COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, April 8, 1999 11:33 a.m. - - - Bill 990110 - Amending an ordinance approved February 8, 1999 (Bill No. 980845), which created the Pavilion Market East Tax Increment Financing District. . . Bill 990186 - Authorizing the Director of Finance of the City to enter into an agreement with the Philadelphia Parking Authority providing for the Parking Authority to issue and sell its parking revenue bonds. . . Bill 990114 - Amending an ordinance approved July 1, 1997 which created the Philadelphia Navy Business Center TIF. . . (Full text of all bills within transcript.) PRESENT: COUNCIL PRESIDENT ANNA C. VERNA, Chair COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD T. MARIANO COUNCILMAN FRANK RIZZO CHARLES MCPHERSON, Chief Financial Off. - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 PUBLIC HEARING - COMMITTEE OF THE WHOLE I N D E X Bill No.'s 990110, 990186 William Hankowsky, President . . . . . . . . . 4 Philadelphia Industrial Development Corporation Whitney Reid, City Treasurer . . . . . . . . . 7 Rina Cutler, Executive Director. . . . . . . . 13 Philadelphia Parking Authority Robert Fina, PIDC. . . . . . . . . . . . . . . 48 Laurie Flynn, Vice President . . . . . . . . . 58 Goldenberg Group Charles Solomon, Director. . . . . . . . . . . 59 Economic Development Greater Philadelphia Urban Affairs Coalition Bill No.'s 990114 William Hankowsky, President . . . . . . . . . 124 Philadelphia Industrial Development Corporation 3 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 P R O C E E D I N G S
Good morning. I apologize to everyone for the delay. This is the public hearing of the Committee of the Whole. I would ask the clerk to please read the title of Bill No.'s 990110 and 990186.
Bill No. 990110, an ordinance amending an ordinance approved February 8, 1999 (Bill No. 980845), which created the Pavilion Market East Tax Increment Financing District by approving the amended project plan for the redevelopment of the district submitted to City Council by the Philadelphia Authority for Industrial Development, and making certain findings and declarations, all in accordance with the Tax Incremental Financing Act. Bill No. 990186, an ordinance 20 authorizing the Director of Finance of the City to enter into an agreement with the Philadelphia Parking Authority providing for the Parking Authority to issue and sell its parking revenue bonds to finance and to proceed with a project consisting of the acquisition and/or construction 4 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 of an off-street parking facility at Eighth and Chestnut Streets, including, under certain circumstances, acquisition of an adjacent property for development as additional parking facilities or for resale with the proceeds of any such resale to be used to finance completion of the mentioned garage facility or to finance additional or substitute parking facilities approved by City Council.
Good morning. Mr. Hankowsky, are you going to testify?
Please identify yourself for the record and proceed with your testimony.
Yes. I am Bill 18 Hankowsky, President of the Philadelphia Industrial Development Corporation. I might ask the Chair, are we also doing 990114?
Okay, thank you. We have three people to testify with regard to the Pavilion Market Street East project 5 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 and the garage -- myself; Whitney Reid, the City Treasurer; and Rina Cutler, the Executive Director of the Parking Authority. So I will begin. Today's hearing is required by the Pennsylvania Tax Increment Financing Act to amend a TIF district. Should the committee approve this bill, the Act requires that Council wait at least three weeks for final approval, which means that Council cannot approve the bills until its meeting of April 29, 1999. Since introduction of this bill, we (PIDC) have met with City Council, Council staff, and representatives of the School District to review the amended project plan. And on Monday, March 22, 1999, the School District agreed by resolution to participate in the district should it be so amended by Council. The amendment of the Pavilion Market East TIF was required, and is required, to accommodate the second ordinance that you have in front of you, which is the purchase of the parking component by the Parking Authority for $38 million. Although the Parking Authority is expected to make a payment in lieu of taxes, or a 6 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 pilot payment with regard to the real estate portion of that facility, it not pay use and occupancy taxes otherwise payable by private owners for parking facilities. The result is a decrease of $4.9 million in revenues to the School District over years, or approximately $245,000 8 per year. 9 In addition, this amendment allows the 10 Parking Authority or the developer to transfer all 11 or a portion of their respective interests in the 12 project at any time. So if I could, just for a 13 moment, step away from my written testimony. . . 14 So the amendment to the TIF is to allow 15 the evidence that the Parking Authority is 16 participating as a new funding source for the 17 garage and then subsequently amending the tax 18 analysis to show the deletion of the use and 19 occupancy tax. And thirdly, to allow these 20 transfers. The rest of the testimony which I've prepared is with regard to the naval business center, so I'll just hold that for that ordinance. And so in closing, we would ask for Council's favorable consideration of this TIF 7 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 amendment, which, as the other testimony transpires, you'll understand the garage aspect of this and how it all links together -- if that would be acceptable to the Chair.
Good morning. I'm Whitney Reid, City Treasurer. With me today is Rina Cutler, Executive Director of the Philadelphia Parking Authority. Miss Cutler and I are here today to testify in support of Bill No. 990186. The purpose of Bill 990186 is to authorize the Director of Finance to enter into an agreement with the Philadelphia Parking Authority, authorizing the issuance of bodies to finance the acquisition, expansion, or operation of parking facilities in conjunction with the DisneyQuest project, located at Eighth and Chestnut Streets. Matching the size of the proposed Series 1999-A parking revenue bond issue is not to exceed $53 million. And that consists of two parts: a $48 million revenue bond portion; and if necessary, completion bonds not to exceed $5 million. 8 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 So I am requesting your favorable consideration of the proposed ordinance and a suspension of the rules in order to obtain a second reading and final passage on April 22, 1999. The preliminary schedule for sale of the Series 1999-A bonds was early May, with closing scheduled for toward the end of May. I've enclosed with my written testimony a listing of the finance team assigned to the transaction. And this concludes my testimony. Miss Cutler will provide testimony proposed on the use of the bond proceeds. And afterwards, I'd be happy to answer any questions you may have.
Madam President, at this time, I'd also like to note that I have a couple amendments on the ordinance and the exhibit that I'd like to read into the record. If you prefer that now or after, it's --
Yes. Yes, ma'am. We've submitted copies along with written testimony to 9 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Marie Hauser, and they should be forwarded to each of the members of Council.
Does everyone have copies of the amendments? It's a copy of the bill. I think you may have it in your packet. Does everybody have it? All right, Mr. Reid, would you please read the amendments that you're proposing.
Yes, ma'am. To Bill No. 990186, on , the second paragraph, we are changing the not-to-exceed amount, as noted. There are $45 million; we are changing that to $48 million dollar. And on , Section 1, you'll see a not-to-exceed amount of $50 million; we are changing that to correspond to the revenue bond change, so that now should read $53 million.
Okay, I have a couple more. There is an attached Exhibit A, which is a contract for parking services, and there are a couple changes there. The majority of the errors are typographical, but I will go through 10 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 them one by one. On the second page, the first "whereas" paragraph, again, you'll see a principal amount of $45 million, and you should have a black-lined copy of that, and you'll see that has been changed to $48 million to correspond to the ordinance. On the next page, , under Section 9 1, paragraph (b), you'll see a date there that says January 29th; we're amending that to read January 28th. The remainder of the changes are typographical. If you turn to , section 5, under "Parking Charges and Fees and Rents," you'll see we've added a subparagraph (a); and as a result of that, on the subparagraphs, the small Roman numerals have also been changed.
We added the small (a), and then underneath that are subsections of (a). So 11 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 they are now Roman numerals.
On my copy, it appears as though (a), (b), (c), and (d) are deleted. I think the (a) you're referring to in parentheses is immediately after the title "Parking Charges and Fees and Rents"?
Yes, that is a Roman numeral i, it's a small i. I'm sorry, it's a number 1, a Roman numeral, it's a small. . .
So (a) would be changed to i; (b) would be changed to 22?
Right, (a) is changed to i; (b) is changed to ii; (c) is changed to iii; (d) is changed to iv; and (e) is changed to v. And we go all the way through (h).
I think there are some changes on also, are there not? The very next page that we're -- oh, that's not 5. 12 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Under Section 4 -- Section 5, I'm sorry. Under Section 5, when we turn the page, there are also some changes made?
Yes, ma'am. That is a continuation of the previous page. So we changed paragraph (f) to vi; paragraph (g) to vii; paragraph (h) to viii; and then we've inserted ix for the following paragraph.
And then also under Section 2(b), there have been some changes?
Yes, ma'am. We changed paragraph (j) to (b) and paragraph (k) to (c). On , under Section 11, titled "Authority Remedies," we've added the (a), we've denoted that as paragraph (a). And then below that, that has subsequently changed the other paragraph identifiers. So underneath that, we've changed paragraph (a) to (b), paragraph (b) to (c) and --
I don't see 13 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 why not.
Is there anything substantive in fact whatsoever on the material in front of us?
I don't believe so, but I think we're just about finished anyway.
Right. The only substantive changes were the date and the dollar amount. On , Section 12, again, we've inserted a paragraph identifier, (a). And then below that, we've changed the (a) to (b). And that concludes my remarks and the changes that I'm submitting.
My name is Rina Cutler. I'm the Executive Director of the Philadelphia Parking Authority. 14 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 I appreciate the opportunity to testify this morning in support of Bill 990186. The bill 4 will allow the Philadelphia Parking Authority to proceed with the acquisition of a 988-car garage located at Eighth and Chestnut Streets as part of the DisneyQuest project. There are three components to the ordinance: Item 1 is approval of the City contract in connection with the issuance of tax-exempt revenue bonds in an amount not to exceed $48 million; Item 2 is a City contract which obligates the City of Philadelphia to appropriate City funds to advance to a debt service reserve fund in the event that revenues from the proposed garage are insufficient to pay the operating costs and the debt service on the bonds -- which is Exhibit 8 of the ordinance. However, such payments made by the City will be repaid to the City if and when funds become available for such a purpose; Item 3 allows bond proceeds to be used for alternative garage projects with the approval 15 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 of City Council. 5 million in capitalized interest payments until August 2001 to ensure revenue flow to pay debt service until garage is delivered and fully operational; Allows for the use of an amount not to exceed $12 million to purchase the adjacent parcel along Eighth and Market Streets if necessary; Pay for related costs associated with the project, including professional services and issuance costs. Summary of acquisition agreement: The acquisition agreement dated 1/28/99 between the Philadelphia Parking Authority and 16 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Pavilion East Associates (PEA) stipulates several significant dates which are important to understand: January 29, 1999: Philadelphia Parking Authority purchased land for $10 million at Eighth and Chestnut Streets for a 988-car garage, plus an obligation under certain conditions to purchase a completed garage in conformity with a completion schedule for the DisneyQuest project for an additional payment of $28 million. May 1 to May 15, 1999: Anticipated PPA bond closing. June 1, 1999: Date for Pavilion East Associates (PEA) to obtain full construction financing for DisneyQuest and related commercial development as well as garage facility. June 10, 1999: Ten-day period for joint vent negotiations to occur. July 10, 1999: Seller may elect to acquire all of PPA's parcel by paying all of PPA's costs related to this development, including all bond costs, or PPA will acquire all of the developer's interest. December 1, 1999: Date by which PEA 17 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 (Pavilion East Associates) must complete work on the portion of the DisneyQuest project to be occupied by Disney under the terms of the Disney lease. June 1, 2000: Date by which garage by completed under the Disney lease and the purchase of garage may occur. January 15, 2001: Latest date, if Disney lease deadline is extended, by which the garage must be completed and PPA purchase may occur. Any time between the construction loan of 6/1/99 through 1/15, 2001: If there is a default by PPA (Pavilion East Associates) PEA's lender may acquire PPA's full interest in the garage portion within 60 days by payment of all of the Parking Authority's costs. If PEA's lender declines to acquire the Parking Authority's interest, the Parking Authority will pay costs advanced by the lender to construct the garage, and acquisition agreement will terminate. Conclusion. In addition to this testimony, a briefing package has been prepared and submitted to City Councilmembers. This 18 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 package reflects my previous comments, Parking Authority revenue numbers, and a number of different scenarios which could occur in this project. Thank you for allowing me to testify in support of Bill 990186.
Thank you very much. Mr. Fina, is there anything that you want to add to the testimony?
Thank you. I would just like for the record to be crystal-clear. Mr. Hankowsky, would you please state for the record what taxes have been TIFed for this project.
Yes. The two taxes we're using for the TIF in this project are the real estate tax and the percent City sales tax.
What were the original project's estimated economic benefits to the City and the School District?
I consider that in two 19 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 respects. One is from a tax standpoint. We contemplated that with this project, over the 20-year life of the TIF district, the City would receive taxes in the amount of $54.9 million. And originally, we estimated that the School District would receive taxes in the amount of $60.1 million. I should add that in addition to those hard benefits to their budgets, this project contemplates the hiring of approximately 1,000 people once it is up and operational and tenanted. And in addition, we anticipate there will be about 750 construction jobs during the construction phase of the project. So it has both those direct tax results and those indirect economic results.
How do the benefits derived by the School District compare to the other TIFs that the City has approved?
In response to the various discussions we've had over the last several years with regard to TIFs in these chambers and at various briefings, in this particular project, we attempted to minimize the 20 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 effect on the School District or -- to put it on the other side -- maximize their benefit. So in this proposed TIF, we are not affecting any of the taxes that go to the School District directly -- for example, the use-and- occupancy and liquor-by-the-drink taxes. The only impact on School District taxes is their portion of the real estate taxes. So this was an attempt to create a TIF that was more beneficial to the School District. And, in fact, when you compare the benefits that we estimate will go to the School District versus the benefits that will go to the City, in fact in this TIF, which is unusual for one thing -- and perhaps it's the first one I've ever brought to City Council -- the District will fare better than the City.
Thank you. I have a number of questions I'd like to ask, but I don't want to dominate this. Why are we being asked to approve the issuance of Parking Authority bonds at this time?
President Verna, as I did explain during several Council briefings, in 21 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 December of 1998, the Parking Authority was asked to get involved with this project in order to allow the DisneyQuest project to move forward. We did an analysis relative to both the need for parking demand in general in the Market Street East corridor as well as specific demands for parking that would be related to Disney and the other retail uses in the DisneyQuest project. Initially, there was some thought -- the Parking Authority was not initially in this deal. There was some thought that the garage would be done and could be done as a private venture. That turned out financially to be not the case. The Parking Authority, as you know, is an economic development agency which deals with the parking components of development projects. We think the garage will be a huge success and have agreed to come before Council to request that a City contract be approved in order to issue bonds to buy a fully-constructed garage at this site.
Thank you, Madam 22 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 President. The major requirement of the Disney people is a thousand-car garage at this location for this particular project?
In fact, the garage we're going to build is just under a thousand spaces. The Disney lease does require parking on the location adjacent to their parcel, and I believe it's 800 spaces in their lease.
So between 800 and 1,000 spaces is their requirement in order for them to move forward with this project?
The major difference then today, as we sit here, is that the original belief was that it could be constructed and operated privately. And now the Parking Authority is moving forward because of the economic circumstances that precluded that to construct and maybe run or not run this particular garage at this location. Is that the major difference?
The difference is really -- the component change which is related to the 23 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 TIF specifically is that the parking garage will be a public parking facility, not a private one, that's correct.
And this is something that the Parking Authority does as part of its nature, I would guess, is construct and operate parking facilities.
That is correct. In fact, the State legislation, which creates the Parking Authority, anticipates that it acquire land and construct parking facilities as part of economic development.
In the worse-case scenario, if Disney is no longer involved with this location at this site, does the construction of a garage by the Parking Authority make sense as a stand-alone project, and why?
I think there are two parts to that answer, Councilman Kenney. The first is, as you're aware, prior to construction beginning on the site, this was a surface parking lot.
So to speak. Cratered as 24 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 it may have been.
But in fact, even in spite of its physical deficiencies, it did manage to generate a healthy profit every year, without anything else on the site. So the answer to part A is: yes, as a stand-alone parking facility, without anything else on the site, we would probably choose to build smaller facility, but certainly we would proceed with a parking facility in either case. Part B of that answer is that under a worse-case scenario, if there was no Disney on the site, the remainder of the site would still be a development location for something that would go there. And, therefore, the need for parking would increase over the current demand, without anything on the site, as is.
In the hopefully unlikely event that the developers cannot meet their financing deadlines, explain the special circumstance that protects the Authority and the City as it relates to the potential or the 25 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 required acquisition of this site in the event that those deadlines aren't met.
As part of the agreement that the Parking Authority and I specifically negotiated with Pavilion, we wanted to ensure that at a date certain point, the developer was either prepared to move forward or would not -- could not move forward. And that date in our current agreement is June 1st. If the developer does not secure financing for the remainder of the project, which requires a certain percentage of leasing at the site, we did not want to be put in a position where we could not either move forward on our own or find a different developer to come in and develop the site. So under those conditions and as part of this agreement with the City, we have put in a scenario which envisions that by mid-July of 1999, the Parking Authority has the option of purchasing the remainder of the site, which is the Market Street side -- Eighth and Market Street side of the site in order to move Ford with development. It would certainly be the City's desire 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 and intent to attempt to keep Disney on the site regardless of who the developer is. But in any event, we at that point would want to control the entire development parcel.
And is that an unprecedented or a special circumstance that would allow the City to in the, again, hopefully unlikely event that they cannot meet their deadlines, that we then become -- they're required to sell this site to us if we so desire.
Well, it goes, in fact, both ways. After June 1st, if the conditions have not been met, in fact, the developer also has the option of stepping forward to purchase the Parking Authority's interests and pay all related costs. But in either case, one of those entities will, in fact, have control of the entire site, after that point.
And, finally, Mr. Hankowsky, if Disney's out of the picture, what do you think the potential of the development of this particular site in that particular corridor is? Could you give an explanation of what you think the potential is of development for that location. 27 4/8/99 - COMM. OF THE WHOLE - 990110, 990186
My estimate would be that if the Eighth and Market parcel were available, and -- candidly -- available with a capacity of parking adjacent to it, so it's even enhanced, it is an extremely valuable and marketable site. And there are probably parties that I've talked to over the course of the last two years who would immediately be interested in seeing whether they could put a project on that property.
There is fairly heavy interest in the Market Street corridor at this point.
Miss Cutler, I was distracted, and I don't know whether Councilman Kenney asked this, but what happens in the event that the developer does not secure his financing for this project? Will the garage be completed? And if so, who will build the garage?
There are several scenarios, and I'd like to try to walk you through 28 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 them. One scenario is that the Parking Authority purchase the remainder of the development site, find a developer who wants to develop that site, and then in fact will sell the remainder of the land to a developer, and will proceed with this bond money under public bid to build its own parking garage. A second scenario is that the Parking Authority will own the entire site at some point and will make a decision that it will proceed with the garage portion or the smaller parking garage until we know what type of usage would happen on the remainder of the site -- also under the same bond money that we are going to issue for this package. Or the best-case scenario is this proceeds as is, and at the end of the day, we purchase a fully built garage. But we also have the capacity to go out to public bid and construct our own parking facility.
And what are the remedies if there is a default after the closing of the construction loan? 29 4/8/99 - COMM. OF THE WHOLE - 990110, 990186
After the developer -- on the assumption that the developer gets full construction financing by June 1st, there is a mechanism in place at that point which, in fact, allows the developer's lender to buy out the Parking Authority's interest, pay all costs expended to date, and take over the garage portion of the project. If the lender does not wish to buy out the Parking Authority at the point of a default by the developer, the Parking Authority will pay for the improvements on the garage site only, and then continue on and construct the parking facility ourselves.
Thank you. The Chair recognizes Councilman Rizzo.
Thank you, Madam President. Could you just go back over the changes, the amendments. How did we go from 45 million to 48 million, and from 50 to 53? Could you explain that again, please.
I will be happy to, Councilman. 30 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 One of the things that we always -- two of the things that we always include in our bonds issuance. We calculate the amount of time it will take for the construction to occur and for a fully operational garage to be bullet. Normally that is a window somewhere between two years and three years for the construction period. Because the City in essence guarantees those bonds, we do not want those bond payments during those years to have to come out of the City's General Fund. So we capitalize that interest in the bond in order to pay the interest out of the bond money until the garage is fully operational. Because there are buy-out clauses along the way here, which could, for some period of time, stop construction, we did not want the City's General Fund to be on the hook for the revenue, so we added an additional six months of capitalized interest into the bond issuance in order not to have to come to the City to pay for it before construction was completed. That also is -- that is how it got from 45 million to 48 million. That $3 million is the additional capitalized interest that has been put in there. 31 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 The other thing typical in Parking Authority revenue bonds and, in fact, was in the last bond deal that we did with Council last December, we build in the ability to issue $5 million in what we call "completion bonds" if necessary. So that at a point where we haven't adequately figured out all the contingencies that might occur particularly in a project like this one, where there are a lot of answers we do not have yet, the additional 5 million is for, in fact, completion bonds in the event the current amount is insufficient to complete.
My next question is, could you describe the Parking Authority's day-to-day operation. The Parking Authority owns certain parking lots and leases those to parking operations throughout City, I understand. There are various lots that you own and that other people operate. Could you describe the operation of this lot, whether you plan to operate it on a day-to-day basis.
Back in 1994 -- in fact, my first year at the Parking Authority -- the Parking Authority privatized the operation of all 32 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 of its parking garages. In fact, we (the Parking Authority) still operate all of our own surface parking lots, and there are 43 of those, and those are still operated by the Authority. But all of our garage structures are now operated under contract with private parking operators. Those contracts, while they are professional-service contracts, and in fact, under Parking Authority law, do not need to be bid, we generally bid them because we believe it gives us the best competitive price for the operation of those facilities. It is certainly the intent of the Parking Authority to not personally manage the garage at DisneyQuest, but in fact have it managed by a private operator.
Could you again describe -- you mentioned that you will put this out to competitive bidding. Could you be more specific and tell me how you're going to pick an operator of this facility?
In fact, it is not a competitive bidding process; it is a request for qualifications that gets issued in general. 33 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 In this particular garage, because the owner of the land, prior to our purchasing it in January, was in fact a parking company -- the entire site was owned by Central Parking, who in fact was given the opportunity to purchase and build a garage, and in fact chose not to do so. But as a condition of that land sale, they had the right of first refusal to operate this garage if and when it gets built. So it is my expectation at this point, assuming that this project moves forward as it's currently intended, that I will at some point negotiate a management agreement with Central Parking to operate the facility upon its completion.
Does that negotiation include -- are there standards, pricing, etc. that you establish? Or does that person have flexibility on fee structure and hourly rates, etc.?
Rates are, in fact, set by the Parking Authority; the operators do not set rates for our parking garages.
Thank you very much. 34 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Thank you, Madam President.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Mr. Hankowsky, on of your testimony and in response to an earlier question, you had articulated that the share of the tax revenues on the TIF aspect was a 60/55; is that correct?
I believe, Councilman Nutter, that in response to the Council President's question, I was asked, What were the original numbers? And those are the numbers I have provided. The amended numbers, pursuant to this change -- revised transaction, would be $54.9 million for the City, and $55.2 million for the School District.
-- for the School District; 54.9, City. Okay. Is my recollection just totally 35 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 incorrect, though, that the first original sheet we got on this had it at 65 - School District and 55 - City? Or am I just wrong about that?
I believe the original project plan that was the originally approved TIF was 60/54.
Okay, all right. And so on of your testimony, when you say the result is a decrease of $4.9 million that's going from the 60.1 down to the 55.2?
Okay, all right. Miss Cutler, you had some discussion just a little while ago, and it's mentioned in Mr. Reid's testimony about the completion bond, or maybe he just articulated it and I wrote it on the page of his testimony. Can you go back over that again? The statement I took down from you in response to an earlier question was, in case the current amount is insufficient -- I assume you're talking about the $48 million. 36 4/8/99 - COMM. OF THE WHOLE - 990110, 990186
Then you have $5 million in completion bonds. And let's play the rest of this scenario out. There is some default and you have $5 million in completion bonds, what does that actually mean, what does that get you?
Well, the first answer to the question is, in all projects that we do -- at least that I have done -- there is a an ability to borrow an additional 5 million to complete a project.
In this particular case, as we do not know at this moment which of the several scenarios are going to play out here, we in fact are, for consistency purposes, building in an amount that it may take to finish the parking garage. It is only for the parking garage portion that there are completion bonds ever envisioned -- not for any of the other scenarios that come here, but let me give you a hypothetical. We issue $48 million in bonds; $10.3 million will go to pay back the bank for the 37 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 initial land purchase the Parking Authority made. In the event that the current developer does not have the ability to receive full financing and move forward, the Parking Authority, under that agreement, will pay up to an additional million 7 to acquire the rest of the site. 8 There may be a lag time between the 9 resale of that portion and the completion of the 10 garage. The 12 million that we will have put out 11 for the remaining portion, in fact, is needed to 12 build and complete the garage. So the completion bonds are just in there in the event we are three-quarters or nine-tenths the this project and need to complete the garage. But even the 48 million is a not-to-exceed number.
No, I understand that. So, I mean, it's almost essentially like a 10 percent contingency?
Okay. And let's say the project gets built, it gets built on time, gets built with the $48 million, what happens to the 5 million? 38 4/8/99 - COMM. OF THE WHOLE - 990110, 990186
We will have never bonded for it. It's not in the amount we will go to bond for in June; it is just an authorization to go back and bond 5 million more if we need it down the road.
So your testimony is the deal you're putting on the street is a $48 million, but you're getting authorization for 53; and if in the event you need the additional 5, you don't necessarily have to come back to get authorization for it because you're getting authorization today, even though you're only going to go out for 48.
That is correct. And as it is not to exceed 48, it actually may be less than that.
Okay. Now, your earlier testimony, it sounded like you're going to put out an RFQ for the garage; is that correct?
No. In answer to Councilman Rizzo's question, I told him that the general process is not a competitive bid; it is really an RFQ process. But in this particular deal, as part of 39 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 the land sale to both Pavilion East on their portion of the project and the Parking Authority on their portion of the project --
There is a right of first refusal for Central to operate the fully completed garage. So while I have not negotiated the terms of that with them yet, as I don't know at this point know what size the garage will be or what it will have next to it, they will be, if they have the desire to, they will have first option on managing this facility.
No, I understand that; that's after it's done. I'm asking you a question about the actual construction. Who's going to build the garage?
The developer. This is not -- the Parking Authority is not building this garage. We will buy a fully completed garage with these bonds. 40 4/8/99 - COMM. OF THE WHOLE - 990110, 990186
All right, so you're going to borrow the money, fund the construction, and then have a fully completed garage turned over to you; is that the way this transaction is working?
No, no. We are going to sell the bonds. Immediately upon selling the bonds, we will pay off the land acquisition price for our $10.3 million loan. The rest of the money, in fact, will go into an account, an investment account, and will be turned over upon the completion of the garage. So the funding of the construction comes from the developer, not from the Authority.
So the developer has to find the financing to construct the garage.
Okay. What's the 41 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 MBE/WBE plan for the garage construction?
Do you want me to -- yeah. I think, Councilman, the plan for the garage construction is the same as for the entire project. Back when we were before Council on the original TIF, a plan was developed at that time; that plan applies to the entire project. That plan will --
Could you in 12 words or less refresh our recollection about 13 that -- 14
There was a 18 construction workforce -- percentages of 19 workforce: 20 30 percent minority and 5 percent 21 female under construction contracting; 22 22 percent minority disadvantaged 23 business; 24 12 percent women disadvantaged; 25 And 2 percent disabled disadvantaged. 42 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Then in the operational phase goals related TO permanent employees, there was the category for hourly and a category for management. Under hourly, it was 40 percent minority, 30 percent female, 2 percent disadvantaged. Under permanent management, it was 25 percent minority, 35 percent female, 2 percent disabled. And then there was, again, in the operational phase a goal related to service operational contracts of percent minority 14 disadvantaged, 12 percent women disadvantaged, and 15 2 percent disabled disadvantaged. 16 The Greater Philadelphia Urban Affairs 17 Coalition has been engaged by the developer to be 18 monitoring that activity. As you know, obviously, 19 I think we all know there is -- construction has 20 commenced, though it is in the early faces. At 21 this point, the employment goals in terms of 22 workers on the job are being exceed at this phase against those goals. There have been 20 percent MBE commitments and 7 percent WBE and percent on 43 1 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 contracting to date, but most of the contracting hasn't happened. The big packages are coming up, you know, the cement and steel, etc.
So I think there's a general feeling that the goals will be fairly closely met, if not exceeded.
I'm sure you've handed that up possibly in the previous Market East Pavilion hearing, but if you could give us, through the Chair, an up-to-date copy of that, that would be helpful.
Okay. I guess this might be for Miss Cutler. Can you tell us what the financial status of the overall project is? It's, I think, in response maybe to a question from Councilman Kenney, and you had kind of touched on some fits and starts. Where we today with the money in the financing of this project?
We are, at least at the moment, on schedule. Construction has begun, the 44 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 developer has until June 1st to complete the total financing package to construct DisneyQuest, the rest of the retail space, and the garage. Certainly, one of the requirements for the developer's construction loan is that they are sure that the TIF piece of the project is in place as well as that the garage piece of the project is in place. Hence, we had put the date out for closing the big construction loan from the developers to allow us the time to make sure that the other two pieces were in place for the financing package to move forward. We expect once this passes -- if it is the will of this body to so pass it -- the bank will then proceed with the remainder of the project financing, which is somewhere around $100 million.
Okay, all right. Last question. And thank you, Madam Chair, for your indulgence. Mr. Reid, attached to your testimony is the financing team sheet. I recognize that this is not a half-a-billion-dollar bond offering. But in terms of the bank side of this transaction, it 45 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 is exceedingly light as it relates to MBE/WBE. Is that the normal for Parking Authority financing?
Councilman Nutter, if I may, I think I can answer your question. At the point at the end of January when we closed on the land, in order to meet a variety of both construction and financing deadlines, and given the short amount of notice we had that we had to put a bond deal together to get this moving, we essentially moved fast. And hence, when we requested a bond team, we basically just said, you know, I need enough bodies to, you know, get this job done. So in fact, this is a much smaller team than you will see on any other bond deal -- certainly that I am aware of, and certainly that the Parking Authority has done. But, in fact, I might just state for the record that they have done yeoman's work to get us here in literally seven weeks to prepare the bond document, so I do need to point that out. But, yes, it's smaller.
Just for the record, I have no complaints about the composition 46 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 of the team. I happen to know some of the people on it and that they do excellent work. I think you know what my concern is, but I also, I guess, want to make sure that the record is clear. It's not your testimony that you move quickly and, therefore, could not find anybody.
No, Councilman, that is not my comment. And as I generally do not have a hand in picking the financing team, I can't tell you -- all I can tell you is it is smaller than it normally is on a Parking Authority transaction.
And I think there was some sense, and I certainly articulated it when we realized we were going to have to go into the bond market. That has been my experience, that the least number of people you have in a meeting trying to do the work, the faster the work tends to move. That is my testimony.
I understand that. I know some people that work pretty quickly, let us try not to leave people out of the room. Thank you. 47 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Thank you, Madam Chair.
You're welcome. The Chair recognizes Councilwoman Tasco.
Thank you very much. I just need to have you walk me through this one more time. We're borrowing the money -- the Parking Authority's borrowing the money to acquire the land to construct a garage. The developer is going to construct the garage?
Okay. And then we purchase the garage from the developer?
The purchase price will not exceed 38 million, but we have already purchased the land for 10 million. So an 48 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 additional 28 million will be owed upon completion of the parking garage construction.
So what happens if there are cost overruns? Who picks up the cost overruns?
That is a maximum amount we will pay for the garage, so those would be the developer's costs.
Councilman Nutter asked about the WBE/MBE participation. If the developer is in charge of the construction, who is -- who oversees the minority female participation on the project?
It's -- there are -- I mean, this isn't a Parking Authority question, but I'll be pleased to try to answer it for you.
For the record, my name is Robert Fina, I'm with PIDC. William Hankowsky will return in a moment. But for expediency, I can answer the question. The developer has, at the suggestion of Council staff, has hired the Urban Coalition to monitor the total economic opportunities plan that they have prepared and that becomes part of the 49 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 documentation that the developer's obligated to adhere to. We will provide copies, as requested by Councilman Nutter, to the Chair for all Councilpeople to see that economic opportunities plan.
And so when the developer proceeds to secure financing for the project on the front side, he has to also secure financing for the purchase for the construction of the garage?
We have purchased the land that the garage would go on. We will not give the developer the remainder of the money until the garage is completed. In the event the developer cannot complete it, we now own the land and will move forward to build our own garage. Or we will come back to Council to use the bond money that we are asking for here to go to a substitute garage 50 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 project. Part of it depends, Councilwoman, on what stage the construction is.
So if we do not proceed with this developer, you have to build the garage. We get another developer; do we sell the garage to the new developer?
We certainly have the option of doing so. If the developer who's looking at the remainder of the site, in fact, requires that they control and own the parking, then, certainly, we could at that point sell the parcel, getting all of our costs back to a new developer.
There is in Exhibit A a statement about the City having to cover debt service. Do you see that circumstance ever happening?
There are preliminary numbers in this, and those preliminary numbers from both the Disney-projected attendance at the Eighth and Market facility as well as the parking study numbers done by Chance Management indicate that this garage will more than pay for itself. 51 4/8/99 - COMM. OF THE WHOLE - 990110, 990186
Okay. Something you said earlier that -- if you would just clarify for me the statement that you made about building a smaller garage. Did I hear you say that you would build a smaller garage?
In the worse-case scenario that Bill Hankowsky was referring to, one of the options that we might have -- if in a worse-case scenario, there was no immediate development, Disney decided for whatever reason that they were not coming to Philadelphia, what I said was, at that point, we have the option of deciding we will build a 400-space garage while we figure out what will happen on the remainder of the site. So, yes, there is a scenario where we could build a smaller garage without knowing what type of other activity would happen on the Eighth and Market side of the site.
So when do you determine when you begin construction? Are you going to wait till June?
Well, certainly, construction has begun in terms of the site on the Eighth and Market portion. In fact, the Parking 52 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Authority-owned portion on Eighth and Chestnut is still being used as a parking lot.
Okay, so you would build a smaller garage because the developer has to build a garage associated with this project.
Thank you, Madam Chair. I just have really one question as a follow-up on what Michael Nutter was doing. We had the Kvaerner problem, and you know that we then had to come back here in terms of the lack of minority participation in the contracting and minority contractors and so on. And I want to be assured this time that we don't find ourselves in the same sort of situation down the road, that there is in place, a mechanism in which African-American, Latino, and women contractors have full access to the subcontracts. 53 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 Who's the main contractor that has been hired in this project? Or has there been one?
I believe, and there are representatives from the developer here, so if I get this wrong, I'll ask them to jump up. But basically, Driscoll and Intech have the overall construction responsibility, which I believe is responsive to your question, as construction manager, that they are doing multiple bid packages as they go through each phase. And, Councilman, I do exactly appreciate your question, 'cause I don't want to be here either in that circumstance. And in this instance, I think what we see is that instead of after the fact bringing in someone to see what's going and kind of after the fact trying to catch up, this is a scenario where the developer puts somebody in place at the beginning. One is the plan was in place at the beginning, they hired their own -- the Urban Affairs Coalition to work with them to monitor at the beginning. They were monitoring it monthly so that there is the kind of information. And I cited to you -- I forget, but I 54 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 think it was in response to Councilman Nutter's question, kind of where it is at this snapshot in time so that we're much more collectively informed and on top of it than what happened in the other instance you cite.
And so if the African-American Contractors Association, the Latinos Contractors Association wants information or wants to be bidding in this project, then --
They should contact the Goldenberg Group, and I think the right person is -- Laurie Flynn is the right person on that team to contact, yes.
Okay. So that if there's going to be access information and accountability to us here at City Council as to what this is --
Thank you. If my memory serves me, I believe I heard that there was going to be some retail space within the parking garage. I don't think that's 55 4/8/99 - COMM. OF THE WHOLE - 990110, 990186 been mentioned this morning. Are we still anticipating that to happen? And if so, who will operate that space?
Under the current project plan, the first floor along the Chestnut Street corridor will be retail space; it will be operated by the developer.
At this time, the Chair would recognize Councilman Rizzo.
Thank you, Madam Chair. Could you please provide to the Chair the documents associated with the transaction, the sale of this property to the Parking Authority -- specifically the language, the rights of first refusal that the parking operation has received in that deal?
You're welcome. The Chair recognizes Councilwoman Miller. 56 4/8/99 - COMM. OF THE WHOLE - 990110, 990186