Committee Hearing, March 26, 2012

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. 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.

It took a few months, but we got it done.

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?

No. We got the bank statement, so the full amount was --

I'm sorry?

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.

Yes, you are.

-- 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.

Advisors to help the municipal workers?

Yes.

And that will be paid out of what?

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.

That's my point. So I'm saying --

Yes.

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.

So it's more risk to the employee?

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.

Yes.

It's significant.

It's a conscious decision.

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?

Well, the economists that we met with, you mean?

Yeah. I just need to know who has this --

The economists --

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 --

My understanding is that it's June 30th.

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.

It's a sensitive issue.

I understand.

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.

Right.

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.

My understanding is that we're on track for June 30th.

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.

That was in FY12.

In FY12, right.

I mean FY11 and we're assuming it continues.

That's right. That's right.

So we haven't seen those collections yet for '12.

That's a good point that Rob makes, good clarification.

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?

In '11 we had a good year, yes.

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.

And will they be pretty widespread around the City?

Yes.

Because I that's a concern too.

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 exemption.

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.

Does it look promising over there, would you say?

I don't --

You don't want to speculate?

Right.

All right.

Yes. We don't want to speculate.

All right. He's been around long enough not to speculate. I understand. Thank you, Mr. President.

Councilman Green.

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.

Good morning.

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.

And it could shift up or down?

That's correct.

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?

I haven't --

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?

Well, we have --

You've got no internal analysis on that?

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?

That's correct. The number, as I said, could change.

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?

You're assuming --

Instead of 491 million.

You're assuming 100 percent collection?

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?

Depends --

Simple question.

Right.

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.

That's --

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.

It's a simple -- Mr. --

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.

Some of it is a shift, right.

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?

Yeah. Pensions is a $140 million increase.

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 these numbers are not real?

They're real based on the agreements we have in place now.

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?

Well, the Plan -- yes. The Plan assumes those increases.

So it's paid for?

Most of it is pension costs and most of that comes from --

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.

Right.

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.

The question I'm asking is --

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 --

Okay.

-- the ability to do other investments --

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?

Yes.

Thank you. Thank you, Mr. President.

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.

No. That's the current projection.

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?

In terms of how Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. to catch up for '12?

Yes.

We need to see strong growth for the remainder of the year. So we've had like 0.6 percent growth the first quarter and 2.1 percent the second quarter. So we need to see upwards of 3 percent growth to hit that.

So as we look at sales taxes, we're at 2.5. When we look at real estate transactions, 4.4. So all of these are down, aren't they?

Where are you looking, real estate, 4.4?

Under the PICA report, according to PICA. We're a bit down. So I don't know -- someone asked who our economists are and that somehow regionally we were going to do better than the national average. I want to know where you get that optimism from.

I think that for '12, projections are similar to what we Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. have in terms of that the transfer tax is expected to be down slightly for the year and the wage and sales tax are also supposed to be dampened, but then as the rebound occurs over the next few years, it is supposed to grow to more moderate levels. So there is a consensus on that.

I make those two points, who we're not collecting on and who we're expecting to get monies from, and say there is a disparity there between some people who -- in one instance I met with a small business association and they said to me that they run the risk of getting audited, that they have a better shot of getting a hit on the lottery and that it pays off to them to let the roulette -- what is that, roulette wheel go around. I don't gamble. So to go around and for them to get lucky or unlucky and then pay the fine and principal. It is better on average just to not do it. We have to -- and I want to say Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. that the Revenue Commissioner does a great job with what he has. I'm going to say it again. We need to give him more resources so he can collect the monies that are on the street. This same individual said, Councilman, if you're going to pass another tax that you're not going to collect, what's the point? Thank you, Mr. President.

Thank you. Thank you, Councilman. The Chair now recognizes Councilwoman Tasco.

Thank you. On , along the line of Councilman Jones, you in the proposed Five Year Plan, wage tax, what's with 2017? Everything seems to decline 2017. Do you suppose that if we're going to move the economy forward, that it might be higher at that point?

No. That's a good question.

Because Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. all of the issues, all of the wage tax, sales tax, real estate transfer tax, seem to be going backwards in 2017.

There's an expectation that there will be a rebound, and then that after the rebound occurs, which is really sort of catch-up years, for the economy to pick up some of the growth that has not been occurring and then it will moderate. So the 3 and a half percent sales tax in '17 and 3.1 percent growth in wage tax in '17, that's getting to more moderate growth levels in a stable economy. So there's several years that ramp up where the economic recovery occurs, and then the theory is that it will taper off into a stable economy with growth that is close to inflation.

And if it doesn't and it goes up, it's better for you, right?

If it goes up? Yeah, sure. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

Let me just ask you another question. I notice in all of your testimony, Mr. Gillison, with the advent of the proposed budget cuts of the state, where in our budget are we able to adjust for those cuts?

We're not.

So what happens to those individuals, the homeless? What happens to all of the programs that the state funds? I mean, they still impact on the people who live in the City of Philadelphia. What do we do about that?

It's very true. We will not be able to absorb those dollars once cut by the state. Those programs would go away, because they're completely funded by the state. That's why we're spending a lot of time being as aggressive as we can, partnering with our surrounding counties, partnering with as many people that will listen in Harrisburg in order to say that these Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. kinds of cuts, especially to our most vulnerable, really need to be taken a second look at. But there's nowhere that we would be able to come to the rescue. We don't have the dollars, and those programs would go away.

Well, they go away, but we still have the folk here in Philadelphia who have the problems.

That's correct.

Particularly those who are dealing with mental problems that go through the -- and substance abuse problems from the Department of Behavioral Health. So don't you think we ought to look at how we might -- because those people will not get the services. They will probably increase our folk on the street, which you're trying to deal with at this point.

Absolutely.

So I think Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. there ought to be some contingency to deal with -- and maybe you don't want to talk about it because then you won't have your lobbying in your Harrisburg to be as effective, but there's got to be some way that we look at what we do with our citizens who will be severely harmed by those budget cuts.

I agree totally with you. I know that we are bracing, but I think that we're trying to be as aggressive as we can in our strategy to make sure that everyone understands that these kinds of cuts would have an impact and that we would come together on the local level where rubber always hits the road. We will try and do what we can to mitigate, but there's no dollars for us to mitigate in our budget. We just have to try and work with our partners as best we can to mitigate the extent of the devastation that those kind of proposed cuts would have. I agree with you. I don't want Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. to see where they would normally end up, which is back in the prisons, where I don't want them to be. We don't need more people who are mentally ill in prison. We don't need more people out on the streets. We've been trying to deal with this homeless matter for a long time, and it pains us, it pains me specifically. I've been in this area for over 30 years trying to help people get out. I can't imagine what's going on in Harrisburg where they would actually put together that kind of matter, that kind of budget. But it is literally -- we don't have the ability to respond financially, but we will have to respond and work together to find a different way should it come to pass. I'm just praying that it won't.

Well, on , you have the $1.2 million for the Office of Supportive Housing to relocate those beds at the Ridge Avenue Center.

That's correct. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

Is there a time limit on when you have to move those residents, and why are you moving from that center?

The center is closing down, and we are trying to put together the contracts that we would need in order to make sure that the people who are serviced at that center would be able to go elsewhere, and as we said to the Council President, we are trying to -- we're on target. We understand we're on target so that the center would close on June 30th and we'll have the ability with these dollars to put those folks in different areas.

Is the closing generated by the City or is the closing generated by the possibility of that site being sold to a developer?

I don't know the answer to that specific question. I would have to get back to you, Councilwoman. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

Well, the question --

I just know that that center is going away, so we have to have the ability to make sure that we're providing for those people in different places.

Same folk, CBH.

Right.

One point five million to move these folks from one center. Don't know how many people will be impacted as a result of the budget cuts, but we have no provision in the budget to deal with relocating them. Thank you.

Thank you, Councilwoman. The Chair now recognizes Councilmember Kenney.

Thank you, Mr. President. I think AVI is going to be -- Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. and I've said it. I was quoted in the paper saying that AVI is going to be the most difficult issue that we deal with this year. And let me bring it to the street level for a moment. I ran into a young man the other day who I happen to know, who is a professional, married, has a small child, lives in Queen Village. His taxes right now are $4,000 a year. Based on the purchase price of his house and the comparable sales in recent months, he estimates between $8,000 and $10,000 his real estate taxes are going to be. What do I tell him? What's the answer that I give that person, who is committed to urban life, who wants to live in the City, who can pay $10,000 living in Bryn Mawr and is going to face a doubling or more than double their real estate taxes next year? What do I tell him and how do I keep him in the City?

There's not -- obviously that's going to be a real issue Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. for him. It's one of the reasons that we want to put smoothing and a homestead exemption in place to hopefully help with that sticker shock, but there will be people whose assessments relative to other people have been too low for years and --

While I recognize that, his tax bill now is $4,000. It's not that his tax bill is $850 and he's been -- I mean, he's clearly not been underpaying based on at least the $4,000 that he pays every year in real estate taxes. His child is not school age. So these are folks that don't really -- aren't needy when it comes to City services and are paying $4,000 now and could potentially be paying $8,000 next year. How do I keep them living here? Why would they want to live here?

Right. I'm not sure that they really would go up to 8,000 in the year -- Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

Based on what he bought the property for and what the comparables are in the community in the last six months. He's an accountant. He did the calculations. He thinks it could at least double.

Right. And I don't know what he's assuming about where the rate will go or -- so I'm not sure that that's accurate, but --

Are you telling me that scenario is just totally out of the question?

No, I'm not saying that at all. But I am saying I think that's why we do need some kind of buffering in here to kind of --

While I understand folks in other neighborhoods have been overpaying for years, that overpayment is not as high as the payment the folks are making in other neighborhoods where they're paying and and $5,000 a year. I mean, there's got Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. to be a cap. There's got to be some limit to what we're going to whack people with, because they can move. I want them in the community. I want them contributing to the playground and to the home and school and to the civic association and everything else, but you can't expect somebody to have their real estate taxes doubled when they're paying 3 or 4 now and expect them to want to still be Philadelphia residents. I would just move to the suburb, send my kids to a public school there and that's part of my tuition payments I pay in my real estate taxes. They send their kids to private school, which it's their choice, but I just think that that's the issue. I mean, that's --

Right, and that's why we have to look at ways -- I mean, I know you're not satisfied with that answer, but --

I mean, my problem is, I didn't know what to tell Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. him. I'm standing there going, I don't know. I mean, I don't know. I mean, that's the issue and that's the --

I think that one of the things that we all have to kind of remember is that, first off, I understand his projections. I would say, I understand your projections, but we're at the point now where we can't really say that those projections -- we're going to find out what the projects are and we'll deal with it in reality. But, second, that's why we're so insistent on getting kind of like the smoothing aspect of the bill as well as the homestead exemption, because we recognize we don't want that sticker shock to send you away. We need good people to be here in order to do what we need to do. And the last piece is fairness, that just that's always got to be brought back. We've got to understand this from a fairness point of view of what really Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. should be the true rate. And I think that taking and asking them to just stay with us as we straighten this out, this has been a long time coming. It didn't happen over night, but we can actually try and fix it this year.

Okay. I mean -- all right. Just so long as you know what we're getting on the street out there.

We understand.

Okay.

Thank you, Councilman. The Chair now recognizes Councilwoman Brown. (No response.)

Councilwoman Brown has officially lost her spot. The Chair now recognizes Councilwoman Sanchez.

Thank you. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. I have a few questions, and I know they were noted somewhat in your testimony. Can you tell us how much federal cuts the City of Philadelphia is receiving in both CDBG and HOME funds this year?

You asked for the cut in CDBG and HOME funds, Councilwoman?

Yes. Actually, in your testimony you note $7.8 million.

That's right.

Can you tell us what are some of the things that are going to be cut as a result of that $7.8 million in reductions?

I think that is being worked on right now and will come before you in the Consolidated Plan, but that is still being worked on.

In the state funds we've received -- and we had hearings the other day -- about $44 Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. million in cuts. Can you tell me if any of those cuts are going to be added on through the City's General Fund?

They will not.

Do we know the total impact of what those cuts will be to services as the one our President mentioned earlier, Office of Special Needs?

I know that there was a -- we have actually passed around an impact statement where those -- I think it was about $41 million, where those cuts were given out. I can actually provide that to you again if you just give me an opportunity.

I have that. I want to make sure we said it for the record --

Okay.

-- the amount of cuts that we're receiving from the state. In your Five Year Plan, there's Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. $160 million in business cuts, and we appreciate the Administration's work with us in getting these cuts. If we are not successful passing this AVI, are these cuts in jeopardy, $160 million in business cuts in the Five Year Plan?

If we --

If we are not successful passing AVI, are these cuts in jeopardy?

And we went back to the amount of collections years go? They would be in jeopardy, but we'd also have to look at everything in the budget to figure out what we would do to bring it back into balance.

We had a briefing the other day with members of the Real Estate Association where one of their members reminded me that they have lawyers on standby. Can you give us an update of where our lawsuits are currently?

Are you talking Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. about the STEB issue?

Yes.

So the State Tax Equalization Board has to basically validate the common level ratio we use. That common level ratio is a part of how our tax is calculated. We take the market value, multiply by that common level ratio and then multiply it by the millage rate. What STEB found was that the ratio we're using at 32 percent was too high and that we should be using 15 percent. We got about 2,000 appeals from 16 people saying that they want that 18 17 percent used against their taxes. If all 18 those appeals are successful, it will cost the School District $45 million and the City 35 million. We have appealed to STEB, saying that we don't think that 18 percent is right. They had a hearing last week, at which we presented our case, and we're waiting to hear back from Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. them. So we think that it won't wind up percent. We think that we've made 5 progress with them, but there's a big 6 risk there, and that risk would continue 7 in the year in which we hadn't gone to 8 actual value. 9

So we 10 lost this the first time around. Why are 11 you guys so positive we're going to win 12 this on the appeal? 13

We think that we've 14 provided them additional information on 15 sales, sales that they may have thought 16 weren't at arm's length that we think 17 were that should have been included in 18 their calculation.

And so this budget reflects us being successful in our appeals of $35 million for us, for the City of Philadelphia, and 45 million for the School District?

Yes, it assumes we'll be successful. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

And if we are not, what is our Plan B?

Plan B is then we have to reopen the budget and look for ways to balance. We would assume that it's a one-time impact, because we assume that we're going to actual value. If we don't get to actual value, then it's a multi-year impact.

Thank you, Mr. Chair. I'll come back on the next round.

Thank you, Councilwoman. The Chair recognizes Councilmember Squilla.

Good afternoon, guys. Thank you for coming here today.

Good afternoon.

My question is with the Actual Value Initiative, when do we think that the public is going to be receiving their Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. assessments in the mail?

We think that they'll be receiving their assessments in September.

In September?

Yes.

And is there any possibility that they would be getting it before then or after that time?

The one risk to the timing is if there are more appeals and the BRT has --

They can't get appeals until they get the --

From the current -- from the existing assessments, particularly if we wind up -- I guess whatever happens with STEB may actually wind up to an increase in appeal activity. Because one of the things the BRT has said is that if the STEB ruling goes our way, they will allow people who Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. appealed on the basis of STEB to come back and appeal on other issues. So if that happens, then assessors who could get out in the field may have to go back to hear other appeals. That could affect the timing. If we don't have that effect, the September date looks really good.

And what is the timeline for when people can appeal the new assessments?

Typically appeals have to come in by beginning of October. We would probably want to work with BRT to push that back to give people more time to let them appeal. If it comes in late, we want to give them a chance to look at their bills and figure out whether they want to appeal. So I'm not sure how far we'd push it back, but we'd want to push that back.

Point of information.

The Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Chair recognizes Councilmember Green.

Thank you.

That is a point information, right?

Yes, sir.

Thank you, sir.

The property tax assessments under state law must go out ten days before October 1st. So they can't be pushed back to a date after that. So that is the outer limit of when they must go out. Also, they have to be returned within a certain amount of time under state law, and there is no authority of the BRT or anybody else to have them not be returned within the amount of time required by state law.

The question was about appeals, and BRT does have the right to let appeals after October 1st. They've done that before.

Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Thank you. Councilman Squilla.

Okay. That's just the one part that may be unfair to the public from getting the assessments at a very late time, if it goes out on that time. The other issue is, in Fiscal Year 2012 we had a $1.1 billion, I guess, real estate tax revenue stream, and then Fiscal Year '13 we are now increasing that to 1.2 billion?

We're increasing it by about $90 million, that's right.

Ninety million dollars. What is Fiscal Year '14?

Fiscal Year '14 in the bill shows about another 3 percent increase, assuming that that's what happens with market values. That's built into the bill. But we're actually hoping that we have this process done and we actually wind up just setting a millage Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. rate next year based on assessments.

So --

But the plan is about a 3 percent increase a year in assessments.

You're going to increase it 3 percent every year?

It projects that assessed values will increase by about 3 percent.

And that's part of the bill?

Only in '14.

Oh, only in '14. So not only do we raise $90 million in this year for this, the following year it's closer to 4 percent increase in real estate taxes built into the bill; is that correct?

That's right, but, again, I think we're -- our hope is that by next year, we'll have a new bill that will set a millage rate. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

All right. Because it seems like right now we don't have any information to tell anybody anything and we're hoping we can do this in the future. It just seems really irresponsible to go forward coming up with, well, it may happen and we don't know how it's going to affect this person. We don't even know what our safeguards are. You're proposing a $15,000 safeguard that's going to be put in place for all residents across the board.

Two safeguards.

The three-year smoothing.

The three-year smoothing and $15,000 homestead exemption.

And that doesn't protect -- we have senior citizens and people on low income that are living in neighborhoods that may have increased in value. The $15,000 Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. homestead that you're proposing would -- people may have bought their house for $50,000 and now it's worth $200,000 -- really doesn't help them.

There's a low-income senior citizen freeze. So if you're a senior citizen, low income, your property tax can't go up. So that protection already exists. One of the things that we need to do is publicize that so people know that it's out there and so that they apply for it. There are also kind of hardship payment terms that let people stretch out their payments. Those are already existing, and we need to do a better job of letting people know about them.

Or low-income people who are now in their phase of their life where they can't afford the increase.

Right.

All right. I'll ask more questions the next session. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

Thank you, Councilman. The Chair recognizes Councilwoman Brown, who stepped out of the room earlier.

Thank you, Mr. President. Good morning, everyone. (Good morning.)

Two questions. The last page of your testimony you mention that the Office of Equal Opportunity has had a 50 percent increase in the registration of DBEs; is that accurate?

Yes.

My question is, given that great progress, how does that impact and what does that translate into with regards to more DBEs doing business with the City of Philadelphia?

I believe that the opportunities obviously have been Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. expanded and the opportunity -- I know that we've actually done some great work this past year in explaining how to do business with the City of Philadelphia. So I think that with an expanded opportunity and with an expanded base, we are hoping that more people will be able to do business. I know that we have set our own internal goals that you're very well aware of. We have met those goals, and we will be setting again internal goals again to see if we can stretch and make even more. So progress is being made, and that's what we are dedicated to do or seeing. And having more people eligible is really where we will be able to have more people take part and take part in this particular effort.

So the second question -- and I guess it is an FYI to all department heads. I've introduced a resolution saying that we Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. Councilmembers will look at women on corporate boards or lack thereof. The Mayor has expressed an interest in this area. I'm of the view that government has a responsibility to lead by example. So I am asking that all City department heads include in their testimony a breakdown of top-level management or top deputies, whatever that equals, by ethnicity and by gender, so we don't have to ask for it and we don't have to hear, I'll get back to you. The ask is that that be a standard operating -- a standard paragraph in everybody's testimony. And further, unlike past years, I would like to see the last four years under the Mayor's Administration what that looks like so that we can see if there have been progress or not. I should, in the interest of being forthcoming, let you know that I've actually sent letters to a couple of departments, because there's a big Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. concern about their department top-level staff not looking like Philadelphia, and in 2012, that's unacceptable.

Very well. Thank you.

Thank you.

Thank you, Councilwoman. The Chair now recognizes Councilmember Oh.

Thank you very much, Mr. Chairman. Good afternoon. (Good afternoon.)

Thank you. Going back to and to the issue of the property tax that are anticipated to be collected in Fiscal Year '13, I am curious just for your comments and perhaps a little more explanation. We have a new assessment, new assessments. We have a new AVI system. We have increased collections, possible homestead exemption and a possible smoothing Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. process, and I'm curious how it is that you've come to the point where you believe that the revenues collected in 2013 will be the same as 2012.

So what we did to try to determine where revenues should be in '13 was go back to the last time there was a full assessment and then try to figure out what's actually happened to values since then. That last assessment was in 2004, the last real full assessment. We went to IHS Global Insight, our outside consultant, asked them what's happened since 2004 in terms of market values in Philadelphia. They said that the market value on average has increased percent since 2004. 20 We've captured some of that, 21 but not all of it. So looking at that 22 growth and what we think we've captured, 23 looking at the difference got us to 24 calculate about a 9 percent increase, 25 which is the 94 million that you see in Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. increase in total revenues.

Okay. Thank you very much for that explanation. Thank you.

You're okay with it? You look like --

It seems a little fantastic, but I'm going to contemplate the answer, and I appreciate it. Thank you very much.

Okay.

Thank you. The Chair now recognizes Councilmember Johnson.

Thank you, Mr. President. I just had a couple of questions. I guess in preparation for the departmental hearings that will be coming up, the first one is the investment of a million dollars to the Managing Director's Office to fund anti-violence initiatives throughout the Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. City, and obviously that's a key issue that we're facing at this particular time in the City. And so I expect -- what I would like when the Managing Director's Office does their presentation, an actual overview of how that million dollars is going to be laid out and what type of program, during the hearing part. So we won't be asking the questions and you don't have the information, so I'm not going to try to set y'all up that way, but hopefully by the time the hearing does come, get an overview of how those initiatives are going to be laid out as it relates to violence prevention. The other one was under the Office of Economic Opportunity. And I think it's great the work that Ms. Angela Dowd-Burton was doing in terms of increasing minority, women and disabled-owned business participation, but I also want to see the enforcement component. A lot of times I've met small businesses who say they may have Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. partnered with a prime on an actual project, but they don't receive the actual funding from the prime in terms of the rollout of their actual partnership on the actual project. And so if there can be information on how you actually -- I don't want to ask you to go into what company names specific, but you actually caught one of the companies some time ago that actually had a woman standing in saying that they were -- I don't want to put the company name on the record, but y'all actually shut down one actual major individual for actually having someone on their rolls that they're supposed to be sharing business with and everything wasn't forthcoming. So I wanted to see the enforcement component under this particular department. And under L&I, the Vacant Property, Windows and Door Court program, which is deemed very successful, the actual numbers, what actually has been Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. done across the City, how many houses sealed, how many property owners, private property owners, you're going after to make sure they're outer -- I mean the facade of their buildings are actually sealed. That's pretty much it.

Thank you. I would say, Councilman, if you -- I'm sure the Inspector General, Amy Kurland, would be happy if you have additional persons that would need to be investigated. We would be very happy to partner on something like that, believe me. So if you have anything, I'd be glad to just take the call.

Thank you.

Thank you, Councilman. The Chair now recognizes Councilman Henon.

Thank you, Mr. President. I have a question regarding the Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. pension fund. Council President Clarke started talking about in reference to the new hybrid type of pension options that the City is offering, and he had asked a few questions about individual accounts. Is there an excess administrative cost to managing individual self-directed accounts in our pension fund or is this going to be a class opportunity for educating the members of the City on what their options are?

I think -- one second. I just want to make sure I'm getting it straight. So there are group seminars, but they also provide individual counseling if people -- when people seek that out. So you have both options.

And this type of hybrid option is a cost savings?

Yes, it is. It reduces the unfunded liability in the long term. That then reduces the size of Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. the MMO, the amount that we have to pay each year to pay off our unfunded liability.

It seems a little costly administratively, I think, to manage individual accounts for folks, as I think the Council President raised some valid questions. As being a layperson on self-directing funds, most people just get up and go to work every day and try to feed their family and raise their children right here in the City of Philadelphia. Another question on the --

Can I just -- I think that there'll be some increased administrative cost. I think that will be more than offset by the savings to the fund in general, savings to the fund in terms of the liability.

Well, I look forward towards the budget hearing to get into that in a little more detail. The pension fund now as I read Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. in the Five Year Plan is 50 percent funded?

That's correct.

And we have started making as a result of the MMO the partial and full payments towards the pension fund?

Yeah. Each year our actuary tells us what amount we need to pay into the fund to pay off our unfunded liability, and that's the amount that we pay.

But you've already set that? You've already set that through the MMOs; is that correct?

That's correct. I mean, the number will change each year depending on a variety of factors, like what we earn or changes when people retire. So there's a whole bunch of assumptions that go into it, so it does change each year.

I'm sure of that. So we're 50 percent funded now, Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. and towards the -- at the end of this Five Year Plan, what do you anticipate the fund being with making the partial and full payments moving forward?

In the last report we got from the actuary, I think they had us in the high -- still in the high 40's at the end of the Plan.

At the end of the Plan?

The end of the five years, yeah.

And we're starting off at 50 now?

We're at 49.7, and it kind of moves up and down a little each year, not a whole lot of variation, but it's up in the high 40's each year, like 48, 49, somewhere around there.

So you don't see it moving significantly now that the City is starting to make payments?

No. We've been making payments consistent with the MMO Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. for years. So that's not new. But the unfunded liability is so large that it doesn't move quickly. And what we did -- because we earned percent last year, 6 it moved from 47 to almost 50. When the 7 actuary makes his projections, he doesn't 8 assume a year like that. He assumes that 9 we hit our earnings assumption, which is 10 8.1 percent. If we had other years where 11 we earned that much, then you'd see it 12 move up, but that was one of the highest 13 years in the fund's history in terms of 14 returns. 15

Okay. In 16 year FY15, the state sales tax is 17 dropping off and you see a decrease in 18 the revenue coming in. Is that because 19 of that sunsetting at that time? 20

Yes. That's correct.

Has the Administration thought about speaking with the state or having any conversations with the state moving Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. forward?

No. That was one of those things that we promised that we would let go, and we are going to stick with our promise.

Okay. I'll defer to another time. Thank you, Mr. President.

Thank you, Councilman. We're going to go on the second round. The second round is three minutes, and we want to make sure that everybody has an opportunity. So we will now start with Councilman Green.

Thank you, Mr. President. Mr. Dubow, do you have an answer to my question?

It's the same answer as before, which is we don't have a projection for the total amount of assessments.

You've said Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. publicly and you've said to PICA 70 percent of the assessments are done.

So the fieldwork scheduled is about 70 percent done, scheduled to be done the end of May or --

So that's correct, that's a yes, 70 percent is done?

Yeah, 70 percent is done.

Thank you. What is the value of taxable real property for that 70 percent?

I don't know, and when I've talked to the Chief Assessment Officer about the values that they have so far and values that they'll have when they're done in May, he has stressed that those aren't reliable numbers yet, that they need to be validated, he needs to go and analyze them. So that number at this point wouldn't have a whole lot of meaning.

Well, I Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. frankly will be the judge of that. I would like to know today, before we leave this room, what the value of taxable real property is of that 70 percent. If you'd ask Mr. McKeithen to please get that information over here, I'd appreciate it.

I can ask. I'm not sure that it's been collected in that way, but if it is, we'll supply it to you.

The things that you've told the public and that you've told the PICA Board, are they reasonable assumptions, that it will be three to four times the current value of assessed taxable property?

I think it's too early for us to know what that multiple will be.

So what you've told PICA is not a reasonable assumption?

I don't know whether that's where we'll wind up. Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC.

So it is not reasonable for us to assume that it's three to four times the current value of assessed property?

I guess what I'm saying is --

Is that a reasonable assumption for us to make or not?

Let me answer. We don't know where it will wind up. It could wind up three to four times. It could wind up two times. We don't know where we'll wind up.

Okay. So if it wound up two times, how much would we collect under the savings clause in No. 19 3?

Assuming and depending on what happens with collections and --

I'm assuming everything else is true.

-- appeals, then Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. you'd be around 500 million.

If it's two times, it would be 500 million?

If it's exactly two times. But, again, I don't know where we'll wind up.

But you've publicly said and said to PICA it's three to four times?

I think what we've said is we have some estimates. We don't know where it's going to wind up. We've been consistent with we don't know where it's going to wind up.

So why are we then presented with a savings clause that could collect somewhere between 500 million and a billion dollars?

We had a fail-safe that we put in the bill to ensure that we would collect at least the amount that we collected this year for both the City and the School District.

What are the Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. consequences --

But we don't know -- can I finish my answer, please? But we don't know where we'll wind up.

I understand, but we're creating a bill in advance of that that could, in theory, collect two and a half billion dollars for the School District if the upper limit of your estimate is correct and it's four times, which we would never under state law be able to take back, which would be a permanent tax increase on the citizens of Philadelphia, which would be multiplying essentially what they pay by four times. That's not how this was presented to the public. It was presented as, We know what we're doing, it's a thoughtful formula and it's going to be roughly X, $491 million.

That is what's in the formula.

That's not Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. what's in the bill.

No. It is what's in the bill. The formula in the bill 5 gets you to $458 million for the City. What you're talking about is if everything that were done is thrown out by a judge. That's what you're talking about, not what the bill is proposing, but if everything goes wrong through the court system.

The question is what the bill proposes if the savings clause comes into effect because a judge throws it out. That's the question.

Right, but then --

The upper limit of that, a billion dollars for the City. Let's --

I don't know what the upper limit is because I don't know where we'll wind up. We can have the same conversation over and over again, but that's what I'm telling you.

If your Discover Works Global 888.557.8650 www.dw-global.com 3/26/12 - WHOLE - BILL 120164, ETC. estimate to PICA is correct, which was three to four times, then it's between 750 and a billion dollars we'll collect. Is that a true statement?