Committee Hearing, February 10, 1998

COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING SELECT COMMITTEE ON FISCAL STABILITY AND INTERGOVERNMENTAL COOPERATION - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, February 10, 1998 10:20 a.m. - - - RESOLUTION NO. 980008 Providing for the approval by the Council of the City of Philadelphia of a Revised Five-Year Financial Plan for the City of Philadelphia, Covering Fiscal Years 1999 through 2003, and Incorporating Proposed Changes with Respect to Fiscal Year 1998. PRESENT: PRESIDENT JOHN F. STREET, Chairman COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN AUGUSTA A. CLARK COUNCILMAN DAVID COHEN COUNCILWOMAN ANNA CIBOTTA VERNA COUNCILWOMAN HAPPY FERNANDEZ COUNCILWOMAN MARIAN B. TASCO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 2 Fiscal Stability & Intergovernmental Cooperation P R O C E E D I N G S

Good afternoon, ladies and gentlemen. People are slow this morning. Good afternoon. Today we will have a public hearing on Resolution No. 980008. This is a resolution that was introduced into the City Council of Philadelphia on January 27, 1998, by Councilwoman Verna, on behalf of Council President Street. This is a meeting of the Select Committee on Fiscal Stability and Intergovernmental Cooperation. This is a resolution providing for the approval by the Council of the City of Philadelphia of a revised five-year financial plan for the City of Philadelphia, covering fiscal years 1999 through 2003, and incorporating proposed changes with respect to Fiscal Year 1998, which is to be submitted by the Mayor to the Intergovernmental Cooperation Authority. It's our custom, when we have these hearings, to have the Finance Director and his staff make themselves available to review and to ask questions. I understand that Mr. Hayllar is SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 3 Fiscal Stability & Intergovernmental Cooperation here with staff, the Chief of Staff is here, and that they will give very brief opening remarks, after which Members of the Committee and then Councilmembers at large are free to ask any question of them that they wish. It is also my understanding that there are representatives here from all of the City departments involved, and that if a Councilmember wishes, he or she may request more specific information from a representative, a commissioner, or a representative of a department. Hopefully, we can finish this hearing today preliminarily. If we can't, then we will schedule at our mutual convenience additional public hearings on the five-year plan. But what I would like to do, what I'm recommending to the Committee and to the Members is that we have brief introductory comments by Mr. Hayller, Mr. Kaplan, and Mr. Rost, and then we open the floor for questions first from the Committee and then from any Member of Council. The Chair recognizes Councilman Cohen.

Mr. President, I'm wondering, is there some requirement, statute, or SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 4 Fiscal Stability & Intergovernmental Cooperation ordinance that requires us to have this meeting at this early stage, before we've gone into the budget? The principal concern I have is that months from now, when the Administration introduces certain bills with us, they'll tell us, Well, you've already, you know, approved this in a five-year plan. And basically, the five-year plan deals with budgetary matters, I guess, for the next five fiscal years. And it would seem to me, unless there were some statutory restraints, that the appropriate time for this hearing, or maybe a continued hearing, would be after we've had the budgetary discussions. We'll be much better informed by that time on what the budget situation is for at least the next year or maybe the next two or three years.

Councilman Cohen, your point is well taken. And on that basis, I would like to capitulate totally and completely to your suggestion and give you complete and total credit for it -- except that that's the way we do it. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 5 Fiscal Stability & Intergovernmental Cooperation What we do, and if you look at your overall budget schedule, we have the overview of the five-year plan. We take no action on the five-year plan. Then we go into the capital program, we go into the operating budget. And at the end of it all, after we've had an opportunity to have the overview, to do all of the budget, the end of it all, then we come back to the five-year plan, and we approve them all at the end of the budget period, as opposed to the beginning. But it's been our practice to kind of get this overview of all of the finances first, then we go into the details of the budget, and then we come back to the five-year plan, so that you aren't asked to vote on a five-year plan until after you've had an opportunity to get this preliminary information, have all of the budget discussion, capital and operating, and then we come back to it. And even at the very end, before we do anything, if anybody has any questions on the five-year plan in view of anything that came out during the operating budget testimony, then you SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 6 Fiscal Stability & Intergovernmental Cooperation have an opportunity to raise those questions before anybody is asked to vote on it and approve anything. It's the way we've always done it. And I think it works well.

All right, but with respect to the last phase, will there be an opportunity to have the same assemblage of Administration representatives present?

Absolutely. This is the way we've always done it, and I don't think anybody wishes to vary from that process. A day will come, and I don't know exactly when it will be, if you look at your budget schedule, it is tentatively scheduled when we will all come back, you know, for follow-up, both testimony and comments on any of this. So your point is well taken, and that's precisely the way we have been conducting this thing for the last six years.

All right. With that understanding that there will be that opportunity, then I would be in favor of proceeding. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 7 Fiscal Stability & Intergovernmental Cooperation But what concerns me is my memory is -- and maybe it's faulty -- that by the end of the budget process, all of us are kind of weary, and that instead of going into any kind of hearing, we kind of have a vote at the same time as the budget. And that's what I'm trying to change.

Councilman Cohen, what we do is, before we go into a public meeting on anything, every Member of Council has an opportunity to call back any department, any representative of any department, anybody in the Finance or any other agency, to ask any final questions that you wish to have answered. Then we go into the public meetings. We would not think of having public meetings while people have outstanding public information requests that they're interested in getting or when they have a request to have some member of the Administration or a City agency come in and give us further testimony. And one of the things that you see on the schedule is times when people can be called back in to explain various items of their testimony. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 8 Fiscal Stability & Intergovernmental Cooperation You see, one of the things that happens at these hearings is that people request information, Give us this information or that information. And when that information is made available, people then sometimes want to ask questions about it, and officials will be available for those sessions.

Thank you for the explanation.

Thank you very much. Is there any other Member of Council that has any questions about either what we are doing here today or anything else that's before us? (No questions from Members of Council at this time.)

Thank you very much. The Chair recognizes Chief of Staff Greg Rost, and then I think he will orchestrate the testimony of the other people who are with him.

Thank you, Mr. President. Good morning, Council President Street and Members of City Council. My name is Gregory SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 9 Fiscal Stability & Intergovernmental Cooperation S. Rost, R-O-S-T, and I'm Chief of Staff to Mayor Edward G. Rendell. I am pleased to be here with Ben Hayllar, the City's Finance Director, and Dean Kaplan, the Budget Director, to present the Administration's testimony concerning the proposed Fiscal Year 1998 through Fiscal Year 2003 five-year financial plan. What we would like to do this morning is to provide a brief overview of the plan, and then throw the floor open to questions for Members of Council. As the Council President indicated, our Commissioners are in the audience to address specific concerns that Council Members may have with respect to the individual departments and the plan. Obviously, the Commissioners will return for their regularly scheduled testimony before Council; and at that time, will be prepared to address any of the specific questions that Members of Council may have with regard to the departmental chapters of the plan or to the proposed Fiscal Year 1999 budget. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 10 Fiscal Stability & Intergovernmental Cooperation As I said, my brief function this morning is to provide a brief overview of the plan. I remind Council that this is the seventh five-year plan that has been prepared by the City since the passage of the Pennsylvania Intergovernmental Cooperation Act in 1991. Under the provisions of that act, the City is required to prepare a financial plan each year so long as the City is an assisted city, as defined under the act. An "assisted city" for our purposes is one that has used PICA borrowing power and has not yet repaid PICA debt or refinanced that debt out of existence. As you know, the five-year plans are subject to the approval of the PICA Board. The process we follow for the five-year plan is the process that is set forth in the Intergovernmental Cooperation Agreement that was approved by this Council in January 19912. Under that agreement, it is the Mayor's obligation to propose a five-year plan, that plan is then presented to Council by resolution along with the proposed operating and capital budgets, and Council approves -- hopefully approves that SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 11 Fiscal Stability & Intergovernmental Cooperation plan through the passage of that resolution, typically at the same time as the budget ordinance. And the plan is then submitted to PICA for its approval. The format of this year's plan is virtually identical to last year's plan, although I will note for the record that it's approximately 70 pages shorter, which seems to be one of our chief accomplishments this year. We start with an introduction, which is really a thematic blueprint and summary of the plan. Since it may be difficult for people to read all 600 pages of the plan, the introduction can serve as a nice stand-alone overview. And at 33 pages, it is considerably easy to digest. I understand that the Administration has in the past made copies of the introduction available to the Members of Council as a stand-alone chapter should you have constituents who are interested in receiving a copy. We'd certainly like to offer that again this year. The introduction is then followed by several introductory chapters. The General Fund Revenues chapter, which Mr. Hayllar will talk SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 12 Fiscal Stability & Intergovernmental Cooperation about in a little bit, provides the basis for our revenue estimates and forecasts for Fiscal Year 1999 and throughout the five years covered by the plan. It includes our local tax revenues, revenues from other governments, locally generated non-tax revenues, and revenues from other funds.

General Fund Revenues is followed by a fairly lengthy chapter discussing the City's economic development efforts. This chapter 11 describes in some detail the City's efforts to spur economic growth and create jobs in the City of Philadelphia. The Economic Development chapter tracks the City's stimulus program and our efforts to create economic opportunities in four critical areas: neighborhood economic development, business retention and attraction, defense conversion, and hospitality and tourism. After Economic Development, there's a chapter on management and productivity, which highlights the numerous management and productivity initiatives and accomplishments that the Administration and City Council have pursued over the past six years. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 13 Fiscal Stability & Intergovernmental Cooperation The last of the introductory chapters concerns the City's work force. This chapter 4 provides an overview of the current status of our collective bargaining agreements and tees up our negotiations with our Police Employees Union. As you know, in 1996, the City entered into new four-year agreements with District Council 33, District Council 47, and the International Association of Firefighters. The City's agreement with the Fraternal Order of Police was only for two years. Consequently, our contract with the FOP expires at the end of this fiscal year, on June 30, 1998. The City Work Force chapter is an overview of the issues that confront the City and the FOP in this next round of negotiations, which we hope will be as productive and as amicable as the negotiations conducted in 1996. Beyond the introductory chapters, the balance of the plan is divided into two major sections. " These are the operating departments that have the most direct impact on the services SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 14 Fiscal Stability & Intergovernmental Cooperation that our citizens and businesses receive, including the Police and Fire Departments, Recreation, Health and Human Services, etc. As in the past, each of the departmental chapters begins with a mission statement and is followed by an overview of major accomplishments, objectives, and constraints. Each chapter closes with a five-year obligation summary, as well as a listing of selective service measurements so that we can track the quality and quantity of the services that the City government provides. The second major section of the plan concerns our internal support departments. And, again, there are chapters on the various departments in the government that do not necessarily provide services directly to citizens but, rather, provides support to the rest of the government. Included among the internal support departments are Finance, Law, Personnel, Public Property, Fleet Management, the Mayor's Office of Information Services, and the Municipal Energy Office. Again, these chapters are generally SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 15 Fiscal Stability & Intergovernmental Cooperation formatted the same way as our Citizens Service Department. And the plan concludes with a brief chapter on the capital program, which will be the subject of separate hearings under City Council, commencing tomorrow. At the back of the plan are a series of appendices that largely contain materials that are required under the PICA statute. I call your attention to two appendices in particular: Appendix 1, which covers the City's enterprise funds; and Appendix 3, which contains a summary of operations for the five years of the Fiscal Year 1999 through the Fiscal Year 2003 plan. And Dean Kaplan will be talking to you a little bit more in-depth about that particular appendix. In summation, the new five-year tracks with the philosophy that the Administration and Council first adopted six years ago. And that philosophy is very simple: Number one, to maintain a balanced budget.

Number two, to continue to improve, and where possible, enhance the quality of the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 16 Fiscal Stability & Intergovernmental Cooperation services that we provide. Number three, to continue to lower the costs of living and working in Philadelphia, through responsible tax reduction. And number four, to stimulate the economy to provide economic opportunity for every Philadelphian. The new plan absorbs significant revenue cuts, including the loss of the personal property tax and the removal of riverboat gaming from the out-years in the plan, as well as the acceleration of the incremental tax reduction program, all while maintaining the base budgets for every department. And, as the Mayor noted in his budget address before Council several weeks ago, there are a number of significant service enhancements included in the Fiscal Year 1999 operating budget. All in all, although things will be tight in the future, if we continue on the course that the Administration and Council charted six years ago, we have every reason to believe that the City will continue to flourish. Our economic developments efforts are SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 17 Fiscal Stability & Intergovernmental Cooperation really starting to pay off. For example, after 31 consecutive quarters of job loss dating back to 1988, we have now experienced consecutive 5 quarters of job growth. And recent Bureau of 6 Labor statistics numbers showed that the City gained 3,000 jobs between November '96 and November '97. However, there are still challenges ahead, and I would include among those challenges the full brunt of welfare reform, which has yet to really hit the City, and also the questionable status of the national economy, how long our current economy will continue to surge. Those challenges are such that we must not break from the fiscal discipline that has rewarded us so greatly thus far. With that, let me turn the microphone over to Ben Hayllar, the City's Finance Director, who will discuss the revenue side of the plan; and to Dean Kaplan, the City's Budget Director, who will discuss the expenditure side of the plan. Thank you.

Good morning. I'm Ben Hayllar, Director of Finance. And by tradition, I SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 18 Fiscal Stability & Intergovernmental Cooperation discuss the revenue implications that are presented in the five-year plan. There are five revenue conditions that I want to bring to your attention. First, this plan continues, in fact increases, the wage tax cuts. We're doing this for the fourth consecutive year. And, in fact, we are extending the plan cuts to the year 2003. We are continuing the cuts in the business privilege tax. This is the fourth year that this has been done, and we are planning to continue and extend these cuts to the year 2003. 5 million of revenue from the personal property tax, which Council and the Administration ended in December of last year. We also have removed from the later years of the five-year plan any anticipation of revenue riverboat gambling. And, finally, for the second year, we are attempting to improve the business climate for City businesses by modifying the definition of who pays the business privilege tax. As you know, the wage tax is the largest tax revenue source in the City. We SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 19 Fiscal Stability & Intergovernmental Cooperation anticipate it will generate $895 million next year. 1015 percent. 1057 percent in the year 2000. 6 million. 4 million a year. This is money that has been returned to the taxpayers. 9 million cumulative reduction. Despite the cuts, we believe that the amount we will collect in the wage tax will increase by about one percent. 2 percent. We are also, as I say, extending the planned wage cuts to the year 2003. 2 percent by this year. And we will have total cuts by the year 2003 of $111 million. Nonresident wage taxes are cut as well. The business privilege tax generates about $245 million a year. 2775 percent this year. 325 percent. This tax will return $4 million in revenue to the businesses paying this tax in Philadelphia. 3 percent, almost a 30 percent tax cut since the time we began in 1996. I would note, as you know, that the personal property tax revenue is not in this plan because it was eliminated last December. We did this even though there has not been a Supreme SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 21 Fiscal Stability & Intergovernmental Cooperation Court ruling on the Annenberg case, but we were concerned as our sister counties surrounding us eliminated the tax, that it would make the trust fund with the Trust Department in the City operations uncompetitive and would cause banks and other trust operations to move across the City line if we retained it. And 60 percent of the personal property tax was paid by trust departments. And they remitted as much as 1600 jobs. In order to preserve those jobs in the City, Council wisely eliminated the tax. We do, however, have the fail-safe tax of 5 mills on personal property tax held as of January 1996 in the event -- and we believe the event is unlikely -- in the event that a refund would be required as such time as the Supreme Court rules. I also note that riverboat gambling is not projected in the five-year plan. We've had it in the year, I believe, 2000 in previous plans. But while we expect that eventually riverboat gambling will come to Philadelphia. And the 50 to $75 million of revenue that Ernst & Young has SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 22 Fiscal Stability & Intergovernmental Cooperation projected it will be worth to the City will happen. We did not, to be conservative, include it in the plan. As you'll recall, in FY '96, the Department of Revenue changed the three-part method used for computing the net profits portion of the business privilege tax.

In order to determine what portion of tax that a business that does business in and outside of the City pays, there is a three-part system dealing with the value of the property in Philadelphia, the value of the payroll, and the amount of sales. By double-weighting the sales component, you deemphasize a firm that has a healthy presence in Philadelphia by deemphasizing the value of their payroll and the value of their property. This was an attempt to have Philadelphia-based firms, firms that have a large presence in our City, to give them a more level playing field against firms that are doing business in the City but who are located principally outside the city. This reform returned $4 million a year in revenue to Philadelphia-based businesses. That SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 23 Fiscal Stability & Intergovernmental Cooperation means there was $4 million less that came to the City, but it went to the general economy and to the health of the businesses that are located in our City. This year, we want to continue this effort to level the playing field by redefining who it is that pays the business privilege tax. Currently, any company that sells its product or service in the City but maintains a physical presence like an office or store or warehouse or installs or services under warranty or repairs the products they sell pays the tax this leaves. This leaves, however, a large loophole. A wholesaler who has a warehouse in the City pays the tax on business done in the City. A wholesaler who has a warehouse outside of the City but sells and does business in the City does not currently pay the tax. This is unfair clearly to the City business. A dairy -- and I don't believe there are any dairies in the City by the way, but a dairy, where the delivery man or delivery person delivers the milk and cheese and collects the money from the customer, pays the business SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 24 Fiscal Stability & Intergovernmental Cooperation privilege tax. But under the current definition of who pays, a dairy or the delivery person delivers the milk, but the customer that's invoiced by mail does not pay. There are obviously large loop holes here. A company that sells goods through their own store pays the tax, but a company who sells through another store most likely does not pay. Large computer companies based elsewhere in the country pay the business privilege tax on computers sold and installed in Philadelphia. There is one large computer company that sells many computers but does not install or repair them directly; that's done by contractors. That company does not currently pay the business privilege tax. By extending the definition to simply state that any company that makes a contractual obligation, that sells goods in the City, pays the tax. And eliminating the necessity of having a physical presence such as a store, a warehouse, or eliminating the need to have warranty work, extends the right to collect the tax on businesses that are now escaping the tax. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 25 Fiscal Stability & Intergovernmental Cooperation So this benefits the City business that currently pays the tax since competitors who escape the tax would now have to also pay it. This is not really a revenue-generating device because we anticipate that this will generate a little less than $3 million in the first few years. And as the Revenue Department gets efficient at collecting the business tax under this new definition, we expect perhaps $9 million of additional revenue at the end of the five years. It also should be noted that this is not a new tax on suburbanites. Of the 71,200 entities that pay the tax, 24,000 of them are already located outside of the City. Accountants, lawyers, most professional services located outside of the City already pay.

This would reach out to those firms that have slipped through the loophole and it will allow them to pay just as a City-based business does. It is interesting to note, by the way, that of the one third of the companies that pay the tax, only five percent -- or five percent of the total of 71,000, only 5 percent are located in SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION Fiscal Stability & Intergovernmental Cooperation New Jersey. And you can look around the City at the vans delivering goods and doing repairs in Philadelphia, and you know that there are a lot more than 5 percent of New Jersey-based businesses doing business in Philadelphia. This, at least on circumstantial evidence, makes one suggest that there is a large number of businesses doing well in the corporate limits of Philadelphia, located in New Jersey, who have escaped the tax. And we mean to do something at that. I would also point out that this is not a unique tax. Many local municipalities, such as Radnor, Conshohocken, Lower Merion, have a business privilege tax. Many large cities such as Pittsburgh that have a business privilege tax tend to have a definition that will more likely be similar to the one we intend to impose. In other words, they are much more broadly based than what we are currently using in our new proposal, which I believe you'll have hearings on tomorrow, and will be much more in line with other municipalities who have the tax SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 27 Fiscal Stability & Intergovernmental Cooperation defined as to who pays it. That concludes some brief thoughts and, I believe, important points about revenue projects. Dean Kaplan, the Budget Director, will now discuss the expenditure side of this plan.

Thank you. As Mr. Hayllar said, I'm Dean Kaplan, the Budget Director for the City of Philadelphia. Let me briefly discuss the five-year plan on the expenditure side and also some of the specifics about the proposed FY '99 budget. The '99-2003 five-year plan continues to be, as the last several plans have been, a very finely balanced document. As the Chief of Staff and the Finance Director have pointed out, we've had some fairly good news, especially in terms of economic development and revenue growth, but we still face tremendous challenges in meeting the needs on the expenditure side and making the entire plan balance over five years. Even after the fairly strong performance that we've all seen in FY '97 and in FY '98 and the addition of millions of dollars of SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 28 Fiscal Stability & Intergovernmental Cooperation savings over the life of the plan, which were generated by hard work by the many department heads and their staff who are here today, we are still projecting that we'll reach the end of FY 2003 with a fund balance of only $51 million. And although that sounds like a fairly large amount of money, it will be less than 2 percent of the projected expenditures in that year, which is an extremely small margin, and one, of course, that PICA looks at very closely when they review the plan and determine whether or not they'll approve it. However, even this balance, this fairly slim margin is threatened in a number of ways; most significantly because we have no funding in this plan for new labor contracts after the current ones expire. And as the Chief of Staff pointed out, we have our FOP contract expiring at the end of this June. And at the end of FY 2000, our contracts with the other three major City labor unions expire. That, of course, is a position that the Administration has taken consistently, that we SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 29 Fiscal Stability & Intergovernmental Cooperation will not set a base line for negotiations in the plan, but it does mean that when we do enter bargaining and arbitration with the unions, if it comes to that in the case of the firefighters and the police, there will be a significant additional cost that we may have to bear, depending on what sorts of agreements are negotiated or what sorts of awards are made by arbitrators, if that is the way that we handle them. In addition, the five-year plan is predicated on continued growth in the economy. And, as the Finance Director made clear, the level of growth we're expecting is fairly modest, especially given the national booming economy. However, this five-year plan is not predicated on our having a recession, and a significant economic downturn would force us to adjust the plan significantly. And, finally, as the Chief of Staff noted, the full impact of welfare reform has not hit yet. The first round of the TANIF agreements, the two-year agreements where TANIF recipients will come off benefits ends in March of 1999. No 25 one has a very good idea of what that means. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 30 Fiscal Stability & Intergovernmental Cooperation I think most Members of Council have seen the kinds of increases we've seen already in children and youth expenditures, juvenile justice expenditures, and demand on the City's health centers for service by uninsured patients who at one time, in many cases, received medical assistance. We expect those expenditures to increase in all cases. And while we have budgeted for some of that, at this point, it's very hard to tell what the full impact will be, and it's clear that it will probably be somewhat greater than what we can accommodate and make this plan balance at this point. So we are anticipating that there will, at some point, have to be federal and state reaction to the impact of welfare cuts once they take effect fully. So these are three fairly large if's that we have in the plan.

We have it essentially barely balanced, and then we have some very large contingencies. Let me talk briefly about how we made this plan work, given those consideration, and SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 31 Fiscal Stability & Intergovernmental Cooperation then a bit about this year. 5 million. On the expenditure side, the plan achieves balance through a variety of issues. There's not one single thing that we did this year that really made the plan work, but there are a variety of different things which helped. As Council knows from the Mayor's budget address a week or so ago, the Administration is in final negotiations for a new trash disposal contract. And we believe that that contract will save about $51 million over the life of the plan, and we're hopeful that those SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 32 Fiscal Stability & Intergovernmental Cooperation negotiations will be completed and that we'll be able to bring an ordinance to Council in the near future. In addition, the first of the PICA bonds, the bonds which financed the deficit reduction at the beginning of the Administration, were ten-year bonds, and those bonds will be paid off in FY 2002. So in FY 2003, we get the benefit of that. And the fact that we don't have to pay debt service on those bonds anymore gives us an advantage of about $28 million, and that helps significantly in the plan. Unfortunately, the remainder of the bonds, being of much longer term, the debt service will not change significantly during the plan, and we reap no further advantage, but that does help us on an ongoing basis, starting in 2003. This year, we've been particularly successful in implementing target budget reductions with our departments. We've been fortunate to date to have not had a major contingency. As you will recall, in FY '96, we had a SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 33 Fiscal Stability & Intergovernmental Cooperation very expensive blizzard. And in FY '97, once the labor agreements were finalized, we had a fairly substantial cost for those, and we used our target budget reduction to fund those contingencies. This year, again, hoping that we see no 7 inclement weather, no major inclement weather for the next four to six weeks, most of those funds we're projecting will be able to help us through the life of the plan in making it balance. And that's worth about $27 million this year. And then, finally, we had originally projected that we would issue a general obligation bond to fund capital products this year. As it turns out, we had sufficient cash in our capital account to not issue this year. We are projecting that we will be in the market in September and will be coming to Council at the appropriate time with the ordinances to do that. But the fact that we didn't issue a bond this year and don't have debt service this year or for a debt issue this year through the life of the plan saves us about $47 million. So it's a mixture of things that we've done in a positive way to help us, including the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 34 Fiscal Stability & Intergovernmental Cooperation trash contracts and the target budget reductions, and a mixture of other things which just happened to be good fortune. And, as I mentioned earlier, we've had an extraordinarily string of good fortune, but I don't think we should, in the long run, plan on that as our budget strategy. Let me briefly address the FY '99 budget, because I know that Members of Council had a lot of questions about exactly what we did in the budget year. 618 billion for FY '99. That's about $108 million higher than in FY '98. However, more than that amount in the budget is growth, which either are items we don't control directly or items where we have previously made a commitment to spending.

And those items would include things like growth in unfunded liability payment, pension payment, which is about $10 million, increased cost of health benefits, which we project will be about $9 million. The full funding of the needs-based budget for DHS is about $41 million. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 35 Fiscal Stability & Intergovernmental Cooperation Our crime bill match, which, obviously, is a commitment we made sometime ago to increase the number of police officers on the street is about $8 million more this year. The full impact of the pay increase will be about $20 million, and the revenue that comes through the general fund this year from the port proceeds is about $39 million. So once you put all those things together -- and I've picked out a couple of the larger ones -- that's about $127 million in increases, which, basically are previous commitments or things which have occurred, or one-time increases to expenditures. So once you back that out, we're actually spending less in most departments this year than we have in the past. And that's, again, a testimony to the effectiveness of the departments in becoming more efficient and taking target budgets at levels that were lower than before and still delivering the same or better service. The fact that they've done that has also created a small pool of money for us to SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 36 Fiscal Stability & Intergovernmental Cooperation increase some services. And there are several critical areas where we felt, based on consultation with the department heads, and more importantly, in consultation with Members of Council, were important areas to fund this year. 4 million for after-school programs this year. As you know, there are also after-school programs in the Library and the Department of Human Services and elsewhere in the City, which also provide after-school care, and there are significant commitments from the President's Summit for private-sector matches to that City commitment. We have increased, as you know, anti-grafitti efforts by about $163,000 to increase the number of grafitti-free zones. And we've also increased the Mural Arts Program, which, I know, was a priority of a number of Members of Council, which will allow them to significantly raise the number of murals they'll SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 37 Fiscal Stability & Intergovernmental Cooperation be doing next year. There will be, on average, about seven more branches of the Free Library open next year as the Renovation Program continues. And we have provided about $675,000 for that to fund the necessary employees to make sure those branches can be open. We have put in $1 million for additional demolitions, which will be half in this year and half next year, to see if we can improve the Partners for Progress Program, which has been quite successful, by adding that service, which is one that is not provided yet, and we're going to try that as a pilot project. We've put in $1 million for the health care centers. And, as I've mentioned, there's a fairly significant need there. The increase in uninsured visits, the reduction -- as many of you know, the State has consistently reduced their County Health Act funding over the years. And those two factors have slowly forced us to kick in more and to make the health centers work and make them as effective as they can be for all citizens of Philadelphia, SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 38 Fiscal Stability & Intergovernmental Cooperation regardless of their ability to bring insurance to the table. And then, finally, as I mentioned, there's about $8 million for the Crime Bill match and a variety of other enhancements for the Police Department. So, in summary, we have used some of our efficiencies and some of our savings and spending to do some targeted increases.

But fundamentally, the budget over this year and the five years is very close to in balance, with a minor positive balance for the period. We're expecting that we're going to need a fairly significant amount of continued hard work and some of the luck that we've had so far in order to make this budget work over the next five years and some significant cooperation that we've had before from the departments and Council. And we are hopeful that as time goes on, we'll able be to account for and absorb the major contingencies that I've identified in the plan. That concludes, I think, my testimony and the Administration's testimony. And we'd be happy to answer any questions you have. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 39 Fiscal Stability & Intergovernmental Cooperation

The Chair recognizes Councilman Cohen.

Thank you, Mr. President. I guess since this is an overview, the best thing to do is to deal with some of the broad issues. First, I raise the question as to why is balancing the budget number-one objective? It seems to me that the number-one objective is the life-style, the successful living experience of Philadelphians, isn't it? I can understand that balancing the budget should be a major objective, but it ought to be after you enumerate the positive things affecting the life of Philadelphian. It would seem to me that the appropriate way of dealing with the balancing-the-budget issue is to say, And of course, all of the above, meaning the positive aspects, must be done in such a way that we achieve a balanced budget. But I did not know that the City of Philadelphia was in the business to, you know, make a profit or to break even. I thought they SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 40 Fiscal Stability & Intergovernmental Cooperation were in the business of improving the life of Philadelphians.

Yeah. Well, first and foremost, Councilman, the Charter requires that we balance the budget, so even though we have stated that it's one of our priorities, the Charter also dictates that it be a priority for us. The second point I'd like to make is that we believe, you know, the balancing of the budget is sort of the first among equals; that it's from whence all good blessings flow. If you look at the situation that greeted the Rendell Administration in January of '92, we had a $200 million cumulative operating deficit. Our bond status had dropped below junk. The City and State Magazine called us, quote/unquote, the City that sets the standard for fiscal distress in the 1990's. In the waning days of the prior Administration, the Mayor had talked about closing four fire stations, a number of community pools were closed and in disrepair, recreation facilities were closed and in disrepair. And that in a large sense can be SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 41 Fiscal Stability & Intergovernmental Cooperation attributable to the fact that the budget quote/unquote wasn't in balance. So we believe that our fundamental commitment has to be maintaining a balanced budget, and then we can build upon the balanced budget and layer on the services that our citizens expect and the services that you, as Members of Council, and us, as the Administration, would like to provide for our citizens. But without having a balanced budget, it makes it incredibly difficult for us to try to do that.

Well, I just suggest that -- I think that the order of priorities ought to be reconsidered by the City Administration. No 17 one is arguing for -- and the City Charter does not permit for budgets to be unbalanced. But it seems to me that putting the priorities in the way the Administration is putting them deemphasizes the importance of seeing that the homeless are taken care of, the health centers perform their historic mission of serving all Philadelphians who have no other means of health protection, and a whole variety of SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 42 Fiscal Stability & Intergovernmental Cooperation activities that you explained in your budget about the libraries and the recreation centers. Secondly, dealing on these broad overviews, how can we speak of a healthy economy facing Philadelphia without factoring in and then attributing whatever weight you choose to the First Union-Corestates merger and to the talk in the press of the possible merger of SmithKline Beecham and Glaxo, two activities which we don't control in the City. We may be able to influence it, but this may cost the City as much as 7 to 10,000 -- or maybe even more -- jobs. And it seems to me that with the extent of public funding of the Kavaerner Shipyard deal to provide maybe 1/10th or 1/20th the number of jobs that are going to be lost, I think that's kind of a very difficult economic situation for Philadelphia. Yet, I see no mention in any of this discussion to the impending problem of how the City Administration tends to deal with all of this.

Councilman, if you -- when you have an opportunity to read the introduction SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 43 Fiscal Stability & Intergovernmental Cooperation of the City's five-year plan, we do have a discussion in there of the challenges that the City faces in terms of the shake-out of the banking industry and the shake-out in the health care industry. Prior to two years ago, the health services sector was the only sector of the City's economy that had shown positive job growth in each and every year. In 1996, for the first time, we actually lost some jobs in that sector. It's a vitally critical sector to the City's economy. Likewise, banking is also important to the City's economy, and it provides a lot of well-paying jobs to our citizens. So there are two concerns -- there are two contingencies that are out there that certainly have the potential to negatively impact the City's budget. And we're continuing to work and monitor those two situations to try to alleviate whatever impacts they may have. But you're a hundred percent right to point them out as concerns for things, moving forward. Despite the fact that the City's economy is fairly robust today by the standards of five or SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 44 Fiscal Stability & Intergovernmental Cooperation six years ago, we still lag behind the rest of the nation. So when we say that we've, you know, gained 3,000 jobs between November '96 and November '97 and, you know, last year, we finished the year with an actual job gain of 100 jobs, they are very modest accomplishments. But in light of how far we've had to travel these past ten years, you know, we're justifiably proud, and we think that things are pointed in the right direction. It takes a nautical mile to bring the battleship to a halt, and we've brought the battleship to halt, and we're trying to get it pointed in the right direction here. But to get back to your original point, I couldn't agree with you more that the banking industry and the health services sector are two areas that we have to continue to be vigilant night.

A final question at this point. You indicated concern about what happens in the City when the final stages of the so-called Welfare Reform Act takes place. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 45 Fiscal Stability & Intergovernmental Cooperation Can we look forward to some sound approach with respect to dealing with the homeless, other than threatening to throw them in jail by the kind of ordinance that's been presented to City Council, which we've not dealt with as yet. What is your approach? For two years I understand, in 1995 and 1996, there were very effective actions taken by the City Administration to reduce the number of homeless on the streets, particularly in Center City. And then sort of out of nowhere, some bright mind thought of adding shelter restrictions, compelling, according to my little computer, compelling almost a 350 percent increase in the number of homeless on the streets in Center City. Now, it seems to me, the City is working against itself and certainly working against the interests of very poor Philadelphians if we don't take action to see that the homeless are provided for, other than on the streets and other than from the threat of arresting them and criminalizing poverty. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 46 Fiscal Stability & Intergovernmental Cooperation So that's my question. What is the City's approach to dealing with the homeless in the future? Are we going to have an increase of homelessness in Center City and then try to hide it by having repressive measures aimed at removing them from view? Or are we going to have a sound program?

Yeah, we believe that we do have a sound approach. Shelter restrictions are made necessary by the fact that our funding from the State has declined in real terms over the past several years. This past year, we received a little over $2 million less than we did in 1996. Shelter restrictions are made necessary by the simple fact that, as my predecessor, David L. Cohen, pointed out, in the summer, if someone's on the street, they're not going to die. In the winter, if it's 20 below and they're on the street, the chances are that they might be at risk of dying. So we believe it's the most humane way of trying to deal with a growing problem. In terms of the homeless in the street, SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 47 Fiscal Stability & Intergovernmental Cooperation you know, we've increased shelter capacity, we've also brought in new providers, and we've tried to deal with a very difficult situation. But, as Dean Kaplan noted in his testimony, in March 1999, at least 38,000 Philadelphians will be coming off the welfare rolls because their clock is up. And, again, it's another devastating possibility, another contingency that lays out there that could bust our budget wide open. And we have to be vigilant in moving forward over the term of the plan to try to address these very poignant human needs, but also to address the fiscal realities.

Well, is the reduction in the State funding that I think we have to call the attention of our local legislators to, hasn't there been an increase in federal funding? Isn't there currently a very substantial increase coming from the federal government?

Councilman Cohen, I'm going to have to ask that this be your last question, if you don't mind. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 48 Fiscal Stability & Intergovernmental Cooperation

That was just a follow-up, Mr. President.

Okay, thank you.

Except into the earlier question.

Yes, you are correct, Councilman. The Clinton Administration announced, I believe in December, that the Emergency Shelter Grant for next year would be increased by approximately $100,000. And that will allow us to provide either 150 additional year-round beds or 300 winter beds next year. Also, although the Governor did not choose to fully restore the cuts made in State homelessness assistance in his budget announcement this week, I don't think that we or the legislative delegation have given up, and I'm sure certainly Council has not given up in terms of trying to get the State to restore that commitment. So I suspect this will be a major legislative priority of ours and yours as the State budget goes forward. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 49 Fiscal Stability & Intergovernmental Cooperation

Thank you. Thank you, Mr. President.

Thank you very much. The Chair recognizes Councilwoman Fernandez.

Thank you, Mr. President. Just on that topic of the homeless, I believe it's on page Roman numeral XIV. You mentioned that some of the funds from the CBH program -- I think it's 500,000 -- will be directed to additional outreach services, particularly to homeless people who have mental illness problems. Isn't that part of your strategy, to provide additional services to help people instead of having them on the street?

Yes, ma'am, it is. And the Administration, it's my understanding -- it has been brought to my attention that there was a prior commitment that if CBH reinvestment dollars were going to be used for any other purpose, that that be transmitted to Council in the form of a resolution and considered by Council. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 50 Fiscal Stability & Intergovernmental Cooperation So the Administration will be introducing legislation to make this happen.

Mr. Rost, I would like to inform you that only people can 6 introduce legislation into this Council. 7

Right. 8

So it is the 9 ultimate privilege of membership. All you can do 10 is give it to one of us and say "please." That's 11 all you can do. 12

We're going to be saying 13 "please." 14

I thank you. 15

Thank you. 16

But back to 17 the five-year plan, first I think I'm very pleased to see the reductions in taxes and taking the riverboat gambling out of the budget, which, I think, was very worrisome to a lot of people. But eliminating the personal property tax and then the continued reductions in the wage and business privilege tax, I think, are moving in right direction. I had a question, however, about the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 51 Fiscal Stability & Intergovernmental Cooperation real estate property -- or the real -- the transfer tax when people buy or sell property. And I'm noting that it looks like you're estimating a lesser amount of income from that. And I was wondering, is the Administration at this point considering a suggestion which I think has a lot of appeal, to look at ways to perhaps eliminate the real estate transfer tax for people who buy and sell properties within the City? Maybe keep it for buying and selling, you know, properties outside the City where people are going to sell here and just leave, but to look at ways to perhaps put us on a better playing field in terms of real estate buying and selling in the City.

We'd be happy to discuss it and learn more about it. It's not been something that we have dealt with in the last year. I think the fundamental problem is that the State Constitution requires that taxes be imposed uniformly, and this may be an exception that runs afoul of the uniformity provision of the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 52 Fiscal Stability & Intergovernmental Cooperation State Constitution. If you look -- the real estate tax, I believe, was 4 percent a few years ago. And through a lawsuit --

You mean the transfer tax.

Yes, I'm sorry. I believe that's what you're discussing, isn't it?

Yes, mm-hmm.

And through a court action, we were forced to roll that back. Reducing that tax did not seem to have any general effect on the amount of sales. Last year, we had an awful lot of sales generating additional income, which seems to have taken place irregardless (sic) of what the rate of the tax was, so I'm not sure there's a great cause and effect there. When we were reducing it, there didn't seem to be that spurring of a tremendous amount of sales. People buy and sell for other reasons. I suspect that people are buying and selling. And the good thing is, they're buying house in the City, probably because the economy is SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 53 Fiscal Stability & Intergovernmental Cooperation going well, and they are able to move up and find a better house, and somebody else is able to buy theirs. I'm not sure we've demonstrated that the tax has a direct effect on that business. And I know that real estate people feels differently because it makes their life more difficult. But this is a subject that we'd be more than happy to delve into with anybody that wants to talk about it.

I think you can't separate out the better economic climate that might make more buying and selling, but I know I wasn't -- I wasn't bringing this up from a Realtor but from a citizen who lives downtown, who saw a better and more expensive house around the corner. However, by the time she added the real estate transfer tax that she'd have to pay on selling her property and buying another one right around the block, you know, it was like an $11,000 bill or something. So I think we ought to take a look at that and, again, not put our citizens at any kind of disadvantage. The second issue is the active business SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 54 Fiscal Stability & Intergovernmental Cooperation presence change and the fact that you're going to go out there and collect for businesses doing -- selling their products here in the City, or services. Are you aware of any legal issues with this, and has it been run by the Legal Department? Because I've heard some people might be wanting to challenge that legally.

Well, I'm sure that people will want to challenge it, particularly if they're not paying the tax now. Our Law Department is now completely comfortable with this change. And it has been, I believe, thoroughly analyzed by the Law Department. How the regulations are set by Revenue Department go a long way in determining how many people feel so upset about this that they want to challenge. But I think that there -- this definition is not unique to Pennsylvania. In Pittsburgh, they have a very broad definition of who pays the business privilege tax. If you do business in the city, even though you're located outside the city, if you make a sale, you pay SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 55 Fiscal Stability & Intergovernmental Cooperation basically. And that's what we're basically looking at here. So I don't think that's going to be a problem, but I'll bet we're going to have a problem with people in South Jersey who somehow think they're immune to it, because it just has to be more than 5 percent of 71,000 people who do business in the City. But that's life. We have to do the right thing by our businesses.

Another question. I always feel it's very wise to be conservative around budgeting, and if it's necessary, to err on the side of a conservative estimate of revenue, and then, you know, maybe project your expenses a little higher so that you don't get hit if your revenue is lower than you estimated. How would you describe the Administration's ability to accurately estimate revenues since '92?

I think every year it's gotten better. Can you quantify this thing, Dean? SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 56 Fiscal Stability & Intergovernmental Cooperation

I don't have it on the tip of my tongue, but I know that someone asked this question last year, and we figured out that we had been within 1 percent or slightly -- or, I think, 1-1/4 percent for in the last three years in our revenue estimate. So I think we're fairly stunned ourselves that we've been that close, given the amount of variation and potential variability in the revenue estimate. I believe when the Administration began, we were usually within 2 to 2-1/2 percent, so we've been about as close as I think we can get. And the --

Are you usually under?

Our revenues have been usually slightly over, but I'll --

Of what you estimate?

Of what we estimate, and I'll go back and dig those numbers out for you.

Could you do that by each different tax? Because when I SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 57 Fiscal Stability & Intergovernmental Cooperation started to look at these numbers, I was wondering, you must have had some good reason for some of the numbers, but I'd be interested in seeing those trends since '92.

Okay.

It has improved. Also this year, the Finance Department, with the Commerce and the Controller's Office, purchased an economic model which is highly regarded and will assist us in projecting economic trends on a county-wide basis. And we have employed it for the first time in the budget. And if you wish, the people who use this model -- Mr. Isard is here -- will be more than happy to give you a detailed discussion of how it works. I beg of you not to ask the question now. But it is another tool and I think a much more sophisticated tool than we've ever had before to help us with our revenue projections and also to help Commerce with its economic modeling.

And my last question is, you mentioned the contract increases are not in the budget. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 58 Fiscal Stability & Intergovernmental Cooperation Could you just review for the record for each percentage increase that you award, to maybe separate out police from the non-uniformed. What does each percentage increase come to? How many millions of dollars?

It would probably be instructive if I used parity with what the firefighters received. There's an excellent chart in the introduction of your plan, in Roman numeral X, which shows that since 1953, I believe, that the IAFF and the FOP have received the exact same increase each and every year, regardless of whether it was in a dollar-increment or in a percentage increase. If you happen to have the plan there, you'll notice that the two columns are always equal. If -- and, again, this is an if -- if we assume parity for the FOP in these remaining two years of their contract, which would be FY '99 and FY 200, in FY '99, they received the percent that the firefighters also got. It would be $5.2 million in FY '99. And if they got the percent SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 59 Fiscal Stability & Intergovernmental Cooperation that the IAFF got in 2000, it would be 8.8 million in 2002. So you're talking approximately $14 million over the term of the next two fiscal years.

And then for the other, for the non-uniformed?

For the non-uniformed? I'm sorry.

Again, if you're looking over five years and you haven't put any increases in for all the other City employees, do you have like a rule of thumb of what a percentage increase is?

As a general rule of thumb, each 1 percent increase is about $9 million for each increment of 1 percent increase.

Thank you, Mr. President.

Thank you. Gentlemen, I would like for you to -- I'm going to ask a couple of questions, and I'd like for you to pay very close attention, because I am -- I would like to advise you now that the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 60 Fiscal Stability & Intergovernmental Cooperation first thing I will get after these hearings is your answers to these questions; not all the other questions, but to these questions. And I want you to be very careful and deliberative in your answers because they are trick questions. You are to be forewarned. Forewarned is to be forearmed. There are trick questions, and they are broad questions, the answers to which could get you in trouble. Now, before I ask you those questions, however, I would like to inquire as to the whereabouts of the Managing Director, and I would like to know whether or not the Managing Director is going to be here, because I wish to have the Managing Director here.

We'll get him.

Now, I remember when we didn't do five-year budgeting in this City. We didn't do it. We came here every year and we took a look at what was in front of us and made a judgment as to whether or not it seemed reasonable. And whether we agreed or disagreed, at some point in time, we made a judgment about two SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 61 Fiscal Stability & Intergovernmental Cooperation things: How much money we were going to spend, and how we were going to spend that money. Now, when you do five-year budgeting, the questions become broader and the answers become less specific because it is very difficult for you to project with more than a reasonable degree of certainty what's going to be happening in future years. We don't know, for example, how much snow is going to fall in FY 2001 or whatever it is, how ever we start calling those years. We haven't thought much about that. So we don't know. I mean, we could have what we've had this year, or else we could have what we had two years ago. So you're not talking about budgeting with any degree of precision here, because a five-year plan for the City is going to be a what, 7, 8-billion-dollar plan. So we don't want to hold you to that level of specificity because it's impractical. Now, on the revenue side, on the revenue side, there are always peaks and valleys on the revenue side. What I would like for you to SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 62 Fiscal Stability & Intergovernmental Cooperation tell us is, where do you think we are most vulnerable on the revenue side? Where do you think we are most vulnerable? Now, you're under an obligation to tell us, because if a year from now or eight months from now, something happens, then I'm going to go back to this question and your answer and say, Why didn't you tell us that this was a vulnerability? What are the areas on the revenue side that are the weakest, that are the things that we ought to be most concerned about, that are the things that you would want a responsible legislative body to know as it relates to the future integrity of our budgets based on the revenue that is likely to be received in this government from all sources? The record should reflect that these guys are looking furiously through their papers because this is a trick question.

We're trying to get each other to answer the question. (Laughter.)

And you're pointing at each other. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 63 Fiscal Stability & Intergovernmental Cooperation

I think I lost. I think three things that immediately come to mind over a five-year plan is some kind of disaster, and it can be weather-related, it can be a disaster of another type, but something that could have enormous financial impact on the city.

Yeah, but Mr. Hayllar, the Philadelphia Charter makes provisions for emergencies.

That's correct.

We don't have to worry about that. I don't want you to tell us about emergencies because emergencies -- and you know, I'm not trying to be disrespectful, because we have to have this dialogue. Emergencies are not what I'm talking about here. If we have an emergency, you're entitled to come in here with an ordinance, cite the emergency, and we can then increase the level of appropriations for that particular year to account for that emergency. That's not what I'm talking about. I'm talking about, in every budget, there are problems that could happen along the way SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 64 Fiscal Stability & Intergovernmental Cooperation that we know about; for example, the personal property tax was in 1998 a potential problem. It happened. I sat right here and said, This could happen. I want to know, based on what we have in front of us, where the weakness is. Where are the potholes? That's what I want you to tell us. And I want you to think about it because it's a trick question.

I'll try. I think the biggest pothole is the national economy; and by default, our regional economy. I mean, we've been very blessed with the national economic cycle that, you know, there's been tremendous growth across the board. The stock market's going crazy, the rich people are getting richer, everybody seems to be doing well. In Philadelphia, our economic performance during this boom period has been good, but it's been relatively modest, especially in comparison to our suburban counties. And moreover, especially in comparison to other cities SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 65 Fiscal Stability & Intergovernmental Cooperation across the country, our highs aren't as high as theirs.

Well, I understand that, but that's not really the answer that I'm looking for, because we all know that we never do as well as the nation does, we know that we never do as well as the State does, and we know that we never do as well as the region because of the ebbs and flows of our jobs. And it is my understanding that what you do when you make our revenue projections is take all of that into account. And that, you know, what you think we might be doing revenue-wise is accounted for in the revenue projections. Mr. Kaplan.

Kaplan, you're up.

Strike three, right?

I'm just trying to find out what --

I think that that's true, but I think it's important to acknowledge that we have said in all of our projections for the last several years that we are predicting slow but SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 66 Fiscal Stability & Intergovernmental Cooperation steady low growth in the City's revenues. What the Chief of Staff said about the national economy is true. And, for example, as we reduce our gross-receipts portion of the net profits of the business privilege tax, the net profits proportion becomes a larger proportion of our third largest tax. It's a very volatile portion of the tax because it's related to what companies actually make, not just how much business they do. So on the one hand, we're cutting taxes, that's a great thing. Business loves it, they talk about it, it's certainly helped us keep some businesses in the City. On the other hand, it means that we've now made the business privilege tax a much more volatile revenue source than it was. I think that's the kind of issue that the Chief of Staff is pointing out.

This is what I'd like for you to do. I would like for you to think about this. And then what I'd like for you to do is come up with your best thinking in the next week, next two weeks, because we really do have a SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 67 Fiscal Stability & Intergovernmental Cooperation little bit of time here. I'd like you to come up with your best thinking. And if there's something you think on the revenue side, if there's something you think you should point out to us as a factor that we ought to be taking into account, I'd like for you to write it down and make it available to the Chair so that we could circulate it to all the Members of Council. Because at the end of this budget period, this budget hearing, I think it's only fair for all of us to know what you think are the potential problems on the revenue side. Now, let's turn to the expense side for just a minute. And in doing the revenue side, it may be helpful to us if you explained in some small detail your thinking behind the growth rates that you put into our revenues. Now, on the expense side, you have in, I guess, years 2002, '03, '04, and '05 of the plan unspecified budget cuts of 5 million in the year '02, 10 million in the year '03, 15 million in the year '04, and, I think, 20 million in the year '05. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 68 Fiscal Stability & Intergovernmental Cooperation It is my understanding that, unlike the previous years, there are no riverboat gambling revenues in the five-year plan. Is that fair?

That's fair, that's correct.

No riverboat gambling, so we don't have to worry about that. And I guess what I would like for you to do is comment in a general way on the unspecified cuts in those years and why you think it is an acceptable plan for us to have them there, without any specific proposal to deal with those cuts.

Yes, I think that what you're implying is true. It is somewhat of a risky strategy. At the same time -- and I think it points up the necessity of improving performance and reducing spending in order to make the plan balance. We did two things this year. We reduced the amount of future target budget reductions, the unspecified cuts from last year's plan from 70 million to $50 million, in part in reaction to some concern from City Council, and a lot of concern from PICA that we were putting a SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 69 Fiscal Stability & Intergovernmental Cooperation large burden in future years of the plan. We were also able to do that in part because we made unspecified target budget reductions in FY '97 and FY '98 through our target budget process, which allowed us to reduce that. So I think the idea of the strategy is to point out that there are clearly gains that have to be made in the budget that we can't know now. We don't know what they'll be, and there are a variety of means of getting them. One is target budget reductions. One that has been discussed a bit in City Council is ultimately some sort of pension bonds. One is -- you've stricken riverboat gambling from the plan, but the Mayor and the Administration have taken the position that that may be an issue which would be something that could considered in the future. The City's agreement with SEPTA, most of its lease and lease-back agreements with SEPTA, which have us paying a disproportionate share of the region's transit needs, expire in the later years of this plan and are up for renegotiation. So there are a variety of fairly SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 70 Fiscal Stability & Intergovernmental Cooperation significant potential sources of revenue spending reductions in the out-years of the plan that we just can't put in the plan now because we don't know, as you've pointed out, exactly what reductions will be. However, we can't make this plan balance without assuming that in the future, someone is going to have to make those reductions.

You did real good up until the last statement, because you could make the plan balance. I mean, all you'd have to say is, We're going to spend -- all you'd have to do is project that we're going to spend $5 million less over all the City agencies and departments, and it would balance. And you could do that for every year, and it would balance. So, as a practical matter, that really isn't a very accurate statement. You could make it balance, but you choose not to make it balance. And the only reason that I can tell that you would choose not to make it balance is because you want to project spending that amount SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 71 Fiscal Stability & Intergovernmental Cooperation of money, because all you're doing is projecting $5 million worth of expenditures above and beyond the revenue that you are willing to estimate at that time. So you really could do it. And I guess what I'm asking you is: Why do you choose to bring a five-year plan here that has those unspecified cuts, as opposed to simply estimating higher revenues? Because that's really all you'd have to do. I mean, with the flick of a pen, you could estimate an additional $5 million in wage tax, for example. The wage tax brings us what, 700-and-some million dollars? So 5 million is what percent of 700 million? I mean, you could wipe that out just by increasing the estimates. And I guess what I want to know from you is why it is that you choose to do it this way, as opposed to the other way.

I think we had earlier discussions of the fact that we've become fairly comfortable with our revenue estimates and with their accuracy. I think you're correct, we could SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 72 Fiscal Stability & Intergovernmental Cooperation increase the revenue estimate by $50 million, but we're not confident that there will be $50 million in revenue.

Well, if you're not confident that there will be $50 million in revenues, then that means that you are uncomfortable in projecting $50 million in decreased expenditures.

Perhaps I should reconsider my answer. I think -- I guess what I'm saying is --

These are all the trick questions.

Right, right.

So I'm warning you.

I guess what we're saying is that of the revenue sources we have now, we are comfortable with the revenue projection. We believe there are potential additional sources, but we don't believe that they're firm enough at this point to include in the revenue projection. And the $50 million obviously reflects both potential future revenues and potential future spending reductions, so it's a mixture of SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 73 Fiscal Stability & Intergovernmental Cooperation the possibilities of both. But I don't think that any of those are at a point where we would be comfortable bringing them to Council and saying that we believe that this will absolutely be the revenue from that source and that it will be higher.

So you think in giving us -- you think that putting in a blank is better than putting in speculation. Because what you have given us is a blank, right? I mean it's a blank.

I believe we think it's better because this Council, in cooperation with the Administration, has shown that they can fill in that blank, and that we don't always know what it is and that it's going to take some specific work. But to put that in a speculative number now would not be well received, I think, by any of us, or certainly by PICA at this point.

You think a blank is better than a speculative number?

Yes.

Okay, that's fair SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 74 Fiscal Stability & Intergovernmental Cooperation enough.

It's motivating.

It keeps our feet to the fire.

Well, at least we now know what your thinking is. And I'm curious -- right. Now, on the expenditure side, I'd like for you to list for us -- and I was hoping the Managing Director would be here for this, but we won't wait for him. I would like for you to list for us what you believe are the greatest areas -- (Clerk gives note to President Street).

The Managing Director has indicated that he has a personal emergency. He said he will be here, and I thank him for that note. I'd like for you to list for us what it is you think are our areas of greatest vulnerability on the expense side. What are the areas that you think are most likely to create a problem for us on the expense side? And while you're doing it, I'd like for you to also answer two other questions. Is there SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 75 Fiscal Stability & Intergovernmental Cooperation any department, which you estimate over the course of the next five years will receive less than a carried-forward budget? And are there any departments that you believe are likely to receive greater than a carried-forward budget? And if so, what are those departments less and greater than? So, I need a pothole answer on the expense side, then I need for you to tell me who's going to receive more money than just a kind of a routine carried-forward budget. And who do you see getting less than a carried-forward budget? Now, bear in mind that this is a trick question.

On the expense side, I would think that one of the primary concerns that we would have moving forward would certainly be our labor agreements. As we alluded to earlier in our testimony, at least three of the major municipal unions, their contracts expire at the end of Fiscal Year 2000. And if our negotiations with the FOP go as we would like -- we have indicated to them that we would like a two-year deal with them as well. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 76 Fiscal Stability & Intergovernmental Cooperation Let's assume that all four of the municipal unions contracts expire at the end of Fiscal Year 2000. After Fiscal Year 2000, we have no money in the years of the plan for any increase in labor costs beyond the end of Fiscal Year 2000.

What I would like for you to do is, I've asked three long questions, and maybe what I would prefer you to do is give us something in writing on those three questions. Do you know what those three questions are?

Yes.

Give us something in writing. And then I'd like to pass on to Councilwoman Blackwell.

Thank you. I wanted to certainly agree with what my colleague Councilman Cohen said about the homeless and the budget impacts, how the budget impacts in this area. I was very upset when we read in the newspaper that the Administration decided that they would not support homeless being able to take SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 77 Fiscal Stability & Intergovernmental Cooperation advantage of Section 8 applications. And I really, really considered that a reversal of the Administration's position dealing with this. And, in fact, in the five-year plan on the section dealing with homeless, the focus was stated to be one where the Administration would focus not so much on shelter placement but on other outreach activities. And given that, I don't know how you can say that the focus would change to outreach activities, but then say, when it comes to Section 13 8, that the homeless don't deserve a piece of that pie. And I'm very, very upset also about the regressive legislation that has been introduced in this Council. And I just -- I thought we had come a long way to have a reversal in the area of the homeless budget, because, as I always say, a nation is judged by the way it treats its poor. And certainly, we too as a Council will be judged by the way we treat those least able to support themselves. On in the five-year plan, the third paragraph speaks to the Administration's SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 78 Fiscal Stability & Intergovernmental Cooperation focus on homeless prevention. We know that from Act 49, Act 20, and Act 35, the first two have -- those on general assistance have been reduced by 40 percent, and we expect another 18,000 to lose their benefits at the end of this year as a result of Act 35. And so we are very, very alarmed and upset that these people who are at the bottom rung of the ladder may not in this Administration have an equal chance and an equal bite at the piece of the pie. So we'll ask you to certainly keep us informed -- good morning, Mr. Nardone -- certainly to keep us informed in this arena. And I certainly would certainly welcome any comment you might have on that issue.

My name is Mike Nardone. I'm the Deputy Managing Director for Special Needs Housing. Good morning. I want to just try to respond to one or two points. One is that with respect to Section 8, the elimination of the homeless preference does not mean that no homeless recipients will be able to receive Section 8 certificates. What it means SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 79 Fiscal Stability & Intergovernmental Cooperation is that not a hundred percent of the certificates will be available for the tier-one priority, which includes homeless recipients.

Well, then define the change, define the change from what is in the Administration's now-position then, if you would.

Basically, as I understand it, there would be a decision made by the Board to determine what would be the allocation between the tier-one and tier-two priority. And that decision would have to be made by the Board. And then an input would be provided to the Board by myself, as well as John Kromer and the new head of PHA, to determine the allocation of certificates between the tier-one and the tier-two priority.

Well, I am absolutely flabbergasted. Certainly, we know that with the three-member Board that includes our President, the Mayor, and the Head of PHA, there's no 25 mysterious group that we're talking about. And we SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 80 Fiscal Stability & Intergovernmental Cooperation know that if this Administration makes such statements, certainly it will go a long way. I think it is absolutely unfair, after we've fought so long to have homeless people have an opportunity to apply for Section 8's, to take that right away when so many people are being cut off the welfare rolls. I think it's absolutely wrong and absolutely unconscionable to do that here in 1998, to hurt these people. I absolutely disagree with that, and I just can't state it enough. All right. One of my colleagues asked what your plan is to take care of these people in view of the loss of Section 8 monies.

Again, they will not -- I mean, one of the things that we're going to have to do as the policy is implemented is to try to assess what impact it has on the transitional housing as well as the shelter system. One of the proposals -- what the proposal is, is that there would be adjustments that were made. It doesn't -- remember, there have been proposals to set specific allocations between the tier-one homeless and the tier-two SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 81 Fiscal Stability & Intergovernmental Cooperation homeless. And what this proposal would do is to basically allow some flexibility to just the percentage that went to homeless individuals as well as the working poor, based on what is the impact on the shelter system and the transitional housing system. And it's something that we're going to have to monitor very closely.

So an answer, Councilman Ortiz, we don't know, we don't know. I'm also concerned about another issue. As some of you know, we had a press conference in here and filled these chambers when we talked about funds that go for -- drug funds that go under the Behavioral Health Special Initiatives. I understand that was a $17 million pool and that was even threatened with that being cut off because the money had not come, in fact, from the State and the Governor. At that time, after we had a press conference, of course, it was reported that we just did not have any sense of what we were SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 82 Fiscal Stability & Intergovernmental Cooperation talking about, there was no danger of these monies being cut, and that the Governor didn't know -- it was the day he announced for reelection -- and that we just didn't know what the truth was, when, in fact, we had information. And we are absolutely concerned as to what happens with these BHSI funds to help with drug treatment. Have those funds been restored? COMMISSIONER RICHMOND: At the time of the --

Identify yourself for the record, please. COMMISSIONER RICHMOND: I am Estelle Richmond. I am the Health Commissioner for the City of Philadelphia. At the time of the press conference, we had received verbal confirmation -- early confirmation that the State would give us $12 million. They had at that point written us and told us that we would only receive 8. As a result of some lobbying, they did come back and tell us in writing that we would receive $12 million for the Special Behavioral Initiative, BHSI. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 83 Fiscal Stability & Intergovernmental Cooperation We are still in negotiations with them around our needs to finish out the year, which would take us somewhere between and 17. They 5 have not said no to that at this point, but we 6 don't have the commitment in writing. 7 Our concern, though, is that the 8 Behavioral Special Health Initiative does show a 9 drop in the Governor's budget that was just 10 announced, and we are continuing to analyze that 11 budget to see if it's anywhere else in it. 12 But right now at this point, the 13 Governor's budget for Fiscal Year 1999 does not 14 show the BHSI dollars at the original rate. 15

So, in other 16 words, Commissioner, everything is exactly as it was the day we had the press conference, and we do not have those funds. COMMISSIONER RICHMOND: No. At the press conference -- at the time of the press conference, we thought we were only going to receive $8 million.

No, we knew we would get 12. I got a call that night, and I knew that night before. I knew when we had the press SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 84 Fiscal Stability & Intergovernmental Cooperation conference. After we announced the press conference, there were verbal talks about 8, and by the time of the morning of the press conference, they talked about 12. But my understanding has been still what you're saying is that the situation still exists, that we don't have the to million we 9 need to get us through the end of this fiscal 10 year? 11 COMMISSIONER RICHMOND: No, we don't 12 have it in writing. The difference is what we get 13 verbally from the State versus what we have in 14 writing from the State. 15 But what we have in writing is 12.8 16 million. We're still -- they have not told us we 17 won't get the rest of the dollars; we're still in negotiation about that. It's a little different from where we were before because not even the 12.8 was in writing on the day of the press conference.

Well, my information was that it wasn't in writing. COMMISSIONER RICHMOND: Right.

But that the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 85 Fiscal Stability & Intergovernmental Cooperation commitment had been made. COMMISSIONER RICHMOND: Right.

But we still don't have enough. There's no guarantees, then, even on the other, so we're still basically where we were on January 13, 1998, when we had the press conference, in terms of being secure in that area until certainly the end of June. COMMISSIONER RICHMOND: In terms of not having it in writing, you're right.

And I would say to you that certainly we have a lot of people that this also would affect, people in the middle of drug treatment, people who are working. And it would adversely them. And with the welfare cuts and the cut in drug training, I don't know how we survive out there on the streets. So I would only say that there are many people who are willing to do everything that's necessary, from writing letters, to even going to Harrisburg. But if we take the position that we want to hide from it, and we don't want to even let people who are committed in this area to try SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 86 Fiscal Stability & Intergovernmental Cooperation to help on it, then we can't help you. If you work in a dark vacuum, then we can't help it. There are many of us who are friends to these people and certainly friends to the department, but we were made to be some ridiculous spectacles, that we made this stuff up, when we knew what the issue was. And it's really, really unfortunate. Let those people help you who certainly are willing to be out in line or willing to help you so that we can try to help fight for the funds that we need to help other people. COMMISSIONER RICHMOND: Yes, we greatly would appreciate it. And we are actively working with the State to fill out the rest of the year, giving them the data. What they've asked us for now is the documentation of what we needed to make till the end of the year, and we're providing them documentation to be able to show them that we do need the additional dollars, how we would spend them. And our hope is to hear from them in the next few weeks. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 87 Fiscal Stability & Intergovernmental Cooperation

Thank you. Would you keep us informed? COMMISSIONER RICHMOND: Yes, we will.

Thank you. Thank you, Madame Chair.

Councilman Nutter, I need you to don your mike.

Mr. President, I have -- I have adorned it. I want to -- just very quickly, I want to go back to the area of questioning where the Council President was. I assume that we are talking about Appendix 3, , line 20, Future Target Reductions. That seems to be the $50 million over the next four fiscal years that was the topic of discussion. I was intrigued by one of the responses about the difference between either overestimating the revenues or specifically dealing with the expenditure side of the house. And what I found intriguing was that you chose to show it as the reduction, but then it's apparently not specified. Now, isn't it true that you have SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 88 Fiscal Stability & Intergovernmental Cooperation virtually no control over what ultimately amounts to line 8, the total revenue side of the budget? I mean, you don't have much control over how much wage tax, how much real estate tax, how much real estate transfer tax, and those kinds of things. You don't have any direct control over that, isn't that true?

Not unless you raise the millage.

Right, which no one is anticipating, no one's discussing. You're not anticipating it, you're not even thinking about introducing legislation on your own to do that.

We would have difficulty getting a sponsor, I believe.

Right, exactly. But you do have control over the expenditure side, almost total control; is that right?

Yes.

Okay. So that's why I found it intriguing that you just chose to show that 5, 10, 15, and 20 over the years when you could clearly today make a determination as to SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 89 Fiscal Stability & Intergovernmental Cooperation what the 5, 10, 15, or is going to be because you have control over that side of the house. I understand your reluctance to potentially overestimate revenues over which you have no control. Is that fair?

Yes. 8

Okay. But you, as 9 you went though the questioning, you just chose 10 then not to show where the 5, 10, 15, or 20 would, 11 in essence, come from or be taken from. 12

It's not that we don't 13 choose to show it; it's just that there are a 14 number of options. We don't have anything 15 specific. And we have in the past shown future 16 budget reductions as a line item, and we have met 17 those targets. 18 I think it's also healthy for everybody 19 to recognize that we are not living in the lap of 20 luxury, that there is much to be done, and that we can improve services, which we believe to be the common goal of the Administration and Council; and, at the same time, find efficiencies, and these are the efficiencies we need to find. It's a smaller target than last year. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 90 Fiscal Stability & Intergovernmental Cooperation Last year, I believe, it was 70 million; this is 50 million. So I think it is an appropriate way of defining this problem. You can increase revenues and you can say that your projections are going to be $50 million higher.

Right.

But the problem with that is you fool yourself. And then when the day comes when the revenues don't meet your false projections, you wonder what happened. I think we're better off.

Well, I understand that, I agree with that. I guess I'm just, again, posing the question that since you don't control that but you do control the other, you could actually show what your best estimate is of what you would do to continue to show balanced budgets through all those years, because you just know that you'd have to take away $5 million one year, 10 the other year, 15, and 20, ten operating departments. And the whole rest of the government, you divy it up, then you would show where it's coming from. Is SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 91 Fiscal Stability & Intergovernmental Cooperation that right?

I think that's true, but there are two other factors. One is that the nature of -- and, again, remember, a primary source of these potential reductions would be the City's targeting process. If we were to follow that suggestion and put each of these reductions, actually attribute them to the various departments, we would have a couple of choices. We could put in an across-the-board cut of $50 million over the plan in all the departments, we could identify specific cuts, which we think might be made in those departments over time. And let me give you a good example of one reason we wouldn't do that. Last year, we thought that we might go into the market and look for new trash disposal contracts. We had no idea at that point -- we had a general idea, but we had a very large range of what those savings might be. And we had no interest in certainly telegraphing to the industry what we thought the savings might be. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 92 Fiscal Stability & Intergovernmental Cooperation

Right, I understand.

And we weren't confident enough that we would achieve those specific savings, as opposed to others, to put them in the plan.

Okay, so then you have --

And so we chose to assume that as one of our --

Right. There are a number of ways you could do it, but you've chosen one that resulted in you not showing it.

Correct.

Okay. Line 26, Funding for Contingencies. What's the $65 million for? Or what would be taken out of the $65 million fund for contingencies?

As you know, the City Charter and Convention require that we show a zero-fund balance in the budget year, so you see on Line about a 99 or a $100 million reserve in 24 FY '99. 25 And essentially, our choice about how SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 93 Fiscal Stability & Intergovernmental Cooperation to put that back in the budget was merely dictated by trying to keep the fund balance relatively the same in the following two years. You could redistribute those monies into a budget in another way if you cared to. The real issue is that those funds are gone by the time you get to the end of the five-year plan.

So line is just 11 a place for unaccounted-for, you know, loose 12 change to kind of hang out. I mean, it's like 13 your back pocket. It's just where you put it. 14

No, it's an indication of 15 the fact that we will, presumably, given the 16 conventions of the budget, we will presumably have 17 a positive fund balance at the end of this year 18 but that we don't expect that fund balance to 19 persist through the five-year plan. 20

All right. Well, 21 for FY '99, it shows 99,520,000. And then, you 22 know, maybe it's just the coincidence of -- one of 23 life's coincidences that in FY 2000 and FY 2001, 24 the line 26 numbers happen to add up to the same 25 99,520,000. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 94 Fiscal Stability & Intergovernmental Cooperation Why is that?

It's not a coincidence. It merely demonstrates that -- we're estimating that any potential positive fund balance at the ends of FY '99 would be gone by the end of FY, I think, 2001.

Well, I guess what maybe I'm not understanding is, if you have funding for contingencies of $65 million because you haven't identified where it would go, then why don't you just put it in the departments? I mean, why do we seemingly in the budget have 65 million of unaccounted-for dollars? There must be something we could do with it.

Actually, the alternative would be to put it on line 31 and merely increase the fund balance. We could have made the fund balance in 2000 about $65 million, and you would still end up in the same place.

Okay. Well, I guess that's why we have a full budget process. We'll examine that as we go through the operating budget. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 95 Fiscal Stability & Intergovernmental Cooperation Let me just put one point of information on the record. My colleague Councilwoman Fernandez raised the issue of the real property transfer tax, and I think Mr. Hayllar gave pretty much what has been a very consistent view and party line on the real estate transfer tax in terms of his defense of why it should be where it is or why we shouldn't do anything about it. Just for the record -- and my colleague doesn't know this -- on Thursday, I will be introducing legislation that will impact the real estate transfer tax for homeowners, for people buying a home in Philadelphia. My colleague may have an interest in the legislation, and the Administration, naturally, will have its full opportunity to make its statements or a defense. But that is coming on Thursday. And since it came up, I thought that you should know. Now let me go to a couple of the departments. In the Recreation Department, on of the plan, there's a section entitled "Improving Maintenance of all Recreation SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 96 Fiscal Stability & Intergovernmental Cooperation Facilities." Mr. Kaplan, how many recreation centers do we have in the City?

I think it's 150.

I don't know that number off the top of my head. (Commissioner Mike DiBerardinis comes forward.)

Identify yourself for the record. COMMISSIONER DIBERARDINIS: Mike DiBerardinis, Recreation. We have 150.

When I say "staffed," I'm certainly talking about maintenance. How many full-time maintenance staff is there? COMMISSIONER DIBERARDINIS: When you look at the whole number test, about 240. But if you break that down into skill trades and the grounds maintenance and those that are assigned specifically to recreation centers to do cleaning and light maintenance in the facility -- again, I'm using an approximate number -- we probably have around 85 to 90 custodial staff assigned to SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 97 Fiscal Stability & Intergovernmental Cooperation recreation centers.

So is it correct that every recreation center in the City does not have its own full-time custodial staff for cleanup and light maintenance? COMMISSIONER DIBERARDINIS: That's correct. However, all of our A centers, which number about 46, have full-time custodial staff assigned to them. And a significant number of the B centers, which are slightly smaller facilities, have either full-time or part-time staff. The remainder are cleaned and maintained either by seasonal employees, which we assign to specific sites or crews that work in the districts, one of our ten recreation districts.

Not to offend you, Commissioner, it's not your fault, but the centers don't get dirty seasonally, do they? COMMISSIONER DIBERARDINIS: No. We do have peak times when those centers have the most usage and we deploy seasonal staff to the district and have the facility managers determine the time of year and the number of hours that they would need that staff at their facility to have the most SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 98 Fiscal Stability & Intergovernmental Cooperation impact as it plays against high usage. When there's not a seasonal person available, which does happen in some of those centers, the crews are then deployed to do regular cleanings.

Okay. Could you provide to the Chair for further distribution to all the Members a plan of attack that would lead us to a point of having a custodial person at each recreation center in the City. COMMISSIONER DIBERARDINIS: Sure. I mean, I could tell you what it costs.

What it costs, but it's certainly a question of Yes, you can do it, no, you can't do it. COMMISSIONER DIBERARDINIS: I think I can do it. I could sort of show you how our system looks now.

Right. COMMISSIONER DIBERARDINIS: Where we have the full-time permanent people, where we have the part-time permanent people, where we have the seasonal staff employed, and where there's crew cleanings. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 99 Fiscal Stability & Intergovernmental Cooperation

That's where you're at now and you could project out, or you could develop a plan that says that if we had a person to take care of every center to make sure that they are cleaned and maintained on a regular basis, you could show us what that system would look like, right? COMMISSIONER DIBERARDINIS: I could certainly show you what that would look like. But in the smaller centers -- I mean, I wouldn't recommend a full-time person at all to the C centers, which are the smaller centers. And I don't think there's a need for a full-time person at every facility. But I could certainly give you a sketch of what a system would look like with different levels of employment.

Give us your best based on your experience. COMMISSIONER DIBERARDINIS: Sure.

Thank you. My next question is an L&I-related question. It involves the heading of "Focussed Housing Inspections," on , which seems to SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 100 Fiscal Stability & Intergovernmental Cooperation indicate that -- or at least the document reads that the overall number for properties inspected has declined from 153,000 in FY '96 to 93,000 in '97 to 90,000 in FY '98 because of a shift in focus to less densely-populated neighborhoods and the onset of the Multiple-Occupancy Dwelling Program. Could someone tell me why there was a shift in focus. And how are we dealing with a decreased number of inspections?

I think we would need to get someone from the Licenses and Inspections Department here to explain why there was a shift from properties to the MOD Program. I mean, we could explain to you that under the MOD Program --

I can barely hear you.

I'm sorry. I mean, we can try to explain to you that under the MOD Program, whereas the number of properties have gone down in terms of inspections, the number of actual units that have been inspected have been increased. We'd really need to have someone from L&I -- SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 101 Fiscal Stability & Intergovernmental Cooperation

Why don't you get back to me.

Sure, thank you.

Along with that answer, what I'd like to know is how many residential fires there were in the City last year, and how many of them were single-family rental property fires, and how many of them were single-family owner-occupied property fires.

We'll be happy to get that information to you, Councilman.

Okay, thank you. On , you have a heading entitled, "Continuing the Work of the Fairmount Park Rangers," which seems to extol all of the great efforts and actions by the Philadelphia Ranger Corps, the wonderful things they do in the park system. But, unfortunately, the last line indicates that because of funding deficiencies from the philanthropic community, that essentially, the Ranger Corps Program will go out of existence, unless they identify new sources of funding. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 102 Fiscal Stability & Intergovernmental Cooperation That would seem to be, I guess, somewhat in conflict with the heading that goes with the paragraph, because we're really not continuing the work of the Fairmount Park Rangers.

No. That's an excellent point, Councilman.

According to the budget, right?

Yes.

Okay.

When we had our briefing for Members of Council prior to the Mayor's budget address, it was made very clear to us that Members of Council felt very strongly about the Ranger Program. I've subsequently had conversations with the Mayor, I've also had conversations with some members of the Fairmount Park Commission. And we're going to be exploring ways that we can either maximize the philanthropic efforts that have been made to date or figure out some other way to somehow "incentive-ize" the private sector to step forward to address the issue of the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 103 Fiscal Stability & Intergovernmental Cooperation Fairmount Park Rangers. And as soon as we have that ironed out, which, I suspect, will be sooner rather than later, I'll be happy to report that to the Chair.

So you expect to have a plan prior to the close of the budget season, and certainly before the end of the fiscal year --

Yes, Councilman.

-- as to what's going to happen.

Yes, Councilman.

Okay. And a couple pages before that, you have the heading that's entitled, "Maintaining Street Trees," which, one, again, I will commend you for the agreement for the million dollars in the current fiscal year; but unfortunately, notwithstanding the million dollars in the five-year plan for the years going forward. You realize that that actually represents a cut in the funding for that program, which had $1 million for one half of FY '98, and we're now going to a million for a full fiscal SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 104 Fiscal Stability & Intergovernmental Cooperation year. So at least, I guess for me, in my small knowledge of accounting, a million for a half a year and then a million for a full year represents a cut in funding. And we can talk about it more in the Fairmount Park budget hearing, whenever they come to the table. But in terms of the five-year plan, you have put the dollars in there. It's not what we had talked about last year in terms of running a program and funding a program which accumulates dollars over time, not just as a static figure over a period of time.

I'll have to go back and check the file. It was my understanding and the Administration's understanding that the arrangement that was made was that the funding for street trees would be $1 million per year. But, again, I'll go back and check the file and report to you.

Okay. It was clearly a misunderstanding. Lastly, and you don't have to respond now, in the economic development front, the SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 105 Fiscal Stability & Intergovernmental Cooperation Economic Stimulus Program has been up and running for somewhere, I believe, in the neighborhood of about four years or so. Has any analysis been done to make any determination for the jobs that the Administration believes that have been created? Has any analysis been done of what that work force looks like or represents or how many of the people in the newly-created jobs are, in fact, Philadelphians, people living in the City of Philadelphia, who have had the opportunity to get those new jobs, as the figures seem to indicate, have been created by the Economic Stimulus Program?

For a point of clarification, I assume that you're talking about the 42,000 jobs that are listed as either -- that are listed as impacted under the terms of the Economic Stimulus Program.

Yes.

To the best of my knowledge, there has been no such analysis in terms of, you know, where those people come from, were they in New Jersey, were they elsewhere in the nation before they came to Philadelphia. SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 106 Fiscal Stability & Intergovernmental Cooperation In the Economic Stimulus Program, when they're calculating that figure, when they're arriving at that number of 42,000, they include all jobs impacted under the auspices of the Economic Stimulus Program.

Right, I know that.

So it can include both new jobs created, and it can also include jobs that are retained through the efforts of the City. But I'll talk to the Commerce Department and see if we can somehow disaggregate the numbers, to try to come up with that information.

And have you done any analysis of the impact of all of the cuts over the past few years in the wage tax or business tax as it relates to either new-job creation, or any other impact other than people having a few extra dollars in their pocket?

It was my understanding -- to answer your question, the short answer to your question is no. 24 But that being said, I spoke with Bob Inman, who is an economist with the Wharton SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 107 Fiscal Stability & Intergovernmental Cooperation School, who frequently works with the City on a variety of economic matters. And Bob has done -- Dr. Inman has done some very detailed, elaborate analyses of the impact of the City's wage tax and tax structure. And I spoke with Bob within the last 8 months. And at that point, he indicated to me 9 that he thought it was premature, and it would be 10 very difficult to make that kind of a linear 11 correlation between the incremental tax reductions 12 that have taken place to date and improvement in the City's job base. But I will -- I will talk to Dr. Inman and see if such an analysis could be done.

Well, I mean, it would be nice to know what if any impact all these tax cuts have had. I mean, they are touted as -- I mean, I assume we're doing it for a reason.

Right. I think the one big, appreciable thing -- and, again, this is not empirically based, but there's a sense that we're headed in the right direction. Businesses know that the Council and the Administration are whittling away at an oppressive tax structure SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 108 Fiscal Stability & Intergovernmental Cooperation that's been in place for 40 years. In terms of actually drawing a linear correlation between the tax reductions and jobs, we have anecdotal evidence. But just trying to grasp the empirical evidence is complicated by the factor that there's so many other considerations in terms of whether a job stays or goes. Certainly, taxes are an important determinant, and taxes are an especially important determinant in a City like Philadelphia. But it's very difficult to sort of get those other variables out of the equation, to clear up the static. But we will look into that, Councilman.

Well, I understand that, and I'll just close with this statement. I mean you have -- the Administration has used Dr. Inman's work. I've talked to Dr. Inman also. And previous five-year plans heavily quote his work on the oppressive nature of the wage tax and that it has resulted in the loss of jobs.

Right. That's the other side of the equation.

And the average SELECT COMMITTEE FISCAL STABILITY & INTERGOVT'L COOPERATION 109 Fiscal Stability & Intergovernmental Cooperation thinking person has to assume that if the doctor takes the position that the wage tax, at whatever level it was, resulted in the loss of jobs.

Right.