COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COUNCIL COMMITTEE ON COMMERCE & ECONOMIC DEVELOPMENT - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, June 9, 1999 10:27 a.m. - - - BILL 990160 - Amending Title of The Philadelphia Code entitled "Miscellaneous" by 11 amending Chapter 21-1100, entitled "Community Development," by addition provisions which provide 12 for the funding of neighborhood revitalization projects with Community Development Block Grant 13 funds and Housing and Urban Development Section 108 Loan funds; and by adding a new Chapter 14 21-1400 entitled "Community Revitalization and Infrastructure Benefit Fund," which provides for 15 the establishment and administration of the Community Revitalization and Infrastructure 16 Benefit Fund and for the funding of eligible neighborhood projects and activities. 17 18 PRESENT: COUNCILMAN MICHAEL A. NUTTER, Chairman COUNCILWOMAN JANNIE BLACKWELL 19 COUNCILMAN DAVID COHEN COUNCILMAN DARRYL CLARKE 20 COUNCILWOMAN DONNA REED MILLER COUNCILMAN FRANK DICICCO 21 - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 6/9/99 COMMERCE/EC. DEV. - Bill 990160 I N D E X David Volpe, First Deputy City Controller . . Jeremy Nowak, Executive Director. . . . . . . 6 Delaware Valley Community Reinvestment Fund 7 John Kromer, Director, OHCD . . . . . . . . . 54 8 Steve Mullin, Director of Commerce. . . . . . 83 9 Bill Hankowsky, President, PIDC . . . . . . . 99 10 Rick Sauer, Executive Director. . . . . . . . 137 Philadelphia Association of Community Development 11 Corporations 12 Whittier Dow, Housing Specialist. . . . . . . 143 Housing Consortium for Disabled Individuals 13 John Rowe, Executive Director . . . . . . . . 150 14 Tenants Action Group 15 Evelyn Hidalgo, Executive Director. . . . . . 154 Intercultural Family Services 16 Rebecca Barragan. . . . . . . . . . . . . . . 158 17 People's Emergency Center CDC 18 Joan Curran, Deputy Executive Director. . . . 169 Action AIDS 19 Kay Smith, Executive Director . . . . . . . . 172 20 Manayunk Development Corporation 21 Michelle Lewis. . . . . . . . . . . . . . . . 178 Northwest Counseling Service Judith Robinson, Real Estate Broker . . . . . 185 North Philadelphia Resident 3 6/9/99 COMMERCE/EC. DEV. - Bill 990160 (Index - cont'd.) Camille Tyson, Housing Counselor. . . . . . . 190 Philadelphia Senior Center Peggy Massey, Consumer. . . . . . . . . . . . 192 Philadelphia Senior Center John Dodds, Director. . . . . . . . . . . . . 193 Philadelphia Unemployment Project Francis Vargas. . . . . . . . . . . . . . . . 198 Asociacion de Puerto Riquenos Liz Ford. . . . . . . . . . . . . . . . . . . 202 Independent Community Network Joanne Jackson, Executive Director. . . . . . 206 Advocate Community Development Corporation Kahlil Walker, Program Director . . . . . . . 207 Housing Association of Delaware Valley's Counseling Program Rameses Lee, Private Citizen. . . . . . . . . 210 West Philadelphia Resident 4 6/9/99 COMMERCE/EC. DEV. - Bill 990160 P R O C E E D I N G S
Good morning, ladies and gentlemen. I apologize for the delay. My name is Councilman Michael Nutter, Chair of the Committee on Commerce and Economic Development. We are now in session in consideration of Bill 8 990160. In attendance today are Councilwoman Blackwell, Councilman Cohen, Councilman DiCicco, and Councilwoman Donna Reed Miller, having a quorum. What we'd like to do is to hear from the first set of witnesses and engage in some discussion, which will serve as some foundation for a larger discussion about this particular bill, and then have some comments that I'd like to make, and then move into a discussion about the particular bill in front of us. Are there any comments by the committee members? Gentlemen, would you please identify yourselves for the record.
My name a is David Volpe. I'm the First Deputy City Controller. And I have with me John Folks. 5 6/9/99 COMMERCE/EC. DEV. - Bill 990160
We're here today at your request to give you a short and brief discussion of the history of some of the City's expenditures on curbs, sidewalks, and street trees -- I should say footways and street trees, in addition to a little discussion of the eliminations that have been placed on the expenditure of City monies. And when I say "City monies," I mean operating dollars, capital dollars, and CDBG funds on the expenditure for curbs, footways, and street trees. So if I could, I'll take a couple minutes and go through my testimony relatively quickly and again provide that frame work. In the past, there has been an enormous amount of debate concerning the use of City funds -- operating, capital and CDBG -- for the initial installation, repair or maintenance, and removal or replacement of curbs, footways, and street trees. The record is replete with testimony, letters, and opinions regarding the use of City funds for these purposes. The most comprehensive document on the 6 6/9/99 COMMERCE/EC. DEV. - Bill 990160 subject was a briefing memorandum dated May 16, 1996 concerning the expenditure of City funds for the installation, repair, maintenance, removal or replacement of curbs, footways, and street trees. The briefing memorandum included a City Solicitor's opinion issued to do David L. Cohen, dated March 28, 1995, on the use of City funds for curbs, footways, and street trees, and a letter from the City Controller, dated March 3, 1995, on the same subject. The purpose of all these documents was to set forth the law and the City's position on the use of City capital operating and CDBG funds for the initial installation, repair or maintenance, and removal and replacement of curbs, footways, street trees. The briefing memorandum both supplements and expands upon the City's policy for the use of capital funds for these purposes included in the City's expenditure eligibility guidelines for capital funding, dated March 1992. I have a few copies of the briefing memorandum package available for review with me now, and I would be happy to provide additional 7 6/9/99 COMMERCE/EC. DEV. - Bill 990160 copies for anyone who has an interest after the reading.
Generally, the views expressed by the Administration and the Solicitor embodied in the above-mentioned documents are consistent with those of the Controller's office, with the exception of the responsibility for street trees abutting private-property owners. Which has been discussed previously in past City Council hearings. I will now attempt to briefly summarize the legal frame work and limitations on the use of City funds for the installation, repair or maintenance, and removal and replacement of curbs, footways, and street trees. Regarding curbs and footways, if the City is not the abutting property owner, the property owner's responsible for the necessary work done at his or her expense. There is a 8 6/9/99 COMMERCE/EC. DEV. - Bill 990160 narrow exception in the Philadelphia Code regarding use of City funds for curbs or footway replacement which is considered an integral component of a street improvement project administered by the Streets Department for a sewer or water main replacement managed by the Water Department. This exception was expanded in 1993 by administrative action to include curb add footway installation and removal and replacement completed as part of a larger housing and commercial development and redevelopment projects. Given the City's limited resources, criteria were established to determine when a sufficient public purpose would be served by a curb or sidewalk improvement project to warrant City capital funding. The authors of the briefing memorandum cautioned against further extending exceptions for the use of City funds for curbs and sidewalks due to the huge cost that the City could incur based on the sheer number of curbs and sidewalks in the City and the prospect for increased tort liability to which the City would be exposed if the primary 9 6/9/99 COMMERCE/EC. DEV. - Bill 990160 liability for repair and maintenance and replacement of footways were to shift from the private-property owner to the City. The City may not fund the initial installation or setting of curbs and footways with operating or capital funds where it is not the abutting property owner. For removal and replacement, there is a narrow exception to the prohibition and using City funds if the work is an integral component of a street improvement or if the roadway next to the curb and sidewalk must be removed or replaced as part of a public project. In addition, as I noted above earlier, there is an exception carved out for the installation and removal or replacement of curbs and footways incidental to a much larger redevelopment project approved by the Commerce Department or OHCD. To be eligible, the project must leverage significant other governmental funding or private investment. CDBG funds may be used for initial installation in CDBG-eligible areas under limited conditions. An activity is eligible for funding if it furthers one of the national objectives of 10 6/9/99 COMMERCE/EC. DEV. , it benefits low- and moderate-income persons, aids in the prevention or elimination of blight, or it is designated to meet community development needs having a particular urgency. Use of any City funds for repair or maintenance of curbs and footways is expressly prohibited where the City is not the abutting property owner. This includes the use of CDBG funds. The private-property owner must pay for the repair and maintenance of curbs and footways. Regarding street trees abutting City-owned property, the briefing memorandum specifies that the City may fund planting of street trees with operating or capital dollars. The City may also fund the planting of street trees with CDBG funds if the expenditure is a part of the City's annual CDBG plan and benefits lower- and moderate-income or blighted neighborhoods, or otherwise complies with fundability requirements of the program. Operating funds may be used for pruning and trimming of street trees. The use of capital fund is prohibited.
In addition, CDBG funds are ineligible for operating and maintenance 11 6/9/99 COMMERCE/EC. DEV. - Bill 990160 expenditures. The briefing document states that the City may fund the removal and replacement of street trees with operating or capital dollars if it is the abutting property owner. Expenditure for removal and replacement is eligible for capital funding only if it directly relates to the re planting of a tree connection in connection with some other capital improvement. According to the City's capital funding eligibility eligible guidelines, the City may fund the removal of street trees with capital funds only if removal is directly attendant to an improvement project or is a component of a site preparation required either for planting a new tree or other capital funding construction activity. The replacement must be in the same approximate location or block face, or in requisite instances, zip codes. The latter is by agreement between Council and the Controller's office. The same funding limitations apply to the case where the City is not the abutting property owner. According to the briefing document, the 12 6/9/99 COMMERCE/EC. DEV. - Bill 990160 City may also be able to fund the removal and replacement of street trees with CDBG funds under the same fundability conditions as with initial installation. The authors of the briefing documents state that if the City is not the abutting property owner, operating or capital funds can be used to plant street trees in the public right-of-way, except that a private developer must fund the initial installation under the Land Subdivision Ordinance. The City may also be eligible to use CDBG funds for the planting of street trees in the public right-of-way. The expenditure may be eligible as the installation of a public improvement or urban renewal project completion under CDBG regulations. Assuming the public purpose requirement is satisfied, City operating funds may be used for the pruning and trimming of streets trees in the public right-of-way. The expenditure is not eligible for capital funding. Operating and maintenance expenses are generally ineligible for CDBG funding also. CDBG funding for street tree removal and replacement is also an ineligible expenditure 13 6/9/99 COMMERCE/EC. DEV. - Bill 990160 if it is part of the annual CDBG plan and benefits a lower- or moderate-income or blighted neighborhood, or otherwise complies with fundability requirements. To conclude, I have addressed only the current limitations on the use of capital, operating, and CDBG funds for curb, footway, and street tree installation, repair, maintenance, and removal. The Controller's office is in the process of formulating a position on the full bill 12 at this time. And I'd be happy to answer any questions that you may have.
Thank you very much, Mr. Volpe. Just in summary, I take it from your testimony based on the memorandum from 1996, there are essentially a couple of somewhat narrow ways in which to use City dollars for these kinds of site improvements or public infrastructure improvements. On the operating dollars, it is if the Streets Department determines, under the Philadelphia Code, that work that they are doing in the street, in their opinion or justification, 14 6/9/99 COMMERCE/EC. DEV. - Bill 990160 if you will, the curb and sidewalk work could be done if they believe it's incidental to the roadway work that they are already presently doing. Is that correct?
And on the capital budget side, it is only as a part of a larger either approved housing development or commercial or economic development project or a part of work that may be done by the Water Department. Is that also correct?
And those are the only ways that we can use operating or capital dollars for these kind of neighborhood revitalization or public infrastructure improvements?
Based on the policy that's set forth by the City right now and the interpretation of the Code, that is the current limitations.
And are you aware as to whether or not there are any particular programs that utilize either those dollars 15 6/9/99 COMMERCE/EC. DEV. - Bill 990160 specifically for those kinds of activities?
Yes. As a regular matter, if there's a large project -- for example, the Avenue of the Arts -- a large project, significant private investment, leveraging dollars, the curbs footways were replaced. So on larger projects, that happens routinely.
Are you aware of any projects that take place in many of the outlying neighborhoods not in Center City where this activity is regularly done?
Yes. I don't want to say "regularly," but we normally approve projects that are in neighborhood commercial corridors around the City where the curb replacement or installation of footways, rehabilitation of footways, is a part of the larger project. If they're doing street lighting, if they're doing, you know, awnings, if they're doing all kinds of other work, we'll normally approve the project.
Normally, no. Unless it is part of, for example, CDBG-funded. If it's a 16 6/9/99 COMMERCE/EC. DEV. - Bill 990160 housing development, if it's part of a large part of a block, for example, where they are going in and putting new homes and that's a part of -- or they're generally rehabbing the homes, using a large amount of federal money or private money, and the curb and footway replacement is a part of that project.
And what's available in areas where you don't have large housing activity or commercial or economic development activity but just primarily residential areas that may be facing some of the same distress or deterioration that either goes on in some of the commercial areas or, for instance, in the Avenue of the Arts example? What goes on in residential neighborhoods?
Under the current law and regulations, it's the home owner's responsibility or the property owner's responsibility.
Okay, all right, thank you. Are there any questions for Mr. Volpe? (No questions.)
What you've stated, has that always been true? For example, in certain areas in the northwest, there has been over time, through some neighborhoods organizations, the ability to replace curbs and sidewalks -- or "footways," as you call them -- 'cause that has occurred, and I'm wondering where that fit into over the last few years. It hasn't been done in the last two years or so but, say, four or five years ago.
Well, I can say this: Before 1990 -- and John Folks is our resident expert on curbs and footways and certainly the law related them, so he can step in any time he wants. Prior to 1990, being a Councilman, especially a District Councilman had a prerogative to appropriate funds on a Councilmatic basis, so there were expenditures for, you know, in Council District 1, 2, 3, 4, whatever it is, for particular improvements. And in many cases, they 18 6/9/99 COMMERCE/EC. DEV. - Bill 990160 were for curb and footway replacement that may not have met the guidelines that had been created in 1992 or may not have met the overall Code strictures that date back to the 1850s or something like that. So that may have occurred then. But in the last ten years, that hasn't occurred.
No, that's not -- the example I have in mind is -- there are community groups like Fern Rock, Olney, Boulevard throughout the City. There are groups that, over the years -- I don't say recently, but about four or five years ago, did have funding for the purpose of covering sidewalks, curbs, and the planting of street trees, the initial planting. You're not familiar with that or where that came from.
It did not come directly through Council. It was some outside funding.
I thought it came 19 6/9/99 COMMERCE/EC. DEV. - Bill 990160 through Community Development Block Grant funds.
Yeah, you can certainly ask Mr. Kromer. They're supposed to follow the CDBG guidelines in terms of eligibility. We do our best to make sure that both on the capital and operating CDBG side, the eligibility is met. There are certain things we don't see.
But just from what you were saying, to me at least, it appears to be a very unfair approach by the City. Residential areas were at the bottom of the list; everything else seemed to have priority.
Councilman Cohen, it's my understanding that in 1994, prior to me coming on Council, there were some curbs and sidewalk work done in the northwest, but those 20 6/9/99 COMMERCE/EC. DEV. - Bill 990160 funds were leftover funds from when Councilman Joseph Coleman was here, prior to this ruling in '91 or '92. So, you know, I just want to concur with some of what you said. It is true, but those were monies that was left over from before.
Mr. Jeremy Nowak, Executive Director of the Delaware Valley Community Reinvestment Fund. (Jerry Nowak comes forward.)
I am Jeremy Nowak, the Director of the Reinvestment Fund. Thank you, Councilman, for the invitation to speak here. I will be brief. I know you have a lot of speakers, and I also have an 11 o'clock engagement, so I will try to be brief as I can. I'm the Director of the Reinvestment 21 6/9/99 COMMERCE/EC. DEV. - Bill 990160 Fund. We're a $70 million community development financial institution that finances housing and economic development projects throughout the region. Last year, we did about $32 million worth of financing principally in Philadelphia. I'm here to support two pieces of this bill, but then to ask questions and add some caution on the third piece, so I want to talk a little bit about the different pieces of the bill 11 and then ask questions about the third piece. As I understand it there are three different aspects of the bill. One part of the bill -- and I'll get to the one that surely is the most controversial part last.
What I'd like to suggest is if your remarks -- and I'm obviously not telling you what to say, but I don't want you to get too far into something. I know you have some general thoughts --
-- or beliefs or 22 6/9/99 COMMERCE/EC. DEV. - Bill 990160 perspective about the larger issue at hand.
There will actually be some amendments that -- I don't know what your concerns are about some of the components, but I think that the amendments to be proposed may, in fact, either clarify or alleviate many of the concerns that you may have.
But I'd like to not have that discussion at this moment.
Let me talk first about why I support that part of the bill that deals with Section 108 spending. I find in the work that we do throughout the City that it is vitally important for us to look for funding streams to support neighborhood -- the revitalization of neighborhood commercial strips. Some aspect of the revitalization of neighborhood commercial strips has to do with the brick and mortar of businesses or has to do with small business loans. Most of that comes from the private 23 6/9/99 COMMERCE/EC. DEV. - Bill 990160 markets, some of that comes from quasi public agencies, some of it comes from financial intermediaries like ourselves. But to rebuild devastated commercial strips in this city at some scale, there is a significant need for infrastructure investment in those strips, and it is difficult to find that money. And so targeting some Section 108 money for those commercial strips, I think, is very important. More importantly, I think the whole question of the use of Section 108 Loans is an issue that City Council needs to pay greater attention to. To me, the issue really is, what are the standards by which we make choices for the use of Section 108 Loans -- Section 108 Loans, both as they relate to housing investments and as they relate to economic development investments. I would have at least three standards that I would want to look at. One would have to do with the investment impact. Is the use of this public money, is the use of that money going to give us the impact in terms of jobs, ratables, other kinds of economic development, stabilization 24 6/9/99 COMMERCE/EC. DEV. - Bill 990160 of neighborhoods that justifies the public expenditure? That's number one. Number two -- and I think one that really has often not been looked at -- is the use of the Section 108, could this money have been gotten from other sources? It's the capital access issue. And here I would say this is not only an issue for Section 108, but this is an issue, in some instances, for Tax Increment Financing. The way of doing business in this city for anybody that does a large deal, the way of doing business, the expectation is, you will get, whether you need it or not -- and in many instances it is needed, in some instances, it is not and you can go to the private capital markets. The expectation is, Section 108 Loan Tax Increment Financing. So standard number two ought to be the capital access standards and there are many states and many municipalities that have really spent time trying to put together this kind of standard and monitor it. The third, of course, has to do with things like repayment capacity. Well, all Section 25 108 should not be used for projects that if it can 6/9/99 COMMERCE/EC. DEV. - Bill 990160 show repayment, there is this long-term question of borrowing against the future and where it makes sense to borrow against future CDBG allocations. Part of the conversation we're having here and part of the fear here, the scarcity fear here, has in part to do with the fact that there will be diminished capacities within Community Development Block Grant money because of Section 108 uses. So any bill that takes a look at targeting Section 108 for neighborhood commercial strips -- and I think is maybe one piece of a broader conversation about a rethinking of or the creation of standards around the use of Section 15 108s and Tax Increment Financing -- I find is welcome. The second has to do with the linkage bill for large economic development projects, those projects that are $250 million or more. It didn't say it in the bill -- I take this to be the stadium bill, I suppose. I like that, and I like it for a few reasons. Number one, I think, again, this question of what is the right use of public subsidy and what is the public quid pro quo? has 6/9/99 COMMERCE/EC. DEV. - Bill 990160 got to be asked.
But I think, number two, what I like about the linkage bill, the $250 million or more bill that would put a certain percentage of money back into a fund administered by PIDC, is that it targets that money for neighborhoods that are -- where 51 percent of the people are 80 percent at median and above. Well, I think it is great that the Community Development Block Grant money targets the overwhelming majority of its money, as it should, for those who are 80 percent and below. There is a real question in this city about who you how you deal with those neighborhoods -- infrastructure, housing quality, commercial strips, those neighborhoods that are not CDBG-eligible but are in a process of deterioration, whether they're in South Philadelphia, the lower Northeast, West Philadelphia, or the Northwest. And so any thinking here about targeting money for those kinds of neighborhoods, and in essence, reopening the question of where we target money around the issue equity versus where we target money around the issue of growth for housing and economic 27 6/9/99 COMMERCE/EC. DEV. - Bill 990160 development, I think is welcome and important. The third, and I know and I won't repeat, but the third and, I'm sure, the most controversial, has to do with the use of CDBG money for infrastructure investments. Here, I think the principle that I like is the principle of using targeted, well-developed, community-based plans as a vehicle for making these kinds of decisions. The issue, of course, which I'm sure will come up over and over again, and I'm assuming that the amendments deal with, will have to do with where should the money come from, how much, and probably most importantly, what does it take away from, and does it take away from projects this year and in future years which are also important. I think it's too bad we've gotten to this scarcity conversation so quickly around this issue, and I'm sure I was not the only one in this room that got a telephone call from lots of different people saying that they were to testify for or against this bill for lots of different reasons. And I think it's because we've been placed into a scarcity conversation about public 28 6/9/99 COMMERCE/EC. DEV. - Bill 990160 ends that are important. And I would hope and I would urge this Council to consider the twin issues of equity and growth as the way to shape public policy without having this kind of a scarcity conversation drive everything. Councilman Nutter, about month ago, 8 you and I and a group of people sat around a room 9 and had a conversation about the problem of 10 transitional neighborhoods, those neighborhoods -- 11 again, whether it's in Ogontz, parts of South or 12 parts of West Philadelphia, that are neighborhoods 13 that can go and either rapidly deteriorate or 14 might stabilize. In many instances, they are 15 neighborhoods where people have got the income and 16 the capacity to leave that neighborhood. 17 And as we all know, Philadelphia, 18 unfortunately, in the last decade, is the leading City in the country in population loss -- not as a percentage or population, but in the aggregate, lost something like 150,000 people. So despite all of the wonderful things we've done -- and we've done some wonderful things in this town in the last decade -- this kind of population loss, which translates into a loss of tax ratables, 29 6/9/99 COMMERCE/EC. DEV. - Bill 990160 which translates into a loss of public wealth, has implications not only for CDBG, General Fund and the rest. So the question, it seems to me, when we got together was, where do you find the money to deal with those neighborhoods, and how do you find that money to deal with those neighborhoods so we don't create this sort of oppositional frame work between the poor and the working poor, or the working poor and the moderate income, both of whom are obviously important for the growth of this city. And I think our original conversation was to look for cash-flow streams.
I think at one time, we talked about some of the real estate transfer tax and other tax flows. And the idea was to go to the capital to securitize it, to go to the capital markets, securitize that, and look at that as a source of money to deal with moderate-income infrastructure needs. It sounds to me like we didn't get far with the Administration. That's my understanding, I don't know what happened. But it seems to me we wee on the right path, and we were on a path that I would urge this city Council and the present 30 6/9/99 COMMERCE/EC. DEV. - Bill 990160 administration and whoever drives the next administration to continue down, because this city is supported by the wonderful things we do with CDBG, but it ultimately cannot survive unless those moderate-income transitional neighborhoods are stabilized. Thank you very much.
Thank you very much, Mr. Nowak. To respond to the one issue that you raised, there were some discussions with the Administration about securitization and looking at targeted revenue streams. I would probably have to characterize it as a discussion that we need to get back to. We reached a certain point and things just kind of trailed off from there. I think that it is still a very viable idea and project, and it merits continued consideration. This effort today does, though, to some extent, spin off of, or is an offshoot of that particular proposal. But I think that that is still potentially a great idea that people can work on. Are there any questions for Mr. Nowak? 31 6/9/99 COMMERCE/EC. DEV. - Bill 990160
Just one question for information. Early on, you indicated that somehow or another, the use of Section 108 funds will diminish the availability of CDBG funds in general?
Could you elaborate a bit on that. I'm not familiar with that and didn't quite understand it.
Well, it's for Section 108 Loans, and John Kromer from the Office of Housing is here, so I'm sure you could get the details from John and others that can give it to you. But when you hit a cap, there's -- you can use Section 108 Loans for either economic development -- that's one form of Section 108 -- and there's a Section 108 for housing. And the repayment for the Section 108 housing loans, as we've used them, will be based on the temporarily diminishing CDBG authority. So there will be less money this year in CDBG funds because of prior years' borrowing 32 6/9/99 COMMERCE/EC. DEV. - Bill 990160 for Section 108. Unless someone wants to correct me, that is my understanding.
Well, I'm going to be very interested in Mr. Kromer's statement.
And I thought -- I assumed that everyone -- I mean this, Councilman. As you know, I respect you and I mean this in no 9 disrespect, but I assumed that everyone understood that and, therefore, when we made use of Section 11 108 Loans, whether it's in economic development or housing, we're asking tough questions, that if we're going to borrow against the future, whether it's temporary or not, is this the right kind of investment to borrow? Sometimes it makes sense to borrow against the future, sometimes it makes sense to quickly tap out a fund of $320 million or whatever the total cap was, but it's got to make strategic sense.
We've known that with Tax Increment Financing, we're borrowing against the future because we know that money that would go into the General Fund doesn't go into the General Fund.
It's with the School Board. 33 6/9/99 COMMERCE/EC. DEV. - Bill 990160
But goes to -- or into the School Board, if we use the School Board's portion of the real estate tax.
But I did not know-- I did not know and I've heard no discussion at City Council ever with respect to 108 diminishing the future availability of funds.
As I understand, for the 108 loans -- and Mr. Hankowsky's here, but as I understand it, for the 108 Economic Development loans, they're being repaid based on the cash flow of those projects, that's how I understand it. That is not an issue. For the housing loans, using them as subsidy that has got to be repaid, that may be a good use of that money. But the question I have is, what is the criteria? Do we have criteria, do we have a strategy, or are these transactions by transactions that have really got limited coherence within the overall scheme of things?
The bigger the project, the less criteria there are. If big 34 6/9/99 COMMERCE/EC. DEV. - Bill 990160 business comes in here, we only basically have one question in City Council, and that is, can't we find some way to give you more money? When it comes to residents, the answer is always the other way -- whatever the request is, it's too much.
And so now we're here having a war between residents that are 80 percent below poverty and 82 percent -- no, 80 percent of median and 82 percent of median, which I think is the wrong conversation, quite frankly. But what I would worry about, even for those Section 108 Loans, economic development loans that I think are well structured, they're being paid back. I think the pool of money was handled well and responsibly. But there's this question of, was it needed? Were there other uses of that money? When you rehabilitate a law firm's office by a major developer, gee, do you think that major law firm could have gone out in the regular capital markets and gotten a loan? I'll bet they could have, right? I mean, there's a whole set of questions here so --
So some cities, some states 35 6/9/99 COMMERCE/EC. DEV. - Bill 990160 ask questions, and the ultimate question is, could this project have gone forward without this TIF or without this Section 108 Loan? Now, there's a gray area there. That's often a difficult thing to decide. But to have no 7 conversation about the use of it, to have no 8 conversation about what the nature of the reinvestment impact ought to be based on the investments I think puts in us a funny position vis-a-vis control over our future.
Councilman, what I would mention for the record is that there was some discussion last week about the HUD 108 Loan repayment on the housing side. It is correct that on the commerce or PIDC side on the economic development HUD 108 Loans, there is the prospect usually insisted upon by the agency that the HUD 108 Loan be repaid. On the housing side, what has happened is, there will be upwards of $107 million that will have been borrowed through the Section 108 Loan Program for housing. And in the Year 25 36 6/9/99 COMMERCE/EC. DEV. - Bill 990160 Plan, it is proposed that $13 million in CDBG funds will not be available to any of the community-based organizations and any of the people here in this room because those loans now have to be repaid by OHCD. And every year, from now until the year 2009, there will be minimum payments of $10 million, $11 million, $12 million. In 02 and 03 and 01, $15 million of CDBG funds will not be available to any community-based organization for the use and benefit of low- and moderate-income people in those years because of HUD 108 Loan repayments. Those dollar amounts, and in this upcoming Year budget, the $13 million 16 represents 19 percent of the entire CDBG 17 allocation of $68 million. 18 That is, I believe, a very serious 19 issue. I don't think anyone questions the 20 viability, the validity of the projects that were 21 supported. Many of them are potentially done, and 22 maybe people are living in those houses. That is 23 not the issue. I think the issue is, what do we 24 do when upwards of 20 percent of our CDBG 25 allocation for the next 10 or 11 years will be 37 6/9/99 COMMERCE/EC. DEV. - Bill 990160 unavailable for anyone's use?
I think it's a very serious question that we've got to deal with.
Are there any other questions for Mr. Nowak? (No further questions.)
I'd like to make some remarks and then take care of a particular housekeeping matter. First, let me say thank you to everyone who has come here today. We have a fairly long list, and we will make sure that everyone has the opportunity to speak. First let me say that I have extreme admiration and support for all of the various CDCs that have been funded in the past and expect to be funded in this year's plan and in future years' plan and the projects that you have put forward, whether in my district, in the 4th Councilmatic District, or throughout the City of Philadelphia. For myself, I have had many hard-fought 38 6/9/99 COMMERCE/EC. DEV. ), or other Philadelphia neighborhood housing services, or even -- not in my district but in Councilwoman Blackwell's district -- People's Emergency Center on whose board I used to assist sit many years ago. Anyone who has told you or called you or faxed information to you saying that your program or activity will be cut as a result of this particular bill has not told you the truth. No one will be able to come to this table, to the witness table, and state that any program or activity will be cut, and I would certainly not propose such an idea. It is, though, an insult to the cosponsors of this bill who have relied on my reputation as a community person and serious legislator to give anyone the impression that my Council colleagues, in general or members of the 39 6/9/99 COMMERCE/EC. DEV. - Bill 990160 of this committee in particular, would ever try to hurt CDCs in Philadelphia. I despise people who do not tell the truth and know it and those would use underhanded scare tactics to virtually force many of you to come here today on the threat that your funding would be affected by this bill. Rather than engage in these duplicitous tactics, the Housing Director and staff should have taken the serious time to have a discussion with me and others about this particular bill and the long-standing concerns that many of us have had for many years about the health and vitality of all of the neighborhoods of Philadelphia. Many of the communities leaders, though, were at least willing to question the information or disinformation that they were given, either because it was so outrageous or so implausible or because many of you know me better. To those of you, I say thank you on behalf of my office, my chief of staff, who many of you talked to, Julia Chapman, and certainly myself. I find some of the personal 40 6/9/99 COMMERCE/EC. DEV. - Bill 990160 deficiencies with which this disinformation campaign has been conducted to be despicable, disrespectful, two-faced, and unworthy of any further discussion. But I do believe that Mr. Kromer and others owe an apology to all the CDCs and the City Council members who were the targets of this campaign in an effort to prevent legitimate, rational, and serious discussion about the serious issues that affect Philadelphia and its neighborhoods. I believe that many of the CDCs want to see the kinds of projects and activities that are proposed in this particular bill to happen in their neighborhoods because they know that it is good for their neighborhoods. I agree with you and I share your concern that you just don't want to see the precious resources that you get in an environment of limited resources today directed in another place in order to accomplish these particular goals. It is, quite honestly, with that in mind that this particular bill was proposed and there are other actions that need to be taken. What I would like to do at this point 41 6/9/99 COMMERCE/EC. DEV. - Pub. Meeting in time is recess the public hearing and move into a public meeting. There are a variety of amendments that need to be read into the record. And then we will move forward with our business. - - -
We are now in a public meeting, and these amendments are offered to Bill No. 990160. First, amend the bill, , Paragraph (5) to read as follows: (5) No more than percent and no 13 less than 10 percent of each year CDBG entitlement 14 program funds, inclusive of administration and 15 program management costs, shall be allocated and spent directly on designated neighborhood revitalization projects or activities which directly relate to community revitalization and infrastructure renewal, including, but not limited to: the repair, replacement and reconstruction of curb, sidewalks and other neighborhood public infrastructure; the removal and planting of street trees; the repair, replacement and installation of street and pedestrian lighting; and, any other CDBG-eligible projects or activities related to 42 6/9/99 COMMERCE/EC. DEV. - Pub. Meeting neighborhood revitalization. Such neighborhood revitalization projects or activities shall be in accordance with an approved neighborhood revitalization plan. Beginning in CDBG Year 25, no more than five percent (5%) of each year's CDBG entitlement program funds shall be spent to repay Section 108 Loan principal and interest obligations from prior program years. Any CDBG entitlement program funds in the Year 11 Consolidated Plan or subsequent year consolidated 12 plan in an amount of more than five percent (5%) 13 of such funds that are designated in the 14 consolidated plan for repayment of Section 108 15 Loans shall instead be used for the purposes 16 stated in this subsection. OHCD shall not 17 decrease any funding in the Year 25 Consolidated 18 Plan for any proposed housing program, housing 19 development project, service provider, training 20 program, or any other nongovernmental grant 21 recipient in order to fund any community 22 revitalization and infrastructure renewal project 23 or activity. 24 Number 2. Amend bill, Pages 2 and 3, 25 Paragraph (6) to read as follows: 43 6/9/99 COMMERCE/EC. DEV. - Pub. Meeting (6) It shall be the policy of the City that no less than (strike percent) (insert) 4 five percent (5%) of the total funds applied for 5 by the City through the HUD Section 108 Loan 6 Guarantee Assistance Program shall be allocated 7 and spent directly on designated neighborhood 8 retail and commercial corridor revitalization 9 projects or activities including, but not limited 10 to: the repair, replacement and reconstruction of curbs, sidewalks, and other neighbor public infrastructure; the removal and planting of street trees; the repair, replacement and installation of street and pedestrian lighting and any other CDBG-eligible projects or activities related to neighborhood retail and commercial corridor revitalization. Allocations may be in the form of a grant, loan, or combination thereof. Such revitalization projects or activities shall be in accordance with an approved neighborhood commercial corridor revitalization plan. On the effective date of this ordinance (strike 10 percent) (insert) five percent (5%) of the amount equal to five times the annual CDBG allocation received by the City shall be made available and 44 6/9/99 COMMERCE/EC. DEV. - Pub. Meeting subsequently awarded to these neighborhood retail and commercial corridor revitalization projects or activities; provided that no fund shall be transferred from any specific project which has been awarded a HUD 108 Loan. For future applications to HUD for Section 108 Loan funds occurring after the effective date of this ordinance (strike percent) (insert) five 10 percent (5%) of the amount applied for shall be made available and subsequently awarded to these neighborhood retail or commercial corridor revitalization projects or activities. Number 3. Amend bill, , by inserting after Paragraph (6) and prior to Section 16 (2) the following: Section 21-1110. Rules and Regulations. New material.
At the end of the sentence that reads, "The OHCD is authorized to establish and enforce reasonable rules and regulations necessary to promote compliance with the provisions of this chapter," add a new sentence: "Any funds received pursuant to any CDBG entitlement program or other community or economic development program fund application 45 6/9/99 COMMERCE/EC. DEV. - Pub. " Number 4. Amend bill, , Paragraph (1) to read as follows: (1) The Community Revitalization and Infrastructure Benefit Fund (herein referred to as the "CRIB Fund") is hereby established and shall be administered by the Philadelphia Industrial Development Corporation (PIDC). New material. The PIDC is authorized to promulgate and enforce reasonable rules and regulations necessary to ensure compliance with the provisions of this chapter and the utilization of the CRIB Fund pursuant to the contract between the City and the PIDC. Number 5. Amend bill, Pages 4 and 5, Paragraph (2) to read as follows: (2) For any development project within the City for which the total project cost is two hundred and fifty million dollars ($250 million) or more and in which the City contributes twenty percent (20%) or more of the total project cost, an amount equal to (strike 10 percent) 46 6/9/99 COMMERCE/EC. DEV. - Pub. Meeting (insert) five percent (5%) of the total project cost shall be paid into the CRIB Fund by the (strike non-public developer, non-public owner or both) (insert) City no later than five years after the completion of the development project. For purposes of this paragraph, the City contribution to the total cost of such a project shall be calculated by determining the total value of any land transfer, site improvements, environmental remediation, infrastructure improvements which benefit the project (including but not limited to curbs, sidewalks, streets, drainage or water and sewer mains) loans, grants, tax incentives, tax abatements, tax increment financing, or any other form of public supported financing. Those are the amendments. I would ask for a motion on the amendments.
Mr. Chairman, since you're the sponsor of the bill, I believe you have an absolute right to have the bill in the particular form you wish to have it discussed. So I move the adoption of those amendments. (Duly seconded.)
All in favor of the 47 6/9/99 COMMERCE/EC. DEV. - Bill 990160 adoption of the amendments say aye. All opposed, say nay. The amendments are adopted - - -
We'll move back into our public hearing. The bill has been amended. I would ask that get copies of amendments circulated around, and it would be helpful for any individuals to testify if we could talk about the bill now in its amended form. Thank you very much. Mr. Kromer, Mr. Hankowsky, Mr. Mullin. (Messrs. Kromer, Hankowsky and Mullin come forward.)
Mr. Chairman, would it be appropriate at this time, because it's very difficult, I know, for members of the committee to follow what these amendments -- really how they change the bill, and I think it would be very difficult for anybody in the audience to follow it. It might be helpful if you could explain just very generally the purpose of these amendments and how they impact on the bill.
Thank you, 48 6/9/99 COMMERCE/EC. DEV. - Bill 990160 Councilman Cohen. I plan to do that and I appreciate you. . . Councilman Cohen, thank you for raising that issue, which I had certainly planned to do. There have been a number of concerns about the issue of the moving around or the taking away, I believe, as it has been characterized in the past, of CDBG dollars, or telling groups and organizations that they would suffer potential cuts in funding.
I've received more than a few. Again, let me certainly state for the record, there was never any intention of harming any of the various groups and organizations, and I would never think to do something like that. And I will also say, had I been asked by the Housing Office, I would have told them that as well. But what the amendments do, Councilman Cohen, and to my colleagues is, one, clarify some language. There was one mistake made in the beginning where it talked about "exclusive" of 49 6/9/99 COMMERCE/EC. DEV. " There would be certainly implications certainly if the other term had remained. Secondly, it goes back, Councilman Cohen, in this particular section to the discussion that we had just a little while ago about the propriety of using CDBG funds to repay HUD 108 Loans from previous years. Again, I'm not making any comment and am generally supporting whatever those particular projects were but questioning whether HUD CDBG funds should be used to such a magnitude to repay HUD 108 Loans. So the first amendment places a cap on the Year Plan and future plans on the amount of 17 CDBG dollars that can be used to repay below HUD 18 108 Loans. As we all know, HUD 108 Loans are an 19 allowable source of funds for the repayment of HUD 20 108 Loans. They are not the only reliable source, 21 and as a matter of fact, generally, the HUD Office 22 and the federal government does not care where the 23 City gets funds to repay HUD 108 Loans. 24 And so there are some additional 25 options other than the use of CDBG dollars. For 50 6/9/99 COMMERCE/EC. DEV. - Bill 990160 instance, we could look at the Economic Stimulus Program, we could look at general City dollars. There are a variety of places in a budget as large as ours that we can certainly look to find funding to repay those loans. What we do know is that there is no 8 funding available that is as flexible as the CDBG dollars in comparison to any others dollars that we have access to. And in the flexibility argument, it seems to me that we should try to put as much CDBG money out on the street, serving low- and moderate-income people for whose benefit the dollars were sent to the City in the first place. The second amendment, Councilman, has to do with the section on getting HUD 108 Loan dollars into commercial corridors and providing some of the same services. The amendment in that section cuts the rate from 10 percent to 5 percent and also addresses a concern that funding could potentially be taken from some projects that have either been approved recently or are in the pipeline. And the amendment that addresses that basically says that no funds can be transferred from a project that has already been approved for 51 6/9/99 COMMERCE/EC. DEV. - Bill 990160 HUD 108 Loans in order to fulfill the percent requirement. The third amendment primarily states that whatever's done with these dollars, it has to be in compliance with all federal, State, and City statutes and ordinances. I don't think anyone can have any particular concern about that. The fourth amendment deals with some clarifying language on the creation of a CRIB Fund and trying to give additional weight and direction to PIDC in terms of trying to manage such a program. Lastly, there was some concern about the amount and the appropriateness of trying to extract additional dollars out of a very large project developer. Mr. Hankowsky is at the table, so I guess we can ask him the question of how many times we get or how often we get $250 million projects here in the City. But should we have any, there would be some opportunity to get dollars back in a fund and a new funding source for areas of the City that are not eligible for CDBG funds. But it provides that the City would make that contribution over a five-year period of 52 6/9/99 COMMERCE/EC. DEV. - Bill 990160 time after the completion of the project.
A project of that size and magnitude, I'm sure, within five years is generating significant revenues not only for the owner- developer, but probably also throwing off a fairly significant amount of tax revenue to the City that would then be available for such a contribution.
Would it be a fair characterization of the last amendment to say that it eliminates the element of linkage that Mr. Nowak talked about? Because the money would be coming from the City, and that it cuts in half the amount of money originally intended to be used for this purpose.
It wasn't really dealing with the bill and the amendments.
I understand. It does, in fact, cut the amount. I think that the City, or whoever is in control at that time, will certainly take a look at this and try to figure out between the City and the developer how to make such a contribution, but it -- on a $250 million project, even at the 5 percent rate, you are 53 6/9/99 COMMERCE/EC. DEV. - Bill 990160 talking about $12.5 million.
But it would be the City that would have pay it, not the private developer.
It would certainly be the City. There's certainly no obstacle to the developer participating. Or if they're dealing with a person like Mr. Hankowsky, they might enthusiastically want to make some contribution to such a fund. I understand that Mr. Hankowsky drives a pretty hard bargain with developers in Philadelphia.
But it removes the element of compulsion as far as the developer.
It does take away the compulsion. The City, though, certainly reserves the right as to whether to make such a level of contribution which is in the percent 20 range. Again, that's a fairly significant amount of money, and maybe the developer ends up having to put more of their own money into such a project in first place.
I'll refrain from making -- since I'm looking right at Mr. 54 6/9/99 COMMERCE/EC. DEV. - Bill 990160 Hankowsky, I'll refrain from a characterization. I was about to suggest as to whose pockets he seemed to be more protective of -- the City's or the private developer.
We appreciate your retraining from making that comment, Councilman. (Laughter.)
Before we go to the witnesses, let me acknowledge the presence of Councilman Clarke, who is also a member of this committee. Gentlemen, I will assume that you have figured out who's going first among you, and please identify yourselves for the record and proceed.
Good morning, Mr. Chairman and members of the committee. I'm John Kromer, the Director of the City of Philadelphia Office of Housing and Community Development. I've submitted written testimony on this bill, and rather than read that over again, I wanted to make a few brief comments which address only the first two portions, not the charge on major City-supported development ventures. 55 6/9/99 COMMERCE/EC. DEV. - Bill 990160 I don't think that there is anybody in this room that does not support the idea of making more resources available for site improvements such as curb and sidewalk installation, the planting of street trees, the installation of street lighting. And I don't think there's anybody in this room who disagrees with what Jeremy Nowak said about the need to build up or rebuild the infrastructure of neighborhood commercial corridors; those needs are all critical needs, and in a sense, they're critical economic development needs. The City has to present itself not only as a great place with a wonderful downtown, but also as a place full of liveable, attractive, appealing neighborhoods, and site improvements just happen to be a part of that appeal and that attraction. And to the extent that we can do something about that situation to enhance these neighborhoods, we all benefit. Secondly -- this may be obvious to everyone -- but I just want to emphasize that the installation of these site improvements -- curbs, sidewalks, trees, lighting, and so on -- is 56 6/9/99 COMMERCE/EC. DEV. - Bill 990160 definitely an eligible use of Community Development Block Grant funding. There's no real barrier to using Community Development Block Grant funding for this purpose. The issue really is a decision about the appropriate allocation of resources. We have a Community Development Block Grant budget, we have other funding that's available through the Federal Home Program and other sources. And every year, we prepare a proposed plan that is available for public review. It is submitted to City Council, there is a hearing before the City's Finance Committee, and the budget is passed, and an application is made to HUD for this funding. Now, as other witnesses have testified, the issue of funding for curbs, sidewalks, trees, and so on has been an issue for some years now. The Community Development Block Grant proposed plan, the preliminary plan for the coming fiscal year, was published in December of last year, it was available for public review. The second draft of the plan was published several weeks later and was made available for public review, and there was an in-house hearing at OHCD to obtain 57 6/9/99 COMMERCE/EC. DEV. - Bill 990160 comments. And then finally, last week, the Finance Committee heard the testimony on the proposed plan for Year 25. One issue, just in terms of process, is the fact that although the matter of concern for funding for these site improvements has been a concern among some for several years now, this bill is coming to public hearing today, the week after the Finance Committee hearing on the Year 11 Plan, and it proposes substantial revisions in the 12 Year 25 Plan. In terms of process, I'm not sure 13 that many people who attended the Finance 14 Committee hearing last week were aware that the 15 week after, a hearing would be held that called 16 for a substantial revision to the plan that was 17 under discussion at that time. 18 City Council is free to hear and 19 consider and act upon any measures that it feels 20 are appropriate, but this process issue is one 21 that concerns me. First of all, the use of our 22 Community Development Block Grant funding for 23 these activities is definitely an eligible 24 activity. But it is a matter of, as Jeremy Nowak 25 said, having some dialogue. We really need to 58 6/9/99 COMMERCE/EC. DEV. - Bill 990160 have some dialogue about how to use this resource, which is valuable, is substantial, is flexible.
And we have to have that dialogue and make serious choices amongst various alternatives. And this is a dialogue that we had last week, and now we're entering into another dialogue which affects that budget. And I recently heard the reading of these amendments, which I'm hearing for the first time, which I don't think anyone in this room 12 other than perhaps Councilmembers have seen before this day and which I'm expected to be responding to, which I'll be glad to do. And then, finally, Councilman Nutter has expressed some criticism and apparently formed an impression of things that I may have said or did, but I've had no communication with either him or either his office, despite the fact that I was in Council for half the day yesterday, about his concerns and about what he may have heard that I may have said or done. So in terms of process, I support the idea of dialogue, and I'm glad to have this opportunity to participate in this dialogue. Let 59 6/9/99 COMMERCE/EC. DEV. - Bill 990160 me make a couple of brief comments. The issue is a resource issue and a decision about how we are going to use the resources that we have available. At last week's Finance Committee hearing, there were a series of questions about the Basic Systems Repair Program and whether enough funding was available for the Basic Systems Repair Program. The witness from the Youth Build Program was asked why Youth Build couldn't be expanded, and there were other questions that related to the general issue of, why can't we do more? And, of course, the answer is, we have a certain amount of funding available to use, and we have no more than this. This proposed legislation adds an additional issue. Should we take any funding at all from activities such as housing production, the preservation of existing occupied housing, employment and training and job readiness programs to get people into the work place and other activities that currently appear in the plan that was heard last week by the Finance Committee. Do we take from some of these activities, any of these activities, in order to fund curb and 60 6/9/99 COMMERCE/EC. DEV. - Bill 990160 sidewalk installation? And that is the basic issue that we do have to consider. And my response to this would be no, that the programs that we have in place, that we have proposed to continue are all worthwhile programs. They provide very clear benefits. The policy is very clearly articulated in the proposed plan, which has been available for review for some months from now, and the program has produced very substantial results. And I think in particular of the representatives of the job readiness and training programs that appeared first last week, who described the results of those programs in terms of placing people in unsubsidized, good-paying, private-sector jobs. Our programs are delivering now, and any reduction of funding for those programs is going to produce less housing services, although it will certainly fund more curbs and sidewalks and trees. Secondly, Councilmember, last week --
Mr. Kromer, I'm sorry, let me interrupt you for a second. Your comments, I take it, are still in the context of the bill as introduced as opposed to the bill as 61 6/9/99 COMMERCE/EC. DEV. - Bill 990160 amended.
I believe the amendments would also take funding from the budget that was included in the plan last week, so they do --
Well, my understanding is that there would still be reduction of funds in the Community Development Block Grant Program to fund these activities. And, secondly, the assumption --
Well, secondly -- let me just finish. Secondly, the assumption that there would be a cap on the repayment of 108 funding does not appear to me to be consistent with the process established by HUD for repayment in which a letter of credit from HUD to the City is simply reduced every year. The City is not provided with an option; the funding is simply reduced. So the other --
Well, if I could comment 62 6/9/99 COMMERCE/EC. DEV. - Bill 990160 on that later in my testimony, I have a suggestion about that issue. The Finance Committee hearing last week included a discussion of neighborhood employment. And you, Councilman Nutter, characterized the program as one that had been -- funding that had been earned on the backs of low- and moderate-income people. And I really agree with that characterization -- HUD funding is based on poverty levels and other criteria of need, and that's how we get the funding. And I think that point is really important, particularly in Philadelphia, because it's the only resource really, other than the public housing system -- which is improving but far from perfect -- that is a substantial resource for addressing the needs of low- and moderate-income people in Philadelphia communities. Unlike other cities such as New York City, there is no money from the City's General Fund that is used for this purpose. And in contrast, New York spent over $2 billion in the 1980s for this purpose and still budgets substantial general funding for affordable housing 63 6/9/99 COMMERCE/EC. DEV. - Bill 990160 and other services for low- and moderate-income people.
My point is that there is no funding that is made available through the City's General Fund for the Housing and Community Development activities that are --
Well, there has been a policy decision that's been in effect since the start of the program, in the 1970s.
So does that mean we can't ever have a discussion about it?
Or should we just continue doing what we've been doing?
Well, in cases where the General Fund has paid for affordable housing 64 6/9/99 COMMERCE/EC. DEV. - Bill 990160 activities, such as New York, a lot of housing production is comparable to the lower North Philadelphia housing construction that is going on now was funded through the General Fund, the construction of South Bronx, for example, freeing up federal funds for other purposes. But that's an issue, again, that is a part of the consideration. A dialogue --
So we just continue the policy that was established sometime in the '70s that the City of Philadelphia doesn't use any of its General Fund dollars to deal with the housing issues, and we fund it all primarily out of CDBG?
Out of federal money. And I think one point that has to be understood, and I think is generally understood, is that there are multiple goals that the City has to consider. One of those is balancing the budget and staying in the black. And I'm sitting here as Housing Director and saying that I think getting rid of 65 6/9/99 COMMERCE/EC. DEV. - Bill 990160 the deficit and retaining a surplus is far more important to the future of the City than the most wonderful housing development that could be supported. By contrast, New York City is still struggling with budget deficit problems, and I don't think we can afford to do that. I'm sure in this administration, that issue was of paramount concern.
What about the issue of salaries or administrative costs?
Taking from administrative costs? Well, we certainly would respond to that portion of the amendment and try to be very clear with Council about the implications of that. I can't do that now and tell you exactly --
Your current administrative costs are covered by CDBG funds also, right?
Okay, what are 66 6/9/99 COMMERCE/EC. DEV. - Bill 990160 they?
Well, they're detailed in the proposed Year Plan. They include -- 7
Okay. Of the CDBG 11 funds go to administrative costs. 12
To return to my point 16 about low- and moderate-income need, 17 unfortunately, we're not like cities that address 18 this need in part with City General Funds. 19 Unfortunately, Pennsylvania has never been a state 20 that has been similar to states like New Jersey 21 and Maryland, that have made available a lot of 22 state funding for affordable housing and other 23 benefits to low- and moderate-income people. 24 So, again, that just returns to the 25 point that the HUD resource, this budget is the 67 6/9/99 COMMERCE/EC. DEV. - Bill 990160 basic resource available for this purpose. And I agree with those who say we should do more for middle-class people; we shouldn't just be dealing with people below poverty level. But as I said, this is the primary resource, the core resource that is available to that population and that population. And that population has been adversely affected during the past decade. Welfare reform, at best, has produced serious disadvantages for low- and moderate-income people. The Block Grant Fund itself has declined during the past decade in terms of real dollars. The --
I'm sorry, Mr. Kromer, let me just make sure we keep the record clear. You're not suggesting that the bill 18 or I are suggesting that CDBG dollars should be used anywhere other than in CDBG-eligible communities; you're not suggesting that, are you?
So this a valued and the core resource for low- and moderate-income people. And, again, we've got to make some choices about how that resource will be used. A decision to fund one new activity, whatever it is, will require reducing the amount of funding available for some other activity or that is proposed for some other activity. And I'd be pleased to join with you in that discussion. With respect to the issue of Section 12 108 repayments and the debt service obligation that is proposed during the coming fiscal year and, in fact, will extend for a series of years after that time, as I had indicated in the Finance Committee hearing last week, the City, with City Council's support, has taken out Section 108 financing during each of the past five years. And some of that financing was associated with housing development activities that took some time to get started up. And as a result, a substantial debt service repayment is beginning this year, and that will continue during the coming year. So it's a big jump, from approximately 4 million to approximately 13 million. 69 6/9/99 COMMERCE/EC. DEV. - Bill 990160 The majority of that funding, that financing that was taken out during that period, was used to support two activities. One was the development in the lower North Philadelphia area. The development in that area is consistent with a policy called "Home in North Philadelphia," which was published in 1993, which I'm really proud to say Council has supported consistently in every year since then, in every Block Grant budget, including the 108 financing, so that we've been able to take on development in a major section of this city that is close to the downtown area, where we made commitments to the community during past decades and where we really need to build out the area. So this is really the first time that the City of Philadelphia has been able to implement a targeted policy of housing production, and the results have been terrific, so far. There's more to be done, but the results have been great. The second activity that has been a primary focus of 108 borrowing, has been the acquisition and relocation activities in the Logan 70 6/9/99 COMMERCE/EC. DEV. - Bill 990160 Triangle area to support the relocation of residents living in dangerous conditions in the so-called "sinking homes area," the Logan Triangle. The commitment to provide relocation benefits and to acquire properties in that area was made under the last administration by former Mayor Goode in 1986, and I believe that was made with the expectation that special-purpose HUD funding and state funding would be made available exclusively for those costs or to pay for substantial amounts of those costs. Unfortunately, that expectation, if it was part of the plan then, did not prove to be true. And during most of the years which have passed since 1986, there has been no federal and state funding available for Logan relocation, but this legal obligation to serve the residents of that area and to provide them with federal relocation benefits has been a continuing legal obligation. And Council, again, I'm proud to say, has supported a consistent commitment to Logan relocation during each year of this administration. And the Logan Assistance Corporation, during the past four and five years, 71 6/9/99 COMMERCE/EC. DEV. - Bill 990160 has done a great job in moving people out of dangerous conditions in that area. The other uses of 108 funding are detailed in an appendix to the proposed Year 6 Community Development Block Grant Plan. Again, 7 the debt service payment is very substantial. But 8 if you would refer to the sources page of the 9 plan, you will see that the Block Grant and the 10 Home Program and the Hopwell funding and the other 11 resources amount to a substantially greater budget 12 than $1000 million, of which a debt service 13 repayment amounts to roughly 10 percent.
14 My opinion, with which others may 15 disagree, is that a 10 percent debt service 16 repayment is not excessive. And, secondly, my 17 personal view -- again, others may disagree -- is 18 that this funding should have been borrowed and 19 spent a long time ago, ten years ago preferably, 20 to address critically issues like the build-out of 21 areas such as lower North Philadelphia, where the 22 City made commitment after commitment but failed 23 to follow through. We had an opportunity to make 24 a commitment and keep it and deliver the housing 25 production and we were able to keep it, and I'm 72 6/9/99 COMMERCE/EC. DEV. - Bill 990160 proud of that and, again, am very pleased to have had Council's support in following through on that commitment. All of these comments really don't do anything to address an underlying issue that I know, you Mr. Chairman, are concerned about, and that is where are we going to find the dollars to support these improvements. I know that other Councilmembers hear from neighborhood constituencies about the needs for these improvements. And if I'm sitting here saying we oppose the use of Block Grant funding for this purpose, the question must be asked, where can the funding be if the capital program is not an option and if General Fund is not option and if now the Administration is saying the Block Grant fund is not an option? Other than simply making the statement that --
-- we can't afford it and, you know, this is one thing that we'd like to do but we can't do, the only other possibility that I 73 6/9/99 COMMERCE/EC. DEV. - Bill 990160 can think of that I have not discussed with the Mayor's staff, but have discussed with you and it might be considered, although it's not necessarily long-term solution, is the Economic Stimulus Program. And the possibility that if funds are available in this program, they have even more flexibility than the Block Grant and can be used for this purpose. In my experience with the program -- and it has been a limited experience because not that much funding has been available for housing -- the preference of the Administration has been to use this Economic Stimulus funding for tangible physical development or other activities that produce jobs and other long-term benefits to communities. And the argument could be made, and is being made, that curbs and sidewalks and site improvements provide very clear long-term benefits to communities. And there may be an opportunity to take up that issue in the context of the Stimulus Program. It certainly doesn't provide the long-term solution to --
How much money is in the Stimulus Program right now? 74 6/9/99 COMMERCE/EC. DEV. - Bill 990160
I don't know. Possibly one of the others can answer. I don't think it provides the kind of built-in solution that I believe is being proposed here, but it may be one way to open up the dialogue a little bit further. Thank you.
You had made a statement earlier, although I didn't really hear you come back to it, which had to do with, you have $13 million, which are not available, of CDBG funds because, again, for good projects, you borrowed money, you now have to pay it back, and $13 million is about percent of your budget. 19 If funding is found to pay a substantial portion of that $13 million repayment with no impact on your bottom line of the $49.5 million that you need to run your programs coming off of the total of about $77 million minus $17 million in program delivery cost, minus $12 million is administrative costs, and now minus 75 6/9/99 COMMERCE/EC. DEV. - Bill 990160 $13 million in HUD 108 Loan repayments, which is what leaves you with, I believe, less than 50 percent of what you started with. But if we were able to find a way to significantly pay back your HUD 108 Loan obligations and free up the CDBG dollars that you have now targeted for that, then how are you harmed?
I think I would be very pleased to try to work with Council on an approach that would do that. The issue would be that others who manage those other sources of funding would have to be brought in on the discussion. And because I was not aware of the amendment, I have had no discussion with them about that.
I understand that. And I'm not charging you with a lack of being involved. What I'm asking you is, if there is a way to significantly pay your HUD 108 Loan debt with non-CDBG dollars and still leave you with $49.5 million to run your program, are you harmed?
I believe the answer to your question is no. However, that would not 76 6/9/99 COMMERCE/EC. DEV. - Bill 990160 change my position with respect to the bill. I think that the issue of the CDBG Program should be considered in terms of evaluating the program in total, and that the resources of the Block Grant should not be used for curbs, sidewalks, and trees.
Even if these are dollars that are now freed up, that you had no 10 access to the in the first place?.
No. And my recommendation would be that those new sources of funding, which might come in to pay the debt service, should simply be allocated to the site improvements.
Those dollars generally are not allowable and certainly don't have the flexibility of the CDBG funds. I think we heard a fair amount of that discussion from Mr. Volpe this morning. The dollars that have the greatest level of flexibility, at least according to HUD CDBG regulations, is in fact the CDBG dollars.
So, I mean, you don't have access to the 13. 77 6/9/99 COMMERCE/EC. DEV. - Bill 990160
If there's a way to free up a portion of that, why wouldn't you then agree to have it used for the things that you now agree -- one of the few things that we agree on today -- that you now agree are needed and important, and you have no other use for those dollars other than loan repayment?
I just have no way of knowing whether that is feasible or not.
I understand that. I didn't ask you that question. I said, if that is the case, what is your position?
My position would still be that the Block Grant resource should never be used for site improvements.
That's right. And that other sources of funding should pay for these expenses. 78 6/9/99 COMMERCE/EC. DEV. - Bill 990160
Even though they're CDBG-eligible according to the guidelines in 570201.
Yes. And many activities, of course, are CDBG-eligible but the point that I think many have made is that we need to have a focussed policy so that we really make an impact on the neighborhoods that need support.
We'll have some of that discussion, then we can go to Mr. Mullin. Some of that discussion may revolve around a difference in perspective between you and I or you and other people about what has the most impact in some neighborhoods. If building 40 new houses in a particular new neighborhood is the thing that gives impact, fine, I'm more than willing to support that. Some neighborhoods don't necessarily need 40 new houses on the block, but they are CDBG-eligible, they are low- and moderate-income people. And it just seems to me that they have some level of expectation, if not right, to get the benefit of what the dollars are sent to the City for in the first place. What I don't understand is why you only 79 6/9/99 COMMERCE/EC. DEV. - Bill 990160 have to be in a deteriorated situation or have severe housing needs to have access to dollars that are, according to the regulations, there are upwards of different uses for -- housing 6 certainly being primarily one of them. But there 7 are certainly other allowable uses for these 8 dollars, and other jurisdictions use them for 9 those purposes or in a combination. 10 I don't believe, for instance, that the 11 Housing Office should only get support out of the 12 CDBG Program. I mean, it amazes me that we have 13 that kind of policy in place. I know that we use 14 certainly some of our capital dollars to help 15 support projects. And even in the first part of this administration, given our financial situation, there was no question that dollars were tight for just running the City. So I certainly never advocated expanding. But we are in a slightly different time. And there are still great needs. So in an environment where, over the next 10 years, every year, probably easily 15 percent of the CDBG dollars are not going to be available to anyone that's going out to 09, and you have to do a new 80 6/9/99 COMMERCE/EC. DEV. - Bill 990160 five-year plan, I understand, next year, it seems to me that this is the time to focus on the other parts of the City that could in fact benefit from these activities but don't have the same kinds of needs as other parts of City. That's the kind of discussion that I'd like to legitimately have and put together different funding sources that have different constraints and different rules and regulations that go with them, but where there is the greatest flexibility, use them to the maximum, but that everyone is getting the benefit.
Okay. Well, I think that dialogue is really important. During this administration, the Mayor, in the first week of the administration, emphasized to me and others how important it was that we do something about those neighborhoods that are stable now but that need a little bit help to remain stable and actually improve. And we've tried to, despite the restriction of HUD funding, do something about that. We created moderate rehab program, which has been successful in many areas of the City that 81 6/9/99 COMMERCE/EC. DEV. - Bill 990160 were never touched before by the housing development programs. We organized the country's largest housing counseling and settlement assistance program that made available the choice of housing anywhere, in any neighborhood of the City, to counsel buyers who were receiving services through nonprofits. And a lot of the houses that were purchased were purchased in areas that had never been touched by the program before. We've continued funding for Philadelphia Neighborhood Housing Services, which specifically targets areas like that. And I believe, Councilman Cohen, that may have been the instance in which curb and sidewalk --
-- was done, although NHS, as I understand it, simply replaces individual sections of individual blocks rather than undertaking full block curb and sidewalk reconstruction. Some would say that that's not enough, and they're probably right. We have to have the 82 6/9/99 COMMERCE/EC. DEV. - Bill 990160 dialogue, and I'm glad to have this opportunity to do so.
I mean, I believe in limits. Let me ask you this. Out of the 1996 memo, which I know that Mr. Volpe made reference to and you've probably seen on a couple of occasions, one particular section reads: "But the cost of widespread curb and footway removal and replacement is so great that literally, the City's entire CDBG allocation could be swallowed with such a program. Therefore, OHCD is in the process of developing a policy and procedure for circumspect expenditure of CDBG funds for eligible and fundable curb and footways installation, removal and replacement in CDBG-eligible areas." Can you tell me what has been done to address that particular statement?
The only thing that has been done has been our continued support of NHS, which is not a new policy, and also our efforts where we could, to fund curb and sidewalk installation adjacent to private development ventures that were being completed by developers 83 6/9/99 COMMERCE/EC. DEV. - Bill 990160 who receive support with Block Grant funding. So that did not really address the issue about which I understand you are concerned.
So basically, you're saying that since the time of this memo, you haven't really come up with a new policy or procedure for these programs, right?
With the exception of possibly broadening it slightly to provide more assistance to funded developers, but that was it.
Good morning, Councilman and members of the committee. My name is Steve Mullin. I'm the Director of Commerce for the City. And I have some testimony that I had passed around, but I've been scratching some notes given some of the -- given a quick look at some of the amendments. I note here that I think that the amendments appear to address several of the issues and concerns that we had, but following in line with John, I'd like to reserve complete comment on those until we've had a chance to discuss with other members of the Administration about this, 84 6/9/99 COMMERCE/EC. DEV. - Bill 990160 because this does look like it -- these amendments do look like we're talking about allocation decisions between the General Fund and the Block Grant and some legal issues there as well as ultimately the prerogative of the Mayor to submit the Block Grant budget to the Council. But, again, the amendments do appear to address some of the concerns both in terms of clarifying what we were looking at and, as I'll mention in a few minutes, the CRIB Fund. First a couple of comments, though, too. I do believe that the Administration recognizes that neighborhoods have development needs, and especially through the creation of the Economic Stimulus Program, which really is General Fund dollars, there really are only two courses sources of revenues for any sizable amounts of money. Either we have our own locally-generated tax dollars or we have the Block Grant. We can get funding from the State in various programs if they're continuous type of State aid, they are built into our General Fund and our operations typically. We have been extremely aggressive on 85 6/9/99 COMMERCE/EC. DEV. - Bill 990160 all fronts in attempting to get discretionary money from the State and from the federal government in the various types of economic development programs, and I think we would continue to do so. And I think a new administration would also continue to do so. But the goal of expanding support, especially through this Economic Stimulus Program, which, again, I repeat, are City General Fund dollars, and an allocation decision made there has been vigorously applied to the economic development programs and strategies here by the Administration.
Mr. Mullin, what's the size of the Economic Stimulus Fund?
Right now, including -- right now, my answer would be $115 million is what has been allocated from the City's General Fund since the inception of the program. Of that, about $5 million to $7 million is really revolved from the loans in the program. So I think -- I think initially, there's been about $108 million proposed for the Economic Stimulus Program and approved by City Council in the regular budgetary 86 6/9/99 COMMERCE/EC. DEV. - Bill 990160 process.
And are any of those dollars allocated to particular projects at this moment?
Well, I'd say the vast majority of those dollars have been allocated. And I think too -- I don't have the numbers in front of me, but I think too that more than half of those have actually been expended. But a good chunk of those that have been expended are in loans and will revolve. But --