Do you feel that this issue is warranted to go outside of the city? And if so, would you be willing to go before the Civil Service Commission and request waivers.
I am convinced that it is appropriate for the City of Philadelphia to recruit police personnel at military installations and that it would be appropriate to grant a residence waiver to accomplish that, yes.
And the waiver is for how long? Six months or... 319 11/30/98 - WHOLE - BILL NO. 980796
A waiver that wouldn't permit the City to recruit but require that appointees become residents of the City of Philadelphia and maintain residency in the City of Philadelphia.
Point of clarification. Is it true, Ms. Sadel that what would be waived is the one-year prior residency requirement, not the requirement to move in within six months of being hired?
You are saying you would give them six months to move into the city? Is that what you are saying?
Well, generally when I request and the Civil Service Commission approves a residence waiver, it is to waive the 12-month period prior to appointment and also the probationary period and also six months 320 11/30/98 - WHOLE - BILL NO. 980796 thereafter. The rationalization for that is because you could have somebody who lived in the suburbs, took a job, and for whatever reason the job didn't work out. And so you wouldn't require them to move in until it was certain that they were going to have the job on the permanent basis. In this particular situation, though, I think what we are talking about is recruiting in the military and people would have to re-establish residency some place, my recommendation would be that upon appointment that they be -- become residents of the City of Philadelphia.
If we would be recruiting from the military, to me it doesn't make any sense to have somebody move to this area and establish residency outside of the city for three or four months and then move in. If they are going to reestablish residency then I believe 321 11/30/98 - WHOLE - BILL NO. 980796 that they should establish residency within the City of Philadelphia at the time that they are appointed.
You're only removing the month requirement before you can 8 take the test. I am assuming even in the bill, 9 if we get back to the bill for a second, and I 10 don't know what your, the Councilman or the 11 commissioner's expectation was of the bill, I 12 have to assume that all you really wanted to get away from was the 12-month requirement. There is some period of time between the time when you take the test and then you get told that you are going to be hired and then you have come to the -- I actually -- you want the person on the ground here somewhere between the day that they are told that they have a job and when they start work, right?
At the time the person is appointed, I would assume that we would want them to be in the City of Philadelphia, yes.
Because sometime after the time they are appointed they have to 322 11/30/98 - WHOLE - BILL NO. 980796 start working, right?
I understand that. So that's why you make the requirement the moment you start the job you have to live here. What is the time period between the day you get notified of your appointment, either the little letter you get you passed the exam or you got one last thing to do, whenever, you know, you have it and the day you start working. COMMISSIONER TIMONEY: Just to be fair, although I would say from the day you are notified, 30 days. So if you are going to be notified you are going to be hired in ten days two weeks, fine, but 30 days to move into the city.
To move into the city. And they have to live in the city. Which then precludes you pretty much, or it makes no 323 11/30/98 - WHOLE - BILL NO. 980796 sense, as to why you -- you know, between the time you got notified you got the job, you moved to Bala Cynwyd and then all of a sudden you move into Philly. And I assume also, not that I have any experience, but military people, I mean, now we are talking about military people I mean, they get their orders to go wherever they go and usually they move somewhere else for a short period of time, right, and in this particular case, you know you have a job. So you move to the locale.
And if you are going to move to the locale, then we suggest you move to the City of Philadelphia.
Is that a point of order? The Chair recognizes Councilman Rizzo.
I read here it says in this legislation it's six months after appointment to the police department to establish bone fide residence in the city and shall, thereafter, maintain bone fide residence in the 324 11/30/98 - WHOLE - BILL NO. 980796 City of Philadelphia.
I understand that that is the language that is in the bill and that is what is before Council. I understand that. But I also believe that if we are -- if people are going to reestablish residence, then they should as quickly as possible come into the City of Philadelphia.
May I continue just for another order of that. With the exception of waivers that presently stand, there are some waivers at the airport that people, from what I understand, have been given two years to move into the city? There are people that have been given two years?
That does not sound right to me. I will be happy to have that researched for you. But waivers that the Civil Service Commission have been granted, for as long as I can remember, have been for the six-month probationary period and six months thereafter. There are a very, very few cases where there are individuals that have residence waivers, and occasionally we see a specific waiver for an 325 11/30/98 - WHOLE - BILL NO. 980796 individual because there is some very weak situation. But waivers that are granted for recruitment purposes are always granted for -- to waive the months prior to appointment, the 7 six-month probationary period and then six months 8 thereafter. 9
And the airport is 10 a good example because of the specialty operation 11 there. Waivers are most frequent at the airport 12 than most other city or other outside agencies.
I don't think that that is necessarily the case. But I will be happy to research that for you.
Just so we are clear on the issues that you brought to the table, if a military person is born and raised in Philadelphia, and he is in the military and is assigned whenever they are assigned halfway around the world, unless they formerly change their residency to that location, then for our purposes, they always maintain the Philadelphia 326 11/30/98 - WHOLE - BILL NO. 980796 residency; is that correct?
And do you know whether or not we actively pursue military people who maintain Philadelphia residency presently for the police department?
And the person who is not from Philadelphia and never lived here is never able to establish residency or get around to the pre-employment 12-month residency requirement because they are not from here? They can never establish residency because they were never here, and unless they come here and wait for a year they can never establish residency and be hired directly out of the military.
Not without -- not unless we would grant a waiver to permit them to do otherwise. 327 11/30/98 - WHOLE - BILL NO. 980796
Just advance to the a number of questions. I would say that the person from Oklahoma who served in the armed forces and lived in Philadelphia while he served in the armed forces even in New Jersey, Fort Dix, or somewhere else did have the opportunity to establish a residence. A person in the military forces is not compelled to keep a residence. That person carries it unless he or she makes a decision to change it. So somebody could, while in the service, develop a Philadelphia residence as I believe the first witness testified today he did.
Someone who is not originally from here, got assigned here, established residency here, they could immediately be hired, because they automatically qualify even though they were not an original 328 11/30/98 - WHOLE - BILL NO. 980796 Philadelphia resident.
We hope probably the Eagles's performance yesterday, somebody came here today having new hope and they said they were ready to live in Philadelphia and adopt their residency here immediately; that could happen in the military service. It would have that right. COMMISSIONER TIMONEY: Let's just hope they have the psychological experience.
This is going -- we are going around in here. I think of we ought to conclude this, please. Councilman Kenney.
I just want to make a suggestion as the sponsor of the bill. If we could, I mean to end this torture, if we could at the approval of the chair and the agreement of the Members of Council present, we could ask the police commissioner and the personnel director to go to the administration, try to develop some suggestions or requests for Civil Service Commission approval to get us where we want to be, we could end this. 329 11/30/98 - WHOLE - BILL NO. 980796
I would like to include Councilman Nutter's suggestion that the Council would like to hear from the Civil Service Commission.
We have "what-iffed" this to death which is what is happening now. And if that's the case, I know there are one or two more witnesses to testify who have been waiting here since 9 o'clock this morning before we got here to conclude this.
I do. I am intrigued by the indefinite waiver. So your briefest definition of what an indefinite waiver is and the circumstances under which we would grant them and how often we've done it would satisfy my curiosity.
Councilwoman, I would be very happy to provide you with a list of all of the outstanding Indefinite Residence Waiver. There are very few of them. There are several witnesses for medical personnel in the health department, and there are also several that go 330 11/30/98 - WHOLE - BILL NO. 980796 back to the early to mid '80s that were, I guess, put in place at a time or -- I guess were not put in place but were permitted to remain at a time during the mid '80s when the city cracked down on Indefinite Residence Waivers. And at that point in time, the City basically said anybody who had an indefinite waiver had to move in with the exception of a few people who were grandfathered. And there were only a handful of those people left, and we can easily provide you with that list.
Thank you, Madam Chairwoman. Commissioner, I am sorry to beat this to death, but I have my thing on here, I have to answer my question. I have a second report from the Integrity and Accountability Office from September of '91. First of all, let me say I support the legislation, but I don't think this is the end of it. And I think I heard you say this probably isn't going to satisfy all of your 331 11/30/98 - WHOLE - BILL NO. 980796 recruitment needs; am I correct in assuming? COMMISSIONER TIMONEY: In other words, there are lots of changes that are being made regarding the entire Philadelphia Police Department including its efforts towards recruitment, background investigations, a whole host of things. This is just one.
Thank you. Thank you. And let me just take these two things. On this goes into what I just said. I don't think this is the wherewithal end of this. On , Table 6, it has: Dismissals from the Philadelphia Police Department from 1987 to 1997 by number of years on the force. I don't expect you to have this on you, but basically what it says is people with six to ten years of experience, there were 65 dismissals; less than one year to five years 161 dismissals. It goes down to 31 to 35 years and there is one dismissal. So the longer you are there, the less dismissals? COMMISSIONER TIMONEY: Actually, that's the natural order of things, it makes 332 11/30/98 - WHOLE - BILL NO. 980796 sense. The longer you are on, the longer you are going to stay on.
Because people are not going to be on for more than years -- 6 COMMISSIONER TIMONEY: No, but -- 7 just as you heard you, get rid of more. I 8 wouldn't read anything into it. 9
That's what I'm 10 reading into it. What I want to see is, 11 obviously the recruitment procedures that we 12 have, have to be broken, or we wouldn't need to 13 be going out to other parts of the military, to 14 recruit people. 15 Again, I don't think that ends it, 16 because that's the beginning. Maybe we need to 17 do overall recruitment all over the country. 18 What I am reading into this actuary 19 study, it says that we have problems with 20 recruiting. Okay? I just want to touch one more thing. This is the only other chance I can get here. On , we talked about the polygraph test. And there is a case study of a polygraph test, and you probably read it. But 333 11/30/98 - WHOLE - BILL NO. 980796 basically here is what I got -- four or five or six different tries and he gets appointed. Now, one of the things that amazes me since I have been in City Council since January of 1996 is the difference between policemen and firemen. Cops are always coming. I probably -- there's more policeman. And a lot of the problems happen to active policemen's sons who can't get past this polygraph test. I talked to Ms. Sadel about this before, on the record and off the record. Is this polygraph test totally, totally something that we shouldn't be doing? COMMISSIONER TIMONEY: No. I think you are wrong. I spoke earlier, I really am completely open to keeping it, an I am also very open to doing away with it or using it in certain circumstances. I have gotten an A on my final. But I have -- like everyone else, I have some problems, slash, reservations regarding the polygraph. There seems to be just too many notorious cases and words -- it seems to be 334 11/30/98 - WHOLE - BILL NO. 980796 inexplicable. Some, by the way, I have looked up and checked. And there was a pretty good explanation for them. But still, part of this whole process we talked about earlier about improving the image of the department, also improving the confidence that people have in the department. And when you start to see stories like you just pointed to there, where some people fail it four or five times and then get hired, all of that contributes to the lack of faith or confidence in the police department, which has a negative impact on our ability to recruit or attract good, qualified candidates.
Just one last question. A lot of my colleagues are concerned that if we pass something like this, that there will be problems with our constituents. And there may be a lot of people who want to be policemen. Now, as another person who came from another town -- and your credentials are certainly okay with me as far as being a Police 335 11/30/98 - WHOLE - BILL NO. 980796 Commissioner -- COMMISSIONER TIMONEY: That's quite an endorsement. Okay.
But I don't doubt you when say you talk about recruitment, but this is just one little piece that we are trying to do. But realize, to sum this all up, if we let you do this one thing here, are we or are we not shutting out my constituent and Councilwoman Blackwell's constituents, the ones who want to be policemen? Are they going to be able to be policemen who pass everything? The ones we are concerned about are the ones that live in our city and our district. COMMISSIONER TIMONEY: I mean, I don't --
I don't -- COMMISSIONER TIMONEY: I don't have a perfect answer to that. All I can tell you is that if I go into the military bases, we are not going to be flooded with thousands of people. And my sense is, if we extended it outside the military base, we are not going to get thousands of people. But that has not been the experience 336 11/30/98 - WHOLE - BILL NO. 980796 of practice elsewhere. So why, all of a sudden, would people be flocking to Philadelphia? I understand the concern and the worry. My sense is, it may not be justified. But I am not going to be able to convince people of that. And I think there is a book of this, wasn't there, Profiles on Courage?
I concur with the commissioner. I think that this is a step in the right direction. But I don't think that we are going to have thousands and thousands of military people who want to come to Philadelphia. There is just no reason to think that is the case.
Thank you. Are there any other questions from Members of the Committee? I believe our next witness was a Rich Costello. Is he in the room? Thank you Commissioner, Timoney. COMMISSIONER TIMONEY: Thank you, madam.
Jim Jordan. Is 337 11/30/98 - WHOLE - BILL NO. 980796 Jim Jordan here? John White?
Thank you, Madam Chair. As a result of my sponsorship of this bill, I was contacted John F. White, the former head of the Philadelphia Housing Authority, who intended the come here today to testify, who was unable to stay. And I have his testimony and I would like to read one section of it. "The United States Military is recognized for the quality of training in the motivation of its members. They are all volunteers, who chosen to serve their country in the most honorable fashion. They have experienced discipline and understanding its importance in ensuring the successful completion of the tasks they are assigned. They are highly in the skilled in their 338 11/30/98 - WHOLE - BILL NO. 980796 specialties and are used to hard work. "These are the kind of people this city needs to attract not only as employees but also as residents and taxpayers. We need to make it easy for them to find work in Philadelphia. And this bill does that." Thank you Madam Chair.
Thank you. Good afternoon, Mr. Jordan, and thank you for your patience.
Kindly identify yourself for the record, and proceed with your testimony.
James Jordon. I am the Integrity and Accountability Officer for the Philadelphia Police Department. Thank you for allowing me to testify here today. Madam Chair, the Integrity and Accountability Office of the Police Department was created in 1996 as part of the settlement of litigation arising out of the indictment mixed with several officers in the 39th Police District for 339 11/30/98 - WHOLE - BILL NO. 980796 corruption and misconduct. Our job is to audit police operations and make recommendations to enhance public confidence in the department by minimizing the likelihood of police corruption and misconduct. In September of 1998, my colleague, Ellen Ceisler, and I issued a report describing deficiency in the recruitment and hiring practices of the Philadelphia Police Department and the consequences of those deficiencies. The evidence analyzed, which included numerous internal affairs investigation of serious police misconduct as well as background investigations and related personnel records raised for us a quote from our report: "A fundamental question as to the integrity of individuals being recruited on to the Philadelphia police force." Among our recommendations are modifications of the residency requirements to allow the department to recruit from the ranks of the military. The problem the police department faces in recruiting the best possible candidates are complex and there are no simple guaranteed 340 11/30/98 - WHOLE - BILL NO. 980796 solutions. Commissioner Timoney has already taken steps to correct some of the problems we identified in our report. He has testified before you regarding these problems and how this bill would assist the department in further strengthening its commitment to quality by permitting the hiring of men and women who have proven by their military service that they possess the qualities we are looking for as police officers and citizens. In our society, police officers are given special powers, assume special responsibilities, and are subject to special pressures. The newest rookie in the department has the authority to limit a citizen's freedom and to use physical force, powers denied not only to all other municipal employees, but even to the most senior elected officials in our government. We owe it to the people of Philadelphia to do all we can to ensure that recruits to the police department possess the training, maturity and judgment needed to do the job of policing. This bill would help meet that goal. Thank you, Madam Chair. Are there any questions? 341 11/30/98 - WHOLE - BILL NO. 980796
Thank you. Are there any questions from Members of the Committee? Thank you very much. Mr. Will Gonzales, who I understand has been waiting here since o'clock this morning to 7 testify. 8 (Councilwoman Clark takes the chair.) 9
Good afternoon. Please introduce yourself for the stenographer.
Can I have copies of my testimony? I wish to see it. My name is Will Gonzales, and I am the Executive Director of the Police - Barrio Relations Project. The Barrio Project is a community-based, nonprofit civil rights organization that works to improve relations between the Latino Community and the police by addressing police misconduct and improving the delivery of public safety services to the barrios of Philadelphia. We support the spirit of Bill No. S. Military personnel. We respectfully urge you to amend the bill so that the best men and 342 11/30/98 - WHOLE - BILL NO. 980796 women not living within city limits, regardless of military background, can also apply to serve Philadelphia as law enforcement officers and move into the city within six months of their appointment to the force. The bill's focus on military training over all other vocational and educational experiences excludes valuable candidates from applying to the Philadelphia Police Department. Nonresident men and women working as police officers in other jurisdictions, college students and employees of Federal and State agencies are but a few examples of the people excluded by the bill in its current form. Amending the bill to give all nonresidents in good standing the opportunity to apply to the police department is preferable to creating a list of eligible exclusions to the residency requirement. We must give the police department the widest latitude possible in assembling its pool of candidates. The bill's focus on military training is also very worrisome. While we respect and appreciate all of the work and sacrifices made by 343 11/30/98 - WHOLE - BILL NO. 980796 military personnel to safeguard our country, we point out that the training necessary to carry out such a vital national duty does not necessarily equate with the skills and mind set of policing a diverse metropolis like Philadelphia. The objective of military training is to forge solders for bloody combat in open warfare. The mission of police officers, on the other hand, is to provide highest degree of public safety to the community with the highest respect for its civil rights. Police are the emergency service technicians of the law. They must make weighty, split-second decisions about the Constitution as well as have the brave composure to make the use of force the last alternative in their arsenal of persuasion. The bill should open the door to recruiting the best public servants for the city, not necessarily the best public warriors. There are many people outside of the military with the skills and the heart to take on the challenges of policing in our democratic society. I close my testimony with a call to City 344 11/30/98 - WHOLE - BILL NO. 980796 Council to go beyond the considerations of the bill 3 and look at other ways that the police department can maximize its chances to attract the best and brightest to its force. To begin, council must help the police department address the serious deficiencies of its recruitment unit. Those deficiencies are outlined very well in the second report of the police department's integrity and accountability officer. " The benefits of the bill will be limited if the recruitment unit is not operating at its best. Part of doing its best includes ensuring that the department is provided with a diverse pool of applicants so that our police force reflects the diversity of the community it serves. Council must also work to maximize the pay of police officers and improve the facilities in which they work. 345 11/30/98 - WHOLE - BILL NO. 980796 Last but not least, council must help the department address issues of police accountability. We must do everything possible to address and prevent police misconduct and corruption. The act of miscreant officers tarnishes the reputation of all police. This, in turn, leads to poor community police relations and to negative feelings towards police and law enforcement as a profession.
Thank you for giving me the opportunity the express the concerns about a very important issue.
Just a couple of questions. Your statement quotes from Mr. Jordan's statement about the problems of recruitment in the police department. What do you think would happen if the current municipal cleared up? Would that increase the number of local people that could be recruited from the police department?
Yes. But at the same 346 11/30/98 - WHOLE - BILL NO. 980796 time, that does not take away the need to give the police department the widest pool of people to choose from. I think there is some serious problems in the department. I mean, if you look in the year take away the issues of police corruption and misconduct, the whole issue of counting crime correctly, and there is a history and a culture that the current leadership is trying to improve, you know, to change. And I think that the need to have a wider pool of people to select to serve on these, I call them emergency service technicians of the law, is important. So not only do we need to improve those counts in the recruitment unit but also give the widest pool of applicants to choose from.
Well, I can't build something. My skills don't include building a whole project that I would have to do brick by brick. So that if we improve recruitment, we would improve somewhat the situation, maybe not solve everything, but the current situation would be somewhat improved, right?
Yeah. But the problems 347 11/30/98 - WHOLE - BILL NO. 980796 are so deep. I mean, you have to take a holistic approach to this issue. And that's why my testimony -- not only do I talk about the recruitment unit, I talk about increasing pay for the police officers, I talk about improving the facilities and I talk about addressing issues of corruption.
Those questions are all important. But I am trying to deal specifically with the problem. The commissioner made clear that the present bill would not expect to recruit a very large number of people; that it would be a relatively small number of people, I gathered, he believed would come from adoption of the bill. We could maybe increase the number, line up in the amendments you suggest. But one way you could also do it is maybe not doing it at all, but do some of it by doing the recruiting process.
Right. Yes. So that's 348 11/30/98 - WHOLE - BILL NO. 980796 why --
I mean, you're a lawyer and I am a lawyer. And I would like to ask you questions, get answers. And then you will have full opportunity to say everything you wanted to say. All right? Now, too, I noticed in your statement that you talk about the Barrio Project is a community-based, nonprofit, civil rights organization that works to improve relations between the Latino community and the police. So can you tell us -- do you have any idea of how many members the Latino Community are currently in the Armed Services from Philadelphia, that is?
No, I don't know the current number. What I know is in a historical trend of increase of Latinos in the Armed Services. Latinos have served in the Armed Services ever since the establishment of the --
Well, if the recruitment process was improved so that there was specific efforts to recruit members of the Latino 349 11/30/98 - WHOLE - BILL NO. 980796 Community -- I refer to that community because of your reference to working closely with it. If the recruitment went toward, in the military service just as the personnel director indicated we used to do, go out to the military bases and try to get Philadelphians in, would that provide additional folks for the police force, you believe?
Yes. Because there is a serious problem in our community with the whole system of education. 70 percent of our young people do not graduate from high school. So by widening the pool -- and I don't want to keep fixated on the military. I want to open it up to colleges and other places.
I understand that it is not just about the military. You are just saying support this, let's not try to recruit Latinos who are in the military?
Let's build another brick then, a second brick. I now have two bricks: improving recruitment; two, the City going out into 350 11/30/98 - WHOLE - BILL NO. 980796 the military installations and trying to recruit among Philadelphians, whether they are the minority or majority, whatever, but to recruit Philadelphians, that would increase some -- Do you think they would be helpful steps no matter what else happens?
All right. That I want to use again, because it seems to be I see them as the first and immediate steps in planning a campaign to reach everybody is a much difficult campaign to develop and organize. But these are things that you can do very quickly that improve appointment and procedures and can also immediately go out and make it known to all Philadelphians who are in the Armed Forces that were making special offers to bring them in. And at least one major objective that I've always had in mind was to make sure people come in and have some urban experience. And this would be sure they have urban experience.
What I say is -- our statements are prefab. Our statement are with the hope that we can address the bricks that you've 351 11/30/98 - WHOLE - BILL NO. 980796 mentioned, but also to be able to reach into other piles of bricks so we can continue to a strong -- build a strong police department which we need.
Well, the general feeling in Philadelphia is today that taking away cases of corruption or others which we all believe represent only a tiny minority of case of brutality, a tiny minority of police officers, moving those aside, we have an excellent police officers in Philadelphia. With all of the weaknesses that still exist -- now, I have a little difficulty in saying somehow, with the residential restrictions that we've had in place, we've developed an excellent police force, and then arguing at the same time that well, we have to bring in all kinds of recruits from everywhere else to, what, maintain, to improve how the police force operates? I have difficulty with that argument. Now, in response to that, the field is yours.
With all due respect to your statements, many fine police officers risk their lives every day. I still think that there are 352 11/30/98 - WHOLE - BILL NO. 980796 inherent problems that needs serious thinking outside of the box between the police department. And it is not only the police department's problem, it is our city's problem. You have to think that, you know, here -- we were asking businesses to donate money to buy vital pieces of equipment with police officers. We were not backing the officers, going out and buying the bullet proof vests ourselves. And to me, it is kind of disgusting that we have to go out there asking businesses to buy bullet proof vests. So I don't want to keep it to just the officers who are out there on the street, but the whole administration, the whole city and citizens who live in it, you know, how to fault and why we don't have the best police department possible. In terms of priority, I think the rate of pay is a very important problem that we need to prioritize that so that would also increase another one of your important bricks, to build a police department that everyone wants and needs. So, you know, I think there is a long way to go --
And the police 353 11/30/98 - WHOLE - BILL NO. 980796 facilities are terrible.
Horrible. IAD, Internal Affairs Division, was currently in a building that should be condemned. So it is not, again, to be negative towards those who are working on a very difficult situation, but that there is an obvious need for improvement. And like using your references of building something brick by brick, we need to have access to all of the bricks, not just your traditional bricks.
Thank you very much. Are there any over questions from Members of the Committee of this witness? Is there anyone else to testify on this bill? Say none. Our next bill for consideration is Bill 354 11/30/98 - WHOLE - BILL NO. 980789 No. 980789. I would ask Mr. McPherson (ph) to read the title of the bill.
An ordinance authorizing the City of Philadelphia to provide for an Alternative Funding Mechanism for a portion of the unfunded actuarial accrued liability of the City of Philadelphia Retirement System pursuant to the Municipal Pension Plan Funding Standard and Recovery Act.
Councilwoman, I am Ben Hayllar, Director of Finance. With me is Tom Queenan, City Treasurer; Joe Herkness, Executive Directive of the Board of Pensions, Sandra Parker, Chief Investment Officer for the Pension Fund and Joe Vignola, the Executive Director of Pennsylvania Intergovernmental Cooperation Authority. We are here to speak in favor of Bill 19 980789. Councilwoman, in deference to the hour and if it does not erode our position of support, I would like to summarize my written testimony, which you have received.
Have we received it? 355 11/30/98 - WHOLE - BILL NO. 980789
Does everybody have a copy of the testimony? All right, Mr. Hayllar.
Thank you. Let me also acknowledge that four employee members of the pension board have been here throughout the day. Currently Charles Johnson and Carol Stooks (ph) are still with us. John Riley and Shareena (unintelligible) were also here during most of the day. 7 billion unfunded liability that we have in our pension. The pension funds should have enough assets to pay for benefits solely for the earnings of the fund. Historically the City did not fund its pension, invested in low-earning banks, certificates of deposits, and increased benefits without increasing payments to the client. 7 billion but has only $3 billion in it. State law now requires that the City 356 11/30/98 - WHOLE - BILL NO. 980789 reduce this unfunded liability. Of the $247 million payment we made this year, $193 million of that payment was to reduce the unfunded liability. And as required by State law, our payments to the pension fund will increase every year until the year 2019. And on of my testimony is a graph charting what our required payments will be. Obviously, we will have a growing payment to the pension fund that has created a problem in the eyes of the rating agencies and PICA. The rating agencies and PICA have repeatedly called the unfunded pension liability a major problem to our financial future. Standard & Poor's has raised this. But also just last week in a confirmation of our rating pointed out that the City's plan to issue pension obligation bonds would be a major improvement in our fiscal future. I also would point out that Fitch on November 13th, another of the agencies, states that the pension obligation bonds that we are contemplating selling will not only lower the annual funding cost but will level the annual cost compared 357 11/30/98 - WHOLE - BILL NO. 980789 with a rising contribution schedule under the current amortization schedule. The pension obligation issue will allow the pension fund to maintain larger portions of its investments and longer term investments while still maintaining enough short-term cash to meet our regular payments. The plan will improve the City's general fund and cash flow. Rating agencies of PICA have viewed pension obligation bonds as a way of transferring the liability to the pension fund to a liability upon owners avoiding ever increasing payments. The Commonwealth of Pennsylvania has also improved the use of pension obligation bonds and recently amended the municipal pension systems law for the City to allow us to use the Philadelphia Authority for Industrial Development and also to makes certain that pension obligation bonds would not count toward our constitutional debt ceiling. We would point out that this is an extremely attractive time to issue these bonds because we have historically low interest rates. This is one of the reasons we are anxious for 358 11/30/98 - WHOLE - BILL NO. 980789 Council's approval, so we can get into the market. 75 percent. The pension obligation bonds providing one and a quarter billion dollars will improve pension fund investment returns. The money will be putting in the same asset allocation plan that is currently employed with one exception: The only change that we would make is that the current asset allocation strategy is to set up a separate fund approximately $100 million that would mirror the current asset allocation plan but would be managed by small firms that are currently unable, because of their size or recent -- because of their lack of a track records, they are unable to do business with the City. The City Pension Fund will not allow its assets to be more than percent of the manager's 20 funds under management. 21 That means newer and smaller funds can 22 not handle the large allocations required in the 23 Philadelphia Pension Fund. This $100 million fund 24 will allow smaller managers, newer managers, 25 particularly Philadelphia firms who are unable to do 359 11/30/98 - WHOLE - BILL NO.
980789 business with us and minority women in firms who are able to participate more in the Philadelphia Pension Fund. The pension funds have been issued by many municipalities across the country. Most recently in Pennsylvania, Pittsburg, Allentown, Easton, Lancaster have issued pension obligation bonds to fill their unfunded liability. Now, there is one risk in pension bonds: If over the 30-year life of the bonds the pension fund earns less than the true interest cost on the bonds, the City would arguably pay more than if no bonds had been issued. We believe that this risk is extremely small. 6 percent. Second, the actuary's computer total return over a five-year period ill reduce the likelihood of a bad year dragging down the earnings of the fund. It also means that because of the very strong returns we've had over the past years, the fund has $260 million in gains that have not been computed into the five-year holding average. In short, we started off with a big head start. 360 11/30/98 - WHOLE - BILL NO. 75 percent interest rate on the bonds. 6 percent. That is substantially above the 6 and 9 three-quarter percent that we have to meet. 10 In short, given the low interest rates 11 that we would obtain on the bonds, we think there is 12 no risk for the pension fund if we earn less than 13 the 6 and three-quarter present over the next 30 14 years. Approval to allow us to sell pension funds 15 and process proceeds of the pension fund will help 16 our pensioners and help the pension fund's future 17 become completely independent of the fiscal 18 condition of the city. 19 We urge council to approve this 20 legislation. And we respectfully request a suspension of the rules. Thank you.
Thank you, Madam Chair. Good afternoon, Mr. Hayllar. 361 11/30/98 - WHOLE - BILL NO. 980789
Just a couple questions. Over the past five years -- just a statement for the record. Over the past five years, has the unfunded liability grown, declined or been stable? And what are the numbers?
I've been -- deferred this to Joe Herkness. But my belief is the unfunded liability has grown, and it will continue to grow at a slower rate and then become smaller until the year 2019 when we have, according to the current payment schedule, paid it off.
So to take it back and do it again, it is growing but at a slower rate of increase?
Yes. Yes. It used to grow at a slower rate because of the massive amounts of money we put in to fund the liability, to put in $53 million this year of fund pensions. For our firm employees were current employees and 193 to 362 11/30/98 - WHOLE - BILL NO. 980789 reduce the liability. That 193 payment goes up each year. So eventually the liability becomes -- the growth of the liability becomes smaller and turns the corner, and by 2019 it is escalating payment schedule disbursement.
Five years ago, it is 2.6 -- about 2.6 billion, right. Now, I could check, get an estimate from our actuary for what was it five years ago. It was certainly larger than it is today, that's for sure. We could get that number for you, if we had to. Our actuary says about 2.4 billion.
That's what he estimates. It continues to go up to 2003 and begins to drop ever so slowly. And the peak is 2003. And then it dovetails off to 2019 where it goes 100 percent funded under the present schedule. But those 363 11/30/98 - WHOLE - BILL NO. 980789 numbers --
Mr. Hayllar, on the handout that I believe we received at the briefing, on , you guys -- this reminds me of some of those term papers I used to do at college. You just get as large of a type as possible with one sentence on a page and increase the number of pages so you can get a good 15-page report. The one sentence on here says: "An additional $1.25 billion will improve pension and investment returns." I take it to mean -- I take that to mean that if we have more money, we are able to access additional investment opportunities and make more money.
That's correct. And I was trying to summarize my testimony because of the lateness of the hour. But one of the points I make in there is we have an inefficient system because we had so much money in cash. We had $33 million a month to pay benefits to our pensioners, we therefore have to 364 11/30/98 - WHOLE - BILL NO. 980789 keep more cash than we would like. Cash earns less than long-term equity and investments. And we are deficient. We have assets in fund. We can earn more.
Now, on this same document, it says: "The pension fund will pay out 30,000 retirees and 30,000 active employee participants in sound retirement without increasing the cost to the operating budget."
In your opinion, isn't it that the pension fund will reduce the amount of increased cost to the operating budget.
Yes. It will avoid that huge growth that we are required to make, one because we are borrowing at historically low interest rates and, number two, we are able to extend the debt out from 219 to 230.
I understand that. If you didn't have that additional information, this statement would lead you to believe that there would not be any costs to our operating budget if we do the pension obligation funds. 365 11/30/98 - WHOLE - BILL NO. 980789
That is correct. There is not an increased cost by the operating fund by doing pension obligation funds; you are avoiding those increases.
But there are increased allocations from the operating budget to the pension system even with pension obligation bonds over what we are contributing today?
So you are cutting the rate of increased contribution?
Councilman, this might be helpful. This is a graph of the current payment schedule, which is in my testimony. And the red line is what the projected payments would be with the debt service plus the ongoing liability. It shows --
No. This is . Plus another line showing you the difference. 366 11/30/98 - WHOLE - BILL NO. 980789
So with the pension obligation bonds from 2000 to about 2011 or so, there is an increase, although is at a lower rate than the increase without a pension obligation bond. And without the pension obligation bond, the increase continues into about 2020; first it is leveling and then at about 2011 with some slight decrease --
Yes. The difference between the blue line is what you will save by doing this.
Okay. On the handout, this chart seems to indicate that we have an average of 12.6 percent return over the past five years --
And then , the last five years of the S&P 500 Index and a 367 11/30/98 - WHOLE - BILL NO. 980789 couple of indices that are normally compared to.
Yes. And if your BOGIE (ph) -- am I interrupting your question?
You just completely destroyed my whole frame of thought. Now I have to go back to the beginning.
Now, you want to anticipate the question of 12.6 percent over five years as compared to what?
The target you have to reach is the pension fund must earn more than 6 and three-quarters percent over the next years. If it does, we won. If your don't, you have a problem. We believe given the material on that there is a stronger than strong likelihood that that is exactly what is going happen.
I understand. I appreciate the answer. Unfortunately that was an answer to a question that I didn't ask you. The 368 11/30/98 - WHOLE - BILL NO. 980789 question I want to ask is: The return over the past five years is 12.6 percent?
The last five years on , the S&P 500 Index at 20.23 percent, the Merrill Lynch fixed income at 7.5 and the Merrill Lynch (unintelligible) at 4.8. How do we stack up against those numbers?
We were for the last five years as you pointed out at 12.6. That is because the asset allocation of the funds is not all in stocks. If they were all in stocks, it would be 14 percent. 15 We have to risk downturns of the 16 market. You have 38 percent, I believe, fixed 17 income. So a blend of that, which is 12.6 percent, 18 these various indices of particularly heavy 19 concentration on the cash drags our return down. 20
Our stock return? The last two years our return on equities would be -- total equity for the year that ended in June 1998, it was 1209. 369 11/30/98 - WHOLE - BILL NO. 980789
Over the past five years was 20.23 percent. But I want to know what the Philly's comparable number is in our portfolio for the past five years.
You can get me the last five years to compare with the charter numbers that you lay out in your handout on ? I would like to be able to match our portfolio with these various indices.
Now, is it my understanding that because there seems to be some level of discussion about this, the $1.2 billion minus the various fees that are involved in these transactions, do all of those dollars go to the pension system directly? 370 11/30/98 - WHOLE - BILL NO. 980789
Yes. The cost of issuance will be recalculated to be about 2.05 percent of the billion and a quarter.
No, sir. All assets go to the pension fund. By law, once it is in the fund, it cannot be taken out.
Part of the discussion or confusion about that particular issue may have been generated by , which talks about the F.O.P. arbitration of $102 million, community tolerance, $5 million, open fund, recreational fund, $5 million, and cost of living bonus for retirees $22 million.
What are you trying to communicate on this particular page in the context of pension obligation fund? Because all of those are operating budget issues.
This is the increased payment that the operating budget would have to make over the next five years if we did not do the pension obligation bonds. If we do the pension 371 11/30/98 - WHOLE - BILL NO. 980789 obligation bonds, this amount of money over those five years would be freed up because you are avoiding that growing costs to the pension fund?
Where did the $102 million from the F.O.P. arbitration come from?
From the budget office. That was the estimated cost of arbitration for the five years, the one you just alluded to.
I take it a two- or three-year contract that expires when?
I believe they are all up in the year 2000, but the recent arbitration must cost about at this number.
That has not been arbitrated yet or negotiated yet, and we don't put a package number in ahead of time. Obviously that comes to the floor in the negotiations.
This page is meant to be 372 11/30/98 - WHOLE - BILL NO. 980789 illustrative of the type of -- by avoiding these costs of what you are able to do to avoid increases.