Committee Hearing, February 14, 2000

And what is the debt at the present time?

What is the debt? I don't have that on me, Councilwoman.

Isn't it something like 288 million?

288.

288?

I can get that.

I believe I know the answer, but I would like the record to reflect it.

Sure. I'm reading from 296 12/14/00 - WHOLE - Operating Budget - 05 the City's annual report as of 6/30/99. The general obligation debt of the City is $740 million. And the other long-term obligations of the City principal is 3 billion, 124 million. And that's exclusive of revenue-bonded debt.

Was that the answer to your question?

I don't think so.

No? Okay, the outstanding debt of the City, the general obligation, at 6/30/99, principal is $740.5 million. And that's both tax-supported and self-sustaining.

Point of information, Madam Chair.

The Chair recognizes Councilman Nutter.

Thank you. I thought your question was, what is the City's current debt limit, and either how close are we to it or how far away we, or what's the difference between the debt limit and the current level of debt? And I guess the difference 297 12/14/00 - WHOLE - Operating Budget - 05 between those two numbers is how much we have left to borrow. Wasn't that your question, Madam Chair?

Yes.

I'm sorry. I misunderstood the question.

That's all right.

In the same document -- I'm reading from the City's annual report at 6/30/99. The legal debt margin, the amount of debt we could still authorize is $288.2 million.

You got it, that's it, that's it. Thank you. And can anybody answer, how does the cost of both the Vets Stadium repairs and the voting machines fall within the City's debt policy?

Well, the cost of the repairs of the Vet that were already in prior capital fund budgets or expended, the costs of those would be from the principal debt, so it would be rolled up into the payments that we make, you know, all during the year for debt service 298 12/14/00 - WHOLE - Operating Budget - 05 payments, for principal and interest payments.

Okay, thank you. Miss Orfanelli, you indicate in your testimony the various financing that the City will undertake in the coming Fiscal Year. Please elaborate how you envision the Blight Program to be financed. (Rob Dubow comes forward.)

I'm Rob Dubow. I think the details of how that's going to be financed are still being worked out. The only concept, I think, that's pretty much settled is, it will be one of the outside agencies, so that it won't be a regular G.O. offering.

When you say "outside agencies" --

So like the RDA, for example, or PAID.

Mm-hmm. I'm going to suggest that each of the Councilmembers be given five minutes for questioning, and then we will have a second go-around and I will include myself on that. 299 12/14/00 - WHOLE - Operating Budget - 05 So at this time, the Chair recognizes Councilman Clarke.

Thank you, Madam Chair. I will not use my five minutes. This will be very brief. You indicated in your testimony that your office was going to oversee the purchase of the voting machines. Given the antiquated nature of our existing voting machines and the process -- having been a committee person, knowing how difficult that can be sometimes to operate those machines and spending those long night counting up those totals, with this new type of voting machine, how is that process going to act as it relates to the training of the individuals who will be responsible for tallying those votes in the evening? Are we going to increase the budget to accommodate that additional training?

Councilman Clarke, I think you should save this question for Lou Applebaum when he comes up. He's been on the committee that has done extensive work in reviewing what will be involved in the purchase and the training, etc. 300 12/14/00 - WHOLE - Operating Budget - 05

Okay.

So it's a great question, but (unintelligible) the Commissioner.

And the ward leaders need to know about those things.

I'm sure they do.

Another quick questions. TIFs (Tax Increment Finance Projects), does your office oversee or monitor them? Who does that?

That's done by PIDC.

Do they monitor the revenue associated with the TIFs to that level or degree? The reason I ask that question is, I think we have done maybe a couple of TIFs that are actually in operation now, and I was trying to get a sense of if we've met our expectations on the additional revenue associated with that program. Is there anybody here who can --

Yes. (Nancy Kammerdeiner comes forward.) COMMISSIONER KAMMERDEINER: Good morning. I'm Nancy Kammerdeiner, Revenue Commissioner. 301 12/14/00 - WHOLE - Operating Budget - 05 The funds that come in from the projects that have been defined as TIFs do come in as regular tax revenue. And although Council has approved over projects at this point, there are 6 only a few them that are completely active but 7 have full agreements, and we are actually paying 8 funds out to the TIF projects. That's because of 9 the status of the project and the development of 10 the final TIF agreement. 11 Basically what happens with those is, 12 the regular taxes are paid, and before the project 13 was really underway, we established a base tax 14 revenue for that site. In most cases, the only 15 tax revenue the City had been getting prior to the 16 TIF designation was real-estate tax. And so the perfect example on this is the PNC Processing Center in the Eastwick area, near the Airport. We set a base tax on the real estate that was established by the Board of Revision of Taxes, and the Board continues to reassess that property based on the construction that's taken place there. When the real-estate taxes are paid, we subtract from that amount the base real-estate tax that was originally paid on 302 12/14/00 - WHOLE - Operating Budget - 05 the site and send back to the TIF project the differential between those two dollar amounts. And so basically, on that situation, the amount we expected to get in is, in fact, what is being paid back to the TIF project. There is at least one active project that has other taxes involved, including sales tax and that's the Reading Headhouse project, and we do get regular reports on the sales tax paid. This is the 1 percent City tax and any other taxes that are covered by the TIF project there, and are making payment into that --

So your testimony is that -- COMMISSIONER KAMMERDEINER: -- based on what actually is happening. That project does not have full occupancy at this point. The only real participant is the Hard Rock Cafe, and there is the expectation of another Realtor in that site. So I would say on that one, we're not yet at the full potential but we are getting everything that is available and paying it back into the project.

But my question is, 303 12/14/00 - WHOLE - Operating Budget - 05 as it relates to the projections, 'cause I know when PIDC puts together projections on the TIF legislation, it sounds like in one instance in PNC, we might be meeting those goals but -- COMMISSIONER KAMMERDEINER: PNC is right on target and doing exactly what it's expected to do.

How does that affect the repayment schedule if we don't meet those expectations? COMMISSIONER KAMMERDEINER: The developer has the ultimate responsibility for the full payments, and so there is no -- as I understand it, there is no obligation that comes back to the City if the projections under the TIF District don't meet what was originally anticipated. The developer has the residual balance to pay.

So, okay. And in years out -- three, four, five years from now -- as we calculate the importance of doing TIFs, will we take that into account? COMMISSIONER KAMMERDEINER: We certainly will be able to, but it really depends 304 12/14/00 - WHOLE - Operating Budget - 05 on a project-by-project basis on the viability of that project and whether or not it meets the expectations. Just, for example, using the Reading Headhouse, there was an expectation that the second large Realtor would be -- not Realtor, but the retailer would be in place, and there would be tax revenue coming in from that. That has not yet happened and so we're behind schedule. That doesn't mean there won't be a catchup or that it won't, over the life of the TIF, bring in the full value that was anticipated, but it's a slower start-up.

Okay, thank you. Thank you, Madam President.

Thank you. The Chair recognizes Councilman Kenney.

Thank you, Madam Chair. Following on the lines of the questioning from the Council President in talking about our debt limit of $280 million at this point, and also based on the testimony from 305 12/14/00 - WHOLE - Operating Budget - 05 Mr. Dubow that the Blight Program and the money that would be borrowed to do the Blight Program would definitely be borrowed by an outside agency, why then would we not have given similar consideration to placing the $80 million and the $21 million for -- the $80 million for the Vet and the $21 million for the voting machines in a similar outside agency, considering the sensitivity that we have towards approaching our debt limit? It would seem to me, for example, that the Vets Stadium repairs, whether it's $80 million or less, would fit tightly and securely into PICA, based on the fact that PICA allows for emergency borrowing for health and safety issues. And as I said before, in the Capital Budget, when we have cadets falling through the railing at the Army-Navy game, it would seem to me to be a PICA-eligible number to do repairs to the Vet. Why would we, considering our sensitivity to the debt limit, place a $40 million number into 2001 and a $21 million number in for voting machines and for the Vet, if we've already decided the Blight Program's going to be done 306 12/14/00 - WHOLE - Operating Budget - 05 through an outside agency?

I think that's a good suggestion, and we should look into other funding options.

Was there a discussion, when the Capital Fund budget was drafted and sent over, that maybe, considering our debt limit concerns, that that $40 million number is a pretty big number and maybe we ought to look to put it in PAID or PICA or somewhere else?

There were some very preliminary discussions about that, but we never looked into them in the detail that we should, and will.

Okay. The Mayor recently announced -- and we were very thankful that he did a -- $3 million allotment for our firefighters and their health and welfare fund as it relates to the dealings with Hepatitis C. That number may be a minimum number, it may even be more money -- hopefully it won't be, but even more money by the time it's over. I don't see -- where would that money come from, why is it not mentioned in the Finance 307 12/14/00 - WHOLE - Operating Budget - 05 testimony, and where would the money actually be going to?

The money that you're speaking of, the $3 million, is coming from the employee benefits.

Okay.

And you're right. I mean, that number, we don't know yet how that number's going to work out. That's an educated guesstimate, shall with say. In terms of how it's going to be handled, the City will be meeting with the firefighters probably later this week and details will be worked out at that time.

Okay. But the employee -- where it's coming from, from employee benefits, it would be within your bailiwick?

Yes.

Okay.

Excuse me.

Sure.

May I just ask, would the Firefighters Union receive the funding? 308 12/14/00 - WHOLE - Operating Budget - 05

That's all to be worked out.

So right now, there's been no actual transfer of any dollars to anyone?

That's correct.

This is a conceptual kind of thing?

We will be sitting down with them and working out all those details.

Okay. And we would be -- and I know myself and I know other Members of Council will be very interested in knowing the specific details of the amount, the process, and exactly where the money's going.

And we'll be glad to provide that for you.

Thank you very much.

Any other questions, Mr. Kenney?

No, thank you, ma'am.

Thank you. 309 12/14/00 - WHOLE - Operating Budget - 05 The Chair recognizes Councilman Nutter.

Thank you, Madam Chair. Let's go back to the question that Councilman Kenney asked and an issue raised by the Chair. Mr. Dubow, on the concept, I guess, of the outside agency borrowing, whether for the Blight Program or for potential or conceptual renovations to Veterans Stadium or even for the voting machines, can you walk us through -- how do you do that? How do you put forward that kind of transaction? What needs to happen, and what are the details on that?

I'm going to ask someone from the Treasurer's Office to come up and answer that.

Okay. (Witness comes forward.)

Good morning.

Good morning. If you could just give us a very brief overview on that, and you can supplement your answer in writing with a longer version of how you do this kind of transaction, but could you briefly explain 310 12/14/00 - WHOLE - Operating Budget - 05 how you do it?

Good morning. I'm Karen Yancy, Deputy City Treasurer. I will give you a brief overview. As for the Blight Program, I'm not sure of the details of how that will work, but the Treasurer's Office's responsibility is to work in coordination with the City's agencies to coordinate their financings. We provide support, along with our financial advisor -- currently that would be PFM. And we would just support and provide, you know, whatever they needed -- documentation, legal review, and so forth.

I understand that. But let's say that we all agreed that we wanted to have set aside $40 million for potential renovations to Veterans Stadium. My question is, who would do what and how do you get that done?

I can't answer that at this moment.

Well, how do you do any outside borrowing by any of the various agencies?

Well, generally, we don't 311 12/14/00 - WHOLE - Operating Budget - 05 work with PAID. So if the Veterans Stadium was going to be through PAID through some type of TIF arrangement, that is not our role. If we were going to go through the General Fund for PMA for Veterans Stadium, once again, we would work with that authority, the Treasurer's Office, the F.A., we would create bond documents, take it to market, and we oversee it beginning to end. That I can outline what the steps would be in a general financing, but we would not make the financial -- the economic decision that that would be done; we would look for direction from the Director of Finance's Office.

No, I understand that. I just was more concerned with the mechanics of it. I mean, basically, you have to set up the bond authorization, you have to make sure the City is going to make the debt service payments on it.

That's correct.

And I guess that gets done probably through the -- either through the Sinking Fund or directly to the outside agency 312 12/14/00 - WHOLE - Operating Budget - 05 or authority, but you create the appropriation in the General Fund for whatever those debt service payments are going to be, and then you just go and float the bond and you can demonstrate that you have the money available to make the debt service payments.

That's correct.

Is that right?

That's correct.

Okay, all right thank you. Let me go back to this Sinking Fund. In the budget book, on -8, there is an item, Code No. 285. It says: "Rents-Other for Fiscal '99", and that number was $787,000 for Fiscal 2000. It was anticipated to be $5 million, and for FY '01, it's $4.8 million. First, can you tell me why there was such a significant increase from FY '99 to 2000? What is this line item and what is it going forward?

Councilman, this line item is for payments, the lease payments on the justice projects -- the Court House, the current 313 12/14/00 - WHOLE - Operating Budget - 05 Fromhold Correctional Facility, the 650-bed PIC facility, and the One Parkway Building.

Okay. And on 10-16, Item 701, "Interest on City Debt Long-Term," it's $4.5 million.

That, I believe, is the estimate on the revenue from the car rental tax fund.

What's that estimate based on?

I'm not sure.

Is this a car rental tax that's estimated to be the support for either the stadium transaction --

That's correct.

-- or the possible repayment if we end up buying the practice facility?

Yes.

Where did that number come from?

It came from estimates of the revenue generated by that tax from our Revenue Department. 314 12/14/00 - WHOLE - Operating Budget - 05

And that's based on previous rental history?

Yes.

Okay. What happens if the car rental companies decide to have the cars picked up at a place other than inside the City of Philadelphia?

If the -- if the car rental companies are located outside Philadelphia --

No, not the companies, the pickup point.

I'm not sure. I know -- well, any of the pickup points outside of Philadelphia, we don't get the tax, right.

'Cause the tax is calculated based on where the car is picked up, correct?

Right.

Okay. So even if they keep their physical buildings in the City and tell you that you have to go across the street or down the road or around the corner to get the car at that lot --

Right, if their lot's in 315 12/14/00 - WHOLE - Operating Budget - 05 Delaware County.

-- that becomes the site and you don't get the tax, correct?

That's correct.

Okay. Now, I have read a number of newspaper stories about different about different aspects of the Blight Program and that there was -- as characterized at least by the news stories, that there was a downpayment on the Blight Program somewhere here in the budget.

That's inaccurate. There's an assumption of debt service payments in the budget, but there's no actual downpayment on the Blight Program.

Is it in the Sinking Fund Commission section of the budget?

It is.

Where is it?

It's shown in 700, and it probably shouldn't be; it probably should be in the 200s since an outside agency's going to be doing it.

You want to say that again? 316 12/14/00 - WHOLE - Operating Budget - 05

Yeah. It's shown -- it's in 701, the interest on G.O. debt.

Is that on 10-12?

Hold on one second, I'm actually not looking in the detail. Let me get there.

I'm sorry, that's in the Water section. Is this in the General Fund section?

Yeah, it's in the General Fund section.

So it's -9?

Let me turn there. Yes, that's right.

On which line?

It's included in 703 and 202? I'm sorry, 701 and 702.

Why is it in both?

Interest and principal.

Gotcha.

701 is interest and 702 is principal.

Gotcha. 317 12/14/00 - WHOLE - Operating Budget - 05 And is the total amount of the increase in column number 7, which would be a total of $12 million, between those two items, is the total increase attributable to estimated debt service payments on the Blight Removal Program?

Well, there are some payments that go away.

I'm sorry?

Some payments go away, so it's not -- it's not -- the increase in the Blight Removal Program is actually more than just that increase 'cause there are other debt service payments like principal payments that we've made this year where the debt would no longer be outstanding, so we don't have to make those payments again in 2001.

Let me ask the question differently. What's the total amount between those two lines that is directly attributable to anticipated debt service on the Blight Removal Program?

$16.9 million.

But you're only showing an increase of 12 million. 318 12/14/00 - WHOLE - Operating Budget - 05

Right, because there are other changes. What you see there, in 701 and 702, is the net change between two years.

Right. So you're saying some payments -- okay.

Yes.

Your earlier testimony was that some payments went away, so that would eat into what the larger numbers was, therefore, you can. . . okay.

Right.

All right. So the real answer is $16 million in anticipated debt service.

16.9.

Do you have a --

There are also some increases in commitment fees in the Sinking Fund reserve payments. I think you get up to about 18.8 when you add in everything. I think it's getting to your --

Councilman, excuse me.

Yeah. 319 12/14/00 - WHOLE - Operating Budget - 05

Your five minutes was up a long time ago.

Five minutes ago, at least.

Can we resume with your second go-around, please.

Yes, sure. No 9 problem. Thank you.

Thank you. The Chair recognizes Councilwoman Tasco.

Thank you very much. This question may have been answered already. In terms of the debt service that you talk about for the Blight Program -- good morning, first -- how much will that add to our overall debt and for what period of time? Can you calculate it?

The debt service -- we're assuming the debt service on the Blight Removal Program will equal about roughly $19 million a year for about 30 years, but we're also assuming that it will be issued by the RDA or PAID, but not 320 12/14/00 - WHOLE - Operating Budget - 05 through General Fund, so that it won't eat into our debt capacity.

But the debt service comes out of the Operating Budget, right?

Yes.

It wouldn't come out of --

That's right.

What affect does that have on our debt limit?

It won't have any impact on our debt limit if we structure it so that the debt is issued by an outside agency. So, for example, if it's issued by the Redevelopment Authority, the debt doesn't count against our debt limit.

Oh, okay.

We still have to pay the debt service on it, but it doesn't count against our debt limit.

Okay, all right. And debt limit is not -- the debt service amount that we pay is not looked at by our bond rating companies when they look at our debt?

It's not looked -- well, 321 12/14/00 - WHOLE - Operating Budget - 05 there are two answers. One, yes, the bond rating agencies look at all our outstanding debt in analyzing our financial picture, but it's not looked at in terms of our debt service capacity 'cause that's determined under a formula in the State Constitution.

Oh, okay. Where in the budget, on -18 I, do not see any appropriation for the Student Philadelphia Activities Fund. Has that been taken out of the budget?

Yes. It's been eliminated, has it not?

I'm sorry, what was the -- the Student Activities Fund?

The Philadelphia Activities Fund, -18.

It's definitely not showing in the budget so I would say it's been eliminated at this point.

Who would have made the determination to eliminate it?

Well, this is a -- actually, it's a Finance supplement into the 322 12/14/00 - WHOLE - Operating Budget - 05 Recreation Department on this, so I'm not sure that it's not showing in the Recreation -- it is showing in the Recreation Department's budget.

There's an increase in the Recreation Department's budget equal to what was taken out of the Finance Department budget, so now it's all now in one place, but the funding hasn't changed.

Okay, so part was in the Managing Director's Office and --

Part was in Recreation, part was in Finance, and now it's all in Recreation.

Oh, okay. All right. Thank you very much.

Thank you. The Chair recognizes Councilwoman Brown.

Thank you, Madam President. Good morning offers of the Administration. Good morning.

Good morning. 323 12/14/00 - WHOLE - Operating Budget - 05

When I reviewed testimony, I looked to see where impact had happened with regards to education of children and youth, so my requests are framed around those areas. There is a dramatic decrease with Legal Services for child advocacy representation, a 75 percent decrease from -- gee whiz --

Where are you? I'm sorry.

FY 2000, budget binder 8-71.

Oh.

Are you with me?

Yeah. What happened -- yeah. If you look at the totals, though, look at the Defender Association number.

Yes.

That's goes up by 1.4 million.

And so. . .

So it gives us less -- the Legal Services line is kind of an unallocated line, and what we've done is allocated more money up to the Defender Association and taken some 324 12/14/00 - WHOLE - Operating Budget - 05 money out of what we have in the unallocated line.

Very well, okay.

But if you're looking in total, the totals Class 253 on that page has gone up, it's going up by about $800,000.

And what prompted that move? What sparked that decision?

Part of it was just the cost to the Defender contract. In a lot of years, we don't allocate the increase in the Defender Association contract until later in the year. This year, we decided just to do it up front.

Very well. The Community College subsidy, there was an increase of 1.5 million from FY 2000 -- that's the upside. The downside, however, is that the formula says one-third state, one-third City, and one-third student contributions of student tuition costs. So is there any reason why as of yet, the City has not honored it's one-third contribution?

I think we'll have to get back to you on that one, but I believe that if you look historically, you'll see that we really 325 12/14/00 - WHOLE - Operating Budget - 05 have never been able probably to afford to honor that commitment, more than anything else.

Very well. And the record should reflect that the increase is dramatic, and that's applauded, but the reality still exists that there is not that complement of 33.3 percent.

You're right.

And we should also note that the increase is for the total amount that Community College requested this year.

Very well. Okay, then. Thank you. Should we wait to hear the testimony of Mr. Cermele, Madam President?

You could ask questions now.

Very well. Good morning.

Good morning.

This question is related to the Code Violations Unit and the enforcement of the law surrounding youth access to tobacco. 326 12/14/00 - WHOLE - Operating Budget - 05

Yes.