Committee Hearing, November 30, 2000

No. 14

You chose not to rent a car?

So you don't even have to pay that increase.

That's right. (Applause.)

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.

But the hotel tax and the liquor tax are also voluntary.

You don't have to stay in a hotel and you don't have to buy liquor.

Correct.

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.

But liquor tax is voluntary.

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.

I know he did.

I absolutely factored it in.

Okay, it's all factored in.

Right.

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?

Uh-huh.

Have you made any accountability for that in your analysis?

Yes, I did.

On the debt service?

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.

We have no disagreement with that and it's factored in.

And that's in your analysis?

Absolutely.

Where is that again?

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.

Including the practice facility?

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.

Thank you. Thank you, Madam President.

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.)

The Chair recognizes Councilman Ortiz.

Professor.

Yes, sir.

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.

Yes.

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

That's correct. 17

So in essence, the 18 teams put all of that investment in terms of their 19 expenses? 20

Correct.

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?

That's 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?

That's correct. Absolutely.

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 Chicago.

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.

That is correct.

And also contractuals set-asides have been included if there's a lease agreement.

That is correct. And union protections.

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 --

Repeat that again, please.

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.

Madam Chair, I'll come back later. Thank you.

The Chair recognizes Councilman Cohen. (Audience reacts.)

Let's not go there.

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 --

Under the current lease.

Currently, I did not look at the current lease.

The current lease runs until 2010-2011.

Right.

Did you look at the current tax burden?

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?

Yes.

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?

As I said, the burden on the lease is positive.

What is the current tax burden on the current lease?

It would be as estimated by the Controllers Office under the current --

But what is it?

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.

It would be no tax burden?

It would be a positive cash flow.

That is a ridiculous 137 11/30/00 - STADIUM HEARINGS statement. Are you an economist by trade?

Yes.

In what capacity?

At a university.

You teach case studies?

I teach everything from case studies to economic principles.

BUT you're not really an economist by trade or economic development practitioner?

No, I'm an academic.

Thank you very much. Thank you, Madam President.

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.

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?

That's correct.

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 page would that be on?

It's on 15.

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.

And those were also factored into this?

That's correct.

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.

All right. Thank you very much.

Thank you. The Chair recognizes Councilwoman Blackwell.

Madam President, my light is on in error.

I beg your pardon?

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

Mr. Hankowsky.

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.

Thank you. Mr. Dubow.

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.

Was that figure 5.8 million?

5.8 million over the course the '01 to '05 five-year plan.

Do you have copies of your testimony at all?

I can make copies.

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.

Good afternoon, Councilman.

Mr. Hankowsky, you recall briefing approximately two weeks ago in the Mayor's Office, the initial briefing of Councilmembers on this particular proposal?

Yes, I do.

And at that time a question was raised by several Councilmembers with respect to participation levels and goals.

Yes.

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.

Correct.

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.

Okay. (Pause.)

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.

Mr. Hankowsky, I'm a politician, not a technician.

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.

Right.

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.

Okay. I understand. I absolutely understand.

All right. Thank you.