Say that again.
That if in fact nothing was built, we place no value on the team staying, et cetera, the City of Philadelphia would actually at the end of the period make money. You'd have a positive flow; you wouldn't have a negative flow. There is no taxes going in. The money's already been spent.
When you say it's positive from a tax standpoint, you're saying during what would be this 10-year period or into the year 2011?
Into the 2011 period, 11 years from now or beginning 2001 counted for 10 years. But exactly in that time period all the documents that I have seen both from the City and the Controllers Office indicate that even with the necessary improvements to the Vet to keep it operational for that time period, the City would actually come out positive. 140 11/30/00 - STADIUM HEARINGS
And that takes into account additional capital and operating expenses of Veterans Stadium, that takes into account loss of revenues from, by that point in time I'm assuming that the practice facility or practice activities at least by the Eagles would not have taken place during that 10-year period of time and the subsequent wage tax and other business tax losses?
And that analysis is a part of the one document that I have here?
Yes, it's referenced in there as accepting the findings of the City and Controllers Office.
What amount of money in that model did you attribute to additional capital repairs to Veterans Stadium and what amount did you factor in for additional debt service payments for those capital expenditures?
I don't have those figures in front of me, but I will get that for you 141 11/30/00 - STADIUM HEARINGS and get it back to you.
I'm on and notwithstanding what's on , you're saying that there are other financial elements or financial documents that you have or took into consideration but I don't necessarily have as a part of this document?
Right. I think you already have them in separate releases, but I can get them again for you.
Thank you. The Chair recognizes Councilwoman Blackwell.
I didn't have my light on. 142 11/30/00 - STADIUM HEARINGS
Are there any other questions of this witness? (No questions.)
Doctor, thank you very much. You've been very patient. Council will now stand in recess until 1:30. Thank you. (Council recessed at 12:25 until 1:30.) - - -
Good afternoon. We're now back in session. I would ask Mr. McPherson to please read the titles of two bills which he may have eliminated earlier.
Bill No. 000723, an ordinance amending an ordinance approved April 11, 2000, Bill No. 000003, relating to the Capital Program for the six Fiscal Years 2001-2006 by adding a project and an amount in the Department of Public Property. Bill No. 000724, an ordinance amending an ordinance approved April 11, 2000, Bill No. 23 000004, relating to the Fiscal 2001 Capital Budget by adding a project and an amount in the Department of Public Property. 143 11/30/00 - STADIUM HEARINGS
Yes. Council President, since it came up this morning in some of the discussion which was this issue of what is the impact of these transactions on the City's adopted five-year plan, I thought it might be appropriate to augment my testimony by having Mr. Dubow, the budget director, in fact address the question of what is the impact of the transactions on the five-year plan and then we'd be prepared to take any questions.
My name is Rob Dubow, I'm the City's Budget Director. As Paul said, we've done an analysis of what the deals mean for the five-year plan and I'd like to kind of walk you through what we did. We looked at a case which was the numbers which were in last year's five-year plan, so that includes things like getting the full amount of having car rental tax revenues and having none of the contingencies that Bill discussed this morning come to fruition. We then compared that to the numbers in the model that Arthur Anderson put together for tax revenues except we discounted the 144 11/30/00 - STADIUM HEARINGS revenues that they attributed to the Phillies. We used only 80 percent of those revenues. We used only 90 percent of the revenues attributed to the Eagles, and only 50 percent of the revenues attributed to the other events like soccer and the Army-Navy game. We then added in the debt service cost, and there were some earlier versions of this that had earlier debt service runs. We kept refining that. The debt service costs are lower than we originally put in the model. When we ran all those numbers through over the course of the plan, the net cost is a negative $5.8 million.
Would you please. I think that will be helpful to each of the Councilmembers. The Chair recognizes Councilman Clarke.
Thank you, Madam 145 11/30/00 - STADIUM HEARINGS President. Good afternoon, gentlemen.
Mr. Hankowsky, you recall briefing approximately two weeks ago in the Mayor's Office, the initial briefing of Councilmembers on this particular proposal?
And at that time a question was raised by several Councilmembers with respect to participation levels and goals.
There was actually even a question raised about apparently some administrative functions in the State's contribution as related to a program associated with the building and trades union.
And at that time you essentially didn't have the level of details that we felt comfortable with and indicated that you would get back to us on that. In having been around for a while, it seems that when these type of projects 146 11/30/00 - STADIUM HEARINGS come to us, myself both as staff person and now as a Councilperson, too frequently the whole issue about participation is an addendum to the discussion. And to some of us, and I think probably all of us, that is as important as the financing, the site preparation, and all other aspects of the particular deal. So subsequently, Councilwoman Miller, Councilman Goode and myself co-authored a letter to the Mayor indicating our concern about that and making certain requests as it relates to this project as we move ahead. Are you familiar with that letter?
I am aware of it, though I haven't read a full copy of it, but I'm aware of it, yes.
Are you aware of any levels of the detail in terms of percentages and participation levels?
Where we are on that issue, Councilman, and I'd like to address sort of the couple of issues you raised in your questions. So let me do right away. You raised the issue of the building trades and I believe apprentice issues that go back to the passage of State funding for 147 11/30/00 - STADIUM HEARINGS stadiums. At the briefing you're citing which was two weeks ago I at least accurately said I wasn't totally aware of that issue. Since then I've actually checked into it. In fact, there were requests made at that time that should we proceed with the project in Philadelphia that something unique and different be done to further increase the capacity of participation that you're raising here. My understanding is that the building trades have been working on that. My understanding is that there's been dialog that's commenced with the teams on that so people are working to, in fact, in the spirit of that discussion which I think is probably at that time almost now a quote/unquote a year old because it goes back to when Harrisburg acted on this. So people are working to fulfill that commitment at the time. That has not been forgotten. I didn't know about it two weeks ago, but I've now checked and, in fact, your recollection was accurate.
I'm sorry, Councilman. The major focus of your question was the issue of 148 11/30/00 - STADIUM HEARINGS the status of discussion about this particulars of the MBE, WBE or DBE programs.
And that's across the board. The letter that we sent referenced professional services contracts.
Right, right, I understand. I mean, I appreciate that without having immediately read the letter. We actually did have discussions with the teams about this issue, again, over a year ago, as you recall when we were sort of thinking we were going come to some closure, which obviously we didn't at the time. And both teams, I think, will be in a position to speak directly to their efforts. I think you're aware that the Eagles, in fact, began a dialog with the City and with the Administration. And in fact, when they proceeded with the practice facility, proceeded with activity related to MBE and WBE participation there. As this current set of negotiations was proceeding, we, again, began -- as we began the whole negotiation, we began the discussion again of participation plans. We have had discussions with the teams about that. We've had lots of hard discussions with the teams about lots of issues. We 149 11/30/00 - STADIUM HEARINGS have asked them to do more than they had originally talked to us about recently, so we've challenged them to be more aggressive on this. I believe that the Mayor is interested in seeing goals in the neighborhood of the mid-30s for MBEs and around 7 to 12 percent for WBEs as where we would like these 8 teams to end up. And there's a DBE number also. 9 The teams are working through those plans to come up 10 with final plans. As I indicated in my testimony, we are extremely aware of the fact that this is a critical issue for this transaction. We believe that these plans should be in front of you before you vote on this with enough time that you can both digest them, ask questions about them, of the Administration and the teams. So we're going to finalize those plans and the Mayor has set some targets that he wants the teams to be able to say that they are committed to fulfilling.
I reference the particular state legislation and the subsequent funding of a particular program and I reference that because it's my understanding that there were some concern that the goals wouldn't be met simply because there were not enough people who were in the 150 11/30/00 - STADIUM HEARINGS particular trades across the board who had not passed apprenticeship or were not in pre-apprenticeship programs, and I think the number is somewhere around $500,000 on the state level, 00 to 500 -- I'm not sure of the specific numbers, but it's my belief that those numbers are not sufficient to achieve the goals requested in our letter. I would like to know if it's prudent for us to ask for when you do your financial analysis to incorporate into that some level of funding that will allow us an opportunity to have some sort of component that will get us to the numbers that we need to get solely because people may not have -- may not be journeyman, may not be apprentices, or may not be in a pre-apprenticeship program so we can access the diversity that we need to access. Additionally, I would like to see some discussion about increasing the bonding capacities about certain small contractors throughout the City of Philadelphia who simply cannot afford a bond of the magnitude that we're talking about on the stadium development or somehow being under a larger bond either by the City or a larger contractor.
Obviously -- I guess one 151 11/30/00 - STADIUM HEARINGS thing I'm lost. Do you have any sense of what the funding level needs to be for the apprentice program when you said that you think it's greater than the 200,000 or 500,000. I simply don't know so I'm hesitant to say we can fund the program without knowing what we need to agree to.
Okay. Well, why don't we go on both of those issues and get you a response because I think those are both very good suggestions.
And the other thing is on the professional services level, too often when these deals come to us, professional services contracts are already done, signed, sealed, delivered, and there's not the level of diversity on the professional services contract that we would like to see, so I would like to start from that point and then work our way throughout that process.
And the other thing is I can't put enough emphasis on the fact that the level of concern and frustration about this issue 152 11/30/00 - STADIUM HEARINGS simply being an add-on to the discussion. So I would like to see that escalated relatively quickly so if we have an additional presentation other than the single line, I'd like to see that be a whole chart.
Thank you. I want to give everybody a fair chance. We will have a 10-minute go-around ask so everyone will be recognized.
We have been advised by the negotiating teams and members of the Administration that final deals with the teams will not be completed by December 14, 2000. Based on the fact that the City continues to bear the obligation of paying $23 million to the Eagles to purchase the team's practice facility, how will this be factored into the City's financial commitment for the construction and financing of the operation of the Eagles stadium?
Where we are on the 153 11/30/00 - STADIUM HEARINGS issue of the buy-back of the practice facility is we are moving the dates from when they were originally set, which I'm sure you recall, had a November 30th trigger date and a December 15th end date. We've advised -- and the team has agreed that we would do that. We've advised the bank. The bank is currently working through the mechanics. In fact, I got an e-mail. When I left here to go back to my office, I had an e-mail and he e-mailed me what the fee is to extend the LC so that we will extend the letter of credit. And we would set a new start date at December 15th, which is not to say that Council, should they deem it necessary, obviously can't deliberate further past that, but that would be -- and then we've set it at January 15th at the back date so that we will not face, while you are deliberating -- the Eagles aren't going to draw the letter of credit, that's not going to be part of what's going on. That would remain out there should we all decide not to proceed and would revert back to the original scenario and so we are moving the dates.
I didn't understand that answer. 154 11/30/00 - STADIUM HEARINGS
You said the deal will not terminated by December 14th, the deal with the teams, the day we're supposed to approve this. And we're supposed to approve it without the deal being terminated with the teams; that's what she asked, right?
I just want to make sure I'm responding to the right question. The way it's set up is that should there not be -- I think the terminology, and I'm doing this by memory. Should there not be legislation enacted and signed by the Mayor that provides for the financing and development of new stadiums, and I think it's actually specifically the football stadium, obviously, that then Eagles would have a right to call on the letter of credit and have us buy the facility. And my response was that what we have done is moved the dates of that event back to be in line with the dates of the process we are now underway such that the Eagles will not be exercising that right. And that's what I thought you meant by 155 11/30/00 - STADIUM HEARINGS terminating, you know, terminating the agreement, making us take the practice facility, buy it, while we are in deliberations here. It will go pass that. Obviously, if Council sees fit to affirmatively approve stadiums, then their right terminates.
But are all the details of the deal with the teams going to be before us before we approve the legislation? I think that's what we're trying to get to here.
I didn't realize that was the question. I'd be happy to answer that question, but I thought I thought it was the team lease question -- the practice facility question.
That was not my question. I was questioning about the practice facility and the $23 million. I think Mr. Hankowsky did answer the question. I said based on the fact that the City continues to bear the obligation of paying $23 million to the Eagles to purchase the team's practice facility, how will this be factored into the City's financial commitment for the construction and financing of the operation of the Eagles stadium?
And the way it's 156 11/30/00 - STADIUM HEARINGS factored in is if we collectively agree to proceed with new stadiums, we're not buying back the practice facility so that obligation would terminate.
Mr. Hankowsky, in LIGHT of the fact that nothing in the term sheets provided to us is binding on any of the parties to these transactions, what assurances do we have that the terms are enforceable and that City Council will be able to approve any changes to them or any amendments that may be required during the term of the leases?
Let me try to do that in two parts. I should have introduced Bill Martin who is with me today who may occasionally be speaking to respond to some of these. We obviously have other administration people also with us. I believe that the way that the Paid lease lease-back with the City and the term sheets work is in fact that PAID will be bound to 157 11/30/00 - STADIUM HEARINGS incorporate the terms of the term sheets into any final transaction. So that, in fact, should Council approve these transactions, these term sheets, in fact, become the binding business terms that we're obligated to perform under and we don't have a right to change the deal or amend the deal, to use that term, with regard to any of these business terms in the term sheets without coming back to Council.
Council President, in the lease lease-back document, lease lease-back lease agreement which was provided as an attachment to one of the ordinances, s to the Phillies, for example, in Section 2.4, the relevant section is "The Authority may enter into the Phillies lease upon terms and conditions generally consistent with the term sheet attached hereto made a part hereof." The language is similar in the Eagles lease-back lease agreement so the concept is the materials that you're approving bind PAID to the City that it's agreement with respective teams have to be consistent with the terms of the term sheet.
But presently there are no terms in the leases regarding the full utilization of the stadiums. 158 11/30/00 - STADIUM HEARINGS
I think there are. Obviously, some fairly critical issues that are of concern to either Council at large or particular Councilpeople that need to be resolved and incorporated into the term sheets either by amplifying them in the term sheets or as exhibits. I would included Councilman Clarke's issue which is I think that we are committed that there would be fully developed in writing MBE, WBE plans, that those plans would, in fact, become part of the term sheets and become binding on the Authority and on the teams. We're very aware, and I should thank you myself for your efforts, of issues that relate to concerns the community has scheduling others that need to get, one, resolved and then, two, put into writing, and then, three, in all probability added to the term sheets so that those are also clear.
I guess, Mr. Dubow, the next question should go to you. What is the basis for the wage tax estimates beyond 2005? Can you tell us does the Administration anticipate there will be no further decreases in the wage taxes after that point? It's on the sheet that you provided us. It's from the Arthur Anderson study. 159 11/30/00 - STADIUM HEARINGS
I'm sorry, your voice is muffled because you're speaking too closely to the mike.
We anticipate continuing the wage tax reduction program. I think that you're right in that the model should have continued to decrease the wage tax and that would result in a slight decrease in the revenues that we're projecting.
Why wasn't it corrected before it came here? (Pause.)
I don't know, I think you and Mr. Hankowsky were having a little tete-a-tete. I didn't hear a word you said, Mr. Dubow.
Let me try. What we did in the Arthur Anderson model I think is we took what is now the five-year plan wage tax reduction schedule and ran it through the model and then 160 11/30/00 - STADIUM HEARINGS stopped. You're right, we stopped and didn't continue it because there's not, at least at the moment, any specific, you know, we're going down .10 percent or, you know, what's the specific declining rate by which we would continue to decrease the wage tax, so we wrote it out flat. But you're right, to the degree that we continue to adopt five-year plans and continue to show progressive wage tax decreases, there would be a slight adjustment downward in the numbers, that's right.
Mr. Hankowsky, if you don't feel comfortable in answering the following question, I could certainly ask the teams tomorrow. How many of the other events contemplated at the Eagles facilities are currently scheduled at the Vet Stadium? I'm sure that the teams would know the answer off the top of their head, so if in fact you don't feel comfortable --
I think roughly, doing this off the top of my head, the Phillies really don't project additional other events in their building. Of course they project their 81 baseball games which we do at the Vet. The Eagles project, obviously, their 10 football games, 2 pre-season and 161 11/30/00 - STADIUM HEARINGS 8 home games, as we do at the Vet. They project Army-Navy. They project the five Temple games. These being things we do today at the Vet. We do -- I don't know whether we do it every year, but it strikes me it seems like it's every year. We do the Jehovah Witness event which I think is five days, if I recall. They project -- we also have done -- I think we had one concert last year in the Vet, I think it was David Matthews, so they project concerts. So there's probably 20, of the events 12 projected are current Vet events and then the ones 13 above that would be new. And I think the teams can 14 amplify that or be more specific. 15
They could 16 probably be more specific tomorrow. 17 Can you tell us who will determine the 18 use of funds deposited in the fund for children? 19
Because of the IRS tax 20 rules with regard to the receipt by the City 21 directly of payments from the teams that are what 22 are known in the business as private payments which 23 create a significant problem and, in fact, could 24 undermine your capacity to issue your debt on a tax 25 exempt basis, in other words, a much cheaper basis 162 11/30/00 - STADIUM HEARINGS for the City. The City cannot be the direct recipient of funds under the Children's Fund. The intent, therefore, is to find an appropriate non-profit organization, a 501C3 who would be the recipient. That may be an existing organization or one yet to be created.
Excuse me. I'm sorry. Would someone close the door, please. It's terribly noisy in here and it's very difficult hearing testimony. Thank you. I'm sorry. Please continue.
Thank you. So the intent is to designate either an existing or a to-be-created non-profit corporation 501C3 who would be the recipient of the funds and who would then be obligated to expend those funds on programs for the benefit of children in the City of Philadelphia.
What is the status of the acquisitions of the properties that we are to acquire? How certain are we that the purchase prices will be in agreement with those stated in the plan?
We have, obviously, five 163 11/30/00 - STADIUM HEARINGS properties that we're in discussions with. I think that for the benefit of the City in general and our expenditures, what I'd like to do is characterize these versus speak specific about numbers. But where we are is we have had conversations with all five property owners and we have actually reached a handshake agreement now with one of them that involves both price, timing, and the fact that they would not file preliminary objections. We are in discussions --
Can we guess on which one what that is? (Laughter.)
We only reached this agreement last evening so... We are in discussions with a second property owner and they are in fact -- well, this one maybe I will say the name. This is Jetro where we have actually had a conversation about them moving into Acme. We've identified the space. They are actually working with an architect to price and tell us what would be involved to renovate that 164 11/30/00 - STADIUM HEARINGS space such that it would be a substitute for the space they use today, so it does need physical work.
Is that going to be an even swap? How is that going to work?
Well, basically, there would be an agreement between us and Jetro that would roughly have the following characteristics: We would identify a portion of the Acme building, several hundred thousand square feet, a couple hundred thousand square feet. We would negotiate with Jetro in what condition that space would be in when they come to it. So, for example, it needs on truck docks, it needs work on what are called wax systems, storage systems, and perhaps certain other improvements that we would pay for out the $95 million line item, such that they would get, I'll use the term, equivalent kind of space to the space they have today both in terms of building and land. We would pay certain costs for them to move from where they are into that facility. And if we can reach agreement on that bundle of sticks, both the renovation, relocation cost, business disruption issues that in consideration of handling all those things for them, which would be inside our budget, 165 11/30/00 - STADIUM HEARINGS we would, I'll use the term, give them that renovated space in lieu of them giving us their space. That's the swap idea. So there is a cost to us to do it because we have to create the space and move them.
But aren't you also able to lease the remaining portion of that building and would you not generate money from that?
Yeah, we would have an additional portion of the building that would be unincumbered, available, and we would have an opportunity to lease that, sell that, make use of that in some way. And there is, in fact, the potential that there might be some economic value in doing that. To be candid, we have not explored that at all at this point. So that's another property owner. Two other property owners have given us prices upon which they would sell the properties. We would like to negotiate further with them about those prices, get them down. And we have a third property owner whose agreed that they were not object to the condemnation and hold up on moving forward but with that property 166 11/30/00 - STADIUM HEARINGS owner we have not reached an agreement on price.
If construction falls behind schedule and the and the Vet must be maintained for an additional season, who bears the financial responsibility?
To be quite candid, the specifics of what would happen in that scenario have not fully been determined. We discussed, I think, a little bit yesterday in the session that there would absolutely be a need to bring back to this Council for this Council's deliberations amendments to the Vet lease that would terminate the current agreement which has to happen because the teams have to get out of that lease to go into a new lease. And one of the things that that amendment's going to have to deal with is, for example, what would be generally called a force majeure event. Something happens, it delays the project, and a team has to stay longer and what will be the terms and conditions of that.
Would you please explain the provision of the environmental 167 11/30/00 - STADIUM HEARINGS remediation in greater detail, please? What is the likelihood that these costs could be more than $2 million? If costs do exceed that amount and the teams ask the City to cover the excess, how does the City intend to make the decision whether to provide additional funding?
I think there are probably three components to that question. One obviously is the question of what is the anticipated risk out there from an environmental prospective. I think for those of us who have been around a little bit of time, we have some familiarity with the food distribute center. Prior to its construction, it was basically vacant ground. We used it at one point during the centennial many years ago. We actually have some history down there of a project of a similar nature when we built the First Union Center and there were environmental provisions there. What the history seems to be is that what you're going to discover is you might discover some debris because there was some short thumping in history before the current buildings like the T-Warehouse were built there. Each of the buildings that have built there are the original buildings. 168 11/30/00 - STADIUM HEARINGS They weren't factories or steel plants there before, so there isn't any history of industrial use that would make you worry that there are significant environmental problems. And in fact, what we've discussed in the First Union situation was when we did hit some debris that the debris was so old, meaning it went back literally to the beginning of the -- I was going to say the beginning of the century, but I guess we're in the century, so the beginning of last century, the early 1900s that many of them now very dangerous, toxic, hazardous substances hadn't even been invented. For example, we didn't find PCB because they didn't have PCB back than. What we did find actually was coal ash that was used when people used to heat their houses with the bins on the sidewalks and they'd pick up the coal dust, and I guess we dumped some there. So we don't anticipate, we have no knowledge that there are any significant environmental issues that might be discovered. We've have an upset price so that if the first 2 million in total per side of the street come up that the teams worry about that. If we go past that number, then you're correct, Council President, 169 11/30/00 - STADIUM HEARINGS the understanding that we would have the ability to elect to help contribute to that cost to keep the project going, but we're not required to do it. We would anticipate that that is one of the issues that we have, the $10 million contingency for, so that if something should come up that we need to jointly decide on that we would do it inside the budget and the caps in funding that have been proposed to Council today.
Thank you. Councilwoman Tasco. I know you've been waiting for a while.
Thank you very much. Mr. Hankowsky, I just want to say that I support the comments made by Councilman Clarke. I do think, though, that we need to have sometime a full discussion about not just what the percentages would be, but how the whole minority participation will work.
Because even though we may put the component in part of the -- make it part of the deal, there is always some come back 170 11/30/00 - STADIUM HEARINGS about problems that exist and we need to discuss those problems.
Councilwoman, I couldn't agree with you more. We've had some terrific experiences and we've had some not good experiences. And you and I both know which are which.
And thinking up front is preferable to what we've sometimes had to do, which is think after the fact. I agree.
On the site work that's going to be done, is the City paying for the site work and teams will be doing the work or will we be -- will the City do the site work through the City's Procurement Department.
No, the teams will do the site work, Councilwoman with us funding it. The only exception to that is the demolition of the Navy Hospital which will be done through PAID.
And you have a minority component? Will cover everything?
On of the table that we were looking at this morning, and this is just for clarification. I'm not real good at looking at all this stuff. On Column where you 6 have foregone tax revenues, you see that, the 7 General Fund revenues from two new stadiums?
And that is because you're going to lose business and real estate taxes associated with the purchase of Jetro, Triple 7, Maggio, T-Warehouse and Acme Markets?
No, it's not there. I don't add it to that cost. What I do in this table is I subtract the fact that we're going to lose those taxes, I subtract it from the new taxes we're getting to show you the, I'll use the term, net new taxes you're getting. So charge the project for losing the five buildings and the taxes that are 172 11/30/00 - STADIUM HEARINGS related to those buildings before we take on any of our obligations here. So I've included in the analysis of what are the costs of proceeding.
Okay. So we will be down million from the total new revenue coming 7 in? 8
Right. And so I 9 subtracted before I got to the 159 million. I 10 subtracted before I got there. 11
On Table 3, Column 12 4, just for explanation purposes, what does less 13 base dollar, what's that column? 14
On this chart for the 15 School District what we did was we actually looked at what the School District gets today out of the stadiums. What the School District basically gets today out of the stadiums is the liquor-by-the-drink tax. So we took that tax, which we got from the Revenue Department, we grew it by two and a half percent to say, we're already getting this so let's look at what the School District's getting new. So again, this is -- this table the 70 million over 33 years to the School District is new money to the district over what they're getting today. 173 11/30/00 - STADIUM HEARINGS
Thousand. And you take the 444,000 base that they're getting now?
On Table 3, again, you have under U&O for the baseball stadium you have it based on 165 million? Or is that thousand? Look at the footnote, footnote number 2.
Yeah. What's different with, I guess, with stadiums or arenas is how do you 174 11/30/00 - STADIUM HEARINGS figure out the use and occupancy given here it sits -- it's not like an office building where workers go there everyday and use it and we charge U&O as if you use it all time. You use it periodically. So that the methodology was to look at the use of it over the course of a year based on both days it's open and seats that are filled, I think is the methodology that we worked through because the City's had to actually look at this for other facilities of a like nature, how do you figure out the U&O.
Do you use the baseball field more than you use the football field?
Well, you have event days, so currently you're anticipating 81 events in the baseball building and 59 in the football building. But then you also have to look at attendance for the different buildings and actually you end up with like a million seven people in the football building and I guess we used 2.9 million people in the baseball building. So it's days of use and occupancy.
Because you have the baseball U&O based on 10 percent usage and then 175 11/30/00 - STADIUM HEARINGS the football U&O based on a 7 percent usage factor.
I think that's the difference between the 81 days and the 57 days.
It would seem to me that you're going use the football field more than you're going to use the baseball field.
If it's helpful, we actually can give you the work sheets that back up these numbers and go through the mathematical calculations of how you get them if it would be helpful. There are worksheets that back these up.
Okay. On Table 10 you have calculated in here general revenue if no 15 new stadiums are built.
You do have calculated the vehicle rental tax revenue. Now, are we going to be able to keep the vehicle tax revenue because I see on the next table it's not part of the calculation.
Right. What we're trying to do in this base case is to take the world over the next 10 years and try to reasonably anticipate what it might look like. As you know, 176 11/30/00 - STADIUM HEARINGS when we enacted the $80 million repair legislation and the buy-back in the spring of this year, we said well maybe we can use that rental car tax to pay for those expenses if that's what happens to us. Then in June, I believe, of this year which was I believe after we dealt with this which I think was in March, correspondence was received from legislative leadership, both in the State Senate in one letter and the State House in a separate letter that basically said we're not sure that that's right, that we, the legislature, enacted this tax on the basis that the City was looking for this revenue to support new stadiums and we're not sure that we would be comfortable if you used it for repairs and, in fact, we might be so uncomfortable we might repeal it. What I show you here is suppose you had it what happens. And then on the next table I say, well, if you don't have it, let's take the revenue out -- not the next table, but the last table, Table 12. Let's show you what happens if in fact the legislature would go forward and repeal it and what the impact would be, and it would be massive impact.
Madam President, I 177 11/30/00 - STADIUM HEARINGS have one last question. I want to go back to Table 2. I missed my question.
Yes, I do and I apologize. We tried to make it as informative as possible.
Back to that U&O, I was just curious how we came to U&O being 250,00 for the football stadium and the baseball stadium.
Well, we actually ended up -- I think we had a number like 243 and 230, I mean they were slightly different and we rounded them both to 250.
Now, you have calculated in the football stadium pilots and the baseball stadium, pilots.
On Table 3. But you didn't include pilots on Table 2. 178 11/30/00 - STADIUM HEARINGS
The pilot numbers ARE inside Columns and 5. So within the new revenues 4 from a football stadiums and within the new revenues of a baseball stadium, I've already included the pilots.
And I actually show you that, Councilwoman. For example, if you went to Table 4, you'll see that I now break out the Eagles football revenue, the other event revenue and the pilot revenue. And that last column called the total column on Table 4 is in fact Column 4 on Table 1.
But on Table 2 when you have projected football stadium tax revenue, it's only 406,000 --
406 million and then you have 423 million. I've been trying to figure out how do we get there. Shouldn't they be the same?
It's the -- I think maybe what we did is in Table 4 -- it should be the same. 179 11/30/00 - STADIUM HEARINGS
Oh, you know what it is? We might be missing a year at the bottom of Table 4. Let me check on that. I think we might have just --
Oh, that's right. The difference between Table 4 and Table is Table we show the construction taxes in the first column, 16.7 million, show just what comes out of the football stadium. If you take the 16.7 from the 4.23, you'll end up with the 4.06 under football, and the construction impact of football is in Column 3 on Table 2.
I wanted to make sure everybody read these tables and saw if they added up, and you obviously did.
I don't have a calculator. I can't get them to add up, so just look at that again.
Thank you very much. The Chair recognizes Councilman Goode.
Thank you, Madam President. Mr. Hankowsky, I'm going to go back to the Mayor's letter, the letter we sent to the Mayor on November 17th, sent by Councilwoman Clarke, Councilwoman Miller and myself, and specifically the contracting goals within that letter that we sought to be at least 50 percent for economical disadvantaged businesses. I heard you speak about some of Mayor's goals, and in that letter, we actually asked for a formal response from the Mayor. And it's my understanding that you were supposed to give that administrative response today and you did in terms of some ranges. I just want you to repeat those ranges for the record because I wasn't clear on the specific numbers that you gave in terms of participation ranges the Mayor is seeking.
Well, Councilman Clarke, who isn't here I guess now, was so effective, I can 181 11/30/00 - STADIUM HEARINGS actually get more specific. I've actually been handed a letter that we in fact -- that I can now report that the Administration and the teams have reached an agreement on a 35 percent goal for MBEs, a percent goal for WBEs and a 2 percent goal for 7 disabled-owned businesses in the design and 8 construction of the project. I gave the range 9 earlier because I wasn't aware that this agreement 10 had yet been reached, which it has been since we've 11 been sitting here. 12
How do we make that legally binding in terms of good faith efforts?
I think what we need to do, Councilman, is take what I believe, which is sort of happening while we're here, which is the handshake on this turn this into a full-blown written economic opportunity plan, get that plan to you. I don't want to tell you I can get it to you tomorrow, but maybe with this agreement we would be able to get you something very quickly such that both you can ask questions about it and we would amend it into the term sheets.
You're 182 11/30/00 - STADIUM HEARINGS welcome. The Chair recognizes Councilman Nutter.
Thank you, Madam President. Mr. Hankowsky, I want to go back to a comment that you made before I asked my questions. In response either to a question raised by Councilman Ortiz or the Chair, I picked up the tail end of something that you said with regard to the Eagles practice facility and the -- I think actually to day is the date that's specifically mentioned in the legislation that we passed back in March.
Today is the day. And what I wrote down and what I thought I heard you say was that there is or have been an agreement to move the date back because you're in active discussions, obviously, with some uncompleted pieces of a stadium deal. If we have a stadium deal, then we don't have to worry about practice facility. Could you add a little more to the record? Just explain to me what you meant by that.
I think I'll be responding to your question, though I was having a 183 11/30/00 - STADIUM HEARINGS side-bar in the middle of your question so I hope I didn't miss it all. We have a verbal agreement with the Eagles that they are not going to draw the letter of credit, that we are going through this process in good faith collectively. We are working with the bank and we're moving the dates of the letter of credit from November 30th through December 15th and changing those dates to be December 15th through January 15th.
What was the November 30th through December 15th, what's the significance of that?
There was the date by which, if I can remember this right, Council was to have enacted and the Mayor to have signed the legislation. And as you recall, there was a whole bunch of discussion before about sliding dates. Remember we had September 8th, we had November 8th, we had November 30th. So in order to between us and the Eagles make it simple, we simply said that if by November 30th something hadn't happened they would draw the letter of credit on December 15th. We created this two-week window. So there was a date 184 11/30/00 - STADIUM HEARINGS for an event that the bank could say, yep, happen, didn't happen, and then there was a date that could draw. Quite candidly, it was also created just -- it's November 30th and you want to have one day of hearings, we don't want the same date to be the date of the action the date of the draw. I mean, you know, something could happen. So the two-date idea is simply to lift a date for the enactment and have a separate date which is the date they can draw it on which give us room so that if something happens -- and by the way, it also just makes it cleaner as a legal matter.
The new dates are enactment by December 15th and draw on the letter of credit by January 15th. And again, that's a little bit longer than the original two-week gap, but with the holidays, the bank simply asked $23 million letter of credit could we do it after the New Year, so that makes sense.
Okay. Let me go 185 11/30/00 - STADIUM HEARINGS back to an area that has been raised on a number of occasions. Your answer -- I won't ask you questions about the goals. Councilman Clarke and Councilman Goode have talked about that for sometime. What does strike me in this situation is in many of these deals that package and usually a couple other things always appear to be the last items that get dealt with. And I'm trying to understand why is that the case. We seemingly are always left at the tail end arguing, even in a nice fashion -- I won't say arguing, discussing or requesting either additional information or where are the documents or what's going on. I mean, we have no lack of paper here with 13 bills and extensive information that is obviously been put together to get ready for today and the next couple of days. Why is this always the last piece that gets done?
I guess I would just slightly modify the question by saying I'm not sure it's the last piece, but I understand the clearly the perception is it sure ain't the first piece.
The only reason I make 186 11/30/00 - STADIUM HEARINGS that distinction is we've got a few other pieces in this deal to get done.
There's no question. You've got a lease, you've got a $54 million gap, all the things that we're talking about. But always at the tail end of the package is this uncompleted piece.
I think in this transaction, though, and I think we have been clear from the beginning that meaningful -- aggressive equal opportunity plan were an essential component of the transaction. And maybe this is wrong. Maybe I'll learn one last thing before I get out of here. I mean, generally what we end up doing, maybe it's just the nature of the beast, is we generally end up trying to figure out do we even have a deal in terms of the economics with the understanding that as soon as we figure out whether we have a deal or we don't have a deal, that we're going to need to finalize what were the prior discussions. And there were clearly prior discussions. This is not something that we just started talking about since the announcement.
I understand that. 187 11/30/00 - STADIUM HEARINGS But I mean you, obviously -- this is no chastisement of you. Can I'm trying to understand the process. I mean, you obviously moved on a variety of items simultaneously without knowing whether you had a deal or not, the result of which is all the paper on our desks.
Where did this go as a part of that process and why is it not a part of what we have as the material as opposed to -- this is not the first one that it's happened on. We're not at the point of alarm even at the moment. But every one of these big projects that comes through, this, Tifts, Kvaerner, hotels, everything, it is always one of the last items that gets dealt with. And it seems to me that if there's an ability to negotiate and nail down a whole wide variety of items simultaneously to trying to figure out whether you have a deal or not, I'm just looking forward to the day where this is not an item that's still being discussed at the public hearing in a very compact period of time. And I will take you at your word that we'll have the documents and materials prior to a vote as long as we understand that today is 188 11/30/00 - STADIUM HEARINGS November 30th and at the outset there's an expectation that there will be a vote on the 14th. So somewhere between now and -- actually, first vote is either going to be late in the night of the 6th or early in the morning of the 7th to get a bill out of committee. That's the first vote. So I'm just -- you've got a lot of things that you need to take care of. It's just apparent that this a continual pattern of activity and I'm just trying to figure out as everybody's stuff gets taken care of, I'm just trying to figure out how this business gets taken care of all at the same time and if there other components that need to be dealt with subsequent, let those other components not be this component.
At lease on that characterization I think that is the case, that the number one thing we have now reach an agreement on out of the to-do list that we had after doing a term sheet, the first one I think I can check off in a handshake and hopefully in a day or two check off as a document is this.
Thank you. I know there was some discussion earlier about the various 189 11/30/00 - STADIUM HEARINGS sites. I think it's five properties in total. It does not appear that any of the boards and stuff are here today. I'm sure at another point in time we'll have those. But, I guess, can you verbally talk about how you came to the decision about these various sites, why are we buying all that we are buying and size of the project, at least the cost, as compared to -- we don't need to have a China Town discussion, but I think at an earlier point in time when there was a discussion about South Philadelphia and the potential two stadiums, the price was one number which may have been unrealistic and then there was another number in late '99 which may have been more realistic, I think somewhere in the 7 or $800 million range. That was the number that was being promoted at the time. We never had a deal, though. And now we're where we are. Why do need all of this property, why we need to own it as opposed to some other pieces being under lease to different people? Why is it the way it is?
Let me try to respond to that sort of comprehensively without turning this into an hour briefing on the site in question. When we came back to begin to look at the two stadium 190 11/30/00 - STADIUM HEARINGS option in South Philadelphia this fall, you obviously started with what might have been the base case, I'll use that term, where it had been left before. And it had been left before with the Eagles on T-Warehouse. That has pretty much been a constant throughout. And the idea of a potential of putting the Phillies in what has been generally now dubbed the north lot. That's a scenario that only requires the acquisition of one property, T-Warehouse. It is physically doable, you know, you have the north lot you can put a building on it. It results in two new buildings in the complex with no increase in parking over what you have because in effect you almost flip -- if you can almost think of flipping the Vet from where it is up to the parking lot. And then you have -- so you have no new parking, you still have a stadium roughly as close, little bit further away but not that much further away from neighbors to the west as the Vet is today, what is generally called the stadiums neighbors neighborhood. You actually have placed the stadium further north and placed it close to Tenth Street. So you've now actually created a situation where conceivably you have a 191 11/30/00 - STADIUM HEARINGS neighborhood impact going up Tenth Street to the neighborhood just north of the stadiums that you didn't quite have before when it was all the way down on Pattison. The feeling was that that was an undesirable siting scenario, both from a neighborhood perspective and from an overall sports complex efficiency and effectiveness and operations scenario. We asked the Phillies to explore --
Is that because things are even more stretched out? You actually increase in size of the sports complex area?
Yeah, I mean, we already have three buildings today, then you'd have four buildings. And you have three buildings south of Pattison. You'd have one building north of Pattison, you'd have -- the parking would not be around each of the buildings. We have parking problems today; no question. We have traffic problems today; no question. So instead of simply subtracting one and adding to and leaving everything else the same, was there a scenario that would give you a better sports complex because you're live with it for 33 years, maybe a long, long time. 192 11/30/00 - STADIUM HEARINGS
So the first question was to the Phillies was can this stadium be pushed further south and get it further away from the neighbors, with that be a driving force. And the idea was whether it could it fit between the current Vet stadium on the west and Tenth Street to the east and front on Pattison Avenue. So now in effect it would the Vet flipped, just literally just over on its side from where it is not to the lot that's immediately to the east of the Vet. We looked at that and the technical answer is, yeah, it sort of fits. What I mean it sort of fits is you can build a baseball stadium from the edge of Tenth Street to the edge of the Vet and get it in there, the buildings, and you have a little bit of space. I forget if it's or 50 feet between the wall of the 19 Vet and the wall of the new building. So you have 20 the new building coming out of the ground while the 21 Vet sits there. 22 In order for that to happen, you impact 23 four aspects of current Vet operations. You take 24 out one set of significant ramps, you know, the big 25 ramps we all come up to get to the E Gate or the A 193 11/30/00 - STADIUM HEARINGS Gate. You take out whole set out. You take out the truck ramp that brings trucks to supply the stadium and so the service entrances is on that side. You take out the pump house which is where the pumps are that pump out the water from field system because the field is sunk. In effect today we have a continual sump pump system running out in the field. And you take out the box louver, the cooler systems for the air conditioning. You'd solve any technical problem with money. You also have a problem that you can't add parking. You've sort of done nothing to make the place any different than it is today. And you face a real sort of interesting mechanical problem that if either of the new stadiums would have any force majeure event -- I mean, the only what this would work is a scenario where you're building both stadiums are coming out of the ground, you endure the problem for the construction season and then you get the Vet out of there real fast. If anybody misses getting done -- and you wouldn't move it in mid-season so they'd be there another season. To think of having the baseball stadium open, not under construction, but open and the Vet open, we weren't 194 11/30/00 - STADIUM HEARINGS quite sure how that worked. So we said, okay, is there another scenario that would make sense here? And what we looked at was moving the new baseball stadium east. East, meaning cross Tenth Street now and when you cross Tenth Street you now say could it fit on what has now become known as that Jetro site. That's the site that's in fact in the briefing maps. The answer is, yeah, you could put it there. And when you put it there, you've eliminated all the Vet impact issues. You've eliminated the coordination issues of the two buildings being side by side. You've begun to think about the capacity to begin to add new parking because now when you take the Vet down, that's new parking because we've kept all the old parking and we've added some new parking. You then say to yourself, okay, let's take Jetro. One of the issues with Jetro is this is a business that's happy to be in business in the food center, has no interest in moving, makes money. And in our previous discussions with them, they said, look, maybe we'd move, but we want to move in the food center. Moving us two miles away, we might as well go to Jersey or somewhere. It doesn't help 195 11/30/00 - STADIUM HEARINGS us. The scenario existed because the Acme building had been vacated, was sitting there and was empty that you on could literally just move Jetro into Acme and you could also create a situation where you could get further additional parking by taking what is the undeveloped portion of the Acme site -- if you look -- and I apologize because I promised it to you and I still haven't gotten it to you, an aerial.
If you looked at the Acme site, you would see that a significant portion is just grass. Acme, because they're a corporation, just -- they didn't park cars there, they just ran their business. They didn't want third parties on their lot. But you can pick up a fair amount of parking, in fact, we think probably around 2,000, 2500 spaces by sort of finishing out the Acme site. So now you can gain more parking there, gain more parking on the north lot. Then you look and you say, wait a minute, now the baseball stadium is across two kind of warehouses, meaning, the Triple 7 and Maggio. And you'd really like parking all around it, so why don't we take those two, have a really full blown parking solution, gets us that 20 to 22,000 number, 196 11/30/00 - STADIUM HEARINGS have a complex that really ties together. And part of this parking is space number and part of this parking is space location. And if we can have spaces on every side of each stadium, then people can literally leave from each way and much of what we face today in terms of congestion will get alleviated because it will just flush out more easily. That's the history of the site process.
Tell me the shorter version of the story of why do you need to buy the Acme warehouse in order for the Jetro relocation to work and was there any -- now, is it my understanding that the Jetro site is about 13 acres and the Acme site is about 40 or 42 or something like that?
Yeah ,that's roughly right. I think Acme is like maybe it's 41 acres, 40 point something, and Jetro is probably around 12, 13.
So the first question is we need the one we'd like to be there there's a space for you across the street why don't we take you over, introduce you to the folks over 197 11/30/00 - STADIUM HEARINGS there, you guys do a business deal, life is good, you're relocated, good-bye. That's one. And, two, was there ever any thought or consideration given to putting the baseball stadium on the Acme site and leaving Jetro where they are?
Let me do the last one first, and then I'll do -- actually we looked at that for a split second because putting the potential 3 million fans any one game stadium at the Acme site so at the far -- again you almost have to look at a map. You would have had Jetro still there so maybe you would even have Triple 7 there and Maggio. You'd stick a stadium in a corner. You'd have warehouses on two sides and I95 on the south.
Is Acme the white building to right of the Eagles Stadium.
Yes. So it didn't seem to make any sense to put baseball there. We did look, though, of putting baseball and T-Warehouse; football and Acme. So we looked at both ideas. And we still though we probably needed to buy Jetro and Triple 7 and Maggio because the parking is all the way up here and stadiums are way down here and there's a need for enough parking 198 11/30/00 - STADIUM HEARINGS around the stadiums to make them work. We also thought when you did that -- we actually have a plan where we actually bought all of that and stuck two stadiums on the south of Pattison. We then started looking at that from a traffic and operational standpoint, and what happens is you got all four buildings on the south side. Effectively, the new stadiums have one edge. The only way to get out of them is Pattison Avenue. The side streets simply get you up to Pattison. So we have all this traffic on the south side, whenever we parked down there going north trying to get on Pattison. And take an Eagles football game, which is, you know, kind of the sell-out event in the complex, so we have 65,000 people down there. You'd have 30 to 35,000 people crossing Pattison Avenue to get to the north parking south to the stadium, crossing against all this traffic. I think all of us know that experience today in a much smaller sense.
Excuse me, Councilman, would you let this be your last question 199 11/30/00 - STADIUM HEARINGS and then we'll have a second go-around, please?
So the functionality of it didn't seem to make sense. Let me complete the question because you had a two-parter and I only have done one part. In terms of voluntarily dealing with the Jetro relocation question, we wanted to do two things which we thought we would achieve by acquiring Acme versus not acquiring Acme. One was to have total control of the time of proceeding, not having a third party who might or might not make a deal with Jetro who might or might not proceed at a certain pace and the Phillies now with some sense of they maybe finally have a site want to move very quickly because they want to open in the April 2004 season. That literally means that we'll be working on a Jetro relocation beginning after the first of the year in the sense of designing their relocation stuff, bidding it out, getting them set up. By the time you move them, and you run that out on a schedule, you almost have no time to have somebody make a mistake, slow you up, do something adverse. 200 11/30/00 - STADIUM HEARINGS And secondly was to gain control of the 2,000 to 2500 parking spaces that that creates as part of the complex. Because what we face today is the space down there we don't control in an operational. And if we can control in an operational sense, we can do a lot more to achieve the goal in getting cars out of the neighborhood, forcing people into lots.
Okay, thank you. - - - 201 11/30/00 - STADIUM HEARINGS (Relief stenographer, Josephine Cardillo, takes over.)
Thank you, Madam Chair. Mr. Hankowsky, I'd like to thank you for all of your hard work during the course of these many years dealing with project. And I know that you're coming to the end of your tenure soon and, hopefully, we'll be able to send you off with a completed deal finally.
Let me go back for a moment to the issue of 12th and Vine. Do you remember when the Mayor announced that 12th and Vine was his preferred site for the Phillies baseball facility?
When did we announce it. My recollection is that the site -- Stadium Site Selection Committee made a report -- was it April? Maybe early May? I think.
Could you describe the activity that went on, or did not go on, relative to the effort to get 12th and Vine accomplished. Were there meetings with business owners? Was there an attempt or plan to acquire the properties needed? Were their meetings with community people at 12th and Vine? Were there traffic studies done? What was the process employed by Administration and PIDC to make 12th and Vine happen?
We commissioned -- I'll do it a little bit off of the top of my head. I mean, we commissioned a full-blown consultant analysis of the 12th and Vine site. We hired engineers, traffic consultants, environmental consultants, utility consultants. We went through a fairly intense effort that, my recollection is, roughly was a 30-day effort to analyze the technical feasibility of the site, which hadn't been done prior to saying, you know, it's a recommended site. So there were discussions with PECO, there was analysis done -- I mean, I have -- 203 11/30/00 - STADIUM HEARINGS
I have many boxes of stadium files; two of them are the 12th and Vine boxes. So I have all kinds of reports about that site. We also simultaneous our parallel, I guess, with that, as you might recall, the Mayor appointed a Stadium Negotiating Committee that included Mr. Rouse, Mr. Adler, Ms. Corbin, and Mr. Zeitz (ph.). And we began a series of intense, tough discussions with the teams about financing and transaction that would involve that -- that involved that site in conjunction with T-Warehouse. Proposals went back and forth. There was a lot of financial analysis and numbers- crunching, and those things were happening. We never actually, I don't believe, Councilman -- I think there -- there may have -- I did not participate. I think there were some discussions with some community representatives. I don't think they ever got very far. I didn't directly participate, so I can't really totally characterize them. 204 11/30/00 - STADIUM HEARINGS
When, in your opinion, did you believe that it was clear that 12th and Vine was not a feasible site, either from a financial standpoint, or more importantly, I guess, from a timing standpoint with the teams, that it would take a lot more time to get this particular facility done at 12th and Vine as opposed to South Philadelphia? Was there a almost a month or a time when people said, you know what, despite the announcement by the Mayor that it wasn't going to happen, when was it kind of understood that this just wasn't going to work?
Well, let me -- I'm going to respond to the question, but I want to do it slightly in components. I don't think we ever reached the conclusion that it wasn't technically possible.
And then the timing aspect ended up turning into a financial issue. 205 11/30/00 - STADIUM HEARINGS
So, in other words, at a certain point, the Phillies actually said, Okay, we might live with the delay because of condemnation and relocation of the significant numbers of homes and properties, but we're only going to live with it for a while. So it began to turn into, for example, would there be penalties if we were late and, you know, because they -- I mean, how long could they hold their economics when we were controlling when they got to turn the lights on?
So -- and then there was a discussion of the economics. As you recall, the Mayor gave an address, a TV address, which I can't remember when that was. Was that June?
I think? I think it was June. And we probably went for, I'm going to say, another -- I would say sometime into July; I know it was after the 4th of July 'cause I recall doing some work on the 4th of July, as I recall 206 11/30/00 - STADIUM HEARINGS it.
So that probably sometime in July, the teams weren't moving, we weren't moving, and it didn't seem like it was a -- people had kind of run out of ideas on how would you ever got it done.
At that point in time, would it have not been clear -- and I guess it was clear in my mind and perhaps in yours -- that South Philadelphia was the place that it most likely was going to be, despite the valiant efforts of people in Fish -- in Northern Liberties to get the Schmidts site done. And I give them credit; they really did do their best and made an effort.
But it was pretty clear by July that South Philadelphia was probably going to be the place; is that a fair assessment?
I mean, is it a fair assessment? I don't know if it's totally, completely, and absolutely accurate, but is it a 207 11/30/00 - STADIUM HEARINGS fair assessment that at that point in time that South Philadelphia was going to be the spot for two stadiums?
I would probably prefer to say it slightly differently. I would probably prefer to say that at that point, we were at an impasse at 12th and Vine, and it wasn't clear that that site was going to work.
Okay. If the Phillies' preferred site from Day 1 had always the been the North Lot of Veterans Stadium, correct?
There was a time when Broad and Spring Garden was a preferred site.
Okay, well, besides Broad and Spring Garden, their preferred lot was the North Lot of Veterans Stadium.
Once they were -- again, I just want to be careful because the Phillies have always believed that a Center City ballpark would have been a good idea, they always 208 11/30/00 - STADIUM HEARINGS believed that there would have been some premium value to it. They were willing to either endure time or cost or something to enjoy the benefit of that premium value. They thought Broad and Spring Garden could have worked; we all know this we didn't get there. We thought that 12th and Vine had some of the same characteristics, and I think the Phillies did too. But when you have to start with the proposing that there was no viable Center City site, then, yeah, I think they would have said, Okay, if there's no viable Center City Site, we might well be in the sports complex versus somewhere else.
So we're talking about July 2000, August 2000, that July-August 2000, when that epiphany became clear to everybody? I mean, I'll say July or August of 2000.
Wouldn't it have been possible to have legislation to us the very first day of our return in September of 2000 for two South Philadelphia sites? And I think -- and 209 11/30/00 - STADIUM HEARINGS I want to -- I want to characterize my question by --
I want to characterize my question that saying that we're doing this site now within a period of two weeks, so I would have thought anywhere from August till mid-September would have been sufficient time for us to have these bills in front of us for a period of three months' worth of deliberation, neighborhood meetings, nighttime meetings here at Council, an effort to kind of get everybody behind the good reasons why we should be building these stadiums, which, I agree, we should be building -- both for the employment, the construction employment and the permanent jobs and the tax ratables and the fact that we wouldn't lose our teams. Wouldn't there have been a three-month period for us to have this legislation before us, to do our due diligence, and to convince the community out there that this is, in fact, a good thing for them? 210 11/30/00 - STADIUM HEARINGS
Councilman, we know each other way too long and way too well. Don't take --
I will -- and this is -- where I'm going with this question is that I believe there would have been sufficient time in that three-month period to deal with the neighborhood complaints of the Veterans Stadium neighbors as it relates to the potentiality of a baseball facility on the North Lot of Veterans Stadium. You certainly don't have enough time in a period of two weeks or three weeks to convince those people who have suffered 30 years with the Vet that this would be a good thing. But I believe -- and you don't have to answer the question -- that three months would have been sufficient time, even though it's a short period, for us to have talked with them, dealt with them on special service district issues, dealt with them on perhaps some tax incentives of some kind, and convince them that the North Lot was something that they could accept based on the fact -- and you can correct me if I'm wrong -- that the Phillies facility is roughly 211 11/30/00 - STADIUM HEARINGS two-thirds the side --
-- of Veterans Stadium? So even in the worst-case scenario, they would have had a smaller, less dense lower-rise facility on the North Lot of Veterans Stadium.
Excuse me, but in that event, wouldn't we still have had to buy other properties for additional parking?
Yeah, okay. I think I should. 212 11/30/00 - STADIUM HEARINGS I think that in any scenario where we were going to place two stadiums in South Philadelphia, understanding that we were making at a minimum a 33-year decision, if not a 50-year decision or 60-year decision, 'cause in real time, to step back and say, What do we need to do complex? I mean, maybe we should have done it when we built the second arena, you know, when we really didn't add any land, we just added a building. So I think, Council President, you're right. I think any thoughtful analysis of four buildings down there, you'd want to add to the parking, you'd want to add to the circulation, and make that place work better. It just would have to happen.
So I guess the continuation of my question is that -- and may I say that the Vet goes away in the scenario; in every scenario, the Vet is demolished.
And the space for 213 11/30/00 - STADIUM HEARINGS the Vet is, in fact, parking --
-- for those facilities, so we would have had perhaps not the amount of increase that this plan suggests, but if there would have been an increase --
Well, it depends on the scenario. A scenario that would have placed a new baseball stadium somewhere on the current Vet lot would not have netted significant new parking because you would have replaced one building for another.
Well, what happens -- it's two-thirds -- remember, it's lower.
It's 17 acres versus 36, right? 214 11/30/00 - STADIUM HEARINGS
Well, but now -- but that's not even -- I'm not -- I mean, I'd be happy to show you. The 36 acres includes the 1,000-car VIP around the Vet. And because the Vet is set up the way it is, the ramping system, which lays on the exterior, creates a bigger box. Depending on how you build the baseball -- you can ramp inside, you get the smaller 15-acre-ish kind of building. If you ramp on the outside, you'd need a bigger footprint. But the other part of it is, I think we all agree -- I mean, if nothing -- if we simply look north of the Vet lot and we look at the First Union parking lots, the First Union parking lot's clearly better than the Vet lot. I mean, they just work better: they have more lanes of circulation, they have aisles, they're divided into smaller lots. That's what you want to do: have small lots of several hundred cars. So when you try to lay it out right on the north, you end up with the same number of spaces.
Well, on the Jetro site, have you had the time to do the traffic 215 11/30/00 - STADIUM HEARINGS analysis and traffic study and traffic that would indicate that the Jetro site is going to be any better for traffic flow than the North Lot would be? I can't imagine that in this smaller frame of time, we've had the ability to do that kind of analysis on parking and traffic flow.
No, I -- let me -- 'cause I know I'm running out of time.
Is Councilman Kenney willing to yield to Councilman Ortiz? Is Councilman Kenney willing to yield?
Is it now the placement -- isn't the placement now of the stadiums far less accessible to public 216 11/30/00 - STADIUM HEARINGS transportation, much more accessible now to car transportation and parking, but less accessible to the SEPTA and public transportation people taking the train to going to the stadium because they're so far away from the train station?
That's like saying that somebody who comes to Suburban Station, you know, won't walk to the PECO building, or somebody that comes to -- no, a half a mile is the distance from City Hall to about the Litts building. I mean, are we saying that people don't walk those distances? It's what you'd walk in a large mall. You walk that at King of Prussia Mall when you park there at the holiday season to come to the store.
(Inaudible, off-mic.) UNIDENTIFIED SPEAKER: How would you know about that?
Well, I'm told about it, I never go there. All right. 217 11/30/00 - STADIUM HEARINGS
Thank you very much. What is -- on the Phillies, on the original scenario for the North Lot, what was the closest home to the building -- to the facility? I understand it to be about 500, 490 to 500.
Okay. And there was also a very extensive plan, which I understand still exists, for landscaping and berming and insulating the back end of the VSN neighborhood from any facility there.
Yes, it still exists because we want to create a buffer between them and the parking areas.
So the distance between the Jetro, Maggio, 777 site that we're 218 11/30/00 - STADIUM HEARINGS considering today is about an additional 650 to 700 feet.
Do you believe -- well, how many homes are in the Veterans Stadium neighborhood?
220 homes? I would imagine that about 150,000 maybe, low-end?
Probably 150 low-end. I think we've sort of paid attention to some of their -- I think there's been recent sales of over 200.
So if we say $200,000 for 200 homes, even I'm -- and I'm -- and it's a beautiful neighborhood, there are lovely houses there and the people there have suffered tremendously.
But just in a really hypothetical situation, it would have been cheaper to buy all of those homes than it would be 219 11/30/00 - STADIUM HEARINGS to purchase the land that we're being asked to purchase now if the issue was only one of distance from the neighbors.
Well, if the issue -- if the issue were make the neighbors go away, yeah, I mean --
The issue is if a facility was placed on the North Lot and neighbors are that unhappy with it and we gave them the opportunity to purchase that home, it would probably -- probably? -- I think it would definitely be cheaper than what we're doing now to purchase four additional properties that we wouldn't have needed under the old scenario.
Well, my only cautionary note there, Councilman, is actually reflective of the Council President's question, which is, I'm not sure you would have picked up any significant parking in that; you would have eliminated the homes. 220 11/30/00 - STADIUM HEARINGS
The homes don't actually take up much acreage. If you look at them, you actually see they're -- you know, they're row homes; I mean, they don't take up a lot of space. So that if you still wanted to address a more efficient, effective four-building sports complex, I still think you'd be looking at buying some property to add to your parking inventory and make the place work.
Could you say today here, as you said in a definitive way, that the North Lot of Veterans Stadium, the area of land that is not going to be used for a Phillies site, will remain parking in perpetuity?
No, not in perpetuity; how about over the next 30 years?
The entire -- the North -- I'm sorry, Madam Chair, I'm having trouble over here. The North Lot of Veterans 221 11/30/00 - STADIUM HEARINGS Stadium and the lot that would be created by the demolition of Veterans Stadium --
-- are you saying today that over the next 30 years, those lots will be used for parking only?
Yes, they were going to be used for parking. The only outstanding issue -- and I say it's an outstanding issue 'cause there is not an agreement on it -- has been whether there would be any thought of ancillary development to the sports complex along Pattison Avenue. This is an issue that has been raised of some concern to the affected communities. We haven't said we're doing it. I don't want to sit here and say -- you know, until it's resolved, I don't want to say -- I mean, we'd like to think 222 11/30/00 - STADIUM HEARINGS about it. It would be limited in --
Excuse me, excuse me. And while you're thinking about it, we are thinking about putting in a zoning ordinance.
So that it would go back -- any application would have to come back to Council and be approved by the area residents.
I mean, 'cause I wanted to make sure my answer was full too, Council President, which was, in fact, even if --
No, no, I -- that's fine. But even if we wanted to do that, I just want to make it clear for the record here, we would have to come to this chamber to make it 223 11/30/00 - STADIUM HEARINGS happen.
We're not saying that as part of this bill, you're giving us the right to do it.
Under what scenario would you have to come back here unless it's amended into this bill?
Well, because we -- the only scenario where you might want to consider doing it is a scenario where you would, I'll use the term, "rearrange" the current development rights that Comcast SpectaCore has, and that would require an amendment to the Comcast SpectaCore agreement, which you -- which, in fact, if you go to the development lease, it says we can't move that development -- it's specific in the sentence -- without City Council approval.
If you didn't want to flip the development rights, you wouldn't have to come back.
But when was that potentiality made known to the neighbors who so heartily cheered the movement of the stadium across to Tenth Street into the Jetro lot? Were they made clear from the get-go that, in fact, this could be used for something other than parking?
I'm trying to think of the sequence of events. When we announced -- when we made the announcement of the site, which was on a Tuesday, I think, I believe we said at that press conference that one of the possibilities, but it was not a certainty, was that you might have some ancillary development because you'd put four buildings in the sports complex.
I listened to that press conference very closely and never heard that, but let me just --
Excuse me. And I attended a community meeting, and I don't believe that was ever said then either.
But let me ask you 225 11/30/00 - STADIUM HEARINGS a question about -- just one final question on site selection and ancillary spin-off development. Theoretically, if you were to create two critical masses of building, theoretically, on the North Lot of Veterans Stadium and a football facility on the T-Warehouse site, would you not expect that property around that complex would -- (Interruption by sounding of many cell phones in chambers.)
They're cell phones. That the property around that complex would, in fact, through a private sector initiative, experience development? For example, the value of the Jetro property, I would think, in a two-stadium scenario North Lot and T-Warehouse, may in fact create economic pressure on the owners of the Jetro to say, whoa, wait a minute, this property has increased in value because people may want to develop this site and maybe I'll sell it myself and have some private development. The owner of the Acme warehouse could say, you know, rather than have a refrigerated warehouse, which I'm having trouble filling with 226 11/30/00 - STADIUM HEARINGS tenants, perhaps I could do some retail or ancillary entertainment development at that site. The theory -- the bottom-line question is, besides this issue much distance from the neighbors, we do not have to invest money in creating economic spin-off private- sector development because the investment we're making is in the two critical masses of stadia, which in fact create that kind of opportunity naturally, not with our help. And the other thing I want to say is that the $54 million, the $60 million and possibly more for the acquisition of those properties is our hole. Is it not representative of the hole in this entire deal, the shortfall of this deal? Is it not represented almost exactly by the amount of money we're going to need to acquire four properties that, in another scenario, we never had to acquire?
Well, let me just make 227 11/30/00 - STADIUM HEARINGS a couple comments. And without disputing Council's prerogatives obviously on zoning or any of this, to the degree we want to create a plan -- (Interruption by sounding of many cell phones in chambers.)
-- a plan for the area, I mean, currently, we have zoning in the food center that says you can't, in fact, do this, you know, kind of ancillary development on food center property. And, in fact, you know, it's a very specific zoning overlay that we did, and I -- and it's one of the things I am actually, you know, was thanking Council yesterday. I mean, it was one of the things that we did that was the right thing to do. I mean, we preserved that food center --
No, my point is, so you need to figure out what's the food center and what's the sports complex. You know, they happen to abut each other. On the one side, you might 228 11/30/00 - STADIUM HEARINGS want to allow certain development; on the other, you probably can't or else you're going to drive out a whole other couple thousand jobs, you know, which we all know are very active.
In the food center side of the world; you know, the produce market, seafood. I mean, those are happening places, people make living wages there. And so -- and to the question of does the additional property, quote, equal the need for additional contributions, I mean, you know, you can go to the math at the table and pull out certain numbers that say, well, these add up to 53 million so they must be what's, you know, they must be what's causing the problem.
You could say that we should take out the demolition of the Navy Hospital. I could say -- you know, we could create a set of numbers that --
Well, could someone 229 11/30/00 - STADIUM HEARINGS argue rationally that that is in fact what happens? I mean, I can't see how you can dispute the fact that we're acquiring four properties that were never in any scenario for South Philadelphia, which creates a number, which happens to be almost exactly the number of the shortfall. I mean, you don't have to answer it, but I think it's clear. Okay, I have one other request before I finish questioning for Mr. Hankowsky. I would like to know today the amount of real estate taxes, use and occupancy taxes, wage tax, and 1 percent sales tax that is generated from the current operation of Jetro, 777, Maggio. I know the Acme probably doesn't generate much real estate tax 'cause it's -- there's no one in there. And what T-Warehouse generates in those numbers. And I want to know whether or not that was taken into consideration when we looked at the revenue, increased tax revenue coming to the City that we also go to the other side of the ledger and say no more T-Warehouse.
Yeah, we did do that, Councilman. What we did in the tables -- in Table 2, which is the table of the future world, column 7, is called "Foregone Tax Revenues." And that column represents the real estate tax value of the five subject properties and a proportional share of business taxes that come out of those buildings today. And I can get you the backup.
Thank you. The Chair recognizes Councilwoman Blackwell.
Thank you. Mr. Hankowsky, some of the testimony indicates that we'll be talking about site preparation for the Eagles and demolition of the Navy Hospital and construction of the parking lot, indicates additional funds might be needed beyond the bond proceeds -- $18.5 million and $8 million respectively. Where will they come from? 231 11/30/00 - STADIUM HEARINGS
Councilwoman, those are the -- those funds -- and there are certain additional funds needed for the Phillies site work that total $53 million. As I indicated in my testimony, and as I think the Mayor indicated in his testimony, we are working to put in place that funding. We are talking to several sources, both public and private, that could assist us in doing that. We have not concluded those discussions. What is absolutely clear in the transaction, though, is the City will not be filling the need for additional contributions.
Okay, thank you. Well, where will additional funds come from if we have to spend over the proposed cost for acquisition of properties? I know one property's still not settled.
Right. If we need more money for the properties, it will come from one of two places. It would either come from our currently budgeted $10 million contingency line item. And if that proved to be inadequate, then 232 11/30/00 - STADIUM HEARINGS there would be a provision that the Board of View awards over that amount would be on obligation of the City.
Okay, thank you. I only have two more questions, Madam President. I'm really short. Mr. Montgomery referenced in the attachment of his Phillies presentation that Council would be presented with a scheduling report in assuming that we would need to see that to address pedestrian and traffic congestion concerns. Is that schedule ready, and has there been a traffic engineering impact report done?
We're on our second draft of the scheduling report, and I would hope to complete it shortly and get it to Council. We have a traffic study underway right now, which has not yet been completed. It's a full-blown traffic study.
I think that might be a couple weeks. The full traffic study? That might be a couple weeks away. 233 11/30/00 - STADIUM HEARINGS
Has the Commonwealth guaranteed the grant amounts listed in proposal? And what is the contingency plan if those funds are not enough? Who's liable for this risk, the City or the teams?
I'm sorry, Councilwoman, I just didn't hear the beginning the question.
Has the Commonwealth guaranteed the grant amounts listed?
Oh, I'm sorry, the Commonwealth amounts. The Commonwealth has approved a capital budget that provides for those amounts. We have, in fact, been in contact with the Commonwealth, with the Commonwealth's attorneys who are actually talking to them about the grant agreements that are necessary to do this mechanically. One of the actions you have before you is actually the authorization to submit the application, which has to be done. They did -- they funded 75 million to the stadium in Pittsburgh, so they have fulfilled their commitment there. We would have every expectation 234 11/30/00 - STADIUM HEARINGS they would fulfill their commitment here. We have copies of the agreements from Pittsburgh, and they don't seem to present any reasons why we wouldn't get the grants here.
Would we be liable if something happens, or the teams?
I think if we don't get the grants, the whole project isn't proceeding. We're not proposing to fill any -- if those grants aren't there, we're not stepping in to fill the need for the State money.
I will yield -- since Councilwoman Reynolds Brown hasn't had a turn, I will yield. I won't yield to Ortiz, but I will yield to Brown. (Laughter.) 235 11/30/00 - STADIUM HEARINGS
Thank you, Councilman DiCicco. Good afternoon, gentlemen.
My few questions are actually a follow-up to questions that have already been raised by President Verna regarding specifically the Children's Fund and those kinds of conditions that may impact the finalizing of the deal.
Okay. And I would be remiss not to say thank you to the Mayor and the negotiators for making a commitment and then following through, 'cause I think that's the issue for some of the terms, that the follow-through happens. In Exhibit D of your -- the documents that you sent to us, at the top of the page in italics, and I quote, it reads: "Key terms of this agreement are subject to change due to finalization of the transaction." Given what is in writing with the lease 236 11/30/00 - STADIUM HEARINGS terms for both the Phillies and the Eagles and specifically as it relates to the Children's Fund, is that in jeopardy?
No. I think, Councilwoman, this provision was put in front of the term sheets at the point where they were literally completed -- I mean, quite candidly, within an hour of the announcement -- to make sure that when we went back and had all of the right lawyers read them -- for example, we state local law and tax-exempt, we need bond counsel to read all this. I believe it's fair to say that this provision will come out and should come out when you adopt this, that these will not be subject to change. This was a catchall so that as we had lawyers read this and make sure that nothing did here, you know, was amiss of something, that we would have that provision. But our intent is that these are the provision; there shouldn't be no 22 such caveat when they are approved by Council.
It has also been expressed that we know that we have the gap of approximately -- I've 53 in one area and 54 in the 237 11/30/00 - STADIUM HEARINGS other. And an appeal has already been made for us to acknowledge that but possibly proceed with the adoption of this in spite of that. Are there any other outstanding unresolved matters like the gap that currently exists that may also break -- or potentially break the deal?
Well, I want to answer that question, but maybe I'll be given an opportunity to talk about the additional contributions. I mean, one way to look at the additional contribution situation is to analogize to exactly what the State did. The State of Pennsylvania -- and it's actually not that long ago, it was January of 1999 -- enacted legislation that provided for $85 million for each of these two buildings. I mean, they were actually kind of the first people in. What we're asking Council to consider is authorizing the City contribution, okay? Now, the teams have to put up their contribution, and we have to collectively find the contributions. If that doesn't happen, it doesn't happen. But the State isn't moving its number and 238 11/30/00 - STADIUM HEARINGS we're not moving our number. I mean, that's kind of where we are. In terms of other things that have to get worked out, I mean, we have to work -- that are significant to the transaction, we -- and I'm trying to think. Well, obviously, we've got the property owners we have to deal with, we've got to put in place a parking arrangement between ourselves and Comcast SpectaCore 'cause we're rearranging that old parking situation from the old deal for a new deal. I mean, there's obviously all kinds of documents, but --
But all of those things that are outstanding in no way will impact what currently has been put in writing and would be -- (Unintelligible, parties talking over each other.)
Eagles lease terms. The sports complex services district will enjoy the same cushion of protection as the Children's Fund?
Thank you. The Chair recognizes Councilman Clarke.
I was out of the room a couple of times, and I don't know, this question may have been answered. With respects to your calculations as it relates to the usage of both facilities, did you calculate different scenarios, like a hundred percent occupancy, attendance?
Or 80 percent, 60 percent as it relates to the numbers?
Yeah. We did take a look at that. One of the big variables is the Phillies, the baseball stadium. So the Phillies -- and they'll be, obviously, testifying at some point over the next day or so -- are actually anticipate that they would draw about 3.3 million at the opening of their facility. And what we -- 240 11/30/00 - STADIUM HEARINGS we talk about stabilize, you know, kind of come down and proceed at 2.9? 2.9 million. We actually run our numbers, our tax numbers, we actually start them at 2.9, and then we take 'em down to 2.5. So we've already said it would be great if you do what you say you're going to do, but we're going to base the City's analysis on being conservative.
No, we took 400,000 off where they started and where they ended per year of attendance that we discounted, we sort of threw out the window. If it happens, it makes our numbers look better, but we took it out. When Rob spoke about the five-year plan analysis and the impact on the five-year plan, the Finance Department took yet another, I'll use the term, "cut" and took -- you have to help me, I always forget. It took 80 percent of my numbers, not the Phillies numbers, the Arthur Anderson numbers for the Phillies, 90 percent for the Eagles, and 50 percent of the other events to calibrate what would happen in the five-year 241 11/30/00 - STADIUM HEARINGS plan. So it took even another, you know, worse-case or, you know, more conservative or pessimistic scenario, and said that even if that happens, what happens to our five-year plan? And those are the numbers that Rob presented a little bit earlier.
So those are the final numbers that we see before us today.
That was how we've looked at the five-year plan and then the Arthur Anderson numbers. We took -- we took the Phillies numbers down. The Eagles football numbers are -- have been pretty consistent, so we let those be with. We did use the Eagles numbers on other events, which is an increase over historic averages from about 400,000 people to about a million. So about a 600,000 increase.
Thank you. The Chair recognizes Councilman 242 11/30/00 - STADIUM HEARINGS DiCicco.
Thank you, Madam President. And, Bill, I'm reluctant -- not reluctant, I apologize for not offering you my congratulations and sincere wishes in your next endeavor. I want to thank you for the patience you've had with me over the few years, explaining to me what PIDC's role for the City's future is and TIF financing and all those other things. Our loss, as they say, will be Willard Rouse's gain. But thank you for all of your help.
There are a number of projects that have been approved by this City Council, and many of them are in my district. Some of those projects have yet to begin, for various reasons; some of them are still looking for additional finance, whatever.
And there are maybe one or two projects that are dependent on outside funding sources aside from what the City's 243 11/30/00 - STADIUM HEARINGS contribution is and other government entities have already pledged to the project. My question is, and I'm not asking you to divulge any information that may be still considered confidential or still in the negotiation stages: Do you in your opinion believe -- or have any opinion, I should say, do you have an opinion as to any of the projects that have not yet begun but are still awaiting some contractual agreements between themselves and some other parties that may be affected by similar deals that may be looked at to the stadiums? You and I know what I'm talking about without being too specific. Do you in your opinion feel as though that some of the considerations to fill the $54 million funding gap at the stadiums may jeopardize another project or projects that are still awaiting final approvals? You're shaking your head, Craig.
I've become aware, I guess, in the last -- actually sort of almost the last 24 hours that there may be some inter- relationship between a couple of projects that, I, 244 11/30/00 - STADIUM HEARINGS quite candidly, between briefings and hearings, haven't had the opportunity to explore in any death, so I can't really characterize -- I'm not sure I have a full sense of how interrelated they are at the moment.
So from what you know to date, you're not aware of anything that would or could jeopardize any of the other deals that we have?
I don't know enough to answer is what I'm saying. I want to be honest, and I just don't know enough -- particularly as you're using the word "jeopardize." To me that would mean I would really need to know more than I know now to characterize that.
I mean, 'cause I am one -- for the most part, I'm supporting this stadium deal and I've been very patient, as you know, with the 12th and Vine site.
And I worked very hard on some other deals to hopefully make those things happen. I don't want to see us be in a position to make stadiums happen that we are now 245 11/30/00 - STADIUM HEARINGS taking resources from other projects that we have worked very hard on --
To find that all that work has really been -- is literally going down the tubes just to get the stadium deal done.
I understand. I -- you and I understand each other totally.
All right. The other question I had is, and this may have been asked 'cause I got back about around 5 after 1, I returned around 5 after 1. Have you had any opportunity to analyze Professor Rosentraub's report on the stadiums?
Well, obviously, I kind of was looking at it this morning while the professor was testifying and -- so I don't want to say I've done an exhaustive analysis, which would be clearly a misstatement. But it does strike me that --
First, it strikes me that there's an aspect to it, which I almost want to embrace and agree to, which is if he believes that these teams are going to make so much money because this is such a great market and this is going to happen so wonderfully, then obviously all of our tax projections about what's going to happen here must be correct. 'Cause the only way they make the money is by selling tickets and creating attendance and paying players and doing the whole stuff, that he seems to think they're going to do. So I guess if PICA or anybody else is concerned about the financial feasibility, you know, maybe they should find some comfort there. I think, just very quickly, that the comparison of an Eagles stadium to Foxborough or to the Washington Red Skins, I think, is really missing a significant issue, which is, those are in the suburbs, they're in the suburbs. These are 247 11/30/00 - STADIUM HEARINGS stadiums that have huge parking lots, the teams get all of the parking revenue. They're on, you know, kind of rural sites. The City of Washington and the City of Boston don't get revenue from them. That's not what we're talking about here. It is more expensive to do it in an urban area. We're talking about a significant portion of our investment is in site cost, as we were just talking about a moment ago. I also think that it's interesting to talk about a private-sector person's rate of return, but I think the report acknowledges he has no idea how much debt or investment the partners of the Phillies have put in their team and, therefore, what they need to get back. He gives no acknowledgment to the fact of risk. You get more -- I mean, it's like you buy a CD and you get 6 percent 'cause it's pretty sure you're going to get it. If you want to get a stock, you might get a higher rate of return but you're going to take some risk. Well, part of the premise of this entire transaction is, Hey, teams, we're going to write you some checks, and we're done. And you take cost overrun risk on site and 248 11/30/00 - STADIUM HEARINGS you take cost overrun risk on stadiums and you take risk on operation and maintenance and you do all of the capital for these buildings, and good luck. On a good year, you better do good, 'cause if you ever have a bad year, it's all on them. So the nature of return is clearly always a function of taking risk. And so, it may sound like percent is a lot of return in a good 10 year, but not when you compare it to the potential 11 risks. 12 And by the way, I think that he, in 13 fact, overstates what the teams are going to do 14 and understates their expenses. I mean, in fact, 15 he's just wrong on what it's going to cost the 16 Phillies to do operation and maintenance. There 17 numbers are like -- I mean -- they're going to run 18 it 81 times a year. It's going to clearly cost 19 them more to run their building than it is going 20 to cost the Eagles. So to take the $89 million and say, Well, let's just say that was the O&M number is just mathematically inaccurate. He -- I think basically, though, he said -- I still couldn't find it, and I guess by the time he left, maybe he was able to find it, 249 11/30/00 - STADIUM HEARINGS but I didn't catch where he gave credit for the Children's Fund or the service district, the fact that we expanded the parking, credit to what we've done for the School District. I mean, one way to see it is take all of that stuff out of the deal, give all of that money back to the teams, yeah they could put more money into the deal, you know. But that's not what we want. There are certain social objectives, public-policy objectives, we decided we wanted in this transaction, and we're asking the teams to pay for it. I think they're looking to have a few dollars that are available to pay for it.
The -- he says the Phillies can't move, he says the Phillies have to stay in the Philadelphia market, 'cause it's this wonderful media market and they'd be crazy to go and there's no comparable market. I totally agree with him, I categorically agree with him. All they have to do is cross the bridge, all they have to do is build a ballpark in Camden and they'll be in the same center of the metropolitan area, they'll enjoy the same media market, they'll do everything, and we'll get no taxes. 250 11/30/00 - STADIUM HEARINGS The Eagles are in a comparable situation. And by the way, the Eagles do have an option, we all know that. A. I mean, there's at least one city in America that's looking for an NFL franchise that's a better media market than we are. They -- he -- you correctly raise the issue of this characterization that somehow taxes are impacted. And, in fact, Rob now, by talking about the impact on the five-year plan, I mean, we're not doing that, we're not -- you know, we're not raising taxes to pay for the deal. We're having the deal basically pay for itself. But I guess there's a fundamental simple premise, which is, it's kind of interesting to think about, you know, what should they pay and what -- you know, what's their rate of return and all of that. The teams -- we had hard negotiations. You know, this isn't where they started the number; the numbers on the table aren't where they started, they weren't close to there. We got them here. They tell us they can't put any more in. I take them at their word. " Now, it's easy for us to sit here and change our deal. That's clearly an option this legislative body has. You can ask the teams tomorrow, if you change the deal, are they prepared to proceed with stadiums? And I sit here and tell you that I think the answer's going to be no. 10
Thank you. The Chair recognizes Councilman Ortiz.
Okay, the Council will stand in recess for ten minutes, ten minutes. (Break taken.) - - - (Proceedings resume.) 252 11/30/00 - STADIUM HEARINGS (Recording equipment failure.)
-- came to be, and now we have -- we're buying extra properties which are increasing the cost of building in South Philadelphia. But tell me, we're building two stadiums, and from the conversation that just took place, the ancillary rights, those aspects that my friend Frankie here is very -- always saying that those are one of the things that come from development. The ancillary rights, I think, was one of the projections to take care of that $54 million hole. And in order for that to -- for those rights to come about, in order not to make just two cathedrals of sports surrounded by 40,000 cars --
-- you mean that there is not going to be any other development in terms of retail, in terms of restaurants, in terms of entertainment in that area? Because if it is -- if there's not, from an economic development point of view, from a job creation point of view, and I know that the neighbors will not be very happy because this has 253 11/30/00 - STADIUM HEARINGS not been told to them.
But from an economic and job creation, after the construction of the building, is that all there is?
That's a song, isn't it? Who wrote that, Peggy Lee? Peggy Lee, Peggy Lee sang it.
It is a song. Right, it is a song. As you recall, because we were together in these chambers at the time, when we did the transaction for the First Union building, there was a contemplation that there might be additional development that would get generated. And, in fact, there were parcels that were defined for, quote/unquote, development rights on the 55-acre site where the two arenas are, south of Pattison. And they include -- and they actually talk about -- in the master plan that was adopted, there were actually prescribed things that could happen, and that's kind of all that could happen but -- so there was a kind of compilation of the potential 254 11/30/00 - STADIUM HEARINGS of, I think, a 300-room hotel, I think a 75,000 square foot office building, about 175,000 square feet of what one might go call retail entertainment. And I think, at the time, remember, it would have been in a building between the two arenas. It was sometimes called the Expo Center or the Connector Building. That didn't happen after -- or hasn't happened after that project. And I think part of why it has not happened has been this kind of back-and-forth about what's happening with the Vet, what's happening with the Phillies, what's happening with the Eagles, sort of what I'll call "the uncertainty of the movement of those pieces." And the Phillies are a pretty big piece of it, because whether it's the Phillies numbers of 3.3 million, the Arthur Anderson numbers of 2.9 million, the Revenue Department number of, you know, 2.7 million, it's the biggest single generator building of people, a baseball park, because of the number of games, et cetera. And now that should Council favorably consider this legislation and should we know now that for the next years 33 years, we will have 255 11/30/00 - STADIUM HEARINGS four facilities in the South Philadelphia area, I think your question is very pertinent, because I think you then do create the environment where the potential could exist where somebody might want to invest and do other things, because you've got these, as you call them, the cathedrals of sports on the site. The scenario might be simply that the current Comcast SpectaCore rights are what they are, they stay where they are, and that things could happen this. It might be better to think about a plan that would, I'll use the term, "rearrange" them and put them in a better place from a planning perspective, sort of an operational perspective, kind of more between the stadiums instead of between the arenas. And we clearly contemplate trying to make one of those kinds of scenarios happen. I think you're right. I mean, I think the anticipation is that something would happen. It would be defined, it would be precise, it would be unlimited. It would -- you would know where it was going to happen geographically. And should there be an interest in, I'll use the term, 256 11/30/00 - STADIUM HEARINGS "moving the current rights," we need to come back here and seek Council's approval to do that, and we would clearly do that. We would -- so -- excuse me. And I think you're right, that when people know that these buildings are, you know, coming out of the ground, that's the environment where people will really seriously think about it.
We have gone from a proposal that was supposed to be revenue-neutral when Ed -- Mayor Rendell was presenting it to us, to one in which the Mayor says it's no longer revenue-neutral, to one that is reported in the newspapers that now impacts the five-year plan. And depending on when we hear anyone from the Administration speak or from PIDC, it seems like the impact on the five-year plan is changing perhaps more than Gore and Bush's numbers in Seminole County. What is -- what is the supposed impact -- I read somewhere it was going to be $22 million that was admitted to. And if that is the case, it's probably a little bit bigger and I know that David L., when he was Deputy Director -- 257 11/30/00 - STADIUM HEARINGS Chief of Staff of -- a million impact on the five-year plan would have sent David L. through the roof of this building.
And I want to know, 8 I want to know what is the true number, if there 9 is a true number, in terms of the overall impact 10 on the five-year plan. 11
Councilman, I'm going 12 to ask Rob Dubow to respond to that, and I 13 apologize. When we first started this afternoon, 14 and I know all of the Council people haven't yet 15 come back, I actually asked Rob to put that out, 16 so let us get it back out now that everyone is 17 here. 18
Yeah, we've done an 19 analysis of the impact on the five-year plan, and 20 I think copies were distributed. 21 And what we did in doing our analysis 22 is, we took the numbers that were in the plan as our base and compared that to the projected numbers in the deal. But instead of taking the numbers as they appear in the Arthur Anderson 258 11/30/00 - STADIUM HEARINGS report, we took only 80 percent of their Phillies numbers, 90 percent of their Eagles numbers, and 50 percent of their numbers from other events at the Eagles stadium.
One question before you finish that. How did the Anderson report -- where did the Anderson report get it numbers from?
Its numbers come from basically two sources, Councilman. One is, Arthur Anderson looks at league averages or experience across the country for various components, you know, what do people -- what do people spend for concessions at a stadium, what's the average amount, and things of that nature. They also got input from the teams in terms of what do they plan to charge for tickets and other things because that pricing is actually set by the team, so it 259 11/30/00 - STADIUM HEARINGS was a combination of those two factors put together.
And in using those discounted revenue figures and adding in the most current debt service run that we've done, we came up with an impact on the plan from '01 to '05 of a negative $5.8 million. The $22 million number you saw was a sheet we had done a couple weeks ago, and when we handed to that people, we said, This is preliminary, and we specifically said we were still working on the debt service numbers. And one of the things -- the big is change in terms of debt service is, the original numbers that we ran assumed that we wouldn't earn any interest on the bond proceeds, but since the draw -- the money will be drawn over a period of time, we will draw interest, and that's really what explains the difference between the that 22 you've seen in the paper and the 5.8 that we're projecting.
And what impact, if any, on the $54 million hole that we have that 260 11/30/00 - STADIUM HEARINGS we're supposed to take on faith and we walk on that and we go through the valley, how is that hypothetically can impact on that five-year plan, because so far, we have seen no evidence that there is any planning as to who's going to fill that, and that's going to be, I think, as Jimmy said, that's going to be our hole to fill. And where is that $54 million, if anything, going to come from if it is our hole to fill?
Well, Councilman, let me make it absolutely clear again: We're not filling that hole, we're not going to come back here, we're not going to take some City resources, change the deal and add City dollars to the deal.
Well, no. What might happen is you don't proceed. I mean, if you literally can't put all the pieces together, you might not proceed.
But we are supposed to proceed on faith on December 14th without filling that $54 million hole. 261 11/30/00 - STADIUM HEARINGS
And once we approve it, who's to say that we will not have to fill it at that point?
Well, I think I could say that to the degree you want to make sure we put language in that says we don't fill it, we won't fill it. We're not filling it. We -- we're basically saying that what we would like City Council to consider, and it obviously is your determination, is agreeing to the transactions in a way that I would, again, I would somewhat analogize to what the State legislature did, which is, they made secret discrete capped financial commitments to -- in fact, they did it for four stadiums in the Commonwealth of Pennsylvania, said, here's what it is, this is what it is. If you can put all of the other pieces together, you can have our money. We're saying to the teams, Here's what 262 11/30/00 - STADIUM HEARINGS the City might be prepared to do, here's what that's about, it's capped, and we're prepared to put our money in if all of the pieces come together.
Mr. Hankowsky, can you give us your assurance that the City or PAID will not go to the market and borrow any funds prior to the closing of the $54 million gap?
Council President, the one exception to that that we think might happen because of the just chronological order of things is that we might have to make a commitment to acquire the T-Warehouse property before -- and I can't say we will, I don't want to say we necessarily we would have to do this before we'd know. But the one thing, when I just look at the schedule of what has to happen when, that's the one thing that might have to happen. And in that instance, we would either 263 11/30/00 - STADIUM HEARINGS attempt to unwind that transaction; in the worst case, buy and run it as a parking lot ourselves and put it back out on the market and resell it or run the warehousing operation. That's only because you almost need to get that property under control in the month of December in order to stay on a schedule for an August 2003 opening. But that's the only thing we would do.
I think the answer is that the door is sort of ajar in order to fill that. We have -- the only stakeholder here who has any cap on the contribution is the State. I remember way back a year, a year and a half ago, in talking with the Mayor, that it was going to be 85, 85, and the teams. We have gone way beyond 85 from our side. And I look at these revenue projections that are all hypotheticals. They projected 264 11/30/00 - STADIUM HEARINGS revenue for drinking in the new revenue. How is that turned into new revenue for the school? Because the drinks are going to be more expensive?
No, it's a -- well, it's a function of two things, Councilman. It's a function of, one, the drinks might be more expensive. Number two, that what happens in new facilities is that you have actually people consume more because you have, you know, restaurants, you have club seats, you have a facility --
As if we didn't have a problem with drinking fans right now.
Well, I'm just -- where people -- so you have what's called the per capita concession number goes up. And then finally it goes up by attendance. So as more people come in because of increased attendance at a Phillies stadium or increased attendance at other events at an Eagles stadium, the combination of those three factors increases that number.
What happened to shortfalls in terms of revenue? Let's say that, 265 11/30/00 - STADIUM HEARINGS and it's a very big possibility. The Major League Union, the Players Association, and the team owners, they have done it before, very recently. They'll come to an agreement, and the Baseball Players Association is one union that really, when it says no contract, no work, they don't work. And they're rich enough to stay out nowadays for a long time. They don't have to go out and pump gas anymore. What happens to the revenue projection if there is a breakdown on -- of that sort? Which is a very good possibility of it happening.
The projections will be lower than they're showing. Just like if there had been a storm and the stadium got ruined and you couldn't use it for six months 'cause you had to fix it, the revenue projections will go down.
And what happens to us in terms of our obligations. Our obligations remain the same.
That's right, just like the teams' payment on their mortgage remain the same.
So we share that risk. Just like the State's payment on its debt service on its contribution remains the same. Everybody's in the same place: everybody has obligations, everybody has to fulfill them.
Okay. So we are at risk because the economy goes down, the Phillies have a rotten year, they don't pull in 3 million fans into the seats, they don't drink as much, there are not 3 million fans, the revenue projections go down, and we don't sign Derrick Jeeter or somebody of that sort our. Obligations remain the same.
The teams' obligations, there's no risk involved right there. The enjoy -- I mean, they pay whatever it is they have to pay, but our risks are greater.
You can't make that statement. The teams will have debt on the building, the teams have loans, the teams have obligations, the teams have fixed costs, and those remain like our fixed costs remain. And in the same way, as I indicated in 267 11/30/00 - STADIUM HEARINGS my opening testimony, you're absolutely right, and I said it in my opening testimony, it's on the record. I said there is downside potential in this deal; there is also upside potential. So you can have a year where there's a players' strike and we don't get our revenue projections. You can have another year where Arthur Anderson's wrong, it's not 2.9 million, and the Phillies are right, it's 3.3 million, and you'll make more money than we're telling you you're going to make. So both things could happen.
You cited in your statement MBE projections in terms of contracts.
Those projections are also applied to the construction jobs that are going to be used, implemented during the building of the two stadiums?
I actually think that there are -- and I apologize, I'm sort of doing this. . . I think there's actually a projection of 45 -- excuse me. 45 percent of work hours would be related to minority workers, so it's a 268 11/30/00 - STADIUM HEARINGS slightly different number on the employment than there is on the subcontracting.
What I have is now the numbers. I'm not sure whether it's against every trade, I don't know. I don't want to -- I'm just not totally conversant.
Will we have a lease, a finalized lease, by the time that we have to approve these legislation?
I don't think the lease would be completed by then, no. 17
Are you going to have to bring the lease for approval to City Council?
Our request for Council is that we would no have to do that. That's the way this legislation is designed right now.
The lease would have to 269 11/30/00 - STADIUM HEARINGS conform -- I'm sorry. The lease would have to conform to the term sheets and however we want to amend those term sheets in the course of this process.
In essence, in this phrase that you have on top of the lease term sheet is very --
I mentioned, Councilman, I think, to another Councilperson, it might have been Councilwoman Reynolds Brown, that we will delete that phrase. We have no intent to change the terms of the terms sheets after you've approved them. And whatever the right words are that says that, those are the words you want to have between you and us.
And if anything changes, if any significant change is negotiated, is that lease then going to come back to City Council for a hearing?
Because if you're going to have a lease that is not finalized and --
-- what assurances do we have that you will not be changing some significant terms of the lease and not bring it back to City Council for perusal and approval?
I was just making sure I was legally correct here, Councilman. If we would change -- if for some reason, which we don't contemplate doing, by the way, we think we're done. But if for some reason, something would have to get changed in the term sheet, then yeah, we believe we'd bring these terms sheets back to you to reflect that and seek your consent. So we -- we don't have -- we're not seeking a right to take the terms sheet, go away, and then change it; we're seeking the right to have you approve the terms sheet, us have to live by it, and if we're going to change something, 271 11/30/00 - STADIUM HEARINGS we'll come back.
Thank you. Mr. Hankowsky, if you don't mind, I'd like to get a question in here and there.
And can you tell us if they include the City's labor contracts? 'Cause they're -- it's somewhat adjusted and I don't quite understand it.
Do they include the City's labor contracts, PGW's loan, the School District payment et cetera, et cetera, et cetera?
Are you talking about the document that we handed out today that showed the 5.8 million?
Whoa, whoa. 272 11/30/00 - STADIUM HEARINGS You're going to have to slow down. I didn't hear a word you said.
What does that mean to us? It's not the adjusted five-year plan.
No, it's just an analysis of what this proposed deal would do to the five-year plan. I mean, we have taken a look at the impact of the various things that have changed since the plan, including the 45 million to the School District, the loan to PGW, the labor agreements, and we've compared that to the increases in revenues that happen in 2000, which increased our base. And that's resulted -- and we look at it in our maintaining a positive fund 273 11/30/00 - STADIUM HEARINGS balance at the end of '05, and we can get you that sheet that shows us.
That would be fine, and we'd like you to have enough copies for each member of Council so that you could walk us through it.
Thank you. We've had some Councilmembers that have been waiting for some time. Councilman Rizzo?
Thank you, Madam Chair. My question is to PIDC, Bill Hankowsky. It confuses me to -- I don't know understand why, knowing the potential for two new facilities in South Philadelphia, even though the first choice you mentioned was at Broad and Spring Garden, then the Mayor's choice, and then we abandoned both of those, and then the focus was back in South Philadelphia. 274 11/30/00 - STADIUM HEARINGS I thought one of the missions of PIDC -- and I apologize if this question's been asked because I've been in and out of the chamber a few times during the day. How could we -- I want to talk about the one that got away. How could we not foresee the need for the Acme facility and let someone else buy that facility, knowing that we potentially were going to build stadiums and need parking lots, need all of the things to operate a sports complex. How could we -- I thought PIDC was out there, you know, a bit of speculator, buying up things, knowing that they would have a potential use. How could we allow that to get away?
Well, let me respond in a couple of ways. I mean, one is, I would hope we would never characterize PIDC as a bit of a speculator.
You're correct, PIDC does look at buying property in the City on a periodic basis, but we're totally constrained by available resources. We would not have the resources to buy -- we don't have the resources to 275 11/30/00 - STADIUM HEARINGS buy that property unless, through an action like we're talking about today, there's an authorization to borrow to do that. That's just one comment. In terms of the property, I mean, we did look at that property at the beginning of the calendar year because at the time, when the site selection work was underway, and it was unclear, you know, where the committee was going to come down, you know, before a decision made a decision was made. At the point where a decision made, that we were going to pursue 12th and Vine and the T-Warehouse site, we ceased our discussions. We had no authorization in a funding sense to go buy it, so -- and Acme, as you know, closed the facility in February of this calendar year. Basically, it was in a position where they were not going to carry it, so they put it on the market, and it got sold, it got put under agreement.
But, again, that's one of the comments, as you can -- the reason I'm asking the question is, it's constantly being 276 11/30/00 - STADIUM HEARINGS asked how we allowed that to happen. And you say that you didn't have the wherewithal to make a deal like that. Based on what all was going on, you don't think if you had approached whoever you needed to approach -- the Administration and the Council -- that you couldn't have gotten some approval or gotten the wherewithal to make that deal when you had an opportunity to make a deal? I mean, it doesn't -- based on this big picture, I would think it would have been easy to convince people that this would be a prudent purchase, a prudent investment.
Based on the fact that you were looking at a site that everybody knew wouldn't work.
Well, that -- that wasn't where we were -- I mean, I totally respect your position, Councilman; I always would respect your position. 277 11/30/00 - STADIUM HEARINGS
Okay, fine. Also, maybe you could explain for the record, everyone looks at the First Union Center complex and constantly compares this transaction with the transaction that occurred at the First Union Center.
Everyone suggests that this was built with private money, that there was no public money involved in this transaction before. I hope you don't mind me asking you to repeat the deal that was done there publicly, even though you --
-- explained it in a briefing. I would really appreciate it because, again, I think that the message really needs to get out there, because you certainly taught me something when you explained the situation at the First Union complex.
Right. The First Union 278 11/30/00 - STADIUM HEARINGS transaction had some analogies to this situation. It was a partnership to the State, the City, and a private party, who controlled sports teams -- controlled one at the time, subsequently controlled both of them. We funded the site preparation work with public dollars.
Yeah, we spent -- ooh, I have a recollection we spent 3 million to knock down -- at the time to knock down what was the old, you know, JFK Stadium. We spent money to also, which, I think was $1.4 million -- because you might remember, the Eagles practice bubble used to be next to the JFK Stadium, so we had to flip it up to the Vet lot and build those fields up there. I think that was a $1.4 million project. We -- the State put in a grant of 8 million, the City put in a low-interest loan of 8 million. The State put in an additional 279 11/30/00 - STADIUM HEARINGS million in three separate loan that totalled 5, all of which ran through PIDC in a kind of structuring way. And then most -- probably all of that was significant, you know, in and of itself, because I think the total City dollars were in the neighborhood of 32 million. I don't know if what I said adds up to it, but that's my recollection. And a project cost that about, I think, 212 million, from soup to nuts, comparable to the billion number here, you know, just from beginning to end. But then, very significantly, what we did was, we provided a revenue stream, and we provided a revenue stream that consisted of the revenue from the parking on what's called the South Lot, the lots that surround the two arenas on the 55-acre site, which they get 100 percent of for all events, including a football event or a baseball event. And we also provided them with 100 percent of the revenue basically from the lot that's around the Vet that excludes the VIP but includes the other, which was 5,755 spaces. And, in fact, if we created more than that number of 280 11/30/00 - STADIUM HEARINGS spaces, got more than 50 percent of that. The current ballpark numbers for the combination of those parking revenue streams, when you add them up, is in the neighborhood of 5, 5.5 million per annum. If you, you know, capitalize that, kind of the old fashioned way, worth about 50 million. If you put in another third, so maybe we put 80, we put 80 into a building. The building itself was like 170? Half?
And significant private, by the way. I mean, both sides did a lot, as I think they are doing in these transactions.
But my point, every place I go, every community meeting, it's constantly being thrown up that we're taking care of the fat cats, and that another fat cat built it all himself with no help.
Thank you. The Chair recognizes Councilman Cohen.
Thank you, Madam President. First, is it a fact that in the State legislation with respect to the State contributions, that there is a provision that if the revenue estimates do not yield certain amounts of increased revenue to the State --
-- as a result of the stadium activity, that the teams will have an obligation to pay to the State in the form of rent some amounts to make up for the deficit in increased revenue? Isn't there such a --
There is a provision in 282 11/30/00 - STADIUM HEARINGS the State legislation, and I think it creates 10-year periods. I'd actually have to look it up, Councilman, but my recollection is it's 10-year periods, during which there's a mathematical calculation of the revenues that the Commonwealth will receive and whether it -- and then there's numbers that it has to meet. I'm not sure if it's the debt service or a portion of the value of the grant. Yeah, there is such a provision. I can also tell you that the likelihood of that occurring is almost nil because the way --
The likelihood -- no. 16 The likelihood, yeah, of the events occurring because they included, I believe -- and I'd have to check. I believe it includes taxes generated by construction, et cetera. The base was set so low that you'd almost need a calamity for there -- and it would almost be like they couldn't operate for ten years for there not to be enough taxes to justify that the teams would have to do the payback.
Well, did the City 283 11/30/00 - STADIUM HEARINGS learn from that provision to perhaps draft a more effective provision or at least some provision to provide for a circumstance? If it's a provision that is not likely to occur, the inclusion of such a provision will certainly not cause any problem because the teams would have the same assurance that you would have. But suppose, you know, that it's not going to be triggered.
But shouldn't there be some form of provision like that to trigger something?
Because isn't it a fact that basically all risks involved here is the risk of the City? The bond issues have to be met every year, no matter what, and it's the City that pays the bond, not the teams. Now, why isn't there that kind of a provision?
Or maybe a more effective one. You may well be right in your analysis of the ineffectiveness in the State provision, but it certainly makes a lot of sense, 284 11/30/00 - STADIUM HEARINGS that kind of a provision, particularly if it will be effective.
Right. Councilman, as we said briefly out in the hall a minute ago, we will probably be disagreeing a few times over the next couple of days.
And I at least want to take one exception to the way you characterized this question. I do not agree that the City is the only party taking risk here. Everybody is taking risk here.
We have crafted a transaction where we have placed very significant risk on the teams. We have placed the risk of any cost overruns related to demolition, related to the site work, related to the cost of the 285 11/30/00 - STADIUM HEARINGS buildings, related to capital costs to run those buildings, related to the operation and maintenance of those buildings, related to their debt service on their borrowings. And I should point out that in a number of transactions around the country, the public kept some or all of those risks -- pays maintenance costs, had cost overrun exposure. You had some real calamities out there. In Cincinnati, it was very significant. I mean, tens of millions of dollars the public put out because of cost overruns. So we estimated a transaction -- we do have a risk, I'm not disagreeing that we have a risk; I'm only saying that we are not the only risk-taker. In fact, I think we -- the teams' share, if not, have greater risk than we have in the transaction.
But a lot of that will depend on the fine print that you don't want us to look at that tests your judgment. I'm a pretty good lawyer, and I would like the opportunity to see whether what you say, with the best of intentions, is in fact so, because it's my 286 11/30/00 - STADIUM HEARINGS experience that when risks are undertaken by companies, frequently there are exceptions to those risks listed in the fine print.
And they may be necessary exceptions, but there are exceptions. And we ought to have the deal, don't you think, to make a judgment as to the share of the risk between the City and the teams?
Because don't we really take a very big liability in this?
Well, again, let me -- I haven't fully addressed your first question, which I would also like to.
All right. See, words your are very soothing, but you're not going to be here very much longer.
And if you come here, you're going to be coming here openly in support of business interests.
I probably won't be around. I don't think you'll be seeing much more 287 11/30/00 - STADIUM HEARINGS of me.
Now you're representing the City in trying to develop partnerships, so we're not be able to pin you down.
Maybe we can pin the Mayor down for, some people say, three years; others say seven years.
But then there will be another mayor who will blame everything that's happened on this mayor.
But I'm just saying, why don't we have that kind of protection?
Well, let me -- I do want to get to that -- I do want to be responsive.
Well, what's so difficult about making that kind of language available to us? Why do you want to hold back showing us that language until after we enact the legislation? 288 11/30/00 - STADIUM HEARINGS
I can tell. In any negotiation, it's kind of easy -- and I don't mean this in any provocative way -- to sort of say, Well, why don't you do this instead of that? Or get this provision in or whatever? And --
Right. And we had a whole list of things we were trying to accomplish in this transaction. There were a whole list of things that we sought, there were things the teams sought, and we believe we've crafted a good transaction where we've gotten things from the teams that we wanted, and they can run the range from aggressive MBE to --
Was there ever 289 11/30/00 - STADIUM HEARINGS anything in writing listing those groups of requests or desires or goals?
Well, the reason I can't is you so often manage to veer the question in an entirely different direction.
Well, I'm asking, if there is a list, could we have that list so we can be as well informed as you? What were our goals in the negotiations? I don't know what they were.
I don't know any member of Council who knows what those goals were.
Right. I don't think it would be productive and I think, therefore, I would respectively decline, and I know that's not a satisfactory answer, to share sort of the character, you know, of all of the back-and-forth negotiations. The fundamentals are, though, we have a deal that struck, and I'm not sure that we can -- we can gain additional provisions as much 290 11/30/00 - STADIUM HEARINGS as we might seek them. To your point about seeking to see the final documents to read the fine print, I totally understand what you're saying. I think you know our position today. I've stated previously we are seeking Council approval for a transaction that would function on the basis of both the terms sheets we've submitted. We believe that we will -- hopefully, in cooperation with Council, be amending those to include certain significant elements of the transaction that we all need to know are in place in there, but we simply won't on the schedule we're on be at a point where the full documents will be done against this calendar.
Well, I don't understand why you can't meet tests. This is -- what is the great emergency here that would justify a legislative body surrendering all of its powers of oversight and previous sight with respect to new transactions to a mayor? I mean, have we elected a mayor of this city or have we elected a dictator? Because you're asking us to forego all of our rights and to sign legislation turning 291 11/30/00 - STADIUM HEARINGS every important decision over to the Mayor. And I personally find it an affront to myself as a legislator, and I think it ought to be so considered by all other members, because we were elected precisely to examine each of these transactions and to render a legislative decision and to have a record on which we run if we choose to reelection, and the voters say yes or no to us. But you're asking us to just trust the Mayor.
Well, we can trust the Mayor but you can't trust public funds. We have -- we're like executors. We have duties of due diligence, we have duties to protect public funding. It's not private funding. With respect to private funds that any individual has, he can or she can decide to exercise no due diligence, or exercise a great deal. But these are public funds you're asking to us close our eyes, take the words that are unenforceable, there will be nothing in writing that will give us any kind of guarantee as to anything which we can take in and enforce against the teams in the circumstance where it may 292 11/30/00 - STADIUM HEARINGS be necessary. All lawyers, all businessmen know the importance of a signed agreement is not when everybody's on good terms. And if everybody's on good terms all the way throughout, it won't matter what the terms of the agreement are; people learn how to work out differences when they're on good terms. But if there are disputes, as for example, when the teams indicate to us that despite ten more years on a lease that everybody had presumed was permanent for 30 years, they say, Well, we're looking at that, maybe it's not so permanent, maybe there's a basis for terminating the lease. That's when the written terms are important and every little word is important. Aren't we entitled to that? You've been dealing with the City Council, you've been representing the Administration in one form or another. Isn't this legislative body entitled to that information?
I mean. Maybe we're asking the wrong person; maybe all of these questions should have been addressed to the Mayor 293 11/30/00 - STADIUM HEARINGS this morning when he testified but, of course, he would have said he doesn't know any of these details and, therefore, he's going to provide everybody in the Administration who has any knowledge of the details to present them. But maybe I'm asking you a question that only the Mayor can answer.
But you haven't made this decision; it's the Mayor's decision that Council ought to be asked to cover its eyes and sign on the dotted line, no matter what the language is above the dotted line.
You're right, the Administration has made the to request Council's action to do this transaction on this basis, you're exactly right. I wouldn't characterize it the way you have. I mean, clearly, we've -- you know, the level of Council involvement in various transactions is different in various transactions, and some full documents have been here and others -- you know, we do tax increment financing, which 294 11/30/00 - STADIUM HEARINGS I know you're also not necessarily comfortable with, Councilman, but we don't bring you project plans but we don't bring you the mortgages and the final loan documents. I mean, you approve a level of funding that the City will do and go no 7 further. And what we're asking is that you consider a level of funding we would do and go no 9 further.
But isn't this the biggest single project we've ever dealt with as far as usage of general fund money? Tell me how wrong I am when I say flatly that it's going to cost the City of Philadelphia net-wise, say, tax increases are very likely, if this deal goes through, because as I see it, a billion dollars minimally, perhaps much more, in the next 30 years is being drained out of our general fund at a time when we have all kinds of needs. The Mayor accurately notes the needs of the School District and the Gas Works. Yesterday morning, it was the library's turn. There are all kinds of needs in the City. And what's going to happen is because of these -- the encumbrance of this tremendously 295 11/30/00 - STADIUM HEARINGS large sum of money from the general fund, other needs are not going to be met, and some of them are going to have to be met, and when that happens, you know there's going to have to -- something is going to have to happen with respect to the tax structure.
Isn't is a billion dollars in public funds that are required to pay off the bond issue that you're asking us to authorize? Let me ask you that very specific question.
I think I've got about five lined up, but let me try to do all of them real fast, if I could. Just give me a minute.
I have never mislead you as to what the number; it's in my table. If you go to my Table No. 2 and go to the column that shows all City expenses, there is a line at the 296 11/30/00 - STADIUM HEARINGS bottom, $980 million. That is our exposure. We're going to spend $980 million to pay off the debt and the Eagles operation and maintenance expenses. That is our obligation.
If I could finish, if I could finish, let me please. That is our obligation. If you want to take the same kind of number of 30-year who has to spend what in the deal, each of these two teams are going to spend about $1.4 billion in equivalent nominal dollars over 30 years to handle their obligations for their debt for their operation for the capital for their buildings. So everybody is making significant exposure over 30 years. In addition, Councilman, when you say raid the general fund, we're taking it away from libraries, rental car tax, it was put there to deal with stadiums. The revenues we're saying we're going to spend are coming by fans, 80 percent of them non-Philadelphians, spending money here that we're going to tax, take that money, and put it into the project. 297 11/30/00 - STADIUM HEARINGS If we don't do the project, if you don't do the project, you don't have $980 million to spend on libraries; you just don't have it at all. In fact, what you have is a world where the general fund is going to be significantly at risk in the next ten years because you're going to be at the Vet and face a series of possibilities, all of which are on the downside, none of which are on the upside. I would say you're -- and this is -- and it is a risk, it is a risk. But the risk you're taking is the possibility of doing okay, which is what we're proposing, maybe even better, and there's a downside risk. Don't do it, that's your election. If you don't do it, if you decide public money doesn't fund stadiums --
Then you have no 21 upside. (Unintelligible, parties talking over each other.)
We come in here today and the person who appeared as an expert 298 11/30/00 - STADIUM HEARINGS witness or a consultant appeared and said, Do it but save some money. This is an easy way to save $180 million for the taxpayers of Philadelphia.
And this is how it's been done, and this is much more costly here in Philadelphia than elsewhere, and why ought it be that way? They raised that proposal, and all we here is a legislative body responsible, responsible for taxpayer money, not wanting to hear of ways to save the money. Have you seen -- you said earlier the teams said to you that's all they can pay, or language of that kind.
Have you seen their books? You said you'd take their word. I've never heard of such a statement from a business negotiator. Even in union negotiations, generally the union, when the company says, as it almost always says, We can't afford to pay the wage increase you want or the health benefits or whatever else, the union says, Show us. If you show us that you can't afford it, then maybe we'll 299 11/30/00 - STADIUM HEARINGS listen. We'll have something to go back to our membership on and explain to them that there's no 4 money for it. Have you seen their books? You say you'd take their word. How do we know (inaudible) that you speak about, 'cause they told you? How do you know that they exist?
What we did, Councilman, is, we ran an independent analysis of what we thought a team would make with new stadiums in Philadelphia, both in baseball and in football. We looked then at the cost they might have to pay for debt service and looked at where was the line of what -- I'll use term, what can the teams afford to do. We did do that analysis, independent of the teams.
We would like to have it, and I would request that you furnish it to the Council President --
-- the documentation 300 11/30/00 - STADIUM HEARINGS which convinced you that you could take the word of the teams with respect to what they can afford. Because that would be important to all of us.
Nobody wants to put the teams out of business. We hope they're going to prosper over these 30 years, but we think they ought to take -- at least I think that they ought to take a much bigger share of this risk because the great gains are going to be their gains. We're going to be very lucky, Mr. Hankowsky if this turns out to be revenue-neutral. It will be considered a miracle as well as a good deal for the City. Tell me, when did the negotiates begin on the Phillies and Eagles contracts and the stadiums? When did the final negotiations -- there was a period of 12th and Vine, months in which the City could have spent time and you could have spent time, and then the fiasco about the Acme warehouse that Councilman Rizzo raised would not have occurred because you would have been working on the deal, you could have checked out 301 11/30/00 - STADIUM HEARINGS everything. Negotiations often take a long time. I admit these are complex negotiations. When you're forced to do it in a brief time to meet a certain deadline, then you've lost most of your negotiating power. Then David L. Cohen -- and I have to turf emphasize the L -- would not have had the time to spend with the teachers' union; he would have been negotiating this contract. Or, on the converse, he might have spent the time with the union contract and not with the Phillies. But all of that time was lost while everybody in the City, except the Mayor and maybe a few people very close to the Mayor and the Chamber of Commerce, kept on talking abut how it had to be 12th and Vine and nothing else would do. Everybody else in the City knew that South Philadelphia was going to get the two stadiums. But I'm asking, when did the real negotiations begin? What period of time has it been? I believe that Councilman Ortiz in his question indicated he thought it was last month. I think it was much less time than that. How long 302 11/30/00 - STADIUM HEARINGS have you negotiated?
It was in October. I'd actually have to just check my calendar. It was in October.
I'm very concerned. I think the City shot itself in the foot when it permitted all of that time to be wasted away on 12th and Vine, on this fantasy that the Mayor had, and everybody all followed in lock step, all of the people close said, Yes, 12th and Vine is mighty important; yes, it's the best place for Center City, everything else. And it's got to be Center City or there's no point in building the stadium. And we all knew that the tale would come to an end and it would be South Philadelphia. I think Councilman Kenney made that statement the 303 11/30/00 - STADIUM HEARINGS very first day that the Mayor talked about 12th and Vine. I raise this because that was important time, and we would not be confronted with being asked to consider and approve something that we know really nothing about that we're asked to take on your good reputation, on the fact that you speak so nicely and pleasantly, and you can lull us into, Well, this is really going to be good, and this is going to be fine, and the view is optimistic. You know, you're very good at that; you do an excellent job in a professional way, as I said yesterday. But I think we need more than that. This is the biggest single tax revenue. Funds, tax money comes into the City, and this is the biggest drain on that over the next 30 years. Maybe there will be miracles produced, maybe the Phillies will decide to have a team that we can be proud of in Philadelphia. I don't think many people can disagree with the consultant's statement about the fact that the Phillies ball team indisputely -- baseball team has had a terrible record for the last hundred years, and 304 11/30/00 - STADIUM HEARINGS not only in financial matters, but in the matters of minority employment. We don't want to get into that, but we'd like to see the Phillies be an up-to-date good baseball team. But we'd like them to assume their proper responsibilities. We would like from you-- could we have it -- could we get a kind of an agenda from you as to when the negotiations took place? And I'd like to know who negotiated for the City and in what form and who negotiated for the teams. I would like to know that and I would like to know who the original proposals were. You said you brought the teams over a good distance from where they were. This deal looks to me awfully good; I don't know where they were. Maybe they wanted the City to pay for everything. But I'd like to, know where did the negotiations begin, how did they transpire, and how did they end? And then I don't understand why you can't give us -- why can't we have a final lease? If you can't show us the final lease now, I think it's because -- not because it can't be done, but because there are provisions in that lease that 305 11/30/00 - STADIUM HEARINGS you do not want made public before there is a decision made by the City Council on that. The Pennsylvania SEC has various broadcasts on TV and radio, and it says, If somebody asks you to act blindly and quickly, that's the time to be suspicious. I'm suspicious. I want to know why it is not possible, with lawyers as experienced as those the City and the teams employ, why they can't bring to us in plenty of time, before our committee action comes up on December 7th, a fully completed lease agreement. And if you can't for, some reason that seems to you sufficient, you can't do it completely, bring us one with all the provisions that you can agree on finally and list those areas where there is disagreement and an explanation as to why you can't agree. I think that's your obligation. Now, we can you go back to the original questions I asked you.
I'm not sure I -- no 24 longer remember what they are, Councilman. I'm sorry, I apologize. 306 11/30/00 - STADIUM HEARINGS
Well, I want to know, why don't we have included a provision like the State provision, that if your optimistic view of revenues that are going to be developed --
It's not a part of this agreement, it's not a part of where ended up in the negotiations. That's why I'm --
We talked about a number of issues in the negotiations. I just don't want --
In certain ways, we did; in certain ways, we did. In other words, not exactly what the State talked about but in different kinds mechanisms going back and forth. But I will get you something about when we started negotiations and who participated and what the process was. 307 11/30/00 - STADIUM HEARINGS
On the car rental tax, to take you away from the major figures to get you back to minor, smaller items.
Studies seem to indicate that 80 percent of car rentals come as a result of people who have automobile accidents and who require a rental during the period of the lack of use of the original car. Some people have insurance policies that is cover it, some don't. It seems to me that with the provision in the law which says that the point of delivery, the tax is applicable only where the point of delivery is within the boundaries of the City of Philadelphia, it seems to me quite easy for a good group of lawyers to figure out how to make that car rental tax inactive. It may not be worthwhile for an individual user, you know, of those services to institute a lawsuit, but it's awfully easy in a class action suit to raise that and to find a way to make this tax ineffective. 308 11/30/00 - STADIUM HEARINGS Has the City given any thought to that?
Well, Councilman, I -- I would -- there's one number you said that just doesn't ring right with me. In fact, in the City of Philadelphia, it's something like over 80 percent of the revenues we get from the rental car tax are generated actually by the rental car operations at Philadelphia International Airport. That's really a function of the fact that the major generator of rental car tax revenues to us are people visiting the City -- tourists or business people come in and rent a car for, you know, their activities. We now have experience because, you know, you enacted this tax in the spring session. So the City began collecting it as of July 1. We're collecting it at the rate of approximately 400,000 a month. So we're beginning to create a track record here. We have the rental car employees under concession agreements at the airport. So that the vast majority of revenue that this tax is based on is, in fact, something 309 11/30/00 - STADIUM HEARINGS that the City has significant control of in terms of getting it via our controls at the airport.
I have many questions associated with the negotiations, and I would like to hold them till Mr. Hankowsky gives you the information with respect to who were the people who participated in the negotiations in the period. And, therefore, I would like to request that Mr. Hankowsky be available, even though he officially leaves the City after tomorrow.
No, no, I'm here through the 22nd, I'm here through this whole press.
That he be available for further questioning with respect to this.
Because it's late, and I would like to have that other information, 'cause I think it's important that the people of Philadelphia know about the negotiations, particularly in view of what may have been unfortunate or maybe not, I don't know, but I had 310 11/30/00 - STADIUM HEARINGS many questions about why is David L. Cohen both negotiating for the schools on behalf of the City in the school situation at the time that he's also counsel for the Phillies. People want to be sure that those who represent the City at all times are only interested in the City's interests, just as those representing the teams should have only been interested, according to all of the oaths we take as lawyers, in the interest of the teams they were representing. May we have that understanding, Madam President, that Mr. Hankowsky will be subject to recall?
The Chair at this time recognizes Councilman Kenney.
Thank you, Madam Chair. Mr. Hankowsky, just a couple of questions on the -- some of the financing issues. The $90 million contribution to the Eagles stadium operation and maintenance costs, will that cover all of the costs of O&M through the course of the deal, and is that $90 million on the City's part capped?
Yeah. One is, it does not cover all of the operation and maintenance costs. I mean, I think when the Eagles come up, you can ask them what their estimates are, but I think it's 75 percent of the O&M costs.
Yes, it is capped. In other words -- actually, what we make, Councilman, is a series of very specific payments that are discrete. It's not a formula, it's a number, it's an absolute number each of the years that are 25 involved. 312 11/30/00 - STADIUM HEARINGS
Okay. A large portion of the City's contribution is obviously derived from the car rental tax.
And we have specific projections over the years as to what that tax should bring in.
There's also, I understand, potential plans for expansion or reconfiguration of the airport --
Right. But, I mean, even in more extensive reconfiguration.
We have a runway problem, we don't have a lot of space down there.
And we need to acquire more. Is there any possibility that those 313 11/30/00 - STADIUM HEARINGS plans down the road could potentially cause the relocation of car rental operations outside of the City limits into Tinicum, into Essington and then, therefore, preclude our collection of tax because it's not in Philadelphia County?
I mean, I understand that the key to this is that these car rental companies stay within the City limits, and I'm not suggesting because we impose this tax that they're flying out of the City tomorrow.
I understand, but could a need at the airport for space create a more remote situation for the car rental companies or some of them that would affect the revenue stream that we project from the car rental tax?
Councilman, this is an issue that we knew that members of Council were concerned about going back to last year. And the way you phrased your question was -- I think you said "could," and certainly, there's no way of 314 11/30/00 - STADIUM HEARINGS foreclosing certain of the eventualities over a 30-year term. There was a letter --
I'm more concerned, and I'm sorry to interrupt you. I'm more concerned about probably the next ten years.
Okay. Well, within the next ten years, there's a letter that Charlie Isdell, who's the acting Director of Aviation, sent to the Council President that was dated -- while it might have been dated yesterday, I think it was delivered today. And the letter makes two points. One is that Mr. Isdell confirms on behalf of the, quote: We presently have six rental car companies on airport in Philadelphia County whose agreements extend until January 31, 2009. And those six companies, when you go look at the companies, they're the major companies that you would be familiar with. And they constitute in excess of 99 percent of the car rental business down there at the airport. Mr. Isdell also confirms to the Council President, quote: Let me confirm to you and the other members of City Council that as acting 315 11/30/00 - STADIUM HEARINGS Director of Aviation, I will take no action or enter into any contract or agreement which will have the effect of reducing the income stream to the City from this tax, close quote. So I think that it's an issue which the City as the -- through its Department of Aviation, can take significant steps to control in being aware of the issue and can plan in such a way that the eventuality could be avoided.
And I understand that the contingents -- for the most part, you feel comfortable that this won't happen, but I do understand the enormous pressure on the airport itself to not only expand but to reconfigure. I mean, one of the problems, I understand, is the way in which the runways are laid out now is that we can't get -- part of our backlog problem with flights taking off and landing is if we had, for example, a spoked-style runway system, we could do maybe five or six runways as opposed to what we have now.
And the airport, obviously, is a major economic engine for the City 316 11/30/00 - STADIUM HEARINGS and for the region. In the event that that pressure causes a reconfiguration of the airport layout over the next three, five, seven years, do we have some concern that we may be displacing some of these companies? 'Cause as you know, down there, you don't have to move too far to get out of the City. I mean, I think half of the -- most of airport's -- some of it or half of the airport's not even in the City now, technically.
Right. So because of the constricted size, if we have to relocate business like Hertz, like Avis, like Alamo, can we potentially put them in a position where we could be putting them out of the City?
I think that it could be addressed based upon where their desks are in the airport, where people take keys, and hang the fine point of delivery of the vehicle and how you structure your contractual agreements with the car rental companies.
Any shortfall in 317 11/30/00 - STADIUM HEARINGS that particular revenue stream that the City would eat out of the general fund?
Yeah. I mean -- by the way, I just want to point out, there's another situation -- and you're very right, Councilman. I mean, we actually have very good historic data on car rentals because, in fact, the airport gets a cut of it as a concession. So we actually have data. The data has shown years when there's been 8, 12 percent growth in those revenues. We didn't run our numbers that way; we ran them at 5 percent through 2005, and then 2.5, which is the five-year plan. So we think we're conservative here in these revenues, that this in fact would allow us to use more of this tax, less of our other taxes to pay down this debt.
Okay, let me turn for a moment to the issue of the demolition of the Vet. The time frame for the Vet demolition should begin when -- hopefully begin when? How 318 11/30/00 - STADIUM HEARINGS long will it take? What would be the proposed method for its demolition? And what contingent plans are there for neighborhood protection, disruption as a result of the debris, all of that kind of stuff. How do you see it playing out?
If the projects proceed on the schedules that they're proposing, you could have a situation where, I guess, it would be September or October of 2003, the Eagles have already moved into their new stadium, the Phillies have completed their last season at the Vet. So that you could be contemplating a demolition of the Vet -- this would assume the Phillies are comfortable that they're opening in April 2004, you know, '04, and, therefore, we can get rid of the -- you know, they're still on schedule themselves. Where you could be doing demolition as early as the fourth quarter '03 and, I guess, as late as second quarter '04, you know, just if you wanted to keep it there to make sure like, you know, they weren't going to miss a date or something on opening day or something like that. We -- there have been a series of conversations with community leaders, including 319 11/30/00 - STADIUM HEARINGS last evening, that have dealt with some of these questions. The City's going to have an engineer look at the question of whether -- what demolition technique makes sense. We understand that implosion might be of concern. Actually, we also should look and just decide whether implosion is simpler and faster instead of having a crane there for months, doing this (indicating). But we'll have an engineer look at that, not -- so there's no decision to implode it. We have also talked about some set of mechanisms that -- I'm not a lawyer -- on whether it's some kind of wraparound insurance policy for the neighbors or whatever, such that, you know, if it happens, then you look and there's cracks, that there's a way to say oh, you know, your -- compensation's available to deal with those kinds of issues.
At the meeting that Mr. Hankowsky refers to last night, the Mayor was very clear in his discussion with the community leaders that he would instruct the City attorneys to ensure that, both through insurance policies 320 11/30/00 - STADIUM HEARINGS and through appropriate indemnifications, that there was appropriate protection given to neighboring residents, both as a result of demolition of the existing facilities and also resulting from the construction of the new facilities.
'Cause I'm aware there are alleged complaints about fireworks. I'm sure Mr. Montgomery has heard about fireworks for quite some time, but this is a much bigger firework than just the 4th of July baseball game.
The issue -- you had said earlier in your testimony that the square footage of the proposed development that Comcast could or may envision office complex, retail, those types of things, would be about -- could you estimate square footage?
Well, what I was actually giving you is the current rights they have under their current agreement.
That's right, that's right. And those numbers -- if you give me a 321 11/30/00 - STADIUM HEARINGS split second, I actually have them somewhere. They currently have rights to -- actually, I was low. They have a right to a 300-room hotel, 200,000 square feet of office, and 375,000 square feet of retail entertainment.
In the event that, as the Council President indicated, a zoning overlay or some other type of zoning protection vis-a-vis the potentiality of switching the development site locations from its current development site to the North Lot, is there any estimation or analysis as to how many parking spaces could potentially be lost due to the development of such a large facility on the North Lot of -- or North Lot of Pattison Avenue, whichever --
In the current Vet complex, what would be the percentage loss of parking? Because it's going to be touted that we're increasing the parking by a 40 percent number.
Does that create a 322 11/30/00 - STADIUM HEARINGS decrease in parking? Obviously, it would, but how much?
Right. Councilman, as I hope I indicated earlier, you know, we don't have any definitive agreement that says we are moving these development parcels. I just wanted to be on record that it's something that people have thought about. The current development with Comcast SpectaCore, in fact, says that if they use these rights, they must replace the parking that the development eats up, you know. And probably the way you do it is with simple one-level decks, you know, that you often see you see, and you'll see it in some malls and offices. So that if you were eating up 300 spaces for a hotel, you create a one-level deck, pick up -- you know, cover 300 spaces, you have 600 spaces, and you're whole. So there's actually a requirement now to make up for any lost spaces so that we stay -- spaces stay the same number of spaces. And at least I would -- I would suggest we keep such a provision in.
Are you talking 323 11/30/00 - STADIUM HEARINGS about structured parking?
I'm talking more about kind of the one level -- I'm not talking about big garages.
For example, the current development right areas for Comcast SpectaCore.
And basically the southeast portion of the corner of Broad and Pattison; is that correct? Southeast of Broad and Pattison?
Southeast of Broad and -- it's actually both sides along Pattison, both sides of the Spectrum.
Yeah, it's parking now, and they could put -- their current development zone is either side of the Spectrum, the area between the two buildings -- 324 11/30/00 - STADIUM HEARINGS
And there's a parcel to the rear of First Union -- it's actually where they-- it's actually like where the trailers were for the RNC, back there.
It's all parking now, and the current development parcel agreement that gives them those development rights say that if you exercise them and displace parking, you must replace it, you know, in like number.
And that would imply in your mind, although we don't have --
I think it would be a good provision to have in a subsequent agreement, yes.
But you couldn't at 325 11/30/00 - STADIUM HEARINGS this point in time determine what kind of footprint that would -- that development would -- it would be too hard to understand whether the hotel is tall or spread out.
Oh, no, I think it would be looking at more tall. Hotels, Councilman, tend to want to have about a minimum of -- you'd like to have a minimum of 60 rooms a floor. It actually deals with maintenance and operation of hotels. So a five-story hotel at 60 rooms a floor. The office, you'd probably want a plate a size, you know, of, say, 25,000 a floor. So maybe if you had 100,000, it's a four- or five-story building, you know, it's kind of low-rise. The retail, we've actually looked at again a first floor, you know, maybe do like a hundred. So maybe it's two up.
Has there been any discussions as to the type of retail and/or entertainment venues that would be appropriate for Comcast interest, if in fact they were going to be -- I mean, is it restaurant, is it retail like a 326 11/30/00 - STADIUM HEARINGS mall?
No, it is not retail like a mall. People are very -- people really think this would be -- this is not a situation -- because of the number of events and the fact that at certain points, you know, if it was the Gap, well, there wouldn't be parking spaces. It's an Eagles game, so on a Sunday, you couldn't go there and go to the Gap. And in fact, that actually drives this because weekends, fall and winter, the sports complex is very busy. Weekends fall and winter are the number one -- I mean, they represent -- to 33 percent of a retailer's trade are those 18 weekends leading up to the holidays. So if you 19 can't get there -- so it's not traditional 20 retails. It's not Target, it's not K-Mart, it's 21 none of that. 22 People have thought, you know, is -- 23 ESPN Zone is an example. I mean, it's a sports 24 arena in it a restaurant facility. You know, 25 there's a terrific one in Boston. There are some 327 11/30/00 - STADIUM HEARINGS products like -- I think it's called Bass Brothers where you actually can go in and test fishing gear do -- you know, so it's kind of got a sports team, it's retail. You would assume the people going to a sport complex would, you know, have those kinds of interests. And, therefore, even before an event, they might want to go in there and --
Is it safe to say it would be primarily entertainment, I mean, with a retail component?
You know, maybe there's a Modell, you know, with jerseys and -- you know, because you're in the complex and you could buy -- you want to buy jerseys.
But the key to this kind of development is keeping people after the game and attracting them early before the game.
Yeah, I mean, that's really as much the market because you really can't be thinking of this thing as a stand-alone, because for a whole bunch of time, you can't get 328 11/30/00 - STADIUM HEARINGS to it, you know, 'cause events are going on.
What is the reason why Comcast would want to flip those rights from its current opportunities to develop now with the two new facilities creating that critical mass that they need? Why would they need to move it from the H Lot and from parking lot that they have the ability to do so now?
I think the simple question is whether there's a better configuration. Given you now the new configuration for the sports complex, you don't have the Vet at the Broad and Pattison corner, you now have baseball, you know, at Tenth and Pattison, you have football at 11th and Pattison. And whether a better configuration would work -- and it needs to work for the complex, it's not just so that the traffic flow works and all of that. And I don't want to sit here today and tell you that we've thought through all through that and, therefore, I'm exactly saying, Oh, it's going right there, because no one has made that --
Is this potential retail entertainment development and the potential 329 11/30/00 - STADIUM HEARINGS flip of development rights in any way potentially part of the way to plug the hole that currently exists in the financing bill?
I'd rather -- I'd rather defer any questions with regard to specific negotiations on additional contributions, just out of respect for the discussions we're having.
But we understand that we have no capacity to make a commitment like that without Council's consent.
See, I think it is because I think it's in the SpectaCore agreement that we can't move where their development rights are.
There's also an agreement, a SpectaCore agreement that says you can't have three concurrent events that go beyond --
Yeah, but this provision is different, Councilman. I mean, I respect the --
Part of the problem in dealing with the community has been -- it's been my experience that --
I can show you in the development lease, it is explicit that if you move the development parcels, you need City Council consent.
I mean, part of the problem in dealing with the community issues and part of the, I guess, the suspicion and bad experience that the neighbors have had there, 'cause I was involved in this issue back in '96 before I came here on this First Union Center is that it seems that whatever is agreed to really at some point in time, as time goes on, is unenforced. And that unless things are kind of specifically written down and then have a mechanism, a penalty mechanism for not adhering to those provisions, it really is kind of a toothless 331 11/30/00 - STADIUM HEARINGS tiger.
Okay. Can you -- but what? Do you have something else to add. You started to say "but."
Okay, I'm sorry. Can you talk about the estimated purchase prices just in a ballpark of the four or five parcels that we're talking about acquiring?
So, I mean, I guess it's -- is it divided evenly, is one worth more than the other or -- all right, I won't --
Councilman, I really do appreciate that that is something that at some point, Council, absolutely has to understand. 332 11/30/00 - STADIUM HEARINGS
Well, we're being asked to authorize the acquisition of them --
-- without really knowing whether it's minus T-Warehouse, whether it's 45 or 54 or 60 maybe, or maybe because a Board of View decisions or lawsuits becomes 70. It's a pretty wide --
Right. I understand that, but I think -- I mean, I actually probably -- I think I'm probably under the advice counsel that given what you have in front of you are protective condemnation ordinances and given that if we can't reach amicable agreement, we will get -- we have appraisal work, we will file Board of View at a certain number. We may -- from a budget perspective, we may be looking at this, you know, a little differently, but we don't want to set our price if we're in an adversarial situation inadvertently with one of these parties. 333 11/30/00 - STADIUM HEARINGS
I mean, wasn't the selection of the site prior to the institution of the negotiations somewhat a strategic error in getting the best value for that land? I mean, it would seem to me that once the owner of that property knows that the City is salivating over those sites for a development of a baseball facility, that the price in their mind is certainly going to be more than it was if it were -- if you had approached them to buy it under different circumstances. I mean, in some ways, when you announced the site, did you not inflate the price?
Well, I think we face that problem every time we take a significant public action. I mean, we -- you know, we condemn four blocks of Center City behind the Reading Terminal to do the Convention Center, we condemned several blocks for the Gallery Tunnel. I mean, it's an unfortunate consequence of the public sector's action, which is, we have to sit here in the public and tell people we're coming, you know, blow the horn, toot the whistle, and sound an 334 11/30/00 - STADIUM HEARINGS alarm. You know, occasionally, we've been capable, you know, once we were --
At the Reading Head House, we were -- we have occasionally been creative enough to do something, but in this situation, given this undertaking, I understand your comment, but we kind of are where we are.
You may have answered this question and I may not have been in the room when you answered it, but can you either dispel or confirm the information that we have that the City had the opportunity to purchase, or was asked about the purchase of the Acme warehouse when Albertson's officially initially decided to move and consolidate their operation in Lancaster during the last administration?
And then, allegedly, during this administration, once there was an offer for the building, that the Albertson people came back again and said, you know, we have 335 11/30/00 - STADIUM HEARINGS an offer, we wanted you to buy it for, do you have any interest yet, or still, or at all? And was told no. And then the option was consummated with the potential new owner. Do you have any knowledge of those calls, contacts, and why we wouldn't purchase a facility that, for example, is 300,000 square feet of refrigerated warehouse space that's one of the requirements -- one of the problems that we had with our port operations during our fruit season when we have this overflow, we need refrigerated warehouse and we can't find it anywhere doing dockside, that it's close enough to dockside to maybe be of some help? Is there any truth to the scenario and is there any reason why we didn't buy it?
Right. I actually did respond to somewhat analogous questions that were raised by Councilman Rizzo, but I'm happy to --
No, no, that's okay. I'm happy to cover this ground again. When Acme positioned itself to vacate the building, which was, I believe, February of 336 11/30/00 - STADIUM HEARINGS this calendar year, in part, because PIDC, you know, is sort of the active steward of the food center, I mean, we sort of pay attention to that stuff, we would have paid attention to it, stadium or no stadium. I mean, we know a building's empty and what's happening.
So we talked to Acme, what's going on, got some understanding from them. They asked, Do you want it? We said, Well, we don't know, we're in a process right now of looking at stadium sites. Could you do us a favor and not put it on the market? because we might we might have an interest. And they were, to be candid, and I think I should say this because they were a good corporate citizen, so they carried it. You know, in other words, they paid for the security guard and the insurance and the taxes for a couple of months on our request. But we then got to the point where a decision was made to proceed with the 12th and Vine T-Warehouse scenario. At that point, Albertson, you know, we can't keep this off the market forever. Do you want it? And we said no, 337 11/30/00 - STADIUM HEARINGS a siting decision's been made, go ahead and put it on the market. They put it on the market. My best recollection is there was sort of one round of proposals. They kind of did it at -- they sort of marketed it themselves, they didn't use a broker. And they had, I think, one round of proposals. And part of that was because I know we got one call -- because, again, there's special food center zoning, so we got a call from one user, who was potentially going to be in need of variance, and would we support or fight the variance, and we said we probably would fight that variance, 'cause at that point, we thought we were -- it's a food center, so we said no, we don't want to convert it to some non-food center use. They were unsuccessful in that round of getting any proposals that met their price. They had set a price.
Out of respect for them and how good they've been about it, I don't know if those are really public. I'm happy to find out 338 11/30/00 - STADIUM HEARINGS if they are, and I'll share them with you.
They're higher than what is alleged to be the current purchase price?
Yes, yes, yes. They then -- so basically, they didn't get any proposals that were satisfactory to them, they then sort of thought about it, they then were going to put it back on the market again at a different price, lower. I lose track of time. And maybe that was the August time frame. They advised us that they were going to do that and said, you know, we're just letting you know, you know, you've asked us about it before, so we're letting you know if you want to -- they didn't say, Do you -- they said, You're welcome to submit a proposal. And we said, Well, we won't be submitting a proposal so -- and that's what happened.
Thank you. 339 11/30/00 - STADIUM HEARINGS Councilwoman Tasco.
I don't have a clue off the top of my head. Can you ask the teams tomorrow? Do you mind waiting?
Okay, well, I'll ask that question tomorrow. Maybe you all will know tomorrow. On this operating and maintenance expenses, the other day, you said the City would bear 75 percent of the cost?
The City pays a specific schedule for a 25-year period that's, 340 11/30/00 - STADIUM HEARINGS during that 25-year period, roughly 75 percent. And in the remaining five years, we pay nothing and they pay a hundred percent.
No, I mean, why did you even -- why are we even paying operating expenses?
Well, we did that in lieu of making a capital contribution to the stadium. This is the NFL loan, the use of the NFL loan, and it can only be matched by private money. And so, it was to the benefit of the transaction to maximize the private-sector funding, you know, on the capital side and have our contribution be on the operating side.
Okay. Now, if we're going to give them $10 million from the capital -- from the bond proceeds --
-- for capital maintenance reserve, and they're getting a new 341 11/30/00 - STADIUM HEARINGS stadium, and most likely, that money will go into an interest-bearing account, have you projected how much that may generate in interest for investment return?
Yeah, I have it off the top of my head, but I think -- and, again, you might want to ask the Eagles tomorrow. I think they were already -- I can't remember -- the reason I'm stopping is I can't remember which stadium it is. I think it projected about a million and a half a year in capital expenditures just to kind of keep it going, even almost from the beginning. So -- and if those numbers are roughly right, so it maybe represent -- I mean, we could do a calculation for you and tell you sort of what it would mean, but it probably represents -- if you did something that, maybe it covers a million and a half, maybe it covers nine, ten years of potential capital needs or something like that, you know, if you think about the interest-bearing aspect.
But if we're getting a new stadium, they shouldn't have any capital needs in maybe the first five years. How 342 11/30/00 - STADIUM HEARINGS much do you think might be generated from investing $10 million for five years?
No, I think -- again, you should ask David. But, in fact, there are capital requirements --
Are there any other questions from members of the committee? (No further questions.)
Do we have anyone else to testify on these bills? Pardon me?
Do you wish us to stay or we'll be back tomorrow, obviously, Madam President.
We're going to recess until 9:30 tomorrow morning.
Okay, thank you very 343 11/30/00 - STADIUM HEARINGS much.
You will have -- and I'm sure, Mr. Dubow, you're going to have the five-year plan here with you.
And we'll walk through that and we have other witnesses.
Thank you all very much. (Adjourned at 6:00 p.m.) - - - 344 C E R T I F I C A T E We HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Thursday, November 30, 2000, were reported fully and accurately by us, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE OF THE WHOLE STADIUM BILLS __________________________________, LISA C. BRADLEY Registered Professional Reporter __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter