COUNCIL OF THE CITY OF PHILADELPHIA2 COMMITTEE OF THE WHOLE3 Room 400, City Hall6 Philadelphia, Pennsylvania Wednesday, June 8, 20117 10:35 a.m. PRESENT:9 COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL10 COUNCILMAN DARRELL CLARKE COUNCILMAN FRANK DiCICCO11 COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN12 COUNCILMAN WILLIAM K. GREENLEE COUNCILMAN CURTIS JONES, JR.13 COUNCILMAN JACK KELLY COUNCILMAN JAMES KENNEY14 COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILWOMAN DONNA REED MILLER15 COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN MARIA D. QUINONES-SANCHEZ16 COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO, JR.17 COUNCILWOMAN MARIAN B. TASCO BILL 100542 - An ordinance amending Section19 22-310 of The Philadelphia Code, entitled "Deferred Retirement Option Plan (DROP)," by20 immediately terminating DROP... BILL 110443 - An ordinance amending Title of The Philadelphia Code, entitled "Public22 Employees Retirement Code," by amending the options for retirement benefits...23 - - -24 2
Good2 morning, everyone. This is a public3 hearing of the Committee of the Whole.4 I would ask Mr. McPherson to5 please read the title of the bills that6 we will be considering today.7 MR. McPHERSON: Bill No.8 100542, an ordinance amending Section9 22-310 of The Philadelphia Code, entitled10 "Deferred Retirement Option Plan," by11 immediately terminating DROP, under12 certain terms and conditions.13 Bill No. 110443, an ordinance14 amending Title 22 of The Philadelphia15 Code, entitled "Public Employees16 Retirement Code," by amending the options17 for retirement benefits; in particular,18 amending Section 22-310, entitled19 "Deferred Retirement Option Plan," by20 making various changes to DROP to reduce21 its costs, including, but not limited to,22 changing eligibility requirements and the23 interest credited to DROP accounts;24 adding a new option for retirees to take25 3 6/8/11 - WHOLE - BILLS 100542 & 1104431 a lump sum benefit at retirement, in2 exchange for an actuarial reduction of3 their regular monthly pension; and making4 conforming amendments to other5 provisions; all under certain terms and6 conditions.7
Thank8 you.9 Good morning. Please identify10 yourself for the record and proceed with11 your testimony.12
Good morning,13 Council President Verna and members of14 Council. I am Rick Auerbach, City15 Council Technical Staff. I have been16 asked to begin these hearings on DROP by17 explaining --18
I have been20 asked to begin these hearings on DROP,21 the Deferred Retirement Option Plan, by22 explaining exactly what DROP is, why DROP23 may impose costs on the pension system,24 and how Bill 110443 would reduce the cost25 4 6/8/11 - WHOLE - BILLS 100542 & 1104431 of DROP. 8 To understand DROP, you must9 first understand how the City of10 Philadelphia's pension system works. The11 City offers its employees what is known12 as a "defined benefit" pension plan. In13 a "defined benefit" plan, the City14 promises to pay its retired employees a15 guaranteed pension each year of16 retirement. The amount of that pension17 depends on the number of years the18 employee worked for the City and the19 employee's salary. Take as an example a20 police officer who was hired in 1985 and21 retired last year after working for the22 Police Department for 25 years. Police23 officers hired in 1985 earn a pension of24 and a half percent for each year25 6/8/11 - WHOLE - BILLS 100542 & 1104431 worked. So in our example, the police2 officer after 25 years would have3 accumulated a pension of 62 and a half4 percent. That's 2 and a half percent5 multiplied by 25 years. To determine the6 police officer's annual pension, that7 percentage amount, 62 and a half percent,8 is multiplied by the police officer's9 average final compensation. 18 All City employees in the City19 pension system earn a pension based upon20 this same method. 2 The details of what percentage is earned3 each year and how average final4 compensation is computed differ for each5 category of employee. There are6 different plans for police and fire7 employees, civilian employees and elected8 officials, and different plans for9 employees hired before a certain date and10 those hired after a certain date. 25 7 6/8/11 - WHOLE - BILLS 100542 & 1104431 However, no employee is2 required to retire at his or her minimum3 retirement age. 10 Once employees do retire, they11 are free to take a job with another12 employer, and they will continue to13 receive a full City pension check even14 while working full time for some other15 employer. 24 There is one exception to that25 8 6/8/11 - WHOLE - BILLS 100542 & 1104431 rule, and that brings us to DROP. 7 To be eligible for DROP,8 employees must have worked for the City9 for at least ten years. 13 Employees who enter DROP are treated as14 if they had retired on the day they15 joined DROP. 19 The pension, however, is not paid20 directly to the employee. 22 When the employee finally separates from23 employment with the City, which must24 occur no later than four years after the25 9 6/8/11 - WHOLE - BILLS 100542 & 1104431 employee entered the DROP, the pension2 benefits that have been credited to the3 DROP account are paid to the employee in4 a lump sum, together with annual interest5 at 4 and a half percent. 22 In fact, if an employee were to23 be fired the day after entering DROP so24 that the employee was in DROP for only a25 10 6/8/11 - WHOLE - BILLS 100542 & 1104431 single day, the employee would still2 receive the exact same pension benefits3 as if the employee had remained in DROP4 for four years. Instead of those5 benefits being paid into the employee's6 DROP account for four years and then paid7 out in a lump sum, the same pension8 benefits would be paid to the fired9 employee on a monthly basis. 16 In other words, DROP is not, as17 you sometimes hear, some kind of bonus18 that is paid in addition to an employee's19 pension. It is the employee's pension20 or, to be exact, the first four years of21 the employee's pension paid into a22 special account. It is true that the23 employee continues to work for the City24 during those four years and, of course,25 11 6/8/11 - WHOLE - BILLS 100542 & 1104431 benefits by being paid a salary during2 that time, but the employee does not3 accrue any additional pension benefits4 during that time.
9 This means -- and this is the10 key point to understanding the cost of11 DROP -- if all employees enter DROP at12 the same age they would have otherwise13 retired, then in terms of pension14 benefits, DROP would impose zero cost on15 the Pension Fund. I understand this is16 difficult for some to understand, but the17 fact that employees receive large lump18 sum payments with DROP has absolutely19 nothing whatsoever to do with whether20 DROP does or does not cost money. 5 So why does DROP cost money if6 it does not give participants any greater7 pension benefits than if they had retired8 the same day they entered DROP? The9 primary reason, not surprisingly, is that10 employees generally are not entering DROP11 on the same day they otherwise would have12 retired. They generally enter DROP13 sooner than they would have otherwise14 retired, and because of that, they begin15 to take money out of the Pension Fund16 sooner than they otherwise would have and17 for a longer period of time. 23 Suppose that without DROP that employee24 would have retired at age 58, but with25 13 6/8/11 - WHOLE - BILLS 100542 & 1104431 DROP available, the employee decides to2 enter DROP at age 55 and remain in DROP3 for four years. 7 The employee will have extended his or8 her City career by a year, from age 58 to9 age 59. 19 That's because if the employee did not20 enter DROP, he or she would have21 continued to earn greater pension22 benefits because of the additional years23 of service and possible salary increases24 from age 55 to age 58. Whether this25 14 6/8/11 - WHOLE - BILLS 100542 & 1104431 particular employee benefits from DROP2 and whether his or her participation in3 DROP imposes a cost on the Pension Fund4 depends on whether the employee is better5 off with a smaller pension beginning at6 age 55 or a larger pension beginning at7 age 58. 8 It depends on such technical issues as9 life expectancy, the interest rate used10 to discount future payments and other11 factors. 20 Another reason DROP may cost21 money is because of the 4 and a half22 percent interest rate paid on DROP23 accounts. When DROP was created in 1999,24 it was recognized that the Pension Board25 15 6/8/11 - WHOLE - BILLS 100542 & 1104431 would be holding the money being credited2 to an employee's DROP account for up to3 four years. During those four years, the4 Pension Board would be investing the5 employee's DROP money and earning a6 return. 9 When DROP was created, the Pension Board10 assumed a 9 percent return on its11 investments. 18 That is the origin of the 4 and19 a half percent interest rate credited to20 DROP accounts. 8 Of course, we all know what9 happened to the outsized returns being10 earned in the stock market in the late11 1990s. 21 To summarize, DROP may impose22 costs for two main reasons. First, and23 most significantly, it may cause24 employees to retire sooner than they25 17 6/8/11 - WHOLE - BILLS 100542 & 1104431 otherwise would have. 6 First, in response to the7 earlier retirements resulting from DROP,8 the bill would delay eligibility for DROP9 for two years after an employee reaches10 minimum retirement age. An employee11 could still choose to retire at his or12 her minimum retirement age, but if the13 employee wished to enter DROP, he or she14 would have to wait an additional two15 years. For example, civilian employees16 under the older pension plan with a17 minimum retirement age of 55 would have18 to wait until age 57 before entering19 DROP, although they could still choose a20 regular retirement at age 55. 4 The second cost-cutting feature5 of the bill is that it would reduce the6 interest paid on DROP accounts. Instead7 of the 4 and a half percent interest8 rate, the interest rate would be adjusted9 each year to equal the interest rate then10 being paid on one-year United States11 Treasury bonds. That is the so-called12 "risk free" interest rate suggested by13 Boston College in its study of the cost14 of DROP.
The current yield on one-year15 Treasury bonds is about two-tenths of one16 percent. 15 percent on its2 investments. 10 I will leave it to Tom Lowman11 of Bolton Partners to explain in more12 detail the impact of these two changes on13 the cost of DROP. 16 First, the bill includes an17 effective date section which provides18 that those employees who are eligible to19 apply for DROP now or within 90 days20 after the bill becomes law would not be21 impacted by the bill. Instead, those22 employees would continue to be eligible23 for DROP as it currently exists. "12 That resolution was adopted out13 of concern that if employees believed14 DROP would be eliminated, there would be15 a "run on the bank"; that is, hundreds,16 if not thousands, of DROP-eligible17 employees would apply for DROP before its18 elimination. And, in fact, within a week19 after the Mayor announced last August20 that he would send to Council legislation21 to eliminate DROP, almost 500 DROP22 applications were filed with the Board of23 Pension, and that number increased to24 nearly 1,200 within two months. 18 Finally, in addition to the two19 changes to offset the cost of DROP, the20 bill would also add a new partial lump21 sum benefit option. 2 This lump sum benefit would be completely3 offset by the employee taking a reduced4 monthly pension check for life, so as to5 guarantee that no new costs would be6 imposed on the Pension Fund. 10 I hope this explanation has11 helped to clarify what the DROP program12 is, why DROP does and does not impose13 costs on the Pension Fund, and how Bill14 110443 addresses those costs. 20
23 Good morning, Council President Verna and24 members of the Council. My name is Tom25 23 6/8/11 - WHOLE - BILLS 100542 & 1104431 Lowman. I'm an actuary with Bolton2 Partners. 5 My detailed comments are6 contained in a letter from me dated June7 1st. 12 Overall, the DROP program has13 been a cost to the Pension Fund. The14 nature of this cost is sometimes15 difficult to understand since the members16 in DROP are getting no more than they17 would have received had they retired when18 they entered DROP. 21 I understand that there are two22 bills you are considering. One is from23 the Mayor, Bill No. 100542, which would24 eliminate the DROP program. This will25 24 6/8/11 - WHOLE - BILLS 100542 & 1104431 eliminate future costs of the DROP2 program, but not until one final rush of3 employees enter the DROP. 5 The other bill, City Council6 Bill No. 9 The proposed changes are10 unlikely, though, to eliminate all the11 cost of the DROP provisions. 14 The first change is to -- under15 the City Council bill is to delay the16 DROP entry by two years. Because this17 change would not apply to those currently18 eligible for the DROP program, we looked19 at the cost only for those not yet20 eligible. 8 There are two groups of9 municipal members, though: Group J10 employees who are in the old 1967 plan11 and can generally retire or join DROP at12 age 55 and Group Y employees who are in13 the new 1987 plan and generally can14 retire or join DROP at age 60. We expect15 that the two-year delay will eliminate16 most of the costs for Group Y, which has17 already shown that they work fewer years18 beyond the normal retirement age than19 Group J. We do not expect the same20 savings from delaying the entry into DROP21 for the pre-1987 Group J employees,22 though. 24 There are roughly 2,600 Group J25 26 6/8/11 - WHOLE - BILLS 100542 & 1104431 employees not yet age 55. We estimate2 that the cost difference between3 eliminating the DROP versus keeping the4 DROP with a two-year delay will be in the5 range of $15 to $20 million. 8 The second provision is the9 grandfathering of existing employees who10 are already DROP eligible. As I already11 noted, Bill No. 15 There are about 1,600 employees over age16 55 in Plan J who would remain covered17 under the original DROP provisions. 20 We believe that a similar range21 of costs would be incurred for this group22 under Bill No. 9 The third change in the City10 Council bill is to lower the DROP11 interest crediting rate. Historically,12 such a change would have saved between13 one and one a half million dollars per14 year. 21 Finally, the City Council bill22 also gains a Partial Lump Sum Option, or23 PLOP. A PLOP allows retiring members to24 take a portion of their benefit as a lump25 28 6/8/11 - WHOLE - BILLS 100542 & 1104431 sum and reduce the annuity by the actual2 equivalent of the lump sum paid. Unlike3 the DROP, this would likely be a4 cost-neutral design. 7 Currently, the Board of Trustees sets8 these assumptions. 14 I'd be happy to answer any15 questions. 16
Thank17 you.18 Are there any questions from19 members of the Committee?20 (No response.)21 COUNCIL PRESIDENT VERNA:22 Seeing none, I thank you.23 Oh, I'm sorry. Councilman24 Green is a little slow.25 29 6/8/11 - WHOLE - BILLS 100542 & 1104431 Councilman Green.2
Thank you3 for your testimony. I'm just curious,4 did you calculate the present value of5 eliminating or reducing the interest rate6 if you were to, say, compare what people7 are getting now versus -- and I know we8 can't predict interest rates going into9 the future, but making some sort of10 assumption about the difference between 411 and a half percent and what we actually12 end up having to pay and bring that back13 to present value?14
I could answer15 that in terms of the effects on an16 individual or sort of the plan as a17 whole. I think you're probably asking18 for the plan as a whole perhaps? In the19 case of the plan of the whole, the first20 thing to remember is that this change21 doesn't apply to anyone who is currently22 in the DROP. Therefore, there's really23 no immediate impact. So it would take24 several years before this would really25 30 6/8/11 - WHOLE - BILLS 100542 & 1104431 ramp back up. And we would expect that2 somewhere in the neighborhood of --3 again, there would probably be fewer4 people in DROP in the future, but say a5 million and a half dollars per year would6 be the savings to the Pension Fund. They7 would put about a million and a half8 dollars per year less into people's9 benefits, into their DROP accounts.10
So a million11 and a half a year for 30 years brought12 back to present value is what?13
Thank you.16 Thank you.17 COUNCIL PRESIDENT VERNA:18 You're welcome.19 Are there any other questions20 from members of the Committee?21 (No response.)22 COUNCIL PRESIDENT VERNA:23 Again, I thank you.24
Our2 next witness.3 MR. McPHERSON: Rob Dubow.4 (Witness approached witness5 table.)6
Good morning,9 Council President Verna and members of10 City Council. I am Rob Dubow, Finance11 Director for the City. 14 I am here to testify and answer15 questions on two bills related to the16 DROP. Bill 100542 would immediately17 terminate the DROP, and Bill No. 6 As Mr. Auerbach explained, DROP7 was created with the intent of being a8 human resources planning tool that would9 not have material costs. Unfortunately,10 DROP has had material costs and has not11 been used as an effective human resources12 planning tool. 22 Like Bill 100542, Bill 11044323 recognizes that DROP is too costly and it24 is designed to reduce that cost. 17 Continuing to fund DROP, even18 in a reduced form, imposes an additional19 burden on a pension system that is only20 47 percent funded. This 47 percent21 funding ratio is one of the weakest among22 major American cities. Although DROP is23 not the main driver of the weak financial24 health of the pension system, it has been25 34 6/8/11 - WHOLE - BILLS 100542 & 1104431 a contributing factor. 4 The health of the Pension Fund5 has deteriorated even while the City's6 pension contributions have increased7 dramatically. Those pension costs are8 consuming ever-increasing portions of the9 City's revenues. In just five years, the10 pension costs doubled from about 23011 million in FY04 to about 460 million in12 FY09. 16 A system as poorly funded as17 the City's simply can't afford the extra18 burden of a DROP, even one with the19 likely reduced price tag created by Bill20 No. 21 There are some concerns that22 immediately terminating DROP might be23 more costly to the City compared with the24 proposed bill to make changes to DROP to25 35 6/8/11 - WHOLE - BILLS 100542 & 1104431 reduce its costs. 5 The concern about added costs6 is related to fear that employees will7 rush to enter DROP before it is8 eliminated. 25 36 6/8/11 - WHOLE - BILLS 100542 & 1104431 Before concluding, I'd like to2 commend Council for its willingness to3 address this issue and considering ways4 to reduce the cost of the DROP. 11
Are12 there any questions from members of the13 Committee?14 (No response.)15 COUNCIL PRESIDENT VERNA:16 Seeing none, I thank you.17
Oh,19 just a moment, please. Everybody is a20 little late.21 Councilwoman Tasco, did you22 want to be recognized?23
Thank2 you very much.3 MR. McPHERSON: Our first4 witness is Austin Dutton.5
Is6 Mr. Dutton here?7 (No response.)8 MR. McPHERSON: Jerome Avery.9 (No response.)10 MR. McPHERSON: Jerome Avery.11 (No response.)12 MR. McPHERSON: Zack Stalberg.13 (Audience members booing.)14 (Witnesses approached witness15 table.)16
I'm Zack17 Stalberg, President of the non-partisan18 Committee of Seventy. This is Ellen19 Mattleman-Kaplan --20 (Applause.)21
This is Ellen22 Mattleman-Kaplan, Vice-President of the23 Committee of Seventy. We are here to24 urge City Council to abolish DROP25 38 6/8/11 - WHOLE - BILLS 100542 & 1104431 immediately for all City employees who2 have not already applied for the program.3 The Committee of Seventy can4 talk endlessly about DROP, and some5 members of Council think we already have.6 I will try to keep this simple.7 The public hates the DROP8 program. It has become the symbol for9 arrogance and entitlement. No program10 like this one would be preserved in the11 real, non-government world today.12 Next January, at least six new13 City Council members will be sitting in14 this Chamber, in large part because of15 prolonged, intense anger over this16 pension benefit.17 Despite clear evidence of the18 public's outrage, this Council appears19 determined to save this unnecessary perk.20 This is happening at a time when the21 taxpayer-supported fund out of which lump22 sum DROP payments are made is already $523 billion short of where it should be in24 order to honor existing pension promises.25 39 6/8/11 - WHOLE - BILLS 100542 & 1104431 Continuing to provide lump sum DROP2 payments of whatever size further impacts3 the Pension Fund assets and requires4 larger contributions of City tax dollars5 from the General Fund.6 After two years of successive7 tax hikes, a proposal is on the table to8 raise taxes for yet a third year. This9 Council should be focused on reducing the10 burden on Philadelphia taxpayers, not11 salvaging programs that would in any way12 add to this burden.13 On the day after Michael Nutter14 was sworn in as Mayor, the Committee of15 Seventy asked him why DROP should16 continue. We were concerned about the17 effects of the ballooning pension crisis.18 Three and a half years and several19 debatable studies later, we are still20 asking the same question.21 We recognize that members of22 this City Council believe DROP has been23 misunderstood. There is little doubt24 that by many people it is. Some members25 40 6/8/11 - WHOLE - BILLS 100542 & 1104431 of the Council believe it has been2 deliberately misconstrued by the news3 media, the Committee of Seventy and4 others.5 What we believe is that6 foot-dragging by City Council and by the7 Mayor, whose position we support today,8 has allowed DROP to become a festering9 wound that no one in this city is able to10 view dispassionately.11 Once again we ask, why does12 Philadelphia need DROP?13 DROP provides no benefits for14 ordinary taxpayers. Only the City15 employees benefit from DROP. The rest of16 Philadelphia taxpayers do not. If the17 City is unable to --18
One19 moment, sir.20 Please, let's respect each21 other. Thank you.22 Please proceed.23
25 41 6/8/11 - WHOLE - BILLS 100542 & 1104431 Only the City's employees2 benefit from DROP. The rest of3 Philadelphia's taxpayers do not. 13 DROP doesn't make government14 work better. Any pretense that a15 government-wide perk like DROP is needed16 in order to keep experienced employees on17 the job after they might otherwise have18 retired disappeared long ago. That was19 the supposed purpose for starting DROP in20 1999. 22 DROP helps keep the workforce23 large and intact. 6 So far, City officials have7 shown themselves unwilling to make the8 kind of tough decisions that are vitally9 necessary for this large, and largely10 poor, City to reduce the size of11 government and use the remaining12 resources smartly. 15 Cost neutrality is speculative16 at best. Council says its new and17 improved DROP program will be cost18 neutral. 23 Most actuaries say that cost24 neutrality can only be judged by actual25 43 6/8/11 - WHOLE - BILLS 100542 & 1104431 experience. 11 Eliminating DROP will not deprive any12 current or future City employees of the13 full pensions they earn and deserve. 23 Philadelphia is not the only24 government that is scrutinizing DROP25 44 6/8/11 - WHOLE - BILLS 100542 & 1104431 programs. San Diego adopted DROP for its2 employees in 1997. 11 And then there's Baltimore,12 which, like this City Council, started13 down the tweak-it road. 17 The Task Force on Sustainable18 Funding of Baltimore's city, fire and19 police pension system said that reducing20 the interest rate earned on the set-aside21 DROP payment accounts of employees, which22 is what Philadelphia seems poised to do,23 is, quote, "inadequate to address the24 long-term problems of cost and25 45 6/8/11 - WHOLE - BILLS 100542 & 1104431 relevance," close quote, of the DROP2 benefit. 4 This Council can honor the5 public's outrage over DROP. 16
Thank17 you.18 Are there any questions from19 members of the Committee?20 (No response.)21
Thanks very24 much, Council President.25 46 6/8/11 - WHOLE - BILLS 100542 & 1104431 MR. McPHERSON: Cathy Scott.2 (Applause.)3 (Witness approached witness4 table.)5
My name is11 Catherine Scott, President of AFSCME12 District Council 47. My union represents13 approximately 4,000 employees in the City14 of Philadelphia, the First Judicial15 District and the Philadelphia Parking16 Authority who are members of the City17 pension plan. Thank you for the18 opportunity to testify today.19 Before I address this specific20 legislation, I would like to provide some21 facts, which I know you as City Council22 members know, but have been so distorted23 or misrepresented that they need to be24 clearly stated.25 47 6/8/11 - WHOLE - BILLS 100542 & 1104431 First, pensions are a2 negotiated benefit, like wages.3 Second, once the contribution4 has been bargained, pension payments are5 not taxpayer dollars. They are paid by6 the Pension Trust Fund to retired7 employees.8 Third, our members pay into the9 Pension Fund out of every paycheck. If10 they are in the J plan, they pay 3.7511 percent of their salary from the day they12 start working. If they are in the Y13 plan, which is a lower benefit than the J14 plan, they have paid a percentage set by15 the plan actuaries each year. Our16 members have never missed a pension17 payment.18 (Applause.)19
Fourth, District20 Council 47-represented employees do not21 return to City employment after22 completing their deferred retirement23 option program.24 (Applause.)25 48 6/8/11 - WHOLE - BILLS 100542 & 1104431
Five, the City has2 failed to make its pension payments,3 sometimes skipping entire years,4 sometimes paying less than what they5 actuarially are required to pay, as is6 currently happening under this7 Administration.8 As to this proposed9 legislation, City Council is relying on10 various actuarial analyses to evaluate11 the cost of DROP. A Bolton analysis12 dated June 1, 2011, which has just been13 testified to, to City Council contains an14 analysis for Plans Y and J in which our15 members participate. On Pages 3 and 4,16 Bolton has multiple assumptions, one of17 which is two years of wage increases18 since the Boston College study. As we19 all know, non-uniformed union-represented20 employees have not had wage increases21 since July 2007.22 (Applause.)23
And step increases24 in longevity have been frozen by this25 49 6/8/11 - WHOLE - BILLS 100542 & 1104431 Mayor since July 2009.2 (Applause.)3
Why would anyone4 accept, much less believe, any cost5 analysis which can't get basic6 information like salaries correct?7 (Applause.)8
Both the Boston9 College study and now the Bolton study10 are fraught with incomplete and11 inaccurate information.12 For several years, both the13 Inquirer and the Daily News have attacked14 City pensions in general and DROP in15 particular citing the so-called cost of16 the program. On June 3rd, 2011, the17 Daily News switched its attack with an18 editorial stating, quote, "DROP is no19 longer about the money," end quote. It20 acknowledges, quote, "in fact, DROP was21 always just a raindrop in the tidal wave22 of pension problems headed for the City.23 DROP is now about confidence in24 government," end quote. And I heard25 50 6/8/11 - WHOLE - BILLS 100542 & 1104431 Mr. Stalberg refer to it, too.2 Rather what this has always3 been about is a relentless attack against4 City employees and defined benefit5 pensions.6 (Applause.)7
This most recent8 bait and switch should be seen for what9 it is. Just as the citizens of Wisconsin10 have recognized that attacks against11 public employees was never about12 balancing the budget, our daily papers13 are now revealing their true anti-worker14 goals.15 (Applause.)16
The Deferred17 Retirement Option Program is part of the18 existing pension program and, as such, is19 a mandatory subject of bargaining and can20 only be addressed at the bargaining table21 for union-represented employees.22 Thank you for the opportunity23 to testify today.24 (Standing ovation.)25 51 6/8/11 - WHOLE - BILLS 100542 & 1104431
Are2 there any questions from members of the3 Committee?4 (No response.)5
Thank6 you, Ms. Scott.7 MR. McPHERSON: Tom Jennings8 and John McNesby.9 (Applause.)10 (Witnesses approached witness11 table.)12
14 MR. 18 MR. McNESBY: John McNesby,19 President, Fraternal Order of Police,20 Lodge No. )22 MR. McNESBY: Good morning,23 members of Council. 2 I have the honor this morning3 of representing 6,400 remaining police4 officers of the Philadelphia Police5 Department. In 1999, each and every one6 of these officers were promised by this7 Council that when they are finally8 eligible to retire, after a lifetime of9 service to the City, they could elect to10 participate in the Deferred Retirement11 Option Program, DROP, as it was then12 established. 15 I am here today to review some16 basic facts with you regarding the police17 officers' actual participation in the18 DROP program, our relationship with the19 City and basic fairness. 24 I hasten to note that I am here25 53 6/8/11 - WHOLE - BILLS 100542 & 1104431 today only on behalf of your active2 police officers and the FOP that serves3 as their collective bargaining4 representative. While I believe that I5 have a firm hold on the facts surrounding6 DROP as it applies to police officers, I7 make no pretense of understanding DROP's8 application to the thousands of other9 City employees who are represented by10 their three unions. 19 From the police officer's perspective, it20 provided the opportunity to retire with a21 lump sum of money that was otherwise22 beyond the economic reach of most23 officers, at the same time the years of24 retirement notice provided by the DROP25 54 6/8/11 - WHOLE - BILLS 100542 & 1104431 program to the City of Philadelphia and2 its Police Department with an3 unprecedented ability to plan for its4 manpower needs. 16 Then on July 29th, 2010 a17 43-page study by some academics at Boston18 College was released. It proclaimed that19 the DROP benefit somehow cost the City20 $258 million since its inception in21 December of 1999. 4 At the same time, the media was5 provided with a constant public drumbeat6 that could be used to improve dropping7 circulation. )12 MR. )18 MR. McNESBY: If the media was19 to be believed, the Boston College report20 might well have been written on two stone21 tablets and possessed an accuracy that22 dare not to be challenged. 24 But some had the wisdom and25 56 6/8/11 - WHOLE - BILLS 100542 & 1104431 courage to refuse to blindly accept the2 Boston College report as being3 infallible. 8 In February of this year,9 nationally renowned Bolton Partners10 presented their review of the11 much-heralded Boston College study. To12 no one's great surprise, Bolton concluded13 that the Boston College study that some14 had considered to be of biblical15 significance was seriously, very16 seriously, flawed. It missed the mark by17 more than $150 million, a 60 percent18 overstatement of the asserted cost of the19 entire DROP benefit. The report that had20 for eight months been mindlessly accepted21 as being irrefutable truth was, in truth,22 valueless. 4 In point of fact, by its own5 admission, even Bolton's numbers can be6 overstating the actual cost of DROP. 15 Surprisingly, regardless of whether you16 wish to cling to the grossly overstated,17 now discredited guesses from Boston18 College or the 60 percent reduction of19 those guesses from Bolton, one20 inescapable fact remains. Both21 organizations made it clear that insofar22 as the Philadelphia police officer is23 concerned, the DROP program costs this24 City nothing or, at worst, next to25 58 6/8/11 - WHOLE - BILLS 100542 & 1104431 nothing. 17 While disagreeing with Boston's18 conclusions due to faulty data, Bolton19 nonetheless concluded that the cost of20 DROP, whatever it might ultimately be21 proved to be, is not materially22 attributable to police officers. 6 Despite the fact that there7 exists no evidence that the participation8 of police officers in the DROP program as9 it presently exists results in any10 material costs to the City, the proposal11 now before this Council would nonetheless12 diminish the officers' DROP benefits in13 total disregard of the facts.
To that14 extent, the pending proposals are based15 on logic and fact as opposed to media16 hysteria. 19 Exacerbating the injustice of20 stripping police officers of the value of21 their DROP benefits is the fact that the22 City has immensely benefited from the23 stability that only DROP can provide in24 very difficult times. 4 Quite obviously, despite the5 unprecedented hiring freeze in the last6 several years, the dedicated men and7 women of the Philadelphia Police8 Department continue to perform their9 duties with indisputable professionalism10 and dedication. 17 Only by processing the flow of DROP18 applications and the predictable date of19 resignations occurring on that exact date20 years later, the City was and is afforded21 an invaluable opportunity to22 intelligently and effectively react to23 the sharp and continuing decline of our24 ranks. 4 Then there is the law. Both5 the United States and the Pennsylvania6 constitutions make it clear that pension7 benefits such as DROP cannot be8 negatively affected without the9 participation of its participants. 20 Another key fact cannot be21 ignored. The FOP is not working under an22 extension of an expired contract. Police23 officers employed by the City do have a24 collective bargaining agreement with the25 62 6/8/11 - WHOLE - BILLS 100542 & 1104431 City. 4 We achieved that contract5 through the collective bargaining and6 interest arbitration procedures of Act7 111. 15 As the City Solicitor told you,16 Pennsylvania law dictates that those17 procedures are to be utilized when either18 party to the contract wants to change a19 term and condition of employment. 2 Again, as your City Solicitor3 told you, unilateral action to change a4 term and condition of employment has been5 prohibited since the inception of Act6 111. Even without a contract, the law7 demands that modifications to pension8 benefits be accomplished through9 collective bargaining, not unilateral10 action. 4 Thus, no economic justification5 exists to attack DROP benefits for6 Philadelphia police officers. Whatever7 other problems exist with this program,8 it works and it works well for9 Philadelphia police officers and for the10 citizens of Philadelphia. 17 On a more basic level, every18 member of this Council has at one time or19 another expressed admiration, respecting20 gratitude to the members of the21 Philadelphia Police Department. 6 Now a litmus test exists as to7 whether that gratitude exists beyond8 words. We are asking to be judged on our9 own costs and our own merits and to10 thereby avoid a fight that makes no11 economic sense. 21 Finally, there is the simple22 question of law. While I will defer a23 detailed discussion of the law to the24 lawyers, I will nonetheless simply point25 66 6/8/11 - WHOLE - BILLS 100542 & 1104431 out that a fair reading of the City2 Solicitor's understandable effort to3 justify unilateral action on your part4 effectively states that the facts and5 equity are against the City. Whether you6 consider the constitution, Pennsylvania7 labor law or our contract, any effort at8 all to unilaterally change our pension9 benefits can and will be rejected. The10 weak and inconclusive opinion by the City11 Solicitor in that regard can hardly offer12 you any real solace as to the legality of13 what you are considering. 24 I sincerely appreciate the25 67 6/8/11 - WHOLE - BILLS 100542 & 1104431 opportunity to spend a few minutes with2 you today. As had been seen from the3 tremendous complexity of the two reports4 that you have already received, the issue5 of DROP and its cost implications is not6 a simple one. )22
Are23 there any questions from members of the24 Committee?25 68 6/8/11 - WHOLE - BILLS 100542 & 1104431 (No response.)2
Thank3 you again. We appreciate your coming in4 to testify.5 MR. McPHERSON: Our next6 witness is Aaron Proctor.7 (No response.)8 MR. McPHERSON: Aaron Proctor.9 (No response.)10
Is11 Mr. Proctor here?12 (Witness approached witness13 table.)14
Good morning.17 COUNCIL PRESIDENT VERNA:18 Please identify yourself for the record19 and proceed with your testimony.20
Aaron Proctor.21 I'm actually going to be brief because I22 think Zack Stalberg said probably half of23 what I was going to say.24 But I'm just a lowly taxpayer.25 69 6/8/11 - WHOLE - BILLS 100542 & 1104431 I don't belong to any major union. I2 don't work for the City. So pretty much3 the general feeling with that is that my4 opinion doesn't matter.5 The point is this: I think6 that the guy from the FOP getting up here7 is a fine thing, because I think that8 police officers and firefighters, people9 like that, put their lives on the line.10 They're first responders. They put their11 lives on the line for the City. They do12 the right thing. I think that they're13 being screwed over, though, by other14 people who are in DROP that are just15 pencil-pushers making $80,000 a year,16 taking trips to the Caribbean with17 Councilmen and things like that.18 So here's the deal: Why do we19 have a program that doesn't reward people20 who actually put their lives on the line21 and rewards people who are elected22 officials that are supposed to be public23 servants? I just feel that this is the24 wrong thing for Philadelphia. I feel25 70 6/8/11 - WHOLE - BILLS 100542 & 1104431 that we're running out of money. I'm2 tired of paying a higher sales tax. I'm3 tired of paying a higher property tax.4 I'm tired of being penalized because I'm5 not a taker. And I just think that DROP6 should be eliminated, and that's all I7 have to say.8
Thank9 you very much.10 (Applause.)11 MR. McPHERSON: Our next12 witness is David Krain.13 (Witness approached witness14 table.)15
Good morning. My16 name is David Krain. I'm a social worker17 at DHS and I'm also a shop steward in18 Local 2187, which is part of DC47. I'm19 only 31, so I don't have a chance at20 getting DROP for at least another 2921 years, so I don't have that kind of22 inherent interest in it.23 I'd like to thank the24 Councilmembers that do have the courage25 71 6/8/11 - WHOLE - BILLS 100542 & 1104431 to actually go through the studies and2 look at the different issues that come3 above instead of falling down to the4 Administration's woes.5 I think that so far talking to6 my members in my shop and a few other7 people, being a younger person in public8 service, we've basically been attacked9 for the last three years. We haven't10 gotten a raise. Healthcare costs have11 gone up, and when it comes time for the12 budgetary crisis, it's on the back of the13 workers. For some reason, there's14 somehow a myth that City employees don't15 pay taxes. We pay taxes, and we keep16 paying them. And I think that's one of17 the strange myths. If I could somehow18 not pay taxes, you could take the DROP19 check. But I think one of my main20 concerns is for the younger people who21 would like to get into public service,22 there doesn't seem to be any goal to look23 forward to it. I chose to get into24 public service for the greater good, take25 72 6/8/11 - WHOLE - BILLS 100542 & 1104431 a smaller salary, then hope by the time I2 reach my age of retirement, I'd be able3 to have some kind of sustainable life.4 And my last message to Council5 is if they accept what the Nutter6 Administration continually tries to pass,7 the message they'll be sending to the8 public service employees who are about 409 and younger would be that you'd better10 hope you die before you retire, because11 nobody cares about you.12 Thank you.13 (Applause.)14
Thank you15 very much for your testimony.16 MR. McPHERSON: Our next17 witness is Joseph Mahoney.18 (Witnesses approached witness19 table.)20
Good23 morning. Would you state your name for24 the record and please begin your25 73 6/8/11 - WHOLE - BILLS 100542 & 1104431 testimony.2
My name is Joe3 Mahoney and I'm Executive Vice-President4 of the Greater Philadelphia Chamber of5 Commerce, and I thank you for the6 opportunity to be here today to present7 testimony on Bills 100542 and 110443.8 I also thank you for the9 opportunity to comment on the future of10 the Deferred Retirement Option Program11 and the future as a planning tool for the12 City government.13 DROP has proven to be a costly14 planning tool for government. During15 times which demand that government16 conserve each dollar, the cost of the17 existing DROP program has been a drain on18 the citizens of Philadelphia. With an19 estimated cost at between 100 million and20 258 million, all agree that the current21 program cannot be maintained in its22 current form. The task that lies before23 you is to determine whether to make24 changes to the program or to eliminate it25 74 6/8/11 - WHOLE - BILLS 100542 & 1104431 entirely.2 One of the objectives of the3 sponsors of Bill 110443 was to reduce the4 cost of DROP. While the legislation5 appears to accomplish the goal initially,6 it is unclear what the cost of the7 program will ultimately be because of the8 variable nature of the interest rate on9 the one-year Treasury bond. With current10 rates at historic lows and an expected11 end to the Federal Reserve's quantitative12 easing program, most economic observers13 would expect that interest rates would14 begin to rise. Also, we believe that15 many eligible employees will gravitate to16 the known returns of the existing DROP17 program given the guarantee of a 4.518 percent rate rather than the 0.2 percent19 rate of the one-year bond.20 The sponsors of the bill have21 taken precautions to prevent a, quote,22 "run on the bank" by allowing employees23 eligible for the current program to24 receive those same benefits by providing25 75 6/8/11 - WHOLE - BILLS 100542 & 1104431 a window of opportunity for them to sign2 up for participation. This will ease3 initial costs, but will make the final4 costs associated with the program more5 difficult to estimate.6 In addition, the City's pension7 plan is underfunded and will need serious8 attention in the next several years to9 ensure its stability.10 Most private-sector employees11 today do not enjoy the availability of a12 defined benefit plan. A major issue with13 public-sector defined benefit plans is14 that their underfunding is often15 addressed via additional payments16 supported by either increased taxes or17 diversion of public funds from other18 uses. DROP only exacerbates this tension19 and problem.20 While the sponsors of the bill21 work to address costs associated with the22 current program, the issue that is23 difficult to gauge will be the public24 perception associated with a restructured25 76 6/8/11 - WHOLE - BILLS 100542 & 1104431 plan rather than the elimination of a2 plan that seemed difficult for citizens3 to justify. We believe that making4 adjustments in the plan will not satisfy5 those concerns. All have seen the6 pushback which took place during election7 season and recognize that citizens across8 the City do not support continuation of9 the program.10 Given that reality, along with11 the difficulties associated with12 estimating what DROP will continue to13 cost the City, we support Bill No.14 100542, which would eliminate the program15 in total.16 Thank you for your17 consideration.18
Thank you.24 MR. McPHERSON: Our next25 77 6/8/11 - WHOLE - BILLS 100542 & 1104431 witness is Karen Brown.2 (Witness approached witness3 table.)4
Good5 morning. Would you state your name for6 the record and please begin your7 testimony.8
Yes. My name is9 Karen Brown and I'm a candidate for10 Mayor.11 I came here today to speak12 about DROP, and I listened to many other13 people who have spoken. DROP has been14 discussed in many manners today, but15 truly the reason why we're here is16 because we're in an election year, and17 the election officials have heard the18 voice of the voters. The outcry that19 they have given over this issue has20 cleared this room. It has made room for21 new blood in Council. It's a long time22 coming.23 DROP was put in place for our24 core services, our core services like the25 78 6/8/11 - WHOLE - BILLS 100542 & 1104431 firemen and police, who are the least2 paid in this city. Yet because of the3 mockery that our elected officials have4 made of this system, it now wants to be5 removed, corrected, adjusted. It should6 have never been for the elected7 officials.8 (Applause.)9
DROP means drop,10 not go home and return the next day.11 We can't use our current12 situation and our overspending and the13 budget crisis to remove something that14 was put in place for the people who truly15 do what every voter wants, protect our16 city and provide services no one else can17 do.18 Our elected officials are19 public servants. They should have never20 gotten into a program that was not for21 them. And to now remove it and penalize22 those it was in place for is a mockery23 again.24 DROP is something that the25 79 6/8/11 - WHOLE - BILLS 100542 & 1104431 people of this city have looked forward2 to secure that the core services that we3 need to keep our city running get what4 they need, to make it beneficial and to5 make it be what it should be, a badge of6 honor for those who do what no one else7 would.8 To remove DROP because of a9 mockery or to use the situation of10 overspending to correct a pension deficit11 is another absurdity that this12 Administration has put on its voters.13 Thank you.14 (Applause.)15 MR. McPHERSON: Our next16 witness is Chester Skaziak.17 (Witness approached witness18 table.)19
Good20 morning. Would you state your name for21 the record, please, and proceed with your22 testimony.23
My name is24 Chester Skaziak. 3 I'd like to say good morning,4 Ms. Tasco and distinguished members of5 Council. I reside in the Bustleton6 section of Northeast Philadelphia. I was7 appointed to the Fire Department on March8 the 6th of 1978 and served as a9 firefighter for 28 years, seven months10 and 20 days. 13 Mayor Nutter has said one14 pension is enough. Another comment from15 his office said the deck chairs need to16 be reorganized. The media has reported17 that firefighter overtime is costly to18 the City to the sum of $3 million. 20 Let me start by stating that it21 is my belief that the police officers and22 firefighters who DROP are not a financial23 burden to the Pension Fund. 4 I entered the DROP on November5 the 11th, 2002 and resigned on November6 the 15th, 2006, and my pension is $2,6007 a month, and it is the only pension I8 receive from the City. There are many9 opinions on the DROP and its cost. 2514 billion in bonds. 18 On the above date, hearings were held on19 Bill No. 960598. 08324 million in overtime. 10 Mr. Mattia on Line 2 of Page11 17, quote, "To give you a good example,12 we were here in '96, December when we13 brought this up. In my title, if I go14 out today, I go out with $32,869. My15 secretary would got out with $39,856. My16 mechanic would go out with $38,586. My17 group leader would go out there with18 $47,386. So my group leader would go out19 with $15,000 more than me, my secretary20 would go out with $7,000 more than me and21 my mechanic would go out with $6,000 more22 than me. 24 My question is, do these25 83 6/8/11 - WHOLE - BILLS 100542 & 1104431 figures represent 80 percent of their2 wages for that year? In his earlier3 testimony, he stated that they could only4 receive up to 80 percent of their5 salaries for pension purposes. The6 firefighters and police can earn up to7 100 percent. 9 What Mr. Mattia failed to10 mention is that he was entitled to a11 Social Security pension paid for by the12 City of perhaps as much as $1,500 a13 month, or $18,000 a year, plus the14 $32,856, equalling $50,856. This wasn't15 enough. City Council gave in and passed16 the bill to give them overtime. In17 essence, he will be receiving overtime18 for the rest of his life. 22 How much did those other employees23 collect? Not to mention that their24 contributions to the Pension Fund are25 84 6/8/11 - WHOLE - BILLS 100542 & 1104431 much less. 75 into the Pension Fund. 8 Then there was also a Mr. John9 Crapper who testified. He was10 Chairperson of the Association of11 Managers. 12 He requested that the committee go back13 three years and make it retroactive,14 which it did. 25 billion in 1999 to16 raise the funded level to 81 percent. 23 Here is an example of the24 results of this piece of legislation: A25 85 6/8/11 - WHOLE - BILLS 100542 & 1104431 firefighter earning $42,000 entered the2 DROP on January of 2001. 5 Another City employee earning6 $38,000 entered the DROP the spring of7 the same year, I believe April. He8 received a DROP amount of $175,000. Was9 it because of his overtime earnings? He10 is also collecting a Social Security11 pension which was paid for by the City in12 the sum of $1,600 a month. I suspect13 combined he is collecting pensions14 totalling $55,000 a year. I remind you,15 he was earning 38,000. How is this16 possible? 5 percent for every year of25 86 6/8/11 - WHOLE - BILLS 100542 & 1104431 service. 5 990708, which is a COLA for the retirees,6 was signed into law. I mention this7 bill, for it is my belief that the8 overtime issue has a detrimental effect9 on the PAF distributions also. Because10 as I know it, the PAF funds and the11 pension funds are commingled. I12 understand the stock market has an effect13 on the Pension Fund. 16 This concerns me, for I am nearing that17 time of my life where I too would expect18 a return of the Pension Fund earnings,19 which brings me to Bill No.
030827,20 signed into law January the 31st of 2003,21 an ordinance amending Title 22 of The22 Philadelphia Code, entitled "Public23 Employees Retirement Code," by amending24 Section 22-305 relating to the maximum25 87 6/8/11 - WHOLE - BILLS 100542 & 1104431 benefit limitations imposed by the2 Internal Revenue Code 415. This was a3 generous piece of legislation raising the4 base pension benefit from a maximum of5 90,000 up to a level of 160,000. This6 was passed in stealth fashion in Room 6967 on the 6th Floor. 12 Since 1985, the State and the13 City leaders have been chipping away at14 the benefits of the City employees'15 pension. 221 percent, then again so that after 2022 years of service, the reward is, your23 percentage is lowered to 2 percent. 7525 88 6/8/11 - WHOLE - BILLS 100542 & 1104431 percent for 20 years and nothing after2 that. Here again, those other City3 employees were to be given Social4 Security in Plan '10 and DC, while newly5 hired police officers and firefighters6 are to earn 35 percent after 20 years and7 nothing more, and now a further reduction8 on the interest on the DROP funds at a9 time when this Council has in committee a10 Bill 100497, which would give the Pension11 Board the ability to hand out no-bid12 contracts on the pension funds. Where13 does it end? When the Pension Fund14 requires the leadership of our elected15 officials, they answer by reducing the16 benefits of all but themselves. 21 In conclusion, it is the22 Pension Board's finances that brings us23 to this place in time. My question to24 the author and to those of you25 89 6/8/11 - WHOLE - BILLS 100542 & 1104431 responsible for this bill, to include the2 City Solicitor, what does Section (f) of3 this ordinance mean? I posed this4 question to the Executive Director of the5 Pension Board through an e-mail. He6 informed me that it has been turned over7 to the Law Department for review. This8 is very disturbing to me. We make laws9 and don't know what they are. Let the10 record show that each member of Council11 has been given a copy of Bill No. 18 There is also another matter I19 would like to bring up before I leave,20 and there's a Foreign Buyer Casualty21 Insurance Fund. They call it points. A22 point is a thousand dollars. 3 It goes into the General Fund. When a4 City employee enters the DROP, the state5 no longer gives us that money. If 1,0006 police officers and firefighters are in7 the DROP, it comes out to a million and a8 half. I saw in today's paper that there9 was some 11,000 people who had been in10 the DROP over the course of the last 1211 years. I think the City has missed out12 on an opportunity of some $15 million by13 not getting our state officials to send14 that money to the City. And I say that15 because while we're still employees, for16 the state's purposes, we are retired once17 we enter the DROP. I think it's a matter18 that you should research. )21
Thank22 you, sir.23 Our next witness.24 MR. McPHERSON: Judith25 91 6/8/11 - WHOLE - BILLS 100542 & 1104431 Samans-Dunn.2 (Witness approached witness3 table.)4
Good5 morning. Welcome. Please identify6 yourself for the record.7
I'm Judith8 Samans-Dunn. I thank you for this9 opportunity to talk before Council.10 I am here. I am a taxpayer. I11 am not representative of any class of12 employees because I am in the prohibited13 class. That means I am a14 non-representative City civil servant. I15 have worked for the City now for 3116 years.17 I would like to point out that18 I do two very complex jobs for the City.19 My bosses, if you ask them, do not want20 me to retire. I am already eligible to21 join the DROP.22 As a non-represented employee,23 contrary to what Mr. Skaziak may have24 said, I do not earn overtime. I earn25 92 6/8/11 - WHOLE - BILLS 100542 & 1104431 comp time on the many evenings when I2 stay late and the many extra hours that I3 put in to get my work done, and I give a4 lot of it back to the City, because5 although I'm using personal leave time6 right now, I don't find enough time to7 use all my leave time. I am the kind of8 person the City wants to keep. I may be9 representative of the non-rep employees.10 So the intent of the DROP was11 to keep somebody like me, is to keep me12 here and keep me working where my bosses13 want me, and I think it's very important14 to point that out.15 Mr. Dubow pointed out that one16 of the points of DROP was to do some17 planning so that we could have18 succession. Well, it's very hard to do19 that when the Budget Office will not20 allow a trainee to be hired to learn my21 very complex work until after I'm gone.22 So DROP or no DROP, that's really tough.23 I didn't do a budget analysis24 for the overall DROP. I did a budget25 93 6/8/11 - WHOLE - BILLS 100542 & 1104431 analysis for me, for my family. I don't2 really intend to retire right now. It's3 not my point. But if City Council were4 to decide it's best to end the DROP right5 now, I have no choice. I would have to6 jump into the DROP this minute, because7 from a personal perspective, I can't not8 do that.9 I'm not alone in the City. I10 think we really need to examine -- I11 heard a very small number of employees,12 but there's an awful lot of people that I13 know who have the years and the age to14 retire who would immediately have to jump15 into the DROP. Can the City afford what16 that's going to cost when that hits the17 pension four years from now? I don't18 think they want us to all flee. I think19 adjusting it to make it cost neutral is20 very appropriate.21 I'll also take exception to22 Mr. Stalberg calling those of us who are23 in the City employee, which he did by24 reference, of calling us large and inept.25 94 6/8/11 - WHOLE - BILLS 100542 & 1104431 I take exception to that. I work very2 hard.3 I don't have anything else to4 say on that.5 (Applause.)6
I'll just7 add, actions have reactions, and please8 calculate it very carefully. Do I think9 maybe it should not be 4 and a half10 percent interest earned on money going11 into the DROP? I think this is a very12 appropriate way to evaluate what the13 costs are. And I just wanted to put my14 two cents in.15 Thank you.16 (Applause.)17
Thank18 you very much. Thank you.19 Our next witness.20 MR. McPHERSON: Mark Zeitz,21 Z-E-I-T-Z.22 (No response.)23 MR. McPHERSON: Fred Fisher.24
My turn at last.25 95 6/8/11 - WHOLE - BILLS 100542 & 1104431 (Witness approached witness2 table.)3
My name is Fred7 Fisher. I am a retired City employee. I8 live on my pension. I live on my Social9 Security.10 You know, I hear a lot of fancy11 words today, but it's very obvious to all12 of the people outside of this room that13 DROP is double dipping. It's being paid14 for your day's work and your pension at15 the same time. It's ridiculous. And,16 you know, if you look at this program --17 I was going to say some other things18 like, you know, the Mayor said to drop19 it. The people who ran this year to be20 renominated for the position, Mr. Rizzo,21 Mr. Tartaglione, were both not22 renominated basically because of DROP.23 So the public did speak on DROP in its24 voting these two people not to be25 96 6/8/11 - WHOLE - BILLS 100542 & 1104431 renominated.2 You know, I don't think you3 should be ignoring the public's opinion.4 It's at your peril.5 And the other thing I wanted to6 say is this: If you look at the DROP7 program, if you look at the DROP, there's8 only two groups of people who are9 benefiting from it, the politicians and10 the public employees. The taxpayers are11 getting no benefit whatsoever from these12 hundreds of millions of dollars wasted by13 paying people four years pension and four14 years salary at the same time. It's15 ridiculous. It's not real world. And16 I'll tell you the truth, I feel that17 this -- it's a conspiracy between the18 politicians and the public employees,19 because they're buying the public20 employees' vote, his or his wife's vote,21 his children's vote if they're old22 enough, all of his friends and relatives,23 You got to vote these politicians in,24 they're going to keep us -- they're going25 97 6/8/11 - WHOLE - BILLS 100542 & 1104431 to give us this big lump sum. Whoever2 heard of people walking out of here --3 it's ridiculous -- with hundreds of4 thousands of dollars under their arm in5 lump sum payments? This is crazy.6 You're raising my taxes 107 percent this year. You're talking about8 10 percent again or a soda tax.9 Meanwhile, the population of the City,10 the public employees, have ballooned11 while the City's population has decreased12 by 30 percent. Your office has increased13 by hundreds of percent of people and so14 has the Mayor's. It's shameful.15 I think this program is going16 to go down as one of the most shameful17 things in the history of the City of18 Philadelphia. And, you know, if I were19 looking at from above and seeing what was20 going on, how this money was being21 wasted, there is no benefit to the22 taxpayer for people collecting this23 money, and you people here who are24 supposed to make a decision, you're25 98 6/8/11 - WHOLE - BILLS 100542 & 1104431 recipients. Ms. Verna, you're getting,2 what is it, $800,000 -- I'm sorry;3 $580,000. I'm sorry.4
Five hundred7 eighty thousand dollars. You're sitting8 here. You should recuse yourself, all of9 you here. All of you here should recuse10 yourself. You are not qualified to judge11 on this one. You are receiving a benefit12 from it. How can you say whether it's13 good or bad when you're walking out of14 here with hundreds of thousands of15 dollars?16 This is the most shameful thing17 that ever happened to the City of18 Philadelphia. I'm sure somebody will19 write a book about this one day, and it20 will not be a happy thing. It's a black21 mark on the City of Philadelphia, and you22 are stealing from the taxpayers.23 The DROP program should be24 renamed, not Deferred Retirement Option25 99 6/8/11 - WHOLE - BILLS 100542 & 1104431 Plan, but Pick the Taxpayers' Pocket2 Plan.3 That's all I have to say.4 MR. McPHERSON: Our next5 witness, James Callis.6 (No response.)7 MR. McPHERSON: James Callis.8 (No response.)9 MR. McPHERSON: Jody Della10 Barba.11 (Witness approached witness12 table.)13
All18 right. Please identify yourself for the19 record and proceed with your testimony.20
Jody,23 just a moment.24 (Pause.)25 100 6/8/11 - WHOLE - BILLS 100542 & 1104431 COUNCIL PRESIDENT VERNA:2 Please proceed.3
Good4 afternoon. I am 57 years old and a5 lifelong resident of Philadelphia. I6 have also owned a home and paid real7 estate taxes since 1978. I am a City8 employee with the First Judicial District9 and I am not in the J plan. Therefore, I10 have to wait three more years until I11 would be eligible for DROP. I have not12 had a raise of any kind for four years13 because I am not in the union.14 I ask that City Council not15 stop DROP for City employees. I ask that16 you consider only modification where no17 one could collect DROP payments and18 return to a City job.19 I believe I speak for hundreds20 of City employees like myself in saying21 please consider that I am coming close to22 my retirement and look forward to the23 modest lump sum DROP would award me.24 I stay in the area when I shop,25 101 6/8/11 - WHOLE - BILLS 100542 & 1104431 eat out, buy gas for my car, et cetera,2 as does my family. I believe that City3 employees always are the scapegoat for4 the Administration and the media when5 there is a budget problem.6 (Applause.)7
We, the City8 employees, have to live here. We have to9 pay taxes here. We did not run away from10 Philadelphia to New Jersey or the11 suburbs. We are the backbone of this12 city that we serve well.13 Please do not stop DROP.14 Please.15 Thank you.16 COUNCIL PRESIDENT VERNA:17 You're welcome.18 (Applause.)19 COUNCIL PRESIDENT VERNA:20 Austin Dutton.21 (No response.)22 COUNCIL PRESIDENT VERNA:23 Jerome Avery.24 (No response.)25 102 6/8/11 - WHOLE - BILLS 100542 & 1104431
Do we5 have anyone else who is not on the list6 that would like to testify?7 Please approach the witness8 table.9 (Witness approached witness10 table.)11
Thank you, Council12 President. My name is Bill Gault and I13 represent the 4,500 Philadelphia14 firefighters and paramedics, and I want15 to be very brief, because a topic wasn't16 touched on.17 Firemen can retire at age 50.18 We don't collect Social Security and we19 don't get Medicare unless we pay into it.20 We get five years of medical when we21 retire. The DROP would give us about22 150,000, 170,000. What we would do with23 that is buy medical coverage.24 The thing in our job,25 103 6/8/11 - WHOLE - BILLS 100542 & 1104431 firefighters and medics, is the latency2 periods that the cancers and the diseases3 that don't get us until ten years later.4 So I just wanted to tell you's, it's5 for -- we buy medical coverage with this.6 Every major city in the United7 States, firefighters, cops, most city8 workers, get lifetime medical.9 Philadelphia, we get five years. The10 only way a blue-collar person could save11 any kind of money is with that DROP, and12 that's all this is, is a savings account.13 We give up 10 percent of our pension on14 the end and put it into the savings15 account in the Pension Fund, which is our16 money, because the City hasn't put in17 their obligations in 20 years. But it18 seems the media is harping like we're all19 getting rich here. City workers are not20 getting rich.21 That's all I have to say.22 Thank you very much, and I'll take any23 questions.24 (Applause.)25 104 6/8/11 - WHOLE - BILLS 100542 & 1104431
Thank2 you.3 Please approach the witness4 table, sir.5 (Witness approached witness6 table.)7
My name is Jim8 Marino. I'm a 33-year employee in the9 Recreation Department. Currently my10 civil service title is a Recreation11 Leader 3. However, the work assignments12 that I hold, I am the Race Director of13 the Blue Cross Broad Street Run as part14 of my duties, I am the Assistant Parade15 Director for the Mummers Parade, I am the16 Golf Camp Administrator, I am the17 Emergency Preparedness Coordinator for18 the Department of Rec as a liaison to19 Office of Emergency Management, and I am20 also the Assistant Athletic Program21 Director for the entire City.22 I am 53 years and seven months.23 I am eligible to retire when I turn 55.24 I am in the J plan. And the changes that25 105 6/8/11 - WHOLE - BILLS 100542 & 1104431 this proposal brings about directly2 affects me, in that if I have to wait3 until I'm 57 to join the DROP plan, I4 will have more than my 35 years of City5 service and I will not be eligible to6 increase my pension for 2 percent a year,7 as some people have said we are entitled8 to. So when I reach 35 years, at 55, I9 will not be able to join in until I'm 57.10 And there are other employees similar to11 my situation in the Recreation Department12 and other departments, especially the13 Library. I believe that there is another14 avenue that needs to be explored for15 certain employees like myself who have16 gone above and beyond our job titles for17 a number of years, have not been18 compensated to that level and have done19 an extremely large amount of good work20 for the City of Philadelphia.21 I'm very proud of what I've22 done, and I have done a lot more than a23 lot of other people, and I'll challenge24 anybody to put up their work ethic25 106 6/8/11 - WHOLE - BILLS 100542 & 1104431 against mine. And I want you to consider2 that when you make your final decisions.3
Is7 there anyone else who would like to8 testify who has not been called?9 (No response.)10
I11 understand that Pete Matthews is12 scheduled for 12:30.13 (Pause.)14
I15 understand that Mr. Matthews is on his16 way up to the Chamber. He's on the first17 floor.18 (Pause.)19 MR. McPHERSON: Our next20 witness is Pete Matthews.21 (Witness approached witness22 table.)23 COUNCIL PRESIDENT VERNA:24 Welcome.25 107 6/8/11 - WHOLE - BILLS 100542 & 1104431
Good afternoon.2 COUNCIL PRESIDENT VERNA:3 Please identify yourself for the record.4
Pete Matthews,5 President, District Council 33. As you6 know, I was scheduled at 2:30. That's7 why I had to hurry getting over here. So8 don't get too upset. I usually try to be9 on time.10
Are we ready?13 COUNCIL PRESIDENT VERNA:14 Please proceed.15
Thank you.16 Members of City Council, thank17 you for this opportunity to come before18 you and testify on the proposed19 amendments to the DROP program.20 I am here today to tell you21 District Council 33's view of the DROP22 legislation. DROP is an extremely23 important benefit to Philadelphia's rank24 and file workers. This benefit is part25 108 6/8/11 - WHOLE - BILLS 100542 & 1104431 of the collective bargaining process.2 Changes that the City implements outside3 of the collective bargaining process will4 have legal consequences.5 Pennsylvania law has long6 recognized that pensions constitute wages7 and working conditions, and employers8 like the City of Philadelphia are9 obligated to bargain with the10 representative of its employees for any11 changes, including changes to pensions.12 Pennsylvania law also requires13 public employers to maintain existing14 contractual provisions after a collective15 bargaining agreement expires. The City16 may not implement new terms and17 conditions of employment, whether or not18 those conditions are contained in the19 contract or not, where the employees20 covered by the contract have continued21 working.22 This is exactly what has been23 going on for the last three and a half24 years as we continue to bargain with the25 109 6/8/11 - WHOLE - BILLS 100542 & 1104431 City for a new contract. We have2 continued to work without any disruption3 of service to the taxpayers under the4 terms and conditions of our existing5 contract, including the provisions6 related to pensions and DROP.7 In fact, City Solicitor Shelley8 Smith in a letter to City Council9 President Verna on October 1, 201010 confirmed that the changes to DROP are a11 collective bargaining issue and that the12 City should not implement any changes13 without violating our collective14 bargaining agreement.15 I am submitting with this16 statement a detailed opinion from17 District Council 33's legal counsel which18 will give you all of the relevant legal19 citations and caselaw that backs up our20 position.21 The DROP program, as originally22 conceived, was designed to be both a23 management tool for future planning by24 the City as it related to the workforce25 110 6/8/11 - WHOLE - BILLS 100542 & 1104431 needs, as well as a way to promote2 existing employees to replace those who3 leave and to create opportunities for4 City residents to enter the City5 workforce.6 Thank you for the opportunity7 for comment on this proposal.8 Questions?9
Are10 there any questions from members of the11 Committee of Mr. Matthews?12 (No response.)13 COUNCIL PRESIDENT VERNA:14 Seeing none, thank you.15
This21 concludes our public hearing. We will22 now go into our public meeting, and the23 public meeting will be recessed. We will24 meet back here at 1:30.25 111 6/8/11 - WHOLE - BILLS 100542 & 1104431 (Recess.)2
This3 is the public meeting regarding Bill No.4 100542 and Bill No. 110443.5 The Chair recognizes Councilman6 O'Neill regarding Bill No. 110443.7
Madam8 Chair, I offer an amendment to Bill No.9 110443. It's been circulated. I'd like10 to hand it up.11
Yes. I14 believe everybody has a copy. If they15 don't, I have copies here. It's been16 discussed.17
Madam24 President, would it be appropriate to25 112 6/8/11 - WHOLE - BILLS 100542 & 1104431 have an explanation of the amendments for2 the record so that the record is clear as3 to what the amendments do?4 COUNCIL PRESIDENT VERNA:5 Certainly.6 Councilman O'Neill.7
I would8 prefer, instead of having Mr. Auerbach go9 over, I can say it in a nutshell. The10 amendment would remove the two-year wait11 provision after eligibility for pension.12 It's a two-year wait to enter DROP after13 eligibility for pension. It would remove14 it for police and fire employees.15 COUNCIL PRESIDENT VERNA:16 Councilman Kenney, do you have --17
Very20 well.21 Councilman O'Neill, are you22 putting that in a form of a motion?23
Yes. I24 would move the adoption of the amendment.25 113 6/8/11 - WHOLE - BILLS 100542 & 1104431 (Duly seconded.)2
It3 has been moved and seconded that the4 amendment as proposed be adopted.5 All in favor will indicate by6 saying aye.7 (Aye.)8
So12 the record will indicate that everyone13 voted in the affirmative for the14 exception of Councilman Kenney who voted15 no.16 The motion carries.17
Madam21 President, I offer several amendments.22 One is an amendment to Bill No. 110443.23 The amendment has to do with the24 effective date of a member's25 114 6/8/11 - WHOLE - BILLS 100542 & 1104431 participation in DROP, and it reads, "The2 effective date of the member's3 participation in the DROP shall be the4 date provided on the member's5 application, provided that such date6 shall only be the beginning of a full pay7 period and shall not be earlier than 908 days" -- here is the amendment -- "nor9 more than 180 days after the date the10 application has been filed." And because11 we just found out that people have been12 pre-registering and we were not aware of13 that. So this allows them from 90 days14 up to 180 days to file.15
Any16 questions from members of the Committee?17 (No response.)18
I move for19 the adoption of the amendment.20 (Duly seconded.)21
It22 has been moved and seconded that the23 amendment be adopted.24 All in favor will indicate by25 115 6/8/11 - WHOLE - BILLS 100542 & 1104431 saying aye.2 (Aye.)3
The7 ayes have it and the motion carries.8 Councilwoman Tasco.9
This is an10 amendment to Bill No. 110443. The Option11 5 of Section 22-306 of the Code states12 that, "This Option shall not be available13 to a member who" -- "at any time" is14 added -- "has elected to participate in15 the Deferred Retirement Option Plan under16 22-310." Added is, "A member who elected17 Option 5 and is subsequently rehired18 shall not, after such rehire, be eligible19 to elect Option 5 again, nor be eligible20 to participate in the Deferred Retirement21 Option Plan."22 Option 5 is if they take the23 lump sum, they cannot come back, work and24 then collect that, nor can they25 116 6/8/11 - WHOLE - BILLS 100542 & 1104431 participate in the DROP program again.2 The second part of that is --3
Can4 we vote on that. Is it all part of one5 amendment?6
The next10 is a technical amendment -- these are11 both technical amendments -- that will be12 added to the bill that we introduced, the13 110443, which was not added. It adds,14 "Eligibility of elected officials. No15 elected official shall be eligible to16 participate in the DROP, except: (i)17 this provision shall not affect the DROP18 eligibility of an elected official who19 entered the DROP before this subsection20 became law; and (ii) an official elected21 to office before September 18, 2009 shall22 remain eligible to participate in the23 DROP during such term in office and24 during any successive term or terms of25 117 6/8/11 - WHOLE - BILLS 100542 & 1104431 office to which such official is2 reelected."3 I pass the amendment up.4
Thank5 you.6 Any questions from members of7 the Committee?8 (No response.)9
It15 has been moved and seconded that the16 amendments be adopted.17 All in favor will indicate by18 saying aye.19 (Aye.)20
The24 ayes have it and the motion carries.25 118 6/8/11 - WHOLE - BILLS 100542 & 1104431 This concludes our public2 meeting -- the Chair recognizes3 Councilwoman Tasco.4
Madam5 President, I move that Bill 110443, as6 amended, be reported out of Committee7 with a favorable recommendation and that8 the rules of Council be suspended so this9 bill can be heard at Council's next10 session.11 (Duly seconded.)12
It13 has been moved and seconded that Bill No.14 110443 be reported out of Committee with15 a favorable recommendation, as amended;16 further, that the rules of Council be17 suspended so as to permit consideration18 at our next session of Council.19 All in favor will indicate by20 saying aye.21 (Aye.)22
All3 right. I just heard one no. Is there4 another no?5 Oh, Councilwoman Blackwell.6 The record will reflect that7 all of the Councilmembers voted in the8 affirmative, with the exception of9 Councilmembers Kenney and Blackwell.10 Thank you all very much. This11 concludes our public meeting.12 (Committee of the Whole13 concluded at 2:15 p.m.)14 - - -15 16 17 18 19 20 21 22 23 24 25 120 1 CERTIFICATE2 I HEREBY CERTIFY that the3 proceedings, evidence and objections are4 contained fully and accurately in the5 stenographic notes taken by me upon the6 foregoing matter on June 8, 2011, and that7 this is a true and correct transcript of same.8 9 10 11 12 --------------------13 MICHELE L. MURPHY14 RPR-Notary Public15 16 17 18 (The foregoing certification of this19 transcript does not apply to any reproduction20 of the same by any means, unless under the21 direct control and/or supervision of the22 certifying reporter.)23 24 25