Discover Works Global 888.557.8650 www.dw-global.com COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE Room 400, City Hall Philadelphia, Pennsylvania Monday, March 26, 2012 11:15 a.m. PRESENT: COUNCIL PRESIDENT DARRELL L. CLARKE COUNCILWOMAN CINDY BASS COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN WILLIAM K. GREENLEE COUNCILMAN BOBBY HENON COUNCILMAN KENYATTA JOHNSON COUNCILMAN CURTIS JONES, JR. COUNCILMAN JAMES KENNEY COUNCILMAN DENNIS O'BRIEN COUNCILMAN DAVID OH COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN MARIA D. QUINONES-SANCHEZ COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN MARK SQUILLA COUNCILWOMAN MARIAN B. TASCO BILLS 120164, 120165 and 120166 RESOLUTION 120167 - - - Discover Works Global 888.557.8650 www.dw-global.com
Good morning. It appears we have a quorum, so we're going to start now. This is a continuation of the hearing of the Committee of the Whole regarding Bills No. 120164, 120165, 120166 and Resolution No. 120167. I would ask Ms. Lewis to please read the titles of the bills and resolution.
Bill No. 120164, an ordinance to adopt a Capital Program for the six Fiscal Years 2013 to 1218 inclusive. Bill No. 120165, an ordinance 17 to adopt a Fiscal 2013 Capital Budget. Bill No. 120166, an ordinance 19 adopting the Operating Budget for Fiscal Year 2013. Resolution No. 120167, a resolution providing for the approval by the Council of the City of Philadelphia of a Revised Five Year Financial Plan for the City of Philadelphia covering Fiscal Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Years 2013 through 2017, and incorporating proposed changes with respect to Fiscal Year 2012, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority (the "Authority") pursuant to the Intergovernmental Cooperation Agreement, authorized by an ordinance of this Council approved by the Mayor on January 3, 1992 (Bill No. 12 1563-A), by and between the City and the Authority.
Thank you. We will continue the public hearing of the Committee of the Whole to consider various bills read by the Secretary. They constitute the proposed operating and capital spending measures for Fiscal 2013, a Capital Program and a forward-looking plan for Fiscal 2014 through Fiscal 2017. Will the Administration please come up. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. (Witnesses approached witness table.)
Good morning. Good morning, Council President Clarke, members of City Council. I am Everett Gillison, Chief of Staff in the Office of the Mayor Michael Nutter, and on behalf of the Mayor, I am pleased to testimony on the Fiscal '13 proposed Operating Budget and the proposed Fiscal '13 through '17 Five Year Financial Plan. With me today are Rob Dubow, the City's Finance Director, and Rebecca Rhynhart, the City's Budget Director. Also a number of City officials are in the audience. As the economy continues to struggle to recover from the worst downturn in decades, the Administration continues to stabilize the City's budget while making modest investments in our City's future. com 3/26/12 - WHOLE - BILL 120164, ETC. has been slower than originally anticipated across the country, the City's tax receipts have begun to show a modest increase over last year. Nevertheless, some of the taxes are growing at lower levels than projected in the Fiscal '12 through '16 Five Year Plan. 8 percent over Fiscal Year '12's projections. 5 percent growth, largely due to the combination of the tax growth previously mentioned with the elimination of several one-time revenue sources received during Fiscal Year '12. com 3/26/12 - WHOLE - BILL 120164, ETC. Garage. 2 million of cuts to departmental spending. While the economy is slowly recovering, significant risks remain that could impact the City's financial stability. The City receives federal and state grants to support various programs and services across the City. This year, the City again has seen cuts in grant dollars it receives from the federal government, and the Governor has proposed significant cuts in the state budget which could greatly impact our departments and the non-profits that, in turn, use these funds to serve some of the City's most vulnerable residents. The Governor's proposed Fiscal '13 budget would decrease funding by over $40 million for health and human services, supportive housing, behavioral health, and parks and recreation services. com 3/26/12 - WHOLE - BILL 120164, ETC. education and public library services are also proposed. The Governor's proposed budget would have severe consequences to City services, likely leading to an increase in the number of people with mental illnesses living on the streets and an increase in the prison census. Additionally, the cuts would jeopardize over $24 million of federal funds for HIV/AIDS programs due to the inability to meet requirements. 1 million, or almost 42 percent. 8 percent. However, 75 million of this increase is due to rising pension costs, and 11 million is due to an increase in the health medical costs. com 3/26/12 - WHOLE - BILL 120164, ETC. increased expenses are mandatory obligations. 4 percent increase 5 from Fiscal Year '12. 6 As with prior years, the 7 largest costs in the City's budget are 8 associated with City employees who 9 design, manage and implement the programs 10 and services that residents depend upon. 455 billion, or 68 percent of the total General Fund budget. Over 31 percent of the City's budget goes to pay for fringe benefits for our employees. Portions of these employee costs -- and in particular, pensions and healthcare -- have grown much more quickly than the City's revenues and other expenditures, which has meant that more and more of the City's budget has to be diverted to pay for employee benefits instead of to pay for services. com 3/26/12 - WHOLE - BILL 120164, ETC. budget has grown by percent while the remainder of the budget has decreased by 1 percent. The rapidly escalating costs of pensions, combined with the fund's declining health -- it is now approximately 50 percent funded -- makes pensions perhaps the most significant financial challenge facing the City. Even with these several changes to the pension system over the past few years, the City's pension costs have increased significantly.
The deferrals that were made in Fiscal Year '10 and Fiscal Year '11, which provided budget relief during the severe economic downturn, are now due. The projected Fiscal Year '13 pension cost is $629 million, with a Five Year Plan high of $662 million projected in Fiscal Year '14. Although these costs decline in the following fiscal years, costs are still considerable, with projections in the 560 million to the 600 million dollar range. com 3/26/12 - WHOLE - BILL 120164, ETC. As a means of comparison, pension costs were approximately 206 million in Fiscal Year '03. That's a $423 million growth just in ten years. The Administration is committed to having reasonable collective bargaining agreements. However, those agreements must have structural changes that provide long-term aid to the City. Among those necessary changes are modifications to the structure of health and welfare benefit funding as well as pension reform. The interest arbitration awards with the FOP, the IAFF and the recent Local 159 of the AFSCME District Council 33, which are the corrections officers, make the significant long-term reforms to the pensions. The correctional officer award includes a new hybrid pension plan, which combines a defined benefit component along with a defined contribution benefit with the City matching a portion of the employee's contributions to a 401(k)-like plan. com 3/26/12 - WHOLE - BILL 120164, ETC. addition, the current Local 159 employees will contribute more to their pensions, an increase equivalent to about 1 percent of pay. The proposed Five Year Plan also focuses on public safety for our citizens, resuming wage and business tax reductions, making it easier and less expensive for businesses in the City and making critical investments in our neighborhoods. As planned, in Fiscal Year '14 of the Five Year Plan, the wage tax cuts will resume, giving some financial relief to our citizens and helping Philadelphia businesses. Working with City Council, we have made several changes to the Business Income and Receipts Tax. These tax changes are intended to help small and medium-sized businesses and lower costs associated with starting a new business in order to stimulate new business formation and increase employment in Philadelphia. com 3/26/12 - WHOLE - BILL 120164, ETC. wage tax reduction, equal a $160 million reduction in taxes for workers and businesses in Philadelphia over the lifetime of the Five Year Plan. 6 million of new investments. The largest investment is $9 million for design work for a new police headquarters, City morgue and health offices co-located at 4601 Market Street. This is a consolidation which could provide needed facility upgrades while allowing the sale of existing City assets and revitalizing part of West Philadelphia in need of investment. The City will request $9 million from PICA for this one-time cost. million in the Police Department. com 3/26/12 - WHOLE - BILL 120164, ETC. with expected levels of employee retirement. million for the Office of Supportive Housing for housing contracts to replace beds available at the Ridge Avenue Center which is closing. 1 million in additional funding for the Office of Property Assessment. The additional funds will be used towards the complete overhaul of the property assessment system which is scheduled to be completed in the fall of 2012. The City is in the process of completing the Actual Value Initiative, AVI, which involves reassessing every property in the City and setting assessed values at market rates to create a fair assessment system upon which to base property taxation. com 3/26/12 - WHOLE - BILL 120164, ETC. assessment. As properties are now assessed at only a fraction, about 32 percent, of their actual value, the assessments have often not kept up with changes in value. This process will result in substantial increases in properties' assessed values.
The Administration proposes several changes to ensure that property owners' tax burdens will not be significantly impacted. The Administration proposes several measures to temper the impact of the changes in assessment. Most importantly, the Administration proposes to dramatically reduce the tax millage rates when AVI is complete. The new rate will generate at least the amount of revenues needed to meet the property tax revenue projections in the Five Year Plan and will capture the net increase in property values that occurred during the years when the City was not doing comprehensive reassessments. com 3/26/12 - WHOLE - BILL 120164, ETC. 5 million, which is the same amount as in Fiscal '12. The Administration has also proposed homestead relief for owner-occupied properties in the amount of $15,000 of assessed value per property, and smoothing the impact of the changes in assessment over the course of three years. Other proposed key investments are $1 million for the Managing Director's Office to fund anti-violence initiatives across the City and $734,000 to fund a maintenance team in the Department of Public Property to prevent deferred maintenance -- to actually deal with the deferred maintenance issues that we have in our City buildings. com 3/26/12 - WHOLE - BILL 120164, ETC. and Fiscal Year '17, respectively. 5 percent in Fiscal Year '17. 5 percent sales tax in Fiscal Year '15 is based on the expectation that consumer spending has been restrained by a greater amount than wages by lack of consumer confidence, which will return after several years of economic recovery and lead to stronger sales growth. 5 percent annually. 5 in Fiscal Year '13, ramping up to 9 percent from Fiscal Year '14 through Fiscal Year '16 before moderating to 3 percent growth in Fiscal Year '17. com 3/26/12 - WHOLE - BILL 120164, ETC. $166 million by Fiscal Year '17. The forecast for transfer tax was lowered after discussions with key economists of the Philadelphia Federal Reserve. Even with projected strong growth for transfer tax revenues, the $166 million the Plan includes for Fiscal Year '17 is almost 70 million below the 234 million in transfer tax revenues collected in Fiscal Year '06. 664 billion in Fiscal Year '17. While pensions and other employee benefits and debt service are projected to grow by over 6 percent over the life of the Plan, the rest of the budget remains flat. 5 percent of revenues. com 3/26/12 - WHOLE - BILL 120164, ETC. 3 million dollars. The Fiscal Year '13 Capital Budget and Fiscal Year '13 through Fiscal Year '18 Capital Program proposes various investments to our City-owned facilities. Twenty million dollars invested over two years for the design and redevelopment of JFK Plaza, also known as Love Park. This project will create accessible green space connecting the new Dilworth Plaza with a revitalized Benjamin Franklin Parkway. The City proposes over $6 million to upgrade several police stations and firehouses across the City in Fiscal Year '13. Capital funds will be leveraged with private sources and invested in library branch improvements. Two million dollars of proposed capital funding will be used for a fit-out of the new Health Center 2 in South Philadelphia, with $1 million budgeted in both Fiscal Year '13 and Fiscal Year '14. com 3/26/12 - WHOLE - BILL 120164, ETC. The new Health Center 2 will be built on the site of the current Health Center 2 and be paid for by the Children's Hospital of Philadelphia through a partnership between the City and CHOP. I am proud of the accomplishments made by my fellow City employees over the past years. They have worked hard through a difficult time and have achieved a great deal. A few examples of such accomplishments: The Police Department has been effective in reducing crime throughout the City since Fiscal Year '08, and with the help of the new initiatives announced in January 2012, continues to keep our citizens safe.
The Fire Department continues to educate citizens on fire safety, providing residents with the tools they need to stay safe. The Department administered 1,184 fire safety programs at 162 schools and successfully installed 17,952 smoke alarms in Fiscal Year '11. com 3/26/12 - WHOLE - BILL 120164, ETC. The Department of Human Services continues to provide safety, permanency and well-being for children at risk of abuse, neglect and delinquency. The dependent out-of-state population significantly decreased by 69 percent from June 30th, 2008 to June 30th, 2011. The delinquent out-of-state population has also decreased by 83 percent. During the same period, Greenworks Philadelphia made great strides in making Philadelphia greener and more sustainable. Out of 151 initiatives set out for this Plan, 136 initiatives are either completed or are underway. And through a variety of anti-obesity and anti-smoking initiatives under the Health Department, Philadelphians are becoming healthier. The Office of Economic Opportunity has expanded the OEO registry by 50 percent to 2,000 minority, women and disabled business enterprises, and continues to work with departments on participation goals. com 3/26/12 - WHOLE - BILL 120164, ETC. The Vacant Property, Windows and Door Court program launched by L&I has been very, very successful. This enforcement program targets blocks that are mostly occupied and aggressively seeks to ensure that owners ensure their properties have all windows and doors, to remove the blighting influences of properties that are not compliant. Our Parks and Recreation Department, in conjunction with other partners, launched TreePhiladelphia, a yard tree giveaway of 4,000 free yard trees during the spring and fall tree planting seasons to Philadelphia property owners. The City's recycling program has been successful, increasing from a recycling rate of only 8 percent in Fiscal Year '08 to 19 percent in Fiscal Year '11. Finally, the Managing Director's Office has seen great success in Philly Rising. com 3/26/12 - WHOLE - BILL 120164, ETC. the pilot neighborhood site at Hartranft, additional sites were launched in Haddington, Market East, Frankford, Point Breeze, Swampoodle/Allegheny West, Strawberry Mansion, Kensington and Elmwood. Vacant property demolitions, community cleanups, new after-school activities and several other examples of positive change, led by the community, contributed to promising results in the neighborhoods. The proposed budget seeks to preserve the City's core services while making Philadelphia a safer, smarter, healthier, greener city where people want to live and do business while operating efficiently and effectively as a first class city. Thank you for the opportunity to testify on behalf of the Administration regarding the Fiscal Year '13 proposed Operating Budget and proposed Fiscal Year '13 through '17 Five Year Financial and Strategic Plan. com 3/26/12 - WHOLE - BILL 120164, ETC. have with me the senior officials of the Administration, and with their assistance as necessary, we will be happy to answer any questions you may have. Thank you.
Thank you, Mr. Gillison. I see the board is heating up, so I'll fire off a few questions before we get to the members of the Committee of the Whole. Just a couple of quick questions. In your testimony you talk about $11 million in amounts due to the Love Garage. Can you be a little more specific about that, please?
The 11 million is amounts held -- Rebecca Rhynhart, Budget Director. Apologies. The 11 million were amounts held by the Parking Authority, and it came to our attention that according to the legal documents surrounding the way that the revenue is supposed to flow to Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. the City's General Fund, that that money should have come over to the City. So the Parking Authority sent that money over. So basically it was excess revenues from past years that were supposed to flow to the City's General Fund, and we researched it and then asked the Parking Authority to send it over, and they did.
How did we discover that additional revenue? Was an analysis done or did we trip on it? How exactly did we find out about this $11 million?
I think that -- how did we find out about it? I had looked through some of the documents and then spoke to the Deputy Mayor for Transportation and we talked through it and then asked the Parking Authority to send it over.
It was just that easy? Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.
Is there a possibility with a full analysis that we may identify or discover or trip over additional revenues that are owed the City of Philadelphia?
I mean, that is the full amount that was being held, so that was transferred over --
But my question is, it appears that there was not a full analysis of all of the revenues associated with the Parking Authority and the agreement. It sounds like we kind of just stumbled over this. Was this based on a full analysis of the entire agreement between the Parking Authority and the City?
Yes. We did Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. look -- I definitely did look through it in some detail, so I think that is the money that was there.
Okay. In your testimony, Mr. Gillison, you also reference substantial spikes in pension costs and from the low 2.2 -- I'm sorry; 206 million in FY03. You talk about more than a $400 million growth over the last ten years. Is that pretty much attributed to the investment strategy, the downturn in the market or had anything to do with employees, production? I mean, what exactly -- that's a significant increase. I guess what I'm trying to find out, is this something that the national economy as it relates to pensions was responsible for or was it something that we were doing in the City of Philadelphia?
Rob Dubow, Finance Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Director. There are a number of things that led to that spike. Part of it is what happened with the economy in 2008. You've seen pension funds across the country take substantial hits because of what happened that year, and that resulted in increased payments to make up for losses in the market. We also have some underlying issues with our fund. We have more retirees than active members. So that makes it hard to meet our requirements. And, I mean, I think -- so the answer to your question is yes, but it's one of a handful of factors.
I'm going to ask you to forward to the Chair -- I guess which I am now the Chair.
-- in very specific terms, because that's a significant number, and obviously Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. pensions and the whole pension reform is a significant issue, and we just want to get a clear understanding of where the problem lies, if there's some things that we've done as it relates to some of our investment strategy that we can be doing differently. Understandably, the national economy is what it is. So that obviously has an impact. Can you just kind of talk about --
Sure. And I don't think it was our investment strategy, because if you look at how we did compared to other funds across the nation, we did pretty well, and we can show you what percentiles we ranked in. I mean, I'd say we're always looking at our investment strategy to make sure that we're doing as well as we can. We just brought in a new investment general consultant for the pension fund, who will be looking at our asset allocation to see whether there's a better way to do it, and we will get you more information on Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. that.
Okay. Thank you. Sticking with pensions for a minute, as a layperson, which I am as it relates to pensions, you hear about individuals who have had investments in their 401(k)'s and all you hear about in this whole economic morass is, I lost my 401(k), I lost my 401(k). And in the proposed strategy as it relates to some of the municipal workers' pensions, we're asking them to go into a 401(k)-like plan, as you reference it in your testimony. Is that proposal or could it conceivably put in the future, in the event that we have some more challenges as it relates to the national economy, put at risk some of the pensioners' funds? Because it appeared that during the course of this national challenge that we've had, those individuals who had the traditional municipal pension plans Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. were a little more stable than some of the 401(k)'s that are prevalent in the private sector.
What we're proposing is actually a combination of a defined benefit and 401(k)-like plan. So employees wouldn't have just the 401(k). They'd have standard defined benefit portion too. But adding the 401(k) portion would definitely mean that we were sharing some of the risk of the market with employees. I mean, one of the ways we would try to mitigate that is to have advisors to help them, the same way we do with our deferred compensation plan.
The pension fund has a contract with a firm that does that now, and I think the way we've talked Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. about doing it is having them also help with the 401(k).
So with that response, are you suggesting that some of the investments on 401(k) plans on the private sector weren't done adequately? I mean, what will be different?
No, I'm not suggesting that. I don't know enough about the details of how they advised their employees in those plans, but what I am saying is that for our plan, we would want to make sure that we were giving employees advice so that they had the best knowledge of investment options. But there's definitely more risk for employees.
We understand. We acknowledge that we're asking the employees to enter into a more Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. risky plan.
No, I'm not saying a risky plan. There's more risk than there is now. Right now City taxpayers are assuming all of the risk of what happens in the market. When you go to a hybrid plan, some of that risk is shifted to the beneficiaries.
Yeah. We're shifting some of the risk from the City, from the taxpayers, to the employees.
I just want to get an acknowledgement that there is a difference.
Okay. A couple more and I'm going to turn it over to members of Council. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Just quick, on the -12 of the Plan, when you talked about the growth in transfer tax, you talked about the conservative nature forecasting in prior years and then you talk about a relatively significant bump up in, I guess, '13 and '14 of 7.5 and percent 9 growth rate. Why are we projecting those growths? Something on the horizon as relates to housing starts or sales?
Our consultant, IHS Global Insight, gave us a forecast that actually had stronger growth than this 7 and a half and 9 percent. They forecast that there is going to be a rebound in the housing market, that the pent-up demand that has existed in this area and in the nation -- but their forecasts are specific to Philadelphia -- that there's been pent-up sales for so long, that that's going to start to happen, that properties are going to start to sell and then values are going to start to rise, and there's what I Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. would consider significant increases built in there. So we took those projections -- and they were double digit growth projections from IHS Global Insight -- to the economists over at the Federal Reserve Bank of Philadelphia, because I had the same question that you probably have, which is, wow, this looks aggressive. The economists at the Fed thought that close to 10 percent or a little under 10 percent, what we have in this plan, was reasonable. And if you think about it, we're at such a lower base now -- I mean, back in '06, we had almost 235 million of transfer tax collected and now we have about 116 million. So even that growth of 7 and a half and in ramping up to 9 percent for several years only gets us to about 165, 166 million. So we're still not close to where we were, but there is an expectation from economists that there's going to be a rebound in the local Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. market.
Is that nationally or is it specific to Philadelphia?
This is specific to the City of Philadelphia, but I think nationally there are some similar forecasts, but it really depends on region.
Can you tell us here who those economists are that are projecting?
There are a lot of people out there that would like to know from an investment perspective why we think that we're going to get a bump up in real estate starts Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. and sales and things of that nature.
Right. I mean, I think it's from our consultant, IHS Global Insight, and then the meetings that we had with the economists at the Federal Reserve Bank of Philadelphia. And there was a consistent viewpoint that we would see that type of growth. So that's why we felt comfortable putting it into the Plan.
Okay. One last question, kind of relates to something in my district. I guess you call it district prerogative. Real quick. On the Ridge Shelter, an additional 1.2 million, Office of Supportive Housing to replace beds that are no longer available at the Ridge Shelter. Is there a timeline on the possibility or do we have specific --
Pardon me? Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.
My understanding is that the Ridge Center is closing on June 30th.
And we have adequate providers to contract with to replace the beds that we lose at that facility?
The Office of Supportive Housing is working on that. They could probably comment more specifically on that if you'd like a more specific answer, but that is what the funding is for.
And I want to make sure that -- we had a number of extensions at the facility and what I want to make sure personally is that individuals are located in a way that it is clearly the standards that we establish in the City of Philadelphia, not simply warehousing people so we can Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. close the facility.
I'd like to get a sense if in fact we're going to be able to meet that timeframe or will I be asked to extend it an additional year at the particular facility.
Okay. All right. Thank you. I'm going to let my colleagues -- the board is heating up again. First round, Councilmembers, we want to do five minutes first round, and then hopefully we'll shift to three minutes. Is that okay? And I understand we have a new timer. We no longer have the eggbeater timer. More electronic model. Thank you. Councilman Greenlee.
Thank Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. you, Mr. President. Good morning, everyone. (Good morning.)
First, Mr. Gillison, near the beginning of your testimony, you talk about some of the taxes are growing at lower levels than projected in last year's Five Year Plan. Could someone be a little bit more specific? I assume from the testimony and the conversation that transfer tax is one of those, but could you get a little more specific on that.
In Fiscal '12 actually in terms of the taxes that -- I'm sorry. Was your question what taxes are going --
Well, it says some of the taxes are growing at lower levels than projected in last year's Five Year Plan. When you say "some," can you be a little bit more --
Oh, sure. Right now the wage tax is coming in below Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. projections. We had projected in Fiscal '12 that it would be at 3.4 percent growth rate. We had to lower that to 2.2 percent, and we still need some strong growth to hit that number in Fiscal '12. The sales tax we had to take down the growth projection as well. The transfer tax, we had to take that down. So the one tax that came in better than projected was the business privilege tax, and that's based -- the majority of that tax is from corporate profits, and there was a good year.
So the Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. business privilege has been the most successful?
But in '12 we get those collections at the end of April, so we haven't seen them for '12, but we're assuming based on what happened in '11 that '12 will be good.
I just wanted a little bit more specifics as far as what "some" were. I have a feeling a whole lot of people might have questions about AVI, so I'll start out. Obviously one of the big concerns is the timing of all this obviously. Could you just comment on that a little bit as far as when you think figures will be in vis-a-vis when we have to do what we have to do, that kind of thing.
Right. So based on the schedule that we're on now, we think that we will have new assessments in the Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. fall, probably in September. And that obviously creates an issue for the tax setting since that has to happen during this budget process. So that's why we've made the suggestion of setting the target revenue amount that would then lead us to a millage rate after we got the assessments.
After? Will there be -- when will you have some numbers in that we can at least use, I guess, as examples around the City so we can kind of get a feel for where this is going?
I think what we can put together for you, which is probably the best proxy we can do now, is look at average sales in neighborhoods and how that compares to assessed values in those neighborhoods. They won't be -- it won't be completely consistent because there are other factors that go into assessments, but that might give a good sense, and we can probably do that over Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. the course of the next couple of weeks.
I think they'll be widespread around the City and widespread even within blocks, because I think there's just been a variety of how assessments have been done.
And, lastly, the programs to try to help people, the smoothing, the homestead, I know that has to be approved. We have to get approval from Harrisburg, correct?
For the homestead anyway. Where does that stand? Because we keep hearing different things, that it looks like it's going to happen, then we hear a more negative response. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. What would be your opinion now?
The homestead exemption was passed in the Senate and is now over in the House.
All right. He's been around long enough not to speculate. I understand. Thank you, Mr. President.
Thank you, Mr. President. Good -- I guess we're still Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. morning. Good morning, for four more minutes.
I noticed during the testimony, Mr. Gillison, you changed from the text where you said the property tax for the City portion in FY13 is 491.5 million to what you said, which is the property tax in FY13 is at least 491.5 million. What is the upper limit above that number that we could collect by accident or through negligence?
I may characterize it differently from negligence, but the current portion that we have in the budget is 458 and then there's 33 million in prior year. The two variables that could change that are collection rate and the number of appeals. We assume I think it's about 960 million in assessed value lost through appeals and an 87 and a half percent collection rate. To the extent that appeals are different from that or Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. the collection rate is different, the number will shift.
Could it shift up or down -- when you take the bill that you sent as a whole, could it shift up or down more than $25 million?
Have you stress-tested the formula that you sent to City Council?
I haven't said, Okay, what if appeal losses are 200 million. It would be easy enough to do that. We can put that in.
Don't you think we ought to know what the upper and lower bounds are of the tax that we could collect from that formulaic approach for planning purposes?
Yeah. We can do those stress tests for you. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.
But the stress tests were not done. So you don't within the Administration know what happens if collections are 80 percent because more people appeal or collections are 90 percent because people pay even though they're appealing, as required?
The appeals and the collection factors are actually -- you kind of conflated them there. We are assuming that there'll be a big uptick in appeals. That's what we built in. Obviously that number will change if we're not right about that. We can do that analysis for you. I don't have that with me.
But today the number is not stress-tested, so it's not even necessarily at least. It could be higher or lower, and there's no 25 determination in the Administration of Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. what the upper and lower limits or bounds are of the potential change from 491.5 million; is that correct?
Thank you. So it seems to me sort of an irresponsible place to start. Would you be surprised if I told you that the actual upper limit in the bill the way the Administration has sent this bill to us of collections for just City side, not including School District, is $1.4 billion we could collect accidentally or negligently?
I'm saying that's assuming 100 percent collection, but --
I don't think Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. that's a reasonable assumption.
Okay. So if you look at the second savings clause, it collects, assuming that the -- we have two savings clauses in this bill for background. There's one savings clause that provides a different matter if the state won't accept -- the courts won't accept a certified appraisal, market appraisal. There's another savings clause if the concept of the formulaic approach proposed by the Administration is invalid. What it says is that the tax rate will be 1 percent of the fair market value of the actual value. If that savings clause goes into effect and the value is as the Administration testified before PICA the other day $100 to $140 billion or three to four times the current aggregate market value of property in the City is the overall aggregate market value, percent of that number three to four times is billion to 1.4 billion dollars Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. that we could accidentally or negligently collect from the citizens. When you apply that to the School District side, under state law, we would never be able to take that money back, and that would be about $2 billion that would go to the School District from the current 690-some million, close to $700 million.
So the quadrupling of values, which is what we talked about last week, is just an estimate. We don't know. That's one of the reasons that we can't set a millage rate. It could be more than that; it could be less than that. That's the way -- that's why we structured it the way that we have. And, again, you need to build in things like appeal losses and the collection factor to get to your number.
The savings clause specifically says that it's percent of the value. You said to PICA that the value was three to four times. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. The value is not two times and you don't think the value is seven times. You chose a number and you put it in a bill 5 and you sent it to us, and, that is, that we will collect 1 percent of the market value for the City. Based on your own words to PICA, that is a billion to a billion four compared to $491 million.
Again, we don't know where it's going to come out. That's why we've actually designed a bill 13 that has a target revenues number.
I'm talking about the savings clause. Mr. Dubow, the savings clause, how much would we collect if the savings clause goes into effect based on your own analysis?
Well, again, we don't know where it's going to come out. That's the issue and that's the reason we're proposing to do it the way we're proposing to do it.
What is the math on the savings clause? How much Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. will we collect under the savings clause under Section 3 if we collect 1 percent of the assessed value? How much will we collect?
Call it an 87 percent collection rate. Make the same assumptions you're making for everything else. One percent of the aggregate value is a billion to a billion four. Eighty-seven percent of that is something less.
It's at least double the $491 million, taking every other assumption that you used in the formulaic approach as constant.
Councilman, why don't we give Mr. Dubow time to think about that one.
It's the same Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. answer. We don't know where it's going to come out.
That was actually a nice way of saying that the five minutes are up.
Mr. President, I appreciate that. The question is simple. I'll restate it and we'll see what the Administration gets back. How much, assuming all your other assumptions are true with respect to the formulaic approach, will we collect if the formulaic approach is illegal and Clause 3 of the savings clause goes into effect? Thank you, Mr. President.
Thank you, Councilman. The Chair recognizes Councilman Goode.
Thank you, Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Mr. President. Good morning, Mr. Gillison, Mr. Dubow, Ms. Rhynhart. The first question is real simple. Should we take the Five Year Financial Plan at face value? Are the numbers real?
That's not a simple question. But I guess the simple answer would be yes, although I sense that's leading to something else.
Absolutely. Class 200 allocations have dropped from actual expenditures of over 1.1 billion in Fiscal Year '11 to roughly 760 million over the course of the Five Year Plan, including a drop this year. That's about a 32 percent drop, about $350 million, but the budget has not decreased. Expenditures over the Five Year Plan in terms of general operating, general fund budget has not decreased. Therefore, if you've cut contracts and leases by $350 million, where did the money go? How do Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. you explain that?
So the biggest reason for that decrease is shifting Department of Human Services from the General Fund to the Grants Fund. So it's not a real cut. It's a shift, in large part, from General to Grants.
Can you be specific in terms of dollar amounts? Because some of it is a shift.
Yeah. The vast majority is the transfer of the DHS over to the Grants Fund. We can provide -- we have a spreadsheet if you want --
I'm actually asking of the $350 million what was shifted, how was it shifted and what was shifted, more specifically, within the General Fund budget.
The biggest increase in the General Fund budget is going to be pension costs. I mean, Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. that's where you see the run-up, and a lot of that -- part of that --
I get that, and I'm getting there, but I just want you to actually quantify it before I get there.
Are you asking for a quantification of the amount of the DHS transfer, the move from the General Fund to the Grants?
The question I'm asking is, you cut from Fiscal Year '11 actual expenditures to this fiscal year and throughout the Five Year Plan, you've cut Class 200 by about 350 million. It's about a 32 percent cut. Some of that may be DHS; other is not. I'm asking you to just quantify and itemize where the money went.
Right. So in total from the '11 actual to the '13 budget, there's about a $200 million decrease in spending, right, from 3.78 billion to 3.58 billion. Most of the reduction is Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. in contracts and most of that is the DHS shift. But there's about a $200 million increase in the benefits line, and most of that is in pensions. And if you hold on one second, let me find the exact number on the pensions increase.
I'll just skip to the second question, because I've done all that. So you're budgeting more money for benefits but not wages?
And it's safe to say that around $190 million in benefit costs increased by the end of the Plan. Is that the Administration's preferred way to budget it? In other words, are you trying to fund wage increases through savings and benefits?
Yes. That's our proposal in our collective bargaining agreements.
But that's Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. not what's reflected in the Plan. In the Five Year Plan, the wage numbers are flat and the benefits numbers go up by about 190 million.
That's right. And what we're trying to get to but what's not in place now is collective bargaining agreements that we're --
So let me ask you a different question, then. So you can pay for a $190 million increase in benefits over the Five Year Plan?
So a $350 Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. million cut in Class 200, that allows for a $190 million increase in wages and/or benefits, but right now it's a $190 million increase in benefits; is that correct?
No, because the shift of obligations to the Grants Fund also took revenues over to the Grants Fund. It didn't give us the ability to spend more money.
I'm looking at the Five Year Plan, looking at the numbers. I see that the wage numbers are flat. The benefit numbers increase by $190 million.
The Class 200 is cut, and the bottom line in terms of overall General Fund budget doesn't move dramatically, so how am I reading that wrong?
So what's happening is that pension costs and benefit costs are going up, which eats up pretty much Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. any increase in revenue that we're getting.
But the total -- I think I might get you the answer. But the total doesn't go up because of -- the total in the General Fund doesn't go up because of the shift to the Grants Fund. If you saw both of them together, you would see an increase of the combination.
The question is, at the end of the day, you can afford to spend $190 million on benefits by the end of the Plan and your Plan says that it's paid for; is that correct?
This Plan pays for that, but that's where all the increases go to, so --
I just wanted to put it on the record that Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. there's a $190 million increase in benefits over the five years and that you say it's paid for in this Plan, but that money can be spent for wages and/or benefits.
Yeah, but to use it to pay for wages, we have to figure out a way to reduce our pension costs.
I get that because $190 million is paid for in terms of increases.
Right. If we could reduce our pension costs by $190 million in the next five years, we could use that to pay for other things.
But there's $190 million that's already paid for under the Plan?
Thank you, Councilman. The Chair recognizes Councilman Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Jones.
Thank you, Mr. President. It is really good to see you up front in control of things this year. Good morning. (Good morning.)
We realize in this body and throughout this building that there have been draconian budget cuts at the federal level. There will continue to be those cuts in the next fiscal year. There have been draconian, horrible projected budget cuts at the state level, which will have rippling impacts throughout every department in the City of Philadelphia, and your office has been very good at briefing us as to the potential impacts of those cuts. One of the things as my colleague talked about the possibility of the real estate equalization, I call it, and others call it revenues for the School Board, whatever you choose to call Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. it, before we go look at that, I think it is imperative that we look at revenues that are still on the table to be collected. And one of the things that our staff looked at was that there are somewhere in the neighborhood of 28,445,000 delinquent taxes owed the City of Philadelphia by property owners. And in particular, what struck me as interesting as we looked at that was the fact that many of those owners of properties that are delinquent aren't your usual suspects in the sense that they are held in low- and moderate-income neighborhoods. Some of these property owners are in some of the upwardly mobile up and coming neighborhoods. Another interesting fact was that many of these individuals -- and we did the research on them -- came from out of state, meaning that they own the property, they were absentee landlords delinquent on their properties here in the City of Philadelphia, but in a Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. sampling that we did, looked at some of the properties that they held elsewhere and are current on their taxes. I don't understand that kind of logic, that they would be disrespectful to the City of Philadelphia, but I want to know how we can make sure that we are not just looking at Philly-based assets, but we're also looking at assets that they may hold other places to get what is due the City of Philadelphia. When we juxtapose that with the cuts that we are facing, when we juxtapose that with the budget deficit that the School Board is facing, it seems to me that we should be a bit more aggressive in going after not the delinquent deadbeats that are uncollectible, but in some of these cases, these individuals actually have means and have proven they've had means because they treat their hometowns so very, very good.
So one of the Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. things that we're doing on the property tax in particular to try to increase delinquent collections is, we've gotten much more aggressive on taking properties to Sheriff's sale. We've gone from an average of 200. We're working our way up to 600 a month. But your question I think was what do we do about assets that aren't in Philadelphia.
There are 2,956 Philadelphia properties held by 2,320 non-Philadelphia residents that owe us $28 million.
Okay. And you want to know how we get that they're non-Philadelphia assets?
And are we looking at that as a collectible considering we run after some of the deadbeats that are just not collectible. There are some that we've looked at that do have means and do have assets in other places, and I wanted to know if we're asking Philadelphians, who have made a Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. commitment to own properties here and live here, are we looking at some of the folk that have kind of thumbed their nose at us?
Yeah. That's a good question, and we'll look into that and see what our options are in terms of their properties outside of Philadelphia.
My second point is that we are looking at revenues, and one of the things that we use to look at are the PICA report. You projected on wage and net profit that you were going to have 3.40 percent increase, right? We actually wound up down 2.2 percent in actual.
Right. So between the deficit and the projection, we're talking about how many percent to make up just to catch up to where we said we were?