COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE ON FINANCE - - - Room 696, City Hall Philadelphia, Pennsylvania Tuesday, May 27, 2003 10:23 a.m. - - - BILL 030251 - An Ordinance amending Chapter 19-1800 of the Philadelphia Code... BILL 030335 - An Ordinance authorizing the Commissioner of Public Property of the City of Philadelphia... BILL 030373 - An ordinance constituting the Fifth Supplemental Ordinance to the Amended and Restated General Airport Revenue Bond Ordinance... BILL 030377 - An Ordinance authorizing the Commissioner of Public Property and Director of Commerce, on behalf of the City of Philadelphia, to exercise the City's option under a Lease Agreement to acquire all right, title and interest of the Philadelphia Parking Authority... BILL 030397 - An Ordinance authorizing the Commissioner of Public Property to enter into a series of transactions whereby the City of Philadelphia ("City") would: (a) sell to the Philadelphia Authority for Industrial Development ("PAID") a certain City-owned building located at 1901 Vine Street ("Free Library Building")... - - - PRESENT: COUNCILWOMAN JANNIE BLACKWELL, Chair COUNCILWOMAN MARIAN B. TASCO, Vice Chair COUNCILMAN DAVID COHEN COUNCILMAN FRANK DICICCO COUNCILMAN JAMES KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN O'NEILL COUNCILMAN ANGEL ORTIZ I N D E X BILL 030251 NANCY KAMMERDEINER, Revenue Commissioner .... BILL 030397 COREY KEMP, City Treasurer .................. 21 KEN SIPOS, Department of Public Property .... 23 RICHARD GROSS, BW Realty Associates ......... 25 ELLIOTT SHELKROT, Free Library .............. 30 JANICE DAVIS, Director of Finance ........... 39 HENRY SCHWARTZ, Law Department .............. 80 ANN MARIE WILLIAMS, Acorn .................. 102 BILL 030335 COREY KEMP, City Treasurer ................. 110 KEN SIPOS, Department of Public Property ... 112 BILLS 030373, 030377 COREY KEMP, City Treasurer ................. 120 KEN SIPOS, Department of Public Property ... 122 FRANCOIS DUTCHIE, Law Department............ 123 CHARLES ISDELL, Director of Aviation ....... 131 EDWARD ANASTASI, Deputy Director of Aviation 158 JOSEPH EGAN, Philadelphia Parking Authority.. 210 WILLIAM B. MOORE, Phila. Parking Authority .. 212 3 05/27/03 - FINANCE - BILL 030251
We'd like to begin our Finance hearing. There are several Bills on the Calendar today. We will start with Bill No. 5 030251, and we will ask the Clerk to read the title of the Bill. Let me note for the record that we have a quorum present. To my right is Vice Chair of the Committee, Councilwoman Tasco. Councilman Nutter is here. Councilman Kenney is here. And Councilman DiCicco is here. So we have a quorum and we will begin our hearing. We'll ask again for the Clerk to read the title of Bill No. 030251. This is a Bill that places a cap on certain tax increases as it relates to the School District.
Bill No. 030251, an Ordinance amending Chapter 19-1800 of the Philadelphia Code, entitled "School Tax Authorization," by adding a new Section 19-1801.1 providing for a cap on tax increases, under certain terms and conditions.
Thank you very much. We would ask the Revenue Commissioner, 4 05/27/03 - FINANCE - BILL 030251 Nancy Kammerdeiner, if she would come forward and begin her testimony. Good morning. Thank you very much.
Good morning. Did you get copies of my testimony? If not, I have some here.
Good morning, Councilwoman Blackwell and Members of the Committee on Finance. I'm Nancy Kammerdeiner, Revenue Commissioner, and I'm pleased to be with you today to present testimony regarding Bill No. 030251. 1 that would place a cap on tax increases. This amendment would apply to the School District portion of the real estate tax and would require that the increase in tax levied on real property would not be greater than 104 percent of the prior year's tax levy, provided that the property is owned by the same person as it was at the time of the tax levy the previous year. 5 05/27/03 - FINANCE - BILL 030251 Increases that result solely from the construction of new buildings or structures or to new improvements made to existing structures would not be covered by this cap. It is also to apply to any tax authorized by the Board of Education, regardless of whether authorized by Ordinance of City Council. If approved, this Ordinance would be effective on July 1st, 2003. This Bill would affect revenue for the School District. As a result, the maintenance of effort requirements of Act 46 must be considered. Under Act 46, the City is precluded from reducing its tax authorization to the District below the level of authorization granted at any time during the period of distress. As the City Solicitor stated in his memorandum to this Council on September 24th, 2002, when he addressed other real estate cap Bills, and I quote, "My understanding of Act 46 is not that the General Assembly wished to obligate the City to maintain the same precise level of tax support, but rather, the same level of tax effort. " The concern raised by the City Solicitor regarding a cap on the assessment would apply even more strongly for a cap on the tax levy itself. Note that Act 46 states in part, and again I quote, "All taxes authorized to be levied by a School District of the first class or for a School District of the first class by a city or county of the first class on the date of declaration of distress shall continue to be authorized and levied in accordance with this Act and shall be transmitted to the School District. " That's the end of the citation. Furthermore, the provisions of the Bill 23 are to apply to any tax levied by the Board of Education, even if they have not been authorized by City Council. 7 05/27/03 - FINANCE - BILL 030251 The Solicitor advised you in his September 24th memorandum that, and again I quote, "Council and City can control the methods of collection and enforcement of this tax, including the imposition of penalties and interest, but Council has no authority to control the rate or the assessment base upon which that rate is imposed, to the extent a tax is authorized directly by the General Assembly. " 14 That situation has not changed. And 15 this opinion would apply to Bill 030251, just as it 16 did to the Bills that led to the Solicitor's opinion 17 last fall. 18 You might say that the City should make 19 up any shortfall in funding for the School District 20 in order to eliminate the Act 46 issues. 96 million, if it had been in effect in Fiscal '03. Having the City make up a loss of this magnitude is not an 8 05/27/03 - FINANCE - BILL 030251 option. I remind you of all of the fiscal pressures facing the City in the FY '04 Budget and the Five-Year Plan that are awaiting your final approval. I will not enumerate them all here, but will just remind you that we have had to face unexpected fiscal challenges, including the impact of the fire fighters' award and the reductions in the State Budget that resulted in cuts over $85 million in direct financial support to Philadelphia. We are still seeking to have the State cuts restored, but if they are not, drastic changes will be needed in the budget and services in FY '04 and beyond. Other measures pending before the State Legislature could diminish the City's revenues without compensation and further threaten the City's ability to provide services.
All of this comes at a time when future revenues are curtailed, both by weak regional and national economies and by legislation that triggers further reductions in wage tax rates. Moreover, Act 46 does not allow the City to reduce its real estate tax effort, but make it up 9 05/27/03 - FINANCE - BILL 030251 to the District through alternative funding mechanisms. Act 46 requires that the City maintain its real estate tax effort for the School District, regardless of any additional funding the City may provide. I also remind you that the Tax Reform Commission has been hard at work reviewing City taxes and gathering information on all of the taxes, including real estate tax. To make yet other change in the tax structure before the Commission has had an opportunity to develop recommendations and to make their report will further constrain the options that they are able to consider and to report to you. I would be remiss if I did not also comment on the administrative difficulties we will face in implementing this Bill, if it is enacted. First, this measure affects only the School District portion of the real estate tax. This complicates the calculation of the tax bill and will make it difficult for taxpayers to understand the bills they are being asked to pay, even if State enabling legislation is approved that permits the implementation of Bill 020577 with a 4 percent cap on the City portion of the tax. And that's the Bill 10 05/27/03 - FINANCE - BILL 030251 that was approved by this Council and became law last fall, but is pending State enabling legislation. There are differences between the caps that would be imposed under that Bill and the Bill 7 before you today that would keep the calculations separate from properties with assessment increases that result from new construction or improvements. In addition, the relationship between the assessed value of a property and the tax levy for that property will diverge over time, especially in areas of the City where there are multiple years of assessment increases that are in excess of the 4 percent cap on the increase in the tax levy. This will make the basis for calculation of the tax difficult to explain in a way that taxpayers can understand and can then calculate themselves. For all of these reasons, we cannot support Bill 030251. This concludes my testimony, and I'll be happy to answer any questions.
Thank you very much. Councilman Nutter. 11 05/27/03 - FINANCE - BILL 030251
Thank you, Madam Chair. Ms. Kammerdeiner, good morning.
The Chair also notes that Councilman Ortiz is here. And Councilman O'Neill is here, who is a Member of this Committee and sponsor of this Bill. Councilman Nutter.
Thank you, Madam Chair. Commissioner, tell me, from your perspective, is there any difference between this Bill, 030251 -- and I believe Councilman O'Neill introduced a school tax cap Bill last year which -- can you hold on for one second, please? Commissioner, I'm sorry. Tell me from your standpoint, is there any difference between this Bill and a previous version of this Bill that, I believe, was introduced last year? This is in essence a 4 percent cap on the School District portion of the real estate tax; is that correct?
That's correct. 12 05/27/03 - FINANCE - BILL 030251 It's my understanding that the previous Bill that you referenced did not have the exclusion for properties or increases in assessment that were due to new construction and/or to improvements on a property, that it only had the clause about the same owner.
Not that I'm recalling off the top of my head. But I'd have to go back and really compare them directly to be sure.
What was your testimony at that time on that particular Bill?
I believe it was very similar to today's in that the School portion of the tax was a problem in terms of Act 46, and that there was difficulty there in terms of this being in violation of Act 46. I don't have that testimony with me. I was just checking to see if I did, but I don't have that with me today.
Well, the best I can figure, just about everything we do around here is some possible violation of Act 46. So I think for 13 05/27/03 - FINANCE - BILL 030397 consistency purposes, we'll probably go ahead and approve it.
And the testimony today references the Solicitor's opinion from September of '02, and that would have been the basis of my testimony at that time.
Now, I believe Councilman O'Neill also introduced a 4 percent cap on the City portion of the real estate tax last year; is that correct?
I'm not certain. That may have been one of the ones that came out unanimously. There were several votes that were unanimous or nearly so at that time.
It was 17-nothing. And do you remember what happened with that Bill?
The Mayor did not sign it, but he did not veto it so it became law without his signature, awaiting State enabling legislation. And it's in that same status today. 14 05/27/03 - FINANCE - BILL 030397
So you testified, though, in opposition to that Bill, but the Mayor allowed it to be law without his signature; is that correct?
Let's talk about Act 46. You quoted from the statute, although it's not the full statute here, you say that "The tax authorized by the city or county to be levied for the School District or dedicated to the School District shall be a" -- and then there's words that are missing -- "tax not less than the highest amount authorized by the city or county to be levied for the School District or dedicated to the School District during any of the three full preceding Fiscal Years." If we had the full text of the statute here, would that tell us that we can't lower our tax rates, or does that mean we cannot lower the tax effort, which I think is defined as the total amount of tax revenue? Which is it?
It's my understanding -- and I'm basing this on the Solicitor's opinion and some further conversation with one of the staff 15 05/27/03 - FINANCE - BILL 030397 in the Solicitor's office -- that we need to maintain the tax rate, and that's considered to be the tax effort. That if we changed either the assessment on which the tax was based or the way the tax would be levied, that that would be in violation of Act 46. The resulting dollar amount could be different because --
It could be more, it could be less, depending upon the --
So you're saying that if assessments went up by some astronomical amount -- and as we've engaged in this process, we know that we've not changed our tax rates since 1991. So assessments could go up by some astronomical amount, generating an equally incredible astronomical amount of real estate tax for both the City and the School District. And you're saying because of Act 46, even under that circumstance of sending even more money over to the District -- and I'm a big School District supporter -- the City would not be able to lower its tax rates, even if the lowering of the tax rate times 16 05/27/03 - FINANCE - BILL 030397 the total assessed value of the City real estate, would generate more money for the School District? You're saying that by Act 46, we still cannot lower our tax rates even if we send more money over to the District? Is that your testimony?
Yes, it is. I have not personally studied Act 46. I'm basing this on the Solicitor's opinion and my understanding of that. But that is my understanding of it, at this point, that we would have to go back to the State for an exception to Act 46 if we wanted to do something other than maintain the level of effort, which is understood at this point to be the level of tax rate using the same formula as we used during the three-year period prior to the Declaration of Distress.
Well, at a House Urban Affairs Committee hearing just a couple weeks ago attended by Councilman O'Neill, Councilman DiCicco, Councilman Rizzo and myself, there was an extensive amount of discussion about this issue of tax rates, total assessed value, and the interest by many of the members of the General Assembly in the concept at least that most other municipalities or 17 05/27/03 - FINANCE - BILL 030397 many others engage in, which is as you're assessed, the total amount of assessment goes up. There is some corresponding decrease in the amount of your tax rates so that you generate what you had anticipated that you would generate. Your testimony is that we would not be able to do that because of Act 46?
Yes. Unless the State Legislature gave us authority to do that. Because the cap on us as a result of Act 46 would come from the Legislature and, therefore, the Legislature would have to give us the authority to act otherwise.
Okay. Last question. What about any other funds that we send over? You indicated that the City could possibly make up some difference or send money over to the District. Or what about any grants that we give to the District; do they get captured by Act 46, as well?
Yes. If they were there before the Declaration of Distress, they need to be there after the Declaration of Distress, as I understand it. 18 05/27/03 - FINANCE - BILL 030397 My reference in the testimony to the City making up the shortfall here was intended to reference what I hear a number of other people indicating, that if we change money from one place to another, the City would have to pay for it. And according to what I was advised by the Solicitor's Office, Act 46 would not allow us to reduce the real estate tax effort and make it up through other funds that were transferred to the School District.
The reason I remember your testimony late last year wasn't the length and breadth of it, but the discussion -- and it may have come from the Law Department in the testimony -- that a 4 percent cap was the equivalent of a freeze. And we had a little fun with that.
Let me tell you, that Bill hit a tie vote at 8-8. It didn't have the 19 05/27/03 - FINANCE - BILL 030397 required 9. But I thought it had a major flaw, that it didn't specify whether the FY '03 collections due to BRT increases would be saved or held safe -- because they were very large -- over and above budget. And so the cries of the School District and others, that they would be decimated if a 4 percent cap was placed during FY '03 that might be retroactive would be a terrible thing. So the other change -- you recognized one. The other change is that this Bill makes it clear that the effective date, if State authorization followed, could be no sooner than July 1st, 2003.
I didn't stress that again, but in the initial testimony I indicated the effective date, which would, of course, be a later effective date than the prior Bill had.
Right. Which holds sacred this avalanche of assessment increase money that comes in. That's all I wanted to say. I realize that Act 46 is there. The State Legislature would have to deal with that, as well as the BRT legislation in Harrisburg. I think if they were willing to amend one, they would 20 05/27/03 - FINANCE - BILL 030397 obviously be willing to amend the other to accomplish their purpose. They haven't indicated that they're willing to do it yet, but we certainly have got a receptive year from them to try to help us with this problem. Thank you.
Are there further questions with regard to this Bill? (No response.)
Thank you very much, Commissioner. Next we're going to deal with the Bill 15 on libraries, Bill No. 030397. We'll ask the Clerk to read the title of the Bill.
Bill 030397, an Ordinance 18 authorizing the Commissioner of Public Property to enter into a series of transactions whereby the City of Philadelphia would: (a), sell to the Philadelphia Authority for Industrial Development a certain City-owned building located at 1901 Vine Street provided that PAID re-sells the Free Library Building to a certain third party or parties; (b) lease from PAID the Free Library Building upon 21 05/27/03 - FINANCE - BILL 030397 PAID's lease of the building to a certain third party or parties; (c) lease to PAID the land bounded by 19th Street, Vine Street, 20th Street and the former Wood Street, ("Free Library Land"), provided that PAID leases the Free Library Land to a certain third party or parties; and (d), lease from PAID the Free Library Land upon PAID's lease of the land from a certain third party or parties; all under certain terms and conditions.
Thank you very much. The first witness is Corey Kemp, our City Treasurer. Would you identify yourself and begin your testimony? Thank you.
Good morning, Chairwoman Blackwell and Members of the Committee on Finance. I am Corey Kemp, City Treasurer for the City of Philadelphia. With me is Ken Sipos from the Department of Public Property, and also here is Rick Gross to answer questions on this topic. I'm here to testify on behalf of Bill No. 030397. Council Bill 030397 will authorize the Commissioner of Public Property to sell to the Philadelphia Authority for Industrial Development, 22 05/27/03 - FINANCE - BILL 030397 PAID, the Free Library Building located at 1901 Vine Street, provided that PAID re-sells to a third party or parties for not less than $60 million. Council Bill 030397 will also authorize the Commissioner of Public Property to lease from PAID the Free Library Building upon PAID's lease of the building from a third party or parties. The City, through PAID, will pay an amount not to exceed $5,500,000 annually for the lease of the Free Library for the first years. 12 Finally, Council Bill 030397 authorizes 13 the Commissioner of Public Property to lease to PAID 14 for 65 years the land bounded by 19th Street, Vine 15 Street, 20th Street and the former Wood Street, 16 called the Free Library Land, provided that PAID 17 leases the Free Library to a third party or parties. 18 Passage of 030397 will give the City the 19 authorization to proceed with a sales lease-back 20 transaction of the Free Library Building. This transaction will result in approximately a $60 million cash payment to the City. The City contemplates using the money to fund programs which were mentioned in the Mayor's Budget Address, including $5 million for the Child Care Health and 23 05/27/03 - FINANCE - BILL 030397 Safety, $30 million for Free Library expansion, and $25 million for school-based facilities improvements. This concludes my testimony, and I'll be happy to answer any questions you have on this matter. I would also like to request a suspension of Rules for this Ordinance.
Thank you very much. We'd like to continue with our testimony and then ask questions.
Good morning, Chairwoman Blackwell and Members of the Committee on Finance. My name is Ken Sipos from the Department of Public Property. I'm testifying on behalf of Andres Perez, Jr., Commissioner of Public Property. I'm here to testify in support of Bill 18 No. 030397, an Ordinance authorizing the Commissioner of Public Property to enter into a series of transactions, whereby the City would sell to the Philadelphia Authority for Industrial Development a certain City-owned building located at 1901 Vine Street, Free Library Building, provided PAID re-sells the Free Library Building to a certain third party or parties; lease from PAID the Free 24 05/27/03 - FINANCE - BILL 030397 Library Building upon PAID's lease of the building from a third party or parties; lease to PAID the land bounded by 19th Street, Vine Street, 20th Street and the former Wood Street, Free Library Land, provided that PAID leases the Free Library Land to a certain third party or parties; lease from PAID the Free Library Land upon PAID's lease of the land from a certain third party or parties; all under certain terms and conditions. This Bill will enable the City, through PAID, to raise $60 million to expand and improve the library. The library building will revert to the City at end of the term. The City will own the land under the building. Department of Public Property supports the measure, and accordingly, I respectfully ask that City Council Committee on Finance approve Bill 19 No. 030397. I also ask that the Rules be suspended so the Ordinance may be passed upon the second reading at Council. Thank you. I'll be happy to answer any questions you may have.
Thank you very much. 25 05/27/03 - FINANCE - BILL 030397 I assume we're now ready for questions.
I'm certain that the Administration, along with BW Realty, discussed a preliminary valuation of the Free Library. How did we come up with the value of $60 million for our library? And how did we choose BW Realty in that regard?
Good morning, Madam Chairwoman. I'm Richard Gross. I'm the President of BW Realty Associates. I'm pleased to be here to answer your questions. With regard to the valuation, there was a preliminary assessment done by us with a local appraiser to determine both the size of the library, a per square foot valuation, and a comparable valuation for buildings similarly situated, both in Philadelphia and other cities. There is a range, of course, Madam Chairwoman, for any building, but we're comfortable that no less than $60,600,000 will be established as its valuation. This discussion between BW Realty and the City Finance Department has been going on for almost a year. When we approached them to suggest 05/27/03 - FINANCE - BILL 030397 that, at a time when additional taxes in debt may not be advisable, our method of financing municipal real estate may be interesting to the City. I believe the City Treasurer and the Director of Finance had an extensive opportunity to review the model with us and made a preliminary selection that this is what they wanted to use the model for. It has been under discussion for well over a year until today.
It's my understanding that the purchasers are investors comprised of lenders and individual equity investors. Will we ever know who the actual investors are when this transaction is completed? Could these investors sell their interests to third parties? If so, what protection does the City have from investors selling their interests two, three, four or five times over?
You will, of course, know who the investors are. The entire transaction will be transparent to the City, and you will have an opportunity to reasonably approve those investors. The debt investors will be institutions, large insurance companies is my expectation. The 27 05/27/03 - FINANCE - BILL 030397 equity investors will not be individuals, Madam Chairwoman. They will be, however, corporations interested in the tax advantages of ownership of real estate. Their identities will be known to the City prior to closing. It is true that, under certain circumstances, either the debt or the equity investors could transfer their interests, but that transfer would also be reasonably approved by the City, so you'd have an opportunity to see to whom they were transferring. However, I would not expect that the equity or debt investors would have much interest in transferring, because the transaction has a 20-year life, and the benefits are calculated over years. So I wouldn't expect it to be the 17 normal course that the investors would change in the 18 first 20 years. 19
Thank you. 20 I noticed on Exhibit A, which is the term sheet for the building lease, the language, "Rent is intended to be triple net." What does triple net mean?
Triple net means that it's net of all operating expenses, taxes and other 28 05/27/03 - FINANCE - BILL 030397 maintenance liabilities, that is to the extent that the City is currently maintaining the building, self-insuring it and it is not subject to taxes. The same will remain the case after the transaction. It is intended that the transaction be seamless to both the users of the library and to the City, so that no change in operation is forecast as a result of this. It's simply intended to be a seamless financing to the benefit of the City.
With respect to Exhibit B, which is the term sheet for ground lease, why is the lease at 65 years and not years? Is 14 the Administration intending to renew this 15 transaction? Can you explain the terms of the 16 ground lease? 17
The reason that the ground 18 lease is 65 years, Madam Chairwoman, is that the 19 owners -- the investors need to be seen for income 20 tax purposes as owners of this real estate. That is, the bricks and mortar will be owned by them, although at all times the City will retain ownership of the ground to protect the City's ultimate residual interest. Because there is a division between 29 05/27/03 - FINANCE - BILL 030397 ground ownership and building ownership, our tax advisors advise that a 65-year lease would be a comfortable term for the investors to receive tax opinions that they are the owners, subject to the ground lease, of the bricks and mortar containing the building. If it were a shorter period of time, it would be difficult to get the appropriate tax assurances and difficult to find investors at the inexpensive price. It is intended that after years, 12 given the way the ground lease works, that the 13 investors will surrender their interest in the 14 building and the residual term back to the City. 15 And although the City, I am certain, would intend to 16 renew the lease, if that were not the case the City 17 would have about $78 million in cash from the 18 investors in order to pay for the renewal. 19 So while I understand the City would in 20 all intents expect to renew the lease, the transaction is structured as though the investors would surrender on the 20th year.
Thank you. Questions? Councilman Nutter. 30 05/27/03 - FINANCE - BILL 030397
Thank you, Madam Chair. I'd like to start with a little bit of background information, which I'd actually like to get from the library. So I need a library person to come up.
Good morning. I'm Elliott Shelkrot. I'm President and Director of the Free Library.
Mr. Shelkrot, just give us a little bit of background information. The premises at 1901 Vine Street are generally known as what?
It was started in -- I believe it was 1919 is when they first broke ground.
I don't know the construction company. I know that the architect was 31 05/27/03 - FINANCE - BILL 030397 Lawrence Trumbauer (ph). I know that he and his firm were the designers of the building. But beyond that, I don't have the rest of that information.
It's my recollection that it was about $5 million at that time.
It was indeed. Let me just say for the record that I'm pulling that number from memory. I can get that exact number for you, if you'd like it.
No, not by a long shot. The Free Library was created initially in 1891. And even at that time, it was not the first library or the first free public library.
Well, we know that. 32 05/27/03 - FINANCE - BILL 030397 Part of the discussion here today is regarding the proposed expansion of the library. What's the total cost of that expansion project?
What we're talking about is a renovation of the existing building and expansion. The total cost will be between 100 and $120 million.
In a fund-raising project for the Central Library, just as was true when we used public and private money to renovate the branches, the first commitment that we need is from the City, as it's a City-owned building. And when we did the branch renovations, which are nearly complete now, the first commitment there was from the City for the renovations. And the reason for that is, is that donors, as well as the state and federal government, want to know that the City is fully behind it and committed financially to the renovation and expansion.
No, that isn't entirely 33 05/27/03 - FINANCE - BILL 030397 true. There have been pledges of over a million dollars and expenditures already, up to about a million dollars from private money that has been spent on it. So I think you can safely say that between commitments and expenditures, $2 million has been raised.
So you've raised $2 million so far on a 100 to $120 million project. Presently you have no commitment from the City or any other major funding source, whether it's another government or foundation?
That is correct. But please understand that in the discussions that we have had -- there are no commitments, but in the discussion that we have had, it has been made very clear that -- I mean, the question is always, well, what is the City's participation in this? So that in essence has prevented the conversation to go any further.
It can be a little stifling. What was the total amount of the branch renovations project? Was that a big change?
Yes, that was a big 34 05/27/03 - FINANCE - BILL 030397 change campaign.
There were 50 library branches and regional libraries that were renovated in that program. There are three that are now under construction because they required major construction efforts. The total cost of the 50 -- not the remaining three -- the total cost of the 50 was $65 million. The remaining three would bring the total up to over $70 million.
Twenty-five initially, and then an additional $6 million, so it was 31.
Of the 100 to $120 million for the renovation and expansion project, what is your expectation from the City? What were you hoping to raise? 35 05/27/03 - FINANCE - BILL 030397
Our expectation from the City would be this $30 million. The rest of the money would be from state and federal sources and a major campaign with the private sector, which will raise over $40 million, and perhaps considerably more than that.
How long do you expect the renovation and expansion project to take?
Renovation and expansion from initial ground-breaking to completion would be three-and-a-half-years.
Were there ever any discussions about other financing mechanisms that would allow the City to put $30 million into the renovation and expansion project?
As you know, the Finance Director is the entity that works on the financing of City projects. Initially, we're hoping it would come out of the City's Capital Budget, but that is not an option at this time, I have been told. This is the mechanism that the Finance Department 36 05/27/03 - FINANCE - BILL 030397 mentioned to us would work for this project. So I don't know if there are other financing options that the Finance Director has explored.
Now, which matters to you more, the $30 million or the financing mechanism that gets you the $30 million?
Without a doubt, from the Library's point of view, it's the $30 million so that we can then move on raising the other money so that we can get to the renovation and building program.
So other than theft or grand larceny, you'll take it any way you can get it, right?
Any legal way. So let me say that any legal way for this to happen would be fine with us.
Okay. Thank you. Those are all the library-related questions I have, Madam Chair. I naturally have some finance transaction questions, but there may be others who have questions. I just wanted to get a little background on the library side. I have other questions about the actual transaction. 37 05/27/03 - FINANCE - BILL 030397
Let me ask you a question. In the testimony it does say -- and I think Michael may have asked this question -- it says, $30 million for the Free Library expansion. Do you have a guarantee that you'll receive that money?
No, I don't have a guarantee, other than the commitment of the Mayor in his address to City Council in January.
Has there been any discussion with the Library Board about this $30 million?
There's been a great deal of discussion and pleasure that the $30 million would be obtained. We have on our own, through the Library Foundation's legal counsel, explored that process because it was a very new one to me and to members of the board, and we have been assured that this is an appropriate, to my understanding, mechanism that has been used in other cities and other locales for other projects. But it is a 38 05/27/03 - FINANCE - BILL 030397 process that the City would go through that would make this funding available.
Well, yes. We need the money so that we can go to others and say, this City is serious. This is a City facility and the City wants this to happen and the City is putting its own resources into making sure that this happens. And that's why the money is absolutely required. We are preparing to go into an architect selection process. We have the funding from one of the foundations to undertake that process. We also have funding to undertake what's called a feasibility study in fund-raising language, and that too is ready to go. We are completely stymied. We're dead in the water, so to speak, if we do not have this, because that's the first question that comes out of anybody's mouth when we go to talk to them about money for the Central Library renovation and expansion. That was also true with the branch renovation program. And until the City committed money to that, we couldn't go forward and raise any 39 05/27/03 - FINANCE - BILL 030397 of the money, let alone begin any project and design work.
How much money did we commit to the branch expansion?
Initially, it was 25. But it has gone up to about 31 now with the additional branch work that needed to be done.
Could this process be done through the City Capital Budget?
You will have to talk to the Finance Director about that. I have been told -- and from what I read in the paper -- that is not possible at this time.
Janice Davis, Director of Finance. The amount of capacity we have under our tax exempt borrowing was too limited to provide $30 million at one point to the Library, and that's why we chose the different mechanism.
What is our 40 05/27/03 - FINANCE - BILL 030397 borrowing capacity this year?
This year we're going to borrow several years at one point. But we're looking at a Capital Program that's $90 million, soon to decline to $70, and then $55, and then we eventually run out. We'll only be able to issue the amount that we retire in debt each year. I think our overall capacity may be at $200 million max.
Thank you. I'm sorry. The gentleman's name, is that Mr. Gross?
Were these the 41 05/27/03 - FINANCE - BILL 030397 documents that we had discussed at the briefing the other day which were not available, these exhibits?
I'd only mention to you for the record that in looking at the Bill, 397, there does not appear to be a place for these exhibits or any reference made directly to the exhibits, but you can worry about that later. On Exhibit A, the Chair raised the question earlier, you have a lease term which you refer to as an initial term of years. But then 15 you have these extension options to go for another 16 45, with a total term of 65. Who would decide to 17 extend this term beyond the 20 years? Who makes 18 that decision? 19
The existing tenant would 20 make the decision. I believe the City of Philadelphia, unless it delegates it to another entity, such as the Library Board. But it would be the tenant's option. And the ultimate tenant, under the way it was structured, is intended to be the City. 42 05/27/03 - FINANCE - BILL 030397
On Exhibit A, under permitted use, it reads "The Free Library Building may be used as a public library or for any other lawful purpose, including subleasing the Free Library to another entity." What does that mean? Is there a proposal to not have it function as a library?
None that I'm aware of. But in drafting the terms of this exhibit, the Law Department wanted to be sure that the City would have maximum flexibility to use the building, and that nothing in the financing would restrict it. This is that clause that allows the City such flexibility, as it has today.
Let me make sure that I'm understanding this correctly. For the rent, the initial term, it reads that "It's an amount not to exceed $5,500,000 per year to be paid in fixed quarterly installments. Rent is intended to be triple net, with the City paying all operating and capital expenses for the Free Library Building without set-off or reduction." What do you estimate to be the total operating and capital cost for the building over 43 05/27/03 - FINANCE - BILL 030397 that 20-year period, and then including the rent?
The rent will not change, Councilmember. So the $5,500,000, or whatever number less than that is finally fixed --
I was going to say, at the moment we don't know what that rent is going to be.
We don't know what that is. But if you assume it's no more than $5,500,000, that's all you're asked to authorize. Then that's the only money that will transfer from City hands to private hands.
The other expenses, which currently are -- whatever it costs to maintain and heat and chill the building will continue on the City's nickel. Whatever the City is currently paying or the Library Corporation is currently paying will continue unabated. The capital expenses have already been discussed. Those capital expenses would include whatever money will be spent to renovate the building in the course of the 20 years. None of that will affect the rent. None of that will be 44 05/27/03 - FINANCE - BILL 030397 paid for, except out of the $60 million, or the 30 that gets transferred. And the rent itself will not vary from year to year or quarter to quarter for 5 years. 6
In its simplest 7 terms, this is in essence a transaction where you 8 give us $60 million up front. We pay over the 9 20-year period, excluding the operating and capital 10 costs, for a total of upwards of $110 million; is 11 that correct? 12
On the second page, 14 am I understanding that under this transaction, at 15 least as this reads, "During the initial term, the 16 City will be obligated to pay any applicable real 17 estate taxes related to the Free Library Building," 18 what does that mean? 19
It is possible, as I 20 understand it, that there may be some real estate tax that the City itself is not able to discharge. The land will retain public ownership. The use of the building will retain public ownership characteristics. Under those circumstances, it is my understanding that it is not subject to real 45 05/27/03 - FINANCE - BILL 030397 estate tax in Philadelphia. But if it were, that expense would be the City's, and not the investor's.
Well, first you said that we were not obligated, then you said, if we were. Under what circumstances would the City in essence end up paying real estate taxes to itself?
Dream with us. What do you mean, it's hard to imagine?
It's hard to imagine because the City is the taxing authority, at least as I understand it.
So that the City could decide to move money from one pocket to another, I suppose.
That's not the question. The question is, why would we have to pay real estate taxes in the first place?
There shouldn't be a circumstance under which you do, but 20 years is a long time. The intention is to make it clear to you 46 05/27/03 - FINANCE - BILL 030397 that if real estate law changed in some way other than it is today, this is not a change that its risk borne by the investor. This change, which ought to be in the control of the City or the City Council --
The investors are the owners of the building, aren't they?
They're the owner of the building on a triple net basis. I believe I answered the Chairwoman's question. And one of the of the items that's triple net to the tenant in this instance is real tax. That's my understanding of a triple net definition.
Well, doesn't the owner of the property usually pay the real estate taxes?
In triple net situations, the owners do not pay. They pass it along to their tenants.
Councilman, there could possibly be a scenario under which we would incorporate, I guess, some non-public purpose in the building, if we were to sublease space to someone for a coffee shop or something, I don't know. Under that scenario, their would be real estate taxes due, 47 05/27/03 - FINANCE - BILL 030397 and then it would be the responsibility of the City. And this provision it the term sheet just opens it to the broadest. We're not intending to open a coffee shop in the Free Library at this point, but years is a long time. And, you know, we might 7 have to compete with Starbucks and Borders Book 8 Stores or something. 9
Well, I'm not a 10 coffee drinker, but people might find that 11 interesting. 12
Give a little Green 14 Tea or something, read a book. 15 Under that scenario, since we're now in 16 the realm of the completely esoteric, what's the 17 value of the building? How will the BRT value the 18 building for real estate tax purposes? I'd love to 19 be at that hearing. 20
Or whatever the final appraisal comes in at. Because the $60 million is 48 05/27/03 - FINANCE - BILL 030397 not the final appraisal.
Before we go to closing. That's what the value will be set on.
So it would be that number times .32 times .08234, and that would be the --
You're going to keep every possible caveat disclaimer you can in this hearing, aren't you?
No. What I'm trying to do is be sure that before you vote you understand fully what the transaction is.
That's a novel concept. On destruction or damage during the initial term, "The City will have an affirmative obligation to rebuild or repair the Free Library to a functionally equivalent condition, which would not be materially less than the fair market value of the 49 05/27/03 - FINANCE - BILL 030397 building prior to the damage or destruction." Notwithstanding this transaction, if something happens to the building, it's our responsibility to fix it. Is that what you're saying?
"Or, 2, pay the investor group a mutually agreeable termination fee calculated to retire the outstanding debt and pay the investor group its anticipated return during the initial term, had the damage or destruction not occurred." How much is that?
The loan would have been 45 percent advertised. The loan would probably be 50 or $45 million, so 65 percent of that left would be about $30 million, a little less. The investors would have received half of their cash return back, so about another 4 or $5 million would be necessary to them. And some may call for their lost profit 50 05/27/03 - FINANCE - BILL 030397 over the last years if the deal is being terminated early.
I would expect something at 7 about 35 or $40 million in the 10th year. 8
So let me understand 9 this. Something potentially tragic happens to our 10 Free Library Building, and at the end of the day we owe you $35 to $40 million, in addition to how to figure out how to fix the thing; is that what you're saying?
Not exactly. At the beginning, you have $60 million of the investors' money, with the obligation rent and repair of the building for years. 18
I think once they 19 transfer it to us, it's our money. 20
I assume that's correct. But you have the duty as a tenant to maintain the 51 05/27/03 - FINANCE - BILL 030397 building. You can discharge that duty by keeping the building maintained. Or you can decide that you want to change your mind and it isn't the deal you like anymore. But if you decide you want to change your mind, you already have the $60 million, so you've got to do something to make sure that they get the benefit of their bargain, because you've had the benefit of yours. It is intended to be mutually fair to both sides. Not one-sided at all, Councilman.
Well, the next paragraph is about insurance. "During the initial term, the City will have the right to self-insure against all liabilities associated with the Free Library Building." I guess one of the things I wondered here is, again, how do we insure a building that we don't own? How do we do that?
First of all, you're going to self-insure, as I understand it, because you do not go to the insurance markets to buy insurance on City property. But because you are the tenant of the property and the owner of the ground, my understanding from the Law Department is you will 52 05/27/03 - FINANCE - BILL 030397 continue to offer the self-insurance program that you have in place currently. It's almost like a sandwich. You remain in the ground. You have the tenancy, and in between, there's an equity owner. But because you have both the ground and the use, it is an insurable interest continued under your current program, as I understand it.
For your next presentation -- I won't do it -- but for your next presentation, under the circumstance, you may not want to use the sandwich analogy, because then we'd have to talk about what kind of sandwich it was and all that kind of stuff, and it's not going to help you.
On the last page, Miscellaneous. I'm just intrigued by this. "During the initial term, the City shall retain all additional revenue opportunities associated with the Free Library Building, including but not limited to, star tax credits, sponsorship, advertising revenue, naming rights." Are you familiar with or know of any 53 05/27/03 - FINANCE - BILL 030397 City plan to rename the Free Library building?
I do not. No one has discussed any with me. Certainly, my name is not going on it, nor is my company's name.
Well, I can you assure you of that. Where did that come from?
I don't have any idea if the City would over some time. But the Finance Director suggested that maybe a Starbucks or some other use might be there. This is intended to make sure that the City has maximum flexibility to utilize the building as it sees fit.
You're suggesting that -- what is it -- the Starbucks Free Library of Philadelphia?
I'm not making any such suggestion, Councilmember. I'm suggesting that 19 years is a long time. 20
What other transactions like this have you done? Give me some other locales and types of buildings.
The railroad station in Newark, New Jersey. Newark Penn Station found itself in a very similar circumstance several years 54 05/27/03 - FINANCE - BILL 030397 ago.
Just give me a list. I don't need to know the history.
The Newark Penn Station. The D.C. City Hall at 14th and Pennsylvania Avenue in Washington, D.C. The University of Hartford did dormitories with this mechanism. Those are three transactions that I have provided the City references with and which they have checked to conclude that we've concluded in this mechanism.
Well, since you mention the Washington situation, did you think about or has it been contemplated this type of transaction for our own City Hall here? It's got to be even more valuable than the Free Library. Why don't we sell City Hall?
I have discussed with Mr. Saidel his view, because he published a report that he thought the Washington transaction was a good model for Philadelphia's City Hall. There are some substantial issues associated with this City Hall that weren't in Washington, having to do with the use and the like, and it's a much more immense piece of property to deal with. 55 05/27/03 - FINANCE - BILL 030397
Well, no disrespect to D.C., but it's probably just a nicer building.
It should be a nicer building. It certainly has every opportunity. The historic character is wonderful, as you know. But it does need work, as you also know. And it needs maintenance money.
Why not Independence Hall? I think we own that as well. Where does it end?
Well, it is my view that there are some municipal buildings that, in an environment where there's limited capital capacity, could profit very well by the use of a private mechanism like this, because it is the next less expensive mechanism. There are some buildings that it's not appropriate for. In discussing this with Ms. Davis in her office, they concluded that this was an appropriate use. They excluded some other uses in our discussion over the last year.
Mr. Kemp, let me ask you a question. We did a big financing not too long ago for the two sports facilities in the sports complex. Now, my recollection of that transaction 56 05/27/03 - FINANCE - BILL 030397 is we actually floated bonds, I think, upwards of 300-million-some-odd dollars. We have a debt service obligation. That was done through PAID; is that correct?
Why wouldn't we just borrow $60 million through PAID, put a debt service payment in our General Fund budget and raise the $60 million and be done with it?
The reason we didn't go that route is that we were not looking at tax exempt bonds. It would be taxable. This offers us an opportunity to do a rate that's less than the taxable rate, 120 basis points over our tax exempt rate because we would not have been doing tax exempt bonds.
Why don't we put that in some numerical terms? Why don't you give us the difference between the tax exempt transaction and the taxable transaction, what we're talking about in terms of debt service and the like?
Would you clarify, the bonds that we are floating are going to be taxable?
But they'll be at a rate that's 120 basis points over our tax exempt rate. The taxable rate is higher than that.
But I think the Councilman asked, why are we not floating non-taxable bonds? Are non-taxable bonds cheaper or what?
The taxable bonds are more expensive. And so we're doing taxables, but we're doing taxables at a rate that is less than the taxable borrowing rate. The reason we're not doing tax exempt bonds, is that, number one, the transaction, the likely spend down on this transaction is not going to occur in such a fashion that 85 percent of the bonds would be expended in two years, which is one 58 05/27/03 - FINANCE - BILL 030335 of the requirements you run up against the arbitrage rules.
With tax exempt borrowing, IRS regulations require that 85 percent of your bonds proceeds be expended within months of your 9 issuance. Because of the timing of this borrowing 10 in order to allow the Library to use it as a 11 catalyst for additional fund-raising, these bonds 12 would not have been technically expended within that 13 24-month period. 14 The other piece is that there is a 15 $5 million piece that will be used as a revolving 16 loan fund. That also creates that same sort of 17 situation. It's not a tax exempt purpose in the 18 truest sense, and because of that, puts us into a 19 taxable market. 20
And to answer your question, 21 Councilman Nutter, a tax exempt rate in today's 22 market, you're looking at a 4.5 percent interest 23 rate. And again, we're looking at 120 basis points 24 at a maximum over the tax exempt rate. The numbers that we've shown -- go ahead. 59 05/27/03 - FINANCE - BILL 030335
I don't have the numbers in front of me. I can run those numbers and get that answer to you. Also, in terms of utilizing the City's tax exempt -- we will be using the City's credit, which is less than using the credit of the investor. That's another reason why we'll get a lesser rate, by going out and using an investor's credit rating, instead of the City's at this time.
Between our doing it through PAID and this lease arrangement. We're going to expend some amount between 4 and 5 1/2 million dollars anyway.
With doing a brief estimate, I think the savings were about $200,000 a year less to do it through the investor, instead of through PAID.
Yes. That's the initial 60 05/27/03 - FINANCE - BILL 030335 estimate.
What is the cost to us, the increase in cost of the City doing it and doing it through this mechanism? Are there additional fees?
No. We look at it on an all-in (ph) basis. And again on an all-in basis --
I guess the question I'm asking is, how much would it cost us to do it in-house, and costing us to do it through the investor group?
Councilwoman, if you did it yourself on a taxable basis, as Ms. Davis suggested has to be, you have to borrow all the money taxable. Some significant portion of the money in the transaction we proposed is not borrowed, but it's equity. The cost of the equity is very, very inexpensive. It's about to percent because they 61 05/27/03 - FINANCE - BILL 030373, 030377 get a very small return, in addition to the return of their money. When you blend the equity money with the reduced amount of borrowing on a taxable basis that our proposal suggests, it's less by, as has been suggested, $200,000 to 300,000 a year than if you borrowed it all on a taxable basis. So we've run numbers for a long time with the Finance Office and have shown them that on an all-in basis, this is a less expensive way, if you have to use taxable funds, to do that because we have an equity investor. They're taking advantage of the tax advantages of owning real estate that you can't take advantage of because the City's not a taxpayer. That's essentially how it works. And it becomes less expensive for you than if you did it through PAID on a taxable basis. I think that was the basis in which Ms. Davis' office decided to proceed.
Mr. Gross, you said something which I may have slight disagreement with. We don't have to do this transaction taxable, correct?
Well, you made the 62 05/27/03 - FINANCE - BILL 030373, 030377 statement just a second ago.
I understood that the Department of Finance made a judgement that they couldn't do a tax exempt because they had arbitraged restrictions under the tax exempt rules and non-tax exempt purpose for some of the money.
We have those same arbitraged issues with regard to our current NTI program. We didn't borrow all the money. We're borrowing it in a series to allow us to do certain things that we need to get done. It's a total of $300 million. I believe we've only borrowed 142, which we're now spending over the next couple years. There's no obligation by the City to do that.
Because we're using that $30 million to attract additional fund-raising, it needed to be borrowed in advance to put it with the Library. And that creates the large part of that problem. Initially, NTI is using taxable bonds for some of their borrowings that are non -- where it's unclear whether or not the purpose will be exempt or not. And that $5 million that represents the revolving loan fund is another piece that would 63 05/27/03 - FINANCE - BILL 030373, 030377 have to definitely be taxed.
Well, I understand. We haven't talked that much about that, and we don't necessarily need to get into all those details. I mean, we're talking about a long-term borrowing for what will probably be some rather short-term obligations. Why wouldn't the City just put $5 million on the table if it wanted to do the Child Safety and Health Fund? Is that what it's called?
We just combined that because we were already doing the $30 million for the Library. We wanted to do the $25 million to retrofit the school properties.
You figured you'd just throw it on in, just throw it on into the pot?
Since we're talking about the $30 million, what is it that compels us -- in light of the school CEO Paul Vallas' proposal to borrow one-and-a-half billion dollars to build new schools and renovate other schools, what is it that causes us to put an additional into that pot of 24 dollars, when we know that the schools are already 25 renovating their buildings? 64 05/27/03 - FINANCE - BILL 030373, 030377 And, again, this has nothing to do with my general support for the schools. But I don't understand why we do that, since they're borrowing one-and-a-half billion dollars to fix the schools in the first place.
It was the Administration's decision that in order to make the schools accessible to the community and for after school purposes that it was to our benefit to have them retrofitted so that access could be gained without going through the schools.
Have those plans been put together, and has all of that detail been worked out with the School District?
The Planning Department, I understand, has looked at the buildings that should be made available for use by the community and for after-school programs and has a list of those that would be so retrofitted.
And why couldn't the District do that with the funds that they plan to borrow to do their buildings anyway?
It was felt that the City was the one requesting the use of these facilities 65 05/27/03 - FINANCE - BILL 030373, 030377 for after-school programs, that it would aid in some of our consolidation around facilities that weren't adequate to provide recreation, and that we, by gaining access to the schools that are already in the neighborhoods, would just make a better use of the funds in that way.
What's the impact of this transaction on the Five-Year Plan?
Is that accounted for in the Five-Year Plan that we passed?
Until we have some funding in the Plan, I'm not certain at what level. But once we have the final numbers, we will have to make an adjustment if it's insufficiently funded.
Well, I thought you had $4 million in the FY '05 Plan.
I don't know the exact dollar, but we have some funding in the Plan. And once we determine the exact amount of the debt service on that transaction, we'll make an adjustment.
Mr. Dubow's 66 05/27/03 - FINANCE - BILL 030373, 030377 testimony back on February 10th, 2003, at the Fiscal Stability Committee hearing says -- the question was regarding, "Do these funds appear in the Five-Year Plan? "Mr. Dubow: They're only covered in the Five-Year Plan in terms of debt service on the sale lease-back. There's $4 million a year beginning in '05 to the extent that we -- when we get to a point where we want to actually spend money, we'll have to come back for transfer Ordinances to move money into appropriate places."
We'll have to make an adjustment once the final numbers are in.
I'm sorry, Ms. Davis. Would you come back? Do you know the schools that have been slated for school-based facilities improvement? 67 05/27/03 - FINANCE - BILL 030373, 030377
Early in the year I know the Planning Department had worked with the School District to look at some of their facilities.
If we don't know the number of schools or whether the schools are going to be replaced or whether they're going to be renovated, how could we possibly come up with a number of $25 million to determine that that's what the need is? To me, it seems that the School District is not exactly ready to go yet with demolition or improvement. They're working on that matrix now. How could we ever determine, through just cursory examination of needs, facilities' needs? We don't know how many buildings, we don't know really which ones they are, and we don't know whether or not they're going to be renovated or demolished. How could we ever come with -- where did $25 million 68 05/27/03 - FINANCE - BILL 030373, 030377 come from?
There have been meetings and discussions between our Planning Department and the Capital Office over at the School District.
And the School District has indicated that they're prepared to say that the schools that are involved are going to cost $25 million for the School-Based Facilities Improvement?
I don't know the exact dollar that they've placed on it, but we've committed to $25 million, yes.
I just can't imagine how we can determine the need -- I mean, the process, as I understand it, that the School District is going through is that Vallas wants to build between 12 and 14 new high schools, but there are also going to be substantial renovations to a large number of schools that have yet to be determined because they don't exactly know the extent of the renovations that are needed. Based on their still trying to cull the information down and make it usable, I can't imagine that our Planning Department would have any way of 69 05/27/03 - FINANCE - BILL 030373, 030377 determining a $25 million -- it seems that the number was basically pulled out of the air. I don't know how you could be further along than the School District when they're not ready yet. We certainly can't be ready yet. So why $25 million -- why don't we just put the $25 million in the library, in addition to the 30?
I haven't been a party to the discussions on which building, so I can't begin to give you a dollar amount on the that. I can get you the list of the schools and try to determine what that amount is. But our commitment was to 14 because it was felt that we would give the Library 15 what they'd requested. There was 5 that we wanted 16 for the Child Safety. And the remainder that we 17 felt was derived from the transaction would go to 18 the School District for this purpose. 19
What is this 20 $5 million for Child Care Health and Safety? 21
It's to create a revolving 22 loan fund to allow day care centers to be fixed to a 23 standard that would allow them to seek reimbursement 24 from the federal government for their day care 25 activities. 70 05/27/03 - FINANCE - BILL 030373, 030377
How do we arrive at that figure? Do we know how many day care centers are involved?
I don't have that information. I can get it for you and get it to you.
Just to add on, haven't we provided that funding? Has that program been set up before? It's not a new program; it's an existing program.
I understand that there may be a very small fund that exists now, a fund that has maybe a few hundred thousand dollars, and in fact, is not reaching the numbers that need to be reached. This actually has a payback because it would allow these centers to qualify for federal funding and reimbursement.
It would be a revolving loan fund, yes. They would get certified and then pay it back.
Who would administer the loan fund? 71 05/27/03 - FINANCE - BILL 030373, 030377
I understand the need for the $30 million and more for the Library. I don't understand at all the planning or the level of detail that seems to not be there for the $25 million and the 5. It also seems illogical to me that we need to put City dollars into capital expanse or improvements to School District property, as Councilman Nutter indicated, with a $1.5 billion borrowing coming to do just that. Would it make more sense just to take the whole amount of money and put it into the Library? Wouldn't we be much further along in our fund-raising needs if we just did that? We may have questions about the transaction or the vehicle for the transaction, but as far as connecting the dots, doesn't it make more sense -- we need a hundred million or more for the Library. If we can raise $60 this way, why are we taking $25 here and $5 there? Just do what the project needs and put the $60 million in the Library. 72 05/27/03 - FINANCE - BILL 030373, 030377
The Administration felt that the needs were in other areas, other than all in the Library, and chose to kind of apportion the money in this way.
But with all due respect -- I know you're doing the financial stuff, and you do it well, and I appreciate your work. I don't understand how we can have such an ill-defined program or lack of program and spend $30 million -- or at least earmark $30 million for it, when the needs of the Library are clear. And the $60 million certainly propels us much faster to a point where we can get the work done in our lifetime. I just really -- you don't have to answer. I just, for the record, have a serious problem with some concerns about this exact financing vehicle. But besides that, to me, if we have need for the Library to be renovated, it would seem to me to make more sense to put it all in the Library as opposed to sending money to the General Fund, which then we won't have any -- as you know, once it gets in the General Fund, we're done. We won't have any say in what's going on, how it's being spent. And as far as I understand, if we approve this and 73 05/27/03 - FINANCE - BILL 030373, 030377 $30 million goes to the General Fund, the Administration could feel it wants to change its priorities and use the money for something else all together, and we don't have anything to say about it. So I have real serious concerns. I want to see the Library done. I want to see it as popular an attraction as the New York City Public Library and others, but I can't see taking $30 million of this away for an undefined program at this point. So I just want the record to be clear that I have those concerns. Thank you.
Thank you, Councilman. Councilwoman Tasco and then Councilman Ortiz and then Councilman Nutter. Thank you.
Ms. Davis, how do we pay -- where do we get the $5 million to pay the debt service?
That will just be general operating. It will come from the General Fund.
From what Councilman Nutter 74 05/27/03 - FINANCE - BILL 030373, 030377 said, it's accounted for from '05 on. We'll have to make an adjustment to put it in the '04 budget.
So where would we get the $5.5 million? We can't get $125,000 for a rec center or a day care program, after-school program in his district, and I certainly don't have one in mine, so how do we come up with $5 million to do a debt service? Plus the fact that I can't get the CLIP Program in my neighborhood because we don't have the dollars. So how do we get $5.5 million when we can't give services to some of the people in some of our districts? We never have the money for what we request for our district. How do we get additional dollars for code enforcement citywide and to enhance the status of employees in the L&I department to provide code enforcement? We never have the money for that. But we can find $5.5 million to float this bond. We just went through the budget process where we were told we couldn't have this and we couldn't have that in our district for people who need some direct services, but we're going to pay this money for one special project. So I have a real concern about that. I'd like to have some 75 05/27/03 - FINANCE - BILL 030373, 030377 answers to that. The other thing is, on of Exhibit A, you have the extension options. "The City has the option to extend the building sublease -- no, that's not the area I want. What would be the advantage of the City to exercise an extension option on this?
If the investors didn't surrender the property in the 20th year and instead paid what they owed, which we estimate is $78 million, the City then has the option to decide that it wants to continue to use the building as the Library. If the City wants to use the building, it will use that money or some other funds to extend its leasehold rights in the building. Eventually, the City will get the building back, in any event. But unless the investors surrender it after the 20th year, they'll give the City a large amount of cash, and the City can use that to rent the building until the investors do surrender it. But the City will always get the building back. The question only is when.
What is the governance? How will the governance work for the 76 05/27/03 - FINANCE - BILL 030373, 030377 Board? These investors, anonymous investors, what input do they have in terms of the operation of the Library? The issue on the permitted use, including subleasing the Free Library to another entity, who makes that decision? Would the investors request that of the Board, or would the Board make that decision? What is the relationship between the Board and the investors?
The investors have no role in that decision. They won't be anonymous. The name of the company will be known to the City. But the investors have no role in that decision. That is a decision made by the City in consultation with the Library Board. Investors have no say over the use. This clause is intended to make it clear that the use of the building is fully up to the City, without the investors' input of any kind. All the investors care about is getting the rent and having the building maintained. They have no other opportunity to direct the use of the building, its hours of operation, the colors in which it's painted, how much marble is restored, and the like. They only have the right to get their rent. They're purely passive. So they do not have control of or 77 05/27/03 - FINANCE - BILL 030373, 030377 access to any of those decisions, Councilwoman.
On maintenance and repair -- let's start with utilities and operating expenses. "During the initial term, the City will be obligated to pay all costs and expenses related to the operation of the Free Library Building. During any extended terms, the investor group will be obligated to pay all costs and expenses related to the operation of the Free Library Building or shift this obligation to a future tenant." Would you explain that to me?
For the first years, the 15 initial term, the Library will be operated exactly 16 as it is today, by the City undertaking exactly the 17 same maintenance and repair and utility cost and 18 standards it has. 19 If the building is not surrendered in 20 the 20th year and the City does not choose to extend its lease because it doesn't want the building for some reason, then the investors find a new tenant. That new tenant and the investors will negotiate who pays for the heat and the maintenance and the real estate taxes. I believe it will be real taxable at 78 05/27/03 - FINANCE - BILL 030373, 030377 that point. If the City extends, I assume the City would extend on a similar basis and continue to assume the obligations that it had, but that's a discussion that will take place years in the 6 future. For the present time, nothing will change 7 about the operation of the Library. 8
So at the end of 9 the 20 years -- the City is going to sublease this 10 up for 20 years? 11
It's expected that the 15 investors will surrender the building and the rest 16 of the ground lease and disappear from the 17 transaction. 18
Yes, ma'am. That is what is expected. That's what the pricing is. That's what the intentions of the parties are. But if they don't surrender because it got much more valuable than they thought, they have to pay the City $78 million more in cash and start paying ground 79 05/27/03 - FINANCE - BILL 030373, 030377 rent in cash and real estate taxes. So the City has an enormous pot of gold in the 20th year, with which it can continue to rent the building or decide that half the building is all that's necessary for Library services in the year 2023 or whatever the City wants to do with it. So the investors will have paid $60 million on day one, and another $78 million on year 20, and still have to maintain the building and lease it to the City, if the City wants. But it's the City's choice, not the investors, at that the point.
Ms. Davis, back to you. On the $25 million for the School-Based Facilities Improvement, was the decision to commit $25 million to the School District made prior to their decision on the notion to float one whatever billion dollars for new schools and/or renovations?
I'm trying to remember the timing. The Mayor announced it during his budget speech, and I think they may have made their announcement subsequent to that.
They may have been a little 80 05/27/03 - FINANCE - BILL 030373, 030377 before. I'm not certain of the timing, but I know this was a part of the Mayor's initiative identified in his budget speech, budget address, in January. And I don't remember the timing.
Do we have the legal authority to complete this transaction?
Good afternoon. Henry Schwartz from the Law Department. We believe that we do have the legal authority. We need to still negotiate final transaction documents. We'll probably need to give a City Solicitor opinion at the end when the transaction is authorized.
I want to ask, what are the professional services that will be needed to complete this transaction? Have the contractors for the services been identified and will there been an RFP process?
From the City's perspective, 81 05/27/03 - FINANCE - BILL 030373, 030377 we already have a financial advisor on board. That's PG Corbins Firm. Other than that, our Law Department will do legal from internally, but there will not be an RFP process. BW Realty brought the proposal to us, and we normally deal with the firm that brings proposals to the City.
Thank you very much. Councilman Ortiz, would you yield a moment to Councilman O'Neill? Then Councilman Ortiz.
Mr. Gross, you mentioned the City Hall in Washington, D.C. That transaction, what size was that, the sale lease-back?
Do you know if all $78 million was used for capital down there?
I believe all $78 million went into renovation of the building. It was a historic renovation, and I believe all of it went into the building. There was -- I want to say a 82 05/27/03 - FINANCE - BILL 030373, 030377 very small amount was used for non-capital purposes, but the great bulk was capital renovation of the building at 14th and Pennsylvania.
Since we are balancing the budget with this action and you spoke about adjustments that have to be made both to the Five-Year Plan, I imagine, and the current budget that we have not approved as of yet, it seems that we're putting the horse before the cart. We're approving things and we still have a budget, operational budget, that we have not approved as of this instance. What are the adjustments that are going to be made to bring the budget under the constraints that are necessary by statute? 83 05/27/03 - FINANCE - BILL 030373, 030377
When we get the final numbers in, Rob Dubow and I will have to look at where we can cut and move funding to cover any --
You mean that we gave no thought -- that we are balancing the budget, and we have given no thought, that we're going to wait until we get the final numbers? Obviously, we know what those numbers are approximately. Why haven't we given thought to how the adjustments are going to be made?
We will have to look at where exactly we can move funding from.
Mr. Dubow and I will get on that as soon as we have an exact number.
But what happens -- I mean, it looks like we're entering either into an episode of Star Trek into the future or the Twilight Zone. We're creating a budget. We're not 84 05/27/03 - FINANCE - BILL 030373, 030377 speculating as to the ebbs and flow of the stock market. We have to have definite aspects in terms of where it is that we're going to be spending this money that we're supposed to be getting or spending and what cuts are going to happen, other than just suppositions. There has to be an idea. And when do we get that as a legislative body so that we can look and see whether we agree with them or not?
Don't you think that it would be best to come before this body and say, "This is the amount of money that we're going to need and we're going to change, and these are the changes in the budget that we're going to have to make," in order to get a clear view of this whole transaction, and then ask for our approval? Don't you think that that type of thinking would have been better than, "Trust us and that we will look into it and see how we move the monies around later on"?
The Administration will be forced to re-prioritize its spending in order to accommodate this. We will not put the budget out of balance. We will simply re-prioritize its spending. 85 05/27/03 - FINANCE - BILL 030373, 030377
Re-prioritize its spending. We would like to have a hand into what re-prioritizations are, and we would like to look at them before we approve anything of this nature. Because then we would have a better idea how the money is going to be distributed.
The economic questions are mind-boggling. You want us to approve some $5.5 million in fixed cost, $30 million that is going to a school system in which they have no idea how they're going to use it. They have not brought you a plan as to how they're going to use it. You say you have no idea how the school is going to do it. And you expect us to approve something based on an incredible amount of iffy propositions. To me, that has characterized this government from the very beginning. Thank you. Mr. Gross, do you have another company?
Do you have a company known as Property Fundings Group?
It doesn't exist anymore. Why doesn't it exist? When did it go out of business?
Last month? It went out of business last month and you created this new one? When did you create this new one?
You had a company that went out of business last month. When did you create this brand new one?
A company in Boston and a company in Washington, and we merged the companies into the new company, which we created effective the 87 05/27/03 - FINANCE - BILL 030373, 030377 1st of May. We did a merger of the two companies that were doing this, one in the corporate environment and one in the non-profit environment.
You said you had other business in Newark. What other cities did you have business in? Newark?
Newark, Washington, Hartford, Pittsburgh, the West Coast, Hawaii. We have business all over the country.
And what was your role? Did you catch, field? What was your role?
It didn't get completed. The Cardinals decided to proceed with the Bank of America instead of with us at the end of the 88 05/27/03 - FINANCE - BILL 030373, 030377 period.
There were some other problems the Cardinals had with the transaction, yes.
There were some other problems the Cardinals had in the transaction, yes.
The Cardinals had a problem with parts of the transaction and decided to go a different direction in their financing and terminated our arrangement.
And the name of the company that was dealing with the Cardinals was?
And that's the company that merged or just went into bankruptcy, disappeared, what?
The two companies, Property Funding and Corporate Property Funding dissolved, and the new company, BW Realty Advisors, was created.
Could you give us details in writing as to that whole scheme?
Please. I'd like to see the overall aspect of the dissolution of those two companies, the merging aspect of it and the creation -- where is the new company based?
We don't have a president. I'm one of the two managing partners.
Who is the other managing partner? 90 05/27/03 - FINANCE - BILL 030373, 030377
A man in Boston named Mr. Pascal (ph), Ross Pascal. But I'd be happy to lay out the entire organizational scheme for you, if you'd like to see it.
I'd like to see the aspects of the corporate structure. Are you listed, or is it a privately-held company?
And I'd like to see all of the business negotiations across the country that you're into. Thank you, Madam Chair.
Just a couple few last questions, Madam Chair. Thank you. These are more transaction-related questions. But first, Mr. Shelkrot, let me ask you a Library-related question.
What's the level of briefing or information that the Library Board has received about this transaction? 91 05/27/03 - FINANCE - BILL 030373, 030377
The Library Board sought information from its own counsel, that is, the Foundation Board's counsel, to understand it a little bit better. I did receive a diagram explaining this transaction. It was either early last week or the end of the week before. It has not yet been presented to the Board.
So the Board has not been briefed about this transaction; is that what you're telling me?
Not in detail. But the Board has discussed the concept of a sale lease-back that would provide $30 million. The Board does not usually get into the details of how the City makes funding available.
If you were getting $30 million from the Capital Budget, you're right, you probably wouldn't be all that concerned about it. On the other hand, it's not every day that we sell the Library, so the Board might have a little more interest in this type of transaction than getting a $30 million check from Mr. Kemp over here. 92 05/27/03 - FINANCE - BILL 030373, 030377
I understand. My question is, have they had a full briefing by all the parties involved similar to the parties who are here today to sit down and take the Board step-by-step through this transaction? Has that happened?
Okay. Thank you. Ms. Davis and Mr. Kemp, let me ask a couple questions. Has the $60 million proposed to be received from this transaction, has it been included in the revenue estimates for FY '04?
In light of that, how will you spend any of these proceeds?
It has to come back to City Council to be appropriated and transferred.
So even if this were to go forward, you still have to come back here? In essence, if this transaction were approved by us at this point, you still would not be able to spend the 93 05/27/03 - FINANCE - BILL 030373, 030377 money even --
-- with possible approval of this side of the transaction?
We're taking advantage of where the market is, because the lower their rates are, the lower our rate will be. And the fact that we want to get it done as quickly and efficiently as we can. We've looked at it for a year. And we have other transactions that will occupy Mr. Kemp during the fall, so we wanted to get this one done because we've done our due diligence. The market is making this very attractive.
I can certainly appreciate all those issues. You've had an opportunity to work on it for about a year. We've had documents, I think, since last Thursday. And we got some amount of information in the course of a colloquy back in February where we were told that you would have more details for us and subsequent 94 05/27/03 - FINANCE - BILL 030373, 030377 briefings with Council, which unless we're counting last Thursday, did not happen. So we've got a transaction that's been under review and discussion for about a year, and we have a little less than a week to figure out what to do with it, and a Board that has not been briefed. With regard to the $25 million proposed to go to the schools, is that subject to -- the Revenue Commissioner was here just a little earlier talking about, at least one of my favorite topics, which is caps on real estate tax. But you told us that we couldn't do that transaction -- I'm sorry. It's not a transaction. We shouldn't do that Bill 15 because of potential impact of Act 46. What is the potential impact of Act 46 on the $25 million proposed to go to the School District?
Before any funds go to the School District, our understanding is that because we would be doing the work, it would not be subject to Act 46. But before any funds can be transferred --
What do you mean, we would be doing the work? We, whom?
Because we would be doing -- 95 05/27/03 - FINANCE - BILL 030373, 030377 having the work done and it would benefit the City. It's to our benefit to have the work done because we're fixing facilities for our purposes. But to the extent that it creates --
It will be used on the School District's facilities. But we have to create a mechanism that would not make it subject to Act 46. So to the extent that there would be an Act 46 problem, nothing will be transferred until we have a mechanism devised that protects it from Act 46.
The mechanism isn't in the Bill. If there is a need, we will not do anything until we have protection from Act 46.
I don't think we'd keep it. 96 05/27/03 - FINANCE - BILL 030373, 030377 We'd pay it off. We'd attempt to pay it off.
We'd pay the person we're borrowing it from. We would defease that part of the transaction.
All right. So let 13 me make sure -- because this is a slightly new piece 14 of information about this transaction. So the 15 $25 million is not actually being given to the 16 School District, correct? 17
We need to create a vehicle 18 that makes it not subject to Act 46. 19
The only way you'd 20 make it not subject to Act 46 is by not giving it to 21 them, right? 22
There might be legislative 23 avenues that would be available to us. And the 24 State Legislature is still in session. 25
Is there present 97 05/27/03 - FINANCE - BILL 030373, 030377 legislation or present lobbying around legislation regarding Act 46?
There's not present legislation pending, but we still have the rest of the session to get it in. But we will ensure that we are not subject to capture by Act 46.
Well, tell me what the effort is in Harrisburg to prevent capture by Act 46.
We've not begun specific actions yet. But the Administration recognizes that this is something that has to be considered with any transactions that we do with the School District. We're fully cognizant of the Act 46 implications.
What provision is there in the Bill that requires the $5 million to go to the Children Health and Safety Fund, the $25 million to the District and $30 million to the library?
There is no specific language that directs the spending of it. It's just a commitment the Mayor has made in his budget speech.
And with regard to 98 05/27/03 - FINANCE - BILL 030373, 030377 our ability to demonstrate commitment to the larger funding community, is it not enough for the City to say that it is committed to providing at least $30 million for the library renovation and expansion and find whatever mechanism it can to develop that, whether it's this transaction or a different type of financing?
It was felt that actual cash would be a stronger commitment than just the verbal say so.
But that does happen in the fund-raising world all the time, doesn't it?
Well, generally, when people make large commitments they don't necessarily write you a check that day. But once they make the commitment and announce it publicly, unless you just want to be known as a welcher, they usually follow through.
Well, this is a commitment by a political entity where there are vagaries of politics. So I believe that cash is always preferable in a situation. 99 05/27/03 - FINANCE - BILL 030373, 030377
Well, I'm sure Mr. Gross knows in the world of finance, cash is king. Isn't that true, Mr. Gross?
Ms. Davis and Mr. Kemp, I would like to ask if you would forward to the Chair for our review a traditional $60 million financing with all the usual bells and whistles, or lack there of, since our traditional financing generally doesn't rise to the level of complexity or interest or novelty that the transaction in front of us does. And I'd like to see a spreadsheet and a comparison between the traditional $60 million financing through PAID with the City responsible for the debt service lined up against this particular transaction with the full 20-year debt service.
Assuming the same circumstances that we'd be issuing on a taxable basis?
Taxable and non-taxable. I'd like to see a cost comparison between them. To deal with the arbitrage issue, now you're saying that it was 24 months. I thought that 100 05/27/03 - FINANCE - BILL 030373, 030377 there was a three-year rule.
There is a three-year total spend down, but 85 percent of it has to be gone in months. 6
And let me try to 7 understand something here. The total renovation and 8 expansion project is 100 to $120 million, correct? 9 And let's say that the City had its $30 million 10 available today. Somebody just listening to this 11 riveting testimony here today felt overwhelmed and 12 compelled to just give us $30 million. How long 13 would it take us to raise the other 70 to 90? 14
We believe that it would 15 take three to four years to raise the rest of that 16 money. 17
And so three to four 18 years from now, you have all the money. How long 19 will the project itself take? 20
The project itself, as I 21 said earlier, would be about three-and-a-half years. 22 However, there are steps that we need to take now 23 before the project begins. There's the architect's 24 work. There's a whole series of things that need to go on during this period of time so that the project 101 05/27/03 - FINANCE - BILL 030373, 030377 will be ready to go, and all of those things require expenditure of money. And those preliminary costs, as we raise money, the funding that we have will pay for those preliminary costs.
I understand that. So adding all that up, what you're saying is that, if you have the City's $30 million today, we can expect a new and expanded library 1/2 years from 10 now?
The process is one where we can't do the renovations until we have the additional space with the extension. But on the other hand, there are things that can be done in the existing building right now. And so it is a process that the construction needs to start as the renovations take place.
If you had the $30 million today, what do you expect that you would 102 05/27/03 - FINANCE - BILL 030373, 030377 actually end up expending over the next one to three years?
I did not bring the spreadsheet and the time schedule for that with me. I can make that available.
All right. If you could get that to the Chair, I'd greatly appreciate it. Ms. Davis and Ms. Kemp, how long do you think it will take to put together what I referred to as the alternative or the comparative transaction?
You're welcome. Are there further questions? (No response.)
Then we would like to ask on this Bill, Ann Marie Williams, Acorn, to testify. Thank you.
Hello. I'm Ann Marie Williams. I'm from the North Philadelphia 103 05/27/03 - FINANCE - BILL 030373, 030377 Improvement Organization area of the Acorn. I'm also a Board Member of Acorn. I've listened to all of this today and a lot of it was new to me. We are in the process of a library campaign right now, trying to work for our areas. I have a few questions here. If this Bill 030393 passes and all this money that's acquired due to it, will the libraries in the low income areas benefit from the profits of this Bill 030393?
Excuse me. Would you like to make your whole testimony? You can ask all questions you have, if that's part of your testimony now.
Okay. Well, I didn't come prepared to talk about their expansion. I was listening. Our biggest concern is that the library is getting expanded here in the main area, and we are concerned about the outer areas where the low income and moderate income people really need this money to be put into their libraries, instead of having all the cut backs. Because with the State -- Governor Rendell has put in this Bill to have a 50 104 05/27/03 - FINANCE - BILL 030373, 030377 percent budget cut already on our libraries. And we're listening to you asking for all this money to redo or renovate a library that is acting sufficiently at this moment, yet our libraries in these outer areas are being cut back, as far as hours, and possibly some of them could be closed due to these budget cuts. So we're just wanting to know that if with this Bill being passed, all this profit that they're getting, that would be acquired, if this is going to these areas that need it?
Thank you. And I assume you mean by "outer areas," neighborhood branches?
Okay. Thank you very much. That's your question and it's duly noted. It seems to me your question is how this affects neighborhood branches.
Right. Will this money that is acquired due to the 030393 Bill, will this money be distributed to the outer branches?
Thank you very 105 05/27/03 - FINANCE - BILL 030373, 030377 much. And we will let whomever respond. Mr. Shelkrot will respond. Thank you. Is there anyone else here who has questions on this Bill? We'll let Mr. Shelkrot respond.
My next question is, how will the effect of this Bill passed by the City Council on May 8th to support the library, should the State cut the budget 50 percent, how will this other Bill be affected by that? How will the May 8th Bill be affected by this new Bill? And also, when he was talking, he said, any legal way. He was willing any legal way to get this money. And our curiosity is, is he willing to see the branches reduced in order to renovate this main library? And my last question is, when the Library Board of Trustees is in the process of making the financial decisions, when and if will the community have the opportunity to have a voice in 106 05/27/03 - FINANCE - BILL 030373, 030377 this? Because they're the people that are most affected by all of these expansions and cuts, and passing the buck to this place and this place and this place. We want to know if they have a voice in all of this, too. Thank you.
Thank you very much. There were four questions asked. The final one, if the community has an opportunity to speak. Actually and formally, that's today. This is the public hearing. The other questions, I don't know who wants to respond. Mr. Shelkrot, we're happy to ask them, since it is our responsibility to ask them. And her questions are -- and we're happy to ask them -- how this Bill affects neighborhood branches. How this relates to the Governor's cuts, and also the issue of the legal question that Councilman Nutter asked, the way to get additional funding, how that affects the branches.
Sure. Let me answer those quickly for you. 107 05/27/03 - FINANCE - BILL 030373, 030377 As Council knows, knowing that the entire library system needed to be modernized, including the Central Library, the first thing we did was renovate and modernize all of the branch libraries throughout the City. That was the very first thing that we did. We held for very last, the Central Library. However, I might add that the experience in other cities is that when the Central Library is renovated and/or expanded or in some cases a new library was built, library use all over the City goes up. So it really stimulates use not just of that building, but because the Central Library is then more able to meet the needs of the branches in the communities, library use all over the City goes up. Second of all, on the Governor's cuts. As you know, those cuts have to do with the Operating Budget. This is a capital expenditure. We are cautiously encouraged by some of the things that we're hearing from Harrisburg, that the reductions will not be as drastic as were proposed, particularly in the Governor's budget. And because they are different kinds of programs operating 108 05/27/03 - FINANCE - BILL 030373, 030377 the catch. There isn't any direct impact. I do want you to note we're hearing some good things on that. Would I be willing to reduce our branch operations in order to do the Central Library? As I said earlier, we did the branch renovations first and I will see no need whatsoever because that will not happen. We're committed to our branches. We're committed to the communities. And the Central Library must be renovated because it's the core of the entire system. I believe that answers the questions.
Thank you very much. Are there further questions with regard to this Bill? (No response.)
Acorn also has a statement. Mr. Shelkrot, would you make sure you see this, as well?
Thank you very much. 109 05/27/03 - FINANCE - BILL 030373, 030377 The next Bill is the Municipal Authority's Bill, Bill No. 030335. Would the Clerk please read the title of that Bill? While he's reading that, we will ask those who are ready to testify on this Bill to please come forward. Mr. Corey Kemp and Public Property, Ken Sipos. Thank you. Will the Clerk please read the title of the Bill?
Bill No. 030335, an Ordinance authorizing the Commissioner of Public Property of the City of Philadelphia, on behalf of the City, and in cooperation with the Philadelphia Municipal Authority to undertake a project to promote the health, safety, and welfare of the residents of the City of Philadelphia authorizing and approving; (1) the project, (2) entering into execution and delivery of the lease between the City of Philadelphia and the Philadelphia Municipal Authority, (3) the issuance by the Philadelphia Municipal Authority of bonds in one or more series to pay the cost of the project, (4) the assignment 110 05/27/03 - FINANCE - BILL 030373, 030377 of the lease by the Philadelphia Municipal Authority to a trustee, and (5) the obligation of the City of Philadelphia to pay rent under the lease when due; authorizing the Commissioner of Public Property, on behalf of the City of Philadelphia, to enter into the lease with the Philadelphia Municipal Authority; authorizing the Director of Finance and other officers of the City of Philadelphia to take such other actions as may be necessary or appropriate to accomplish the intent and purpose of this Ordinance; covenanting that the City of Philadelphia will make necessary appropriations in each of the City's fiscal years to provide for rental payments due under the lease; and covenanting that the City of Philadelphia will make rental payments due under the lease; all under certain terms and conditions.
Thank you very much. Please identify yourself for the record and begin your testimony.
Good morning, Chairwoman Blackwell and Members of the Committee on Finance. I'm Corey Kemp, City Treasurer for the City of Philadelphia. With me is Ken Sipos from the 111 05/27/03 - FINANCE - BILL 030373, 030377 Department of Public Property, and also Vince Ginnetti, who's here to answer questions as needed. I'm here to testify on behalf of Bill No. 030335. Council Bill 030335 will authorize the Philadelphia Municipal Authority, at the direction of the City, to refinance the Philadelphia Municipal Authority's 1991 A bonds, 1993 A bonds, 1993 B bonds, 1993 C bonds and 1993 D bonds, in the amount not to exceed $255 million. The Philadelphia Municipal Authority on behalf of the City seeks to refinance approximately $240 million of outstanding debt to achieve a net present value savings of approximately $27 million. This is 11.2 percent present value savings. The industry standards for refinancing is 3 percent present value savings. Council Bill 030335 also authorizes the City to enter into a lease agreement between the City and the Philadelphia Municipal Authority which obligates the City to pay lease payment, which amount shall be sufficient to pay debt service due on the 2003 bonds. Passage of Bill 030335 will give the Philadelphia Municipal Authority authorization to 112 05/27/03 - FINANCE - BILL 030373, 030377 take advantage of the current economic conditions by refunding the 1991 A bonds, the 1993 A Series, Series B, Series C, and Series D bonds of the Authority. This proposed refunding will reduce the lease payment made to the Philadelphia Municipal Authority on an annual basis relative to these bonds. This concludes my testimony. I am happy to answer any questions you may have on this matter. I would also like to request the suspension of Rules on this Ordinance.
Good morning, Chairwoman Blackwell and Members of the Committee on Finance. I'm testifying on behalf of Andres Perez, Commissioner of Public Property. I'm here to testify in support of Bill No. 030335. This Bill will enable the City to take advantage of lower rates of interest available at the present time. The Department of Public Property supports this measure, and accordingly, I respectfully ask that the City Council Committee on Finance approve Bill No. 030335. I also ask that 113 05/27/03 - FINANCE - BILL 030373, 030377 the Rules be suspended so that the Ordinance may be passed upon the second reading of Council. Thank you. I'll be happy to answer any questions you may have.
Thank you very much. Any other testimony? Thank you. I have one question. Does the Authority affect the City's debt capacity in any way? If not, what prevents us from using the Philadelphia Municipal Authority in more transactions to issue debt? If it does affect our debt capacity, then why are we not considering selling municipal structures the same way you're proposing to do with the Free Library?
Councilwoman, the leases under the Philadelphia Municipal Authority do not affect the City's debt incurrent capacity. But I'm not sure structure-wise what determines what authority we use for each individual transaction.
We've looked at other conduit financing entities, but we came up with PAID as being the best one for the library deal. But we are actively looking at all different options for the 114 05/27/03 - FINANCE - BILL 030373, 030377 City for different transactions.
We're asking you to approve a refinancing transaction that will save the City approximately $2.6 million a year in lease payments to the Philadelphia Municipal Authority.
We're currently making lease payments to the Philadelphia Municipal Authority to pay for buildings such as the Criminal Justice Center. We're making lease payments to pay the debt service on bonds issued in 1991 and 1993, and those bonds were for the Philadelphia Industrial Correctional Center, the Criminal Justice Center at 12th and Filbert, and also the Curran-Fromhold Correctional Facility.
And so you're asking us to do what, refinance those bonds?
So we get a savings of $27 million over how long a period?
It'll be a present value savings of $27 million, but it will be an annual savings of approximately $2.6 million from now until year 2018, so approximately years. 8
And $2.6 million is 14 the difference that you need from the $4 million 15 that's in the budget for the debt service on the library. And you're short. So you're picking up this $2.6 million here, right? Right? Right. I'm a little slow. I'm on this Committee, I don't know how. But I'm really kind of slow at this stuff. I just asked this question back here, and this just popped up. So do I get the $2.6 million, Janice Davis, for the 9th Councilmanic District? Can I get some money out of this? What's going to happen with this money? What do you do with the savings? 116 05/27/03 - FINANCE - BILL 030373, 030377 Where does this $2.6 million go, into the General Fund?
Yes. That will be $2.6 million less that we would have to pay out.
So what are you going to do with $2.6 million? Is it accounted for in the Five-Year Plan?
I just sent Rob a teletubby to find out if it is, in fact, accounted for. But if it's not, it goes in the General Fund and it's just going to be reallocated to other needs that might arise.
Mr. Kemp, the $27 million in savings, is that captured in the FY '04 Five-Year Plan?
No. The $27 million is a 117 05/27/03 - FINANCE - BILL 030373, 030377 present value savings. That's if we were to receive all of the savings today, it would be worth $27 million. But we will not be receiving $27 million.
Thank you very much. Any questions, further questions? (No response.)
Then we will go to the airport. We will ask the Clerk to read the titles of both airport Bills; Bill No. 030373 and 030377.
Bill No. 030373, an Ordinance constituting the Fifth Supplemental Ordinance to the Amended and Restated General Airport Revenue Bond Ordinance; authorizing the Mayor, the City Controller and the City Solicitor or a majority of them, to issue one or more series airport revenue bonds of the City of Philadelphia and to take certain actions with respect to Qualified Swap Agreements, Exchange Agreements and similar instruments; determining the sufficiency of pledged Amounts Available for Debt Service; convenanting the payment of interest and principal; 118 05/27/03 - FINANCE - BILL 030373, 030377 authorizing the Bond Committee to take certain action with regard to the terms and conditions of the Airport Revenue Bonds and related agreements; authorizing the Bond Committee to elect to include all revenues, rates, rents, tolls or other charges generated by or allocable to the Overseas Terminal and the Outside Terminal Area as Project Revenues; authorizing the Director of Finance of the City to take certain actions with regard to the sale of such Airport Revenue Bonds and the City's continuing disclosure obligation; and specifying applicability of sections of The First Class City Revenue Bond Act and the Amended and Restated General Airport Revenue Bond Ordinance. Bill 030377, an Ordinance authorizing the Commissioner of Public Property and Director of Commerce, on behalf of the City, to exercise the City's option under a Lease Agreement to enter into an agreement to acquire all rights, title and interest of the Philadelphia Parking Authority in and to all buildings, computers, peripherals structures, improvements, facilities, fixtures, equipment, leasehold improvements, constructions in process, machinery, gates, signs, signals, fencing, 119 05/27/03 - FINANCE - BILL 030373, 030377 garages, connecting bridges, elevated ramps, toll plazas and all other accessories now erected or constructed by the Authority at the Philadelphia International Airport on land owned by the City and leased to the Authority; and authorizing the Commissioner of Public Property and Director of Finance to take all other actions and enter into all other agreements necessary to complete the acquisition; all under certain terms and conditions.
Thank you very much. The Chair notes that in addition to Charles Isdell, Corey Kemp and Ken Sipos, we also have Joe Egan who will be testifying on these airport Bills. We thank you all for your patience. Now, let me see if I have a few questions for you. With respect to the administrative expense allocation that was in the briefing packet, would this be eliminated completely should you take over parking operations?
Councilwoman, could we read the testimony for the record, please?
I'm sorry. I guess I'm rushing along. I guess we've been here 120 05/27/03 - FINANCE - BILL 030373, 030377 too long. It would be nice to have you testify before I ask a question about it. I apologize. Please do. Thank you.
Good afternoon, Chairwoman Blackwell and Members of the Committee on Finance. I am Corey Kemp, City Treasurer for the City of Philadelphia. I'm here to testify on behalf of Bill 9 No. 030373 and 030377. With me today is Charles Isdell, Director of Aviation for the Philadelphia International Airport. Also with me is Ken Sipos from the Department of Public Property. Council Bill No. 030373 will authorize the City to issue Airport Revenue Bonds in one or more series under the First Class City Revenue Bond Act of 1972 in the amount not to exceed $325 million. The proceeds of the bonds shall be utilized to acquire all of the Philadelphia Parking Authority's rights, title and interest in certain parking garages, lots and other facilities and the related improvements and equipment located at or adjacent to the airport pursuant to Section 7 of the Lease Agreement, dated as of October 1, 1974, between the City and the Philadelphia Parking Authority. 121 05/27/03 - FINANCE - BILL 030373, 030377 From an economic standpoint, it makes sense to proceed with any contemplated financing transactions in the very near future while interest rates are at historically low levels. Council Bill 030377 will authorize the Commissioner of Public Property and the Director of Commerce to enter into an agreement with the Parking Authority to purchase the garages and surface lots from the Parking Authority pursuant to the terms of the City's Lease Agreement with the Parking Authority. This concludes my testimony. I'll be happy to answer any questions you have on this matter. I would also like to request a suspension of Rules for these Ordinances. And I would like to just introduce Francois Dutchie for a proposed amendment to Bill 030373.
Thank you. The Chair also notes that Councilman Cohen is here. Thank you very much.
Madam Chair, I'm sorry. I didn't hear the last part of what Mr. Kemp said. 122 05/27/03 - FINANCE - BILL 030373, 030377
I would like to introduce Francois Dutchie for a proposed amendment to Ordinance 030373.
Would you like to have the Public Property testimony first?
Madam Chair, Members of the Committee on Finance, my name is Ken Sipos from the Department of Public Property. I'm here representing Andres Perez, Commissioner of Public Property, to testify in support of Bill 030377, an Ordinance authorizing the Commissioner of Public Property and the Director of Commerce on behalf of the City of Philadelphia to exercise the City's option under the lease agreement and enter into an agreement to acquire all right, title and interest of the Philadelphia Parking Authority in and to all buildings, computers, peripherals, structures, improvements, et cetera, constructed by the Authority on land owned by the City of Philadelphia and leased to the Authority. The Bill will enable the City, through its Division of Aviation, to take advantage of the City's option under the lease to acquire the parking 123 05/27/03 - FINANCE - BILL 030373, 030377 facilities at the airport. The proximity of the parking will enable the airport to enhance control of ingress and egress to the airport patrons. The Department of Public Property supports this measure, and accordingly I respectfully ask that the City Council Committee on Finance approve Bill No. 030377. I also ask that the rules be suspended so that the Ordinance may be passed upon the second reading of Council. Thank you. I'll be happy to answer any questions you may have.
Thank you very much. Mr. Egan, would you like to testify now or wait until these rounds of questions are --
We still need to read into the record the amendment for the Ordinance, then also hear from Charles Isdell.
Good morning, Councilwoman. My name is Francois Dutchie. I'm with the Finance and Contracts Division of the Law Department. We have a technical amendment to make to Bill 030373. I have copies of the amendment for Council. 124 05/27/03 - FINANCE - BILL 030373, 030377 We have a technical amendment to the Ordinance which appears at the top of the third page. The amendment simply --
It should be the top of the third page of Section 3. You'll see it in the proposed amendment. And what this amendment simply does is take out a reference to Exhibit B, which was to be included with the original Ordinance. Exhibit B contains an unsigned certificate from the Finance Director, which is required under the first Class City Revenue Bond Act. That certificate will not be ready until just prior to passage of the Bill. So we had to take it out as an exhibit to the Bill.
You have a question, Councilman, with regard to the amendment?
Yes, sir. Councilman Nutter. 125 05/27/03 - FINANCE - BILL 030373, 030377
Thank you, Madam Chair. Why would you delete this if it's something pertinent that's to the First Class City's Act? Why would you take this exhibit out? Are you now saying that it doesn't have to be attached to the Bill?
It never had to be attached to the Bill. The Law Department had the policy of attaching them to the Bill because it made it simpler.
It's a certificate that's required by the First Class City Revenue Bond Act. The Finance Director has to certify that there are sufficient funds from the project, in this case, revenues from the parking operations at the airport to pay debt service on the bonds. It includes a feasibility study which she relies on to make that certification. 126 05/27/03 - FINANCE - BILL 030373, 030377
It requires that the certificate be filed with City Council prior to passage. It does not have to be attached as an exhibit to the Bill.
Well, how are you going to file it with us prior to passage?
It will be prepared and signed and filed with the Clerk of City Council before this Bill is passed.
Which may result in City Council seeing it or not seeing it?
Well, the filing with the Chief Clerk is simply technical. Obviously, you will get a copy of it, as well.
I don't understand why you wouldn't want it attached to the Bill.
It's not signed yet. The feasibility study has not been completed, and the certificate has not been signed by the Director of 127 05/27/03 - FINANCE - BILL 030373, 030377 Finance at this point.
We're talking about the feasibility study that is being conducted by Lee Fisher and Associates.
Are you talking about this document, Appendix 2, which has a date down the bottom, June, blank, 2003, that document?
Yes, sir. That is the draft document. That is not the final document.
I can save that question for later. If your study is not done yet, why is this in front of us?
There's a whole matter in front of us. If your study is not done yet --
The final numbers are not in on the study. The study has been going on for several weeks. We just don't have the final numbers yet. Those numbers will be available before this Bill is ready for passage.
But it won't be 128 05/27/03 - FINANCE - BILL 030373, 030377 attached to the Bill. It will get filed in the Chief Clerk's office, amongst the million other 4 documents in the Chief Clerk's office. But it will 5 not be a part of this legislation, which you would 6 then be asking us to vote on. 7
Copies will be made 8 available to the Committee, to the entire Council.
But you're saying in the past you've always attached the document. It's been your practice to have these documents as an attachment to such a Bill?
There are a lot of things about this that are not ready. Thank you, Madam Chair. I'll wait until my turn comes.
You're welcome. 129 05/27/03 - FINANCE - BILL 030373, 030377 Councilman Cohen, you wanted to follow up?
Maybe there won't be any certification at all. And if not, then the Bill 6 will fail. That certification seems to be a very crucial element in the law and in the Ordinance.
Why don't we hold up all action on the Bill? Why doesn't the Administration withdraw the Bill until such time as everything is ready? The provision in the law exists for the purpose of safeguarding the situation. If the situation cannot be safeguarded now, why should we take away the safeguard? Why don't we instead hold up the Bill until everything is in order and then present it? Then we can examine the certification, see if it's the kind of certification required by the Act or whether it's something short of it. If it's a certification required by the Act, then obviously it strengthens the likelihood of passage of the Bill. If it's a safeguard that's not really a safeguard, but just purports to be one, then, of 130 05/27/03 - FINANCE - BILL 030373, 030377 course, it will do damage to the Bill. But we've got to know that before we act on the Bill, don't we? Isn't that the purpose of the safeguard in the first place?
That's absolutely correct, Councilman. And you will know that before the Bill 8 is passed.
How will we know it? Maybe the Clerk will know it. When would we get it? How do you assure us that we're going to get it in time for this Council to study it? For me, for example, to hear the comments of any other Councilmember on the subject or for them to hear my comments? How do we get Council consideration of the certification?
We anticipate that this will be prepared and ready for Council's review at least a week prior to a vote on passage of the Bill.
Well, then why don't we just hold the action where it is now, return the hearing, and when your certification is ready we'll take the action up then? I don't like this shortcutting of safeguards, eliminating them, saying "Trust us. We'll see that somebody in Council gets 131 05/27/03 - FINANCE - BILL 030373, 030377 to see it some time. It will be your fault if you don't get to see it because we'll get it somehow in Council's hands. Maybe the President will make a mistake, maybe the Chief Clerk will make a mistake, and you won't be able to question us about it." These safeguards are put in for the purpose of safeguarding tax monies, isn't that true, safeguarding the credit of the City? I don't understand how the Administration can come to us and say, "Let's forget the safeguards. Just trust me." I don't think this is ready. But if it is continued to be presented, I don't see any conclusion we could possibly achieve other than, just on this issue alone, reject the Bill. It's certainly not ready for action. Thank you, Madam Chair.
We do believe it is ready for action by the Committee, and that the Finance Director certification will be produced very shortly, and that that particular certification does not have to be attached to the Bill, as it originally had been done. If you would permit me, I would like to read at least a portion of my 132 05/27/03 - FINANCE - BILL 030373, 030377 testimony. I can skip over the parts that were covered already by the City Treasurer and by the Department of Public Property, in the interest of time.
Certainly. Thank you. Identify yourself for the record, please.
My name is Charles Isdell. I'm Director of Aviation for the City of Philadelphia. I'm pleased to appear before you today to testify in support of Bill No. 030373 and 030377. I would like to move to the second of my testimony where I talk about the reasons why it makes sense for the City to assume full responsibility for the operation of the parking facilities at the airport. First of all, Philadelphia International Airport is unique in that it is the only major airport in the country that does not operate and manage its own passenger parking facilities. It's important for the Members of the Committee to note that at virtually every major airport in the United 133 05/27/03 - FINANCE - BILL 030373, 030377 States, parking revenues provide the largest source of non-airline revenue. The City is currently unable to fully control this vital income stream. In addition, high-quality parking facilities can help to hold a traveler's impressions of our airport and our City. The lack of control over airport parking operations is incompatible with the successful operation of what we now consider a world-class airport. The exercise of the option in the lease provides an opportunity to help make our airport more competitive and user friendly, thus protecting the nearly $1 billion investment the City has made in the last three years to turn Philadelphia Airport into that world-class facility. Secondly, this change will yield immediate financial benefits to the airport. Under the current system, the Parking Authority assesses the City an administrative fee of approximately $1.7 million annually, which is deducted by the Authority before the rent requirement is paid to the City. Thus, by taking direct control over parking operations and eliminating the Parking Authority's administration fee, the City will see an immediate 134 05/27/03 - FINANCE - BILL 030373, 030377 savings of at least $1.7 million per year in administrative expenses. In addition to this substantial savings in administrative costs, the Division expects to derive further savings from more streamlined and efficient management of parking operations. Third, the City can take advantage of the current interest rate environment by making this move now. It makes sound economic sense for the City to enter the bond market while interest rates are at their current historically low levels. Fourth, this change will provide the signatory air carriers at the airport with much needed financial relief. Because of the residual nature of the Airport Airline Use and Lease Agreement, much of the cost savings which the airport will experience as a result of the direct operation of parking facilities will be passed on to the airlines in the form of reduced rates and charges. I'm sure the Committee is aware the major airlines in our country are currently experiencing extreme distress, largely due to the events of September 11th. In this current financial 135 05/27/03 - FINANCE - BILL 030373, 030377 climate, the City's ability to help the airlines reduce costs is particularly timely and will support the airport's efforts to remain economically competitive. And lastly, this change will improve the financial accountability for the funding stream of these critical airport facilities and ensure that we are receiving timely reporting and payment on a consistent basis. To conclude, the decision to terminate the airport lease with the Parking Authority is based on sound principles of governance and prudent fiscal management, I might add, and will result in substantial financial benefits to both the City and the airlines and will greatly improve the level of accountability for a major source of income to the airport. I appreciate the opportunity to speak to you today in support of these Bills, and will be happy to answer any questions you may have.
Thank you very much. I just have two questions. First, with respect to the 136 05/27/03 - FINANCE - BILL 030373, 030377 administrative expense allocation that was in the briefing packet, would this be eliminated completely if you take over parking operations?
Number two, can you explain why the fees to operate the garages went from $4.9 million in '99 to $7.5 million in '02? This is an increase of almost $3 million in three years. If you did the parking with City employees or found another operator, would that change the expense?
It's difficult to say because we have not been in control of this contract during the period in question. We firmly believe that if we had a direct relationship with the contractor or if we had the opportunity to bring some or all of these tasks in-house, that we would be able to reduce this annual expense. But we've been conservative in our estimates in presenting this to Council because we won't know for sure until we have the ability to manage those contracts directly.
Thank you. Questions from my colleagues? 137 05/27/03 - FINANCE - BILL 030373, 030377 Councilwoman Tasco.
That was going to be one of my questions. Wouldn't you have to pick up the administrative costs to run the parking garages? Have you done any analysis to find out what that will cost and who you would pick up?
The administrative costs that are represented by the $1.7 million allocation?
Those are central administrative charges that are assessed against the airport's revenues to pay for administrative costs, I believe, of the Parking Authority's downtown administrative offices, such as Human Resources, et cetera. We believe that we can absorb those tasks into the airport's administrative management unit that already exists, and it is really one of the main reasons why we feel that this is a prudent fiscal management initiative at this time. As far as additional administrative costs that might be built in to some of the other operating expenses within the budget that has been presented by the Parking Authority, until we have a chance to actively manage those areas, we aren't 138 05/27/03 - FINANCE - BILL 030373, 030377 sure how much we could save there. But we do believe there are additional savings available. Most, if not all, of the functions that are administrative in nature can be handled by the airport staff.
There was no 11 answer. If you had to hire new employees to administer to run the airport, would that be given to an operator, or would you hire employees at the airport and would they be a Civil Service or non-Civil Service?
Specifically for the administrative areas, they would be Civil Service. We believe we have at least the majority of these tasks already covered with the administrative staff we have on hand, which is a Civil Service staff. If we did need to add some additional staff by taking over the parking administrative functions, they would be additional Civil Service staff. Again, we're hoping to avoid that.
So you don't really 139 05/27/03 - FINANCE - BILL 030373, 030377 know what this does for you financially. I mean, you all haven't really worked out the numbers.
The $1.7 million we believe is a bottom line number, that anything above that -- you know, over and above $1.7 million would be additional cost savings for us. We believe the $1.7 million substantially is a number that we can count on eliminating from our cost each year. And I would add the $1.7 million is really from the most recent three fiscal periods for which we have audited dollars; $1.6 million in Fiscal 2000; $1.7 million in Fiscal 2001, and just over $1.7 million in Fiscal 2002. In the projected budget for the Fiscal Year 2003 -- which has already ended, by the way. It ended on March 31st. The projection we have from the Parking Authority is that number will go up to $2.5 million. We do not have an audited final report on that. But the higher that number goes, the more that savings accrues to the airport.
You made one statement that was really interesting. You said that it would add to the reduced rates and charges of the airlines. Is there any guarantee they're 140 05/27/03 - FINANCE - BILL 030373, 030377 going to reduce their rates and charges? How do the two tie in?
The rates and charges we're referring to are not airfares. They're our rental rates that are charged to the tenants. They're referred to rates and charges in the lease agreement with the airlines. What we've attempted to do over the last five to ten years in particular is increase non-airline sources of revenue, everything from our retail food and beverage operation, rental car, concessions, and parking, which is our number one non-airline source of revenue. In the balance sheet the more non-airline revenue we produce, the less the cost is for the airlines. We have a residual agreement which means that at the end of every Fiscal Year basically our expenses and revenues are balanced, and that any surplus goes back to the airlines in the form of reduced rates in the subsequent year. And if we were to have a deficit, that would result in increased airline rates. So when you look at that balance sheet, our ability to increase non-airline costs means that the airline cost goes down. That is important not only for the carriers that are on board in our signatory lease, 141 05/27/03 - FINANCE - BILL 030373, 030377 but also in our efforts to attract low fare competitors, such as AirTran and Jet Blue, et cetera. The costs of doing business at our airport is a significant factor in trying to generate competition.
You talked about that you would run the parking garages more efficiently. What would you do differently, and what is it that you would like to do that you haven't been able to do, and what are the impediments to making any recommendations for any change in operation that would make the garages more user friendly?
In the current scenario, obviously we have -- we're one step removed from all daily operating decisions and maintenance activity simply because the Authority itself operates as our agent or as a middle person, if you will. And that has been somewhat problematic since 9/11 in areas such as the changes in security that have been required. There's been some major impacts on parking. In the current security environment, each time we have to shift as a result of a change, say from Code Yellow to Code Orange on a national level, 142 05/27/03 - FINANCE - BILL 030373, 030377 there are changes that have to occur in the parking garages, as well. We feel that those areas, particularly related to airport operations and security, are areas that we would like to have control of our destiny. Other areas, I think in recent years in particular we do get a number of complaints on a regular basis regarding signage and ability to locate the proper garage for the airport terminal that you're either picking someone up or dropping a person off for. We do feel that there is a kind of divergence or a fissure, if you will, between the demarcation line where the airport-managed facilities ends and the Parking Authority-managed facilities begins. I don't mean to be critical, but I do think that the idea that it's two separate organizations creates a real noticeable difference when you step from our side of the line to the other in terms of the appearance, in terms of the signage, and in terms of the general passenger experience. We do not have direct control over customer service as performed by the cashiers and other employees who interact directly with the public. Again, it is not meant to be critical, but I do believe from the 143 05/27/03 - FINANCE - BILL 030373, 030377 standpoint of an airport manager, we would prefer to have control of those customer service and maintenance activities directly, rather than through a third party as we do today.
Are those services provided by employees of the Parking Authority, or is this the services that are contracted out to a manager of the garages?
For the most part, the services, I believe, are provided through contract. There is a small number of Parking Authority staff who are on the payroll of the Parking Authority assigned to the airport. But probably 95 percent or more of the people that you see working at the airport in the parking facilities are contract employees employed through a contract that the Parking Authority has issued.
The contract, as I understand it from our attorneys, is in place through October 31st of this year, and it may very well be in place for an additional option year because notice would have had to be given it to 144 05/27/03 - FINANCE - BILL 030373, 030377 terminate this October earlier this month, if I have the chronology correct. To us, this is not necessarily a bad thing. It would mean that, as we were to take over the operation over the next several months, we would have the luxury, to some extent, of maintaining the existing contractor in a transition period while we look at whether or not that's the best way to proceed into the future beyond 2004. And if we do elect to keep the services that are currently contracted out, contracted out in the future, we would do that through a competitive process. It remains to be seen whether that would be a Procurement Department bid, Procurement Department RFP, professional services contract RFP or concession RFP. It could be one or a combination of all of those. That period that we would have for the next year or so would give us an opportunity to decide what the best methodology is into the future.
Mr. Isdell, you've been at the airport for many years, and you are aware that Mary Rosloney (ph)and Jim DeLong had an interest in managing the parking garages. Do you recollect why this Council never considered that 145 05/27/03 - FINANCE - BILL 030373, 030377 before?
I know that the airport and the Commerce Department did not ever bring an Ordinance like this before Council in the years I've been at the airport -- that's about years now, 7 covering Jim DeLong, Mary Rosloney, Dennis Bouey, 8 Fred Testa and myself -- there was a Resolution 9 introduced in February of 2000 that -- I actually 10 have a copy in front of me. It was introduced with 11 14 of the present Councilmembers as co-sponsors, and 12 at that time the Resolution was calling for hearings 13 on this very issue as to whether or not the airport 14 should, in fact, take over parking operations. That was in February of 2000. That's the first time that I'm aware that the issue was ever brought specifically before the Council.
I have a very good recollection of that particular resolution. I think if you have a copy in front of you, it probably was referred to the Committee on Commerce and Economic 146 05/27/03 - FINANCE - BILL 030373, 030377 Development; isn't that true?
The Administration's position at that time was they didn't want a hearing.
Well, what I have in the file relating to this particular resolution was, there was a letter that you sent in July of 2000 to the City Solicitor asking for a full briefing on the relationship between the airport and the Authority. The Solicitor's Office responded to you in September of that year. And from my recollection, one of the significant things that happened in the year 2000 during that period between your request and the Law Department's response, was the appointment of my boss, Jim Cuorato, the Commerce Director in August of that year. He specifically asked us at the time to hold off, give him an opportunity to look at the relationship, try to make it a more workable and positive relationship. I think that he had some success in the early stages. But again, if you ask me today, our preference today would be to control our own destiny to a large extent based on things that occurred 147 05/27/03 - FINANCE - BILL 030373, 030377 after the time period that we're talking about.
The City Administration at that time was not interested. They did not even want a hearing to take place on that particular matter. That was their position then. What changed?
I think September 11th, 2001 was a significant change since that time.
Mr. Isdell, you're going to send me into a totally different place where you don't really want me to be if you're going to have this conversation and every response is going to be about 9/11. You are really up on the line on that.
I think that's the first time that I mentioned 9/11, Councilman.
No, it's not, actually. I just want to put you on notice right now, okay? We haven't gotten to my questions yet.
Clearly, that did happen after the year 2000. In addition to the security issues that I mentioned earlier, in response to one of Councilwoman Tasco's questions, more recently there has been a less than successful experience on 148 05/27/03 - FINANCE - BILL 030373, 030377 our part in terms of the economic reporting and economic payments that had been made to the airport. If I can describe the annual payment relationship for you. On an annual basis, the Parking Authority's fiscal period ends on March 31st. Based on a preliminary audit at that time each year, we are given a payment, an estimated payment, on June 30th of that year. We do not get a reconciliation of that payment until they have finalized their financial audit for that year. In the most recent fiscal period that ended on March 31st, 2002, it turned out there was a one-and-a-half million dollar balance owed to the airport which was not paid to us until about a month ago because of a delay in their annual audit. This is not a good management of cash flow situation, from our perspective. Most of our concession contracts provide us with concession revenue on a monthly basis.
You know a lot of the City's vendors are not exactly thrilled out of their mind about our payment process either. Who's accusing who of what here?
All I'm saying is that 149 05/27/03 - FINANCE - BILL 030373, 030377 there was a significant delay --
Were you not able to do something because of a dispute between finance departments or accounting people or something? Did airplanes not fly that day or that week?
There was a significant delay in the reconciliation payment that was owed to the airport. This is a major concern --
The impact of which is that we had a million-and-a-half dollars owed to us for the better part of a year that should have been received in our bank accounts.
Mr. Isdell, we've had many opportunities for Q and A back and forth. Now, you know a couple things. One, I'm going to ask whatever questions I want to ask. Two, I'd encourage you to answer them. Three, don't try to talk over me. Four, I'm going to keep going back to 150 05/27/03 - FINANCE - BILL 030373, 030377 the question that I asked. So why don't you just answer it and we can move on? What was the impact of not receiving the money?
The impact was you just didn't have it. It's yours, you wanted it, you got it late, and that was the impact of it. Is that the beginning and the end of that?
To be honest, I think there's a concern that when that happens, that it could happen again in the future. That's an impact, as well.
Okay. What else happened post-2000 or after Mr. Cuorato got here that caused this shift in the Administration's position on this particular issue?
I believe the construction program that has been ongoing at the airport for the past several years by the Parking Authority has failed to meet our expectations in terms of timeliness in certain particular areas.
Timeliness, schedule. 151 05/27/03 - FINANCE - BILL 030373, 030377
You want to talk about timeliness in a construction project? You want to enter that on the record?
You want to have now a discussion about the international terminal and a couple other airport projects out there?
Go ahead. What were the timeliness issues? Were they behind schedule, off budget, cost over-runs, what?
There are certain areas of our arrival roadway that continue to be closed to traffic as a result of delays in completion of the E baggage claim area that is directly underneath the new garage that was built over the last two years. There was a significant delay of the opening of the F bridge, the bridge that was built to connect the new parking garage to the F terminal. All and all, these were just examples --
When were these projects? 152 05/27/03 - FINANCE - BILL 030373, 030377
The F bridge, our understanding was it should have opened by Thanksgiving last year. It did not open until, I think, April of this year, causing great hardship to passengers using the commuter terminal.
When was the international terminal scheduled to open?
Under the original plan upon which Council financed that project.
Do you have any problems? Are you going to tell me about 9/11 again?
Okay. But I think in previous testimony -- because you and I had this 153 05/27/03 - FINANCE - BILL 030373, 030377 conversation already. I think you told us that on September 10, 2001, you already knew the project was going to be delayed, right? Didn't you testify to that here in Council about a month ago?
Yes. You already knew on September 10, 2001, that the international terminal was going to be delayed.
We had been before Council in June of 2001 and we changed the opening date at that time to July 1st of 2002.
So that project was already going to be delayed and was already over budget prior to September 11th, wasn't it?
All right. Madam Chair, I was actually in -- I think I was actually in a point of information from Councilwoman Tasco, and you were kind enough to let me go. But I think it's actually not my turn yet. I'll come back. 154 05/27/03 - FINANCE - BILL 030373, 030377
Councilman O'Neill is next, and then we'll be back to you.
Mr. Kemp, how much are we proposing to borrow and how much is needed for the debt service?
At this point we're looking at borrowing a total of $291 million. The debt service payment on that will be approximately $16 million a year.
How much are we retiring -- is it 291 that we're retiring?
Approximately $88 million will be towards the 1997 bonds. $197 million will go toward the 1999 bonds. We have an estimate of $4 million for bond insurance and 2 1/2 million dollars for cost of issuance. But those are just estimates.
We're borrowing 292 -- I'll tell you what the outstanding -- the par amount of 155 05/27/03 - FINANCE - BILL 030373, 030377 the 1997 bonds is approximately $76.4 million, and for the 1999 bonds is $153 million. So that total is $229.6. So we're borrowing 291 to pay off 229.6.
We have to borrow a sufficient amount to put into escrow because we can't retire the bonds at this time. We have to defease them. So we'll put funds in the escrow that will pay the debt service that's coming due on those bonds. That's including principal and interest.
What extra money are you talking about? What are you referring to?
Correct. Most of those dollars will go into an escrow that will be available to pay bonds as they mature.
I'm not sure I understand it. But why don't you explain to me how you'll have to spend 229 -- you gave me terminology.
These bonds are not currently 156 05/27/03 - FINANCE - BILL 030373, 030377 callable, so we can't call the bonds. So we have to put into an escrow an amount that is sufficient to cover the principal and interest on those bonds as they come due. Since interest rates are low, we have to fund it -- on interest rates of what we earn, we have to fund it a little bit higher. If we were going to receive a higher interest rate, the initial funding may be a little bit less. But at this time, we have put those --
Is it fair to say that the differential will primarily be interest enough to pay while we're waiting for this callable period?
The Division of Aviation, do you have any money in debt service right now in the budget for this transaction, the '04 budget that was just passed?
How do we handle that problem? How do we deal with that?
We would have to do -- the way the transaction works today, as far as the debt service on the Parking Authority facilities, it's 157 05/27/03 - FINANCE - BILL 030373, 030377 actually a reduction in net revenue from the gross parking receipts. If we're going to start paying that debt service out of the operating budget -- it sounds like Corey has a better answer than I do.
Could you ask the question one more time, just to make sure I answer correctly?
If you have no 9 authority in the budget for '04 that just passed for debt service on these bonds in the Division of Aviation, how do you deal with that?
The proceeds from the bond will go into an escrow, and the payments will be made out of the escrow account.
The funds will go to the trustee who will hold the escrow account. As the bonds mature, the payments will be made out of that 158 05/27/03 - FINANCE - BILL 030373, 030377 escrow account.
Could we have legal counsel on that? I just want to hear some legal --
That was the old bonds. I'm sorry. You said the payment on the new bonds. The new bonds will be paid out of the appropriation from --
My name is Ed Anastasi. I'm the Deputy Director of Aviation for Finance and Administration at the airport. As Corey Kemp said, the debt service on the Parking Authority bonds will be paid for out of the escrow account. Now, as far as the debt service on the new general airport revenue bonds that we would issue, there are funds in the Sinking Funds Aviation Budget for payment of that debt service.
Which would mean that right now there's more money in the Sinking Fund than is needed, if we don't do this transaction?
By about how much 159 05/27/03 - FINANCE - BILL 030373, 030377 is there more than we need?
I would say the debt service for this, that is included in the Sinking Fund's Aviation Budget, is $16 to $18 million annually. Don't hold me to that. I think it's right around those numbers.
So you just have that extra money in your Sinking Fund?
Was there any testimony in Council to the effect that to 14 $18 million of the Sinking Fund in the Division of 15 Aviation will be used on this project or some other 16 project? That's a lot of money to be kind of laying around without any designation to it.
I would have to defer to Mr. Ginnetti, but I believe that there was language in there stating that the additional debt service would be for new projects. Whether or not there was any specific reference to any specific project, I do not believe so.
Is Mr. Ginnetti here to comment on that? 160 05/27/03 - FINANCE - BILL 030373, 030377
I'm sorry, Councilman. I didn't actually hear your question.
The money that is already in the Sinking Fund that we just heard, the to $18 million to pay the debt service on these 7 new bonds, should they be approved, I'm wondering 8 how we wound up with all that extra money in the 9 Sinking Fund Division of Aviation. 10
When we prepared the '04 11 budget for Aviation, there was a provision for a new 12 borrowing. At the time I think it was around 13 $250 million for projects at the airport. 14
Was this one of the 15 projects at the airport? Is this replacing all the 16 projects at the airport that were not mentioned, but generalized, in that statement?
There's -- I never knew what the specific project was. It was in the master plan.
Were any of those general projects for improvements at the airport specified in the testimony on the budget hearings?
But whatever they 161 05/27/03 - FINANCE - BILL 030373, 030377 were, they can't happen now if we spend the to $18 million on this instead; is that correct? It would seem to me that it's logical, that if you were going to spend to $18 million in the Sinking Fund 6 for projects or improvements to the airport that you 7 didn't specify, whatever they were that you didn't 8 specify, you couldn't spend it if you don't have the 9 debt service to pay off the debt on them. You're 10 using it now on this parking garage thing instead of 11 waiting a year when you have the time to put through 12 the budget, testimony and planning for the 16 to 13 $18 million, do your projects that you needed two 14 months ago when you were doing the Operating Budget 15 testimony on the Sinking Fund. It seems to me that 16 if two or three months ago you didn't know you were doing this, this is a pretty last minute deal. In fact, you had until two weeks ago or three weeks ago to amend your testimony and the budget to reflect this. So it means this all happened in the last two or three weeks? The bills were only passed last week and they were only brought out two weeks ago.
Councilman, I believe that this is one of the things that was under consideration at the time that that provision was 162 05/27/03 - FINANCE - BILL 030373, 030377 made. There's not a list of other construction projects that are being deleted in favor of this, if that's your question.
Well, if $250 million was the total number of projects, and this is $292 million, it is more than the total number of projects for next year that you were anticipating doing a borrowing for. It means that none of those can be done, and you're 40 over the 250, but you're going to cover it with money that's in there. One's not making sense with the other, unless --
Councilman, I think what he's saying is that this is the project that was contemplated in the budget which is the $250 million that Mr. Ginnetti spoke about. This was the project, the acquiring of the parking garages. There's no other list of projects.
Well, then Mr. Ginnetti and Mr. Isdell both said two different things. Because Mr. Ginnetti said various airport improvement projects. He didn't talk about a single one that was sort of a stealth issue that no one wanted to talk about at budget hearings until two 163 05/27/03 - FINANCE - BILL 030373, 030377 weeks ago. It was the routine, "We're going to do airport improvements." We can pull the testimony and everything. But I'm just trying to point out that based on what I've heard so far today, this wasn't in the Operating Budget. It's replacing money that was intended for improvement projects. I wouldn't call this an improvement project. And you would specify something other than an improvement project if you were talking about this. It speaks for itself. Unless there was testimony about it, unless there was testimony about something other than improvement projects, this is something that has happened since the budget was put to bed approximately three weeks ago, I guess, and then when the testimony was given back in the spring or late winter, that it was not on the radar screen, at least not on the radar screen that came across to Council. So it's very, very recent, which would explain the problems that Councilman Cohen had and others have with the fact that there's no letter, because if you had time, there would have been a letter. I wouldn't be waiting until the last minute. I don't want to draw it out. My colleagues may want to elaborate on it. But what I've heard 164 05/27/03 - FINANCE - BILL 030373, 030377 tells me that this is kind of a very recent -- well, it is a very recent deal. Now, just one last thing. And I know other people want to ask. Isn't there an agreement needed with the Parking Authority to do this? Don't you have to have a signed agreement with them of some kind to do this?
I believe that's the purpose of the second Ordinance, is to authorize a purchase agreement with the Parking Authority, Councilman.
Right. Authorize. But they have to agree to it, right? Don't you get authorized and they get to agree.
The lease gives the City the option to take back the garages, as I understand it.
I think the agreement is a recommended form by the City's attorneys, as a recommend vehicle to take back the garages. But I don't believe that's required in the lease.
Why would we 165 05/27/03 - FINANCE - BILL 030373, 030377 recommend an agreement when it's sort of a hostile takeover, if we can just do it under the lease?
I think that we were hoping that it would assist us in doing a smooth transition from one form of governance to the next.
I was going to say that the lease gives the City the sole option to acquire the parking garages. But since they are not currently property of the City, there has to be a mechanism, a legal mechanism, to transfer title from the Parking Authority to the City. That's what the agreement of sale is intended to do.
If I'm the Parking Authority -- no disrespect to the Division of Aviation or Public Property or anybody else involved in this -- I probably haven't had any meetings yet with you about this, and probably wouldn't feel compelled to attend any that you called. If there's another way, other than this agreement of sale or agreement that has to be utilized, could we hear what it is? Because I think common sense tells us that that would be the only way you would get it. 166 05/27/03 - FINANCE - BILL 030373, 030377 So what is the other way, other than the Parking Authority agreeing to this.
The Parking Authority is essentially required to agree. The lease does not give them the option not to sell the parking garages back to the City. They are required under the terms of this lease to comply with the terms of the lease, which is to allow the City to exercise its option.
A whole lot of people are required to agree to things that they refuse to agree to. All I want to know is, when they refuse to agree -- if, as expected, they refuse to agree -- what is your backup or your alternative?
Our backup would be legal action against the Parking Authority.
Well, I would recommend you prepare those documents soon, because I think you're wasting your time, otherwise, with that agreement piece. I'll turn it over. Thank you.
Thank you. Councilman Cohen. And then Councilman Nutter.
Mr. Isdell, you know 167 05/27/03 - FINANCE - BILL 030373, 030377 that this City Council really has a great deal of respect for you and for your knowledge. And you've been with the airport for years. You explained 5 to us how simple it is to be on the side that the 6 City is presenting today. It's so obvious that from 7 every advantage we're the only City, you say, of 8 major size that does not run its own parking. How 9 long has that been in effect? How long has it been 10 that Philadelphia is the only City that doesn't run 11 its own parking? 12
Well, the agreement in 13 Philadelphia dates from 1974. As far as how long 14 we've been the only airport in the US that wasn't in charge of its own parking operation, I can only say that that's been the case, to my knowledge, in the years that I've been at the airport, which has been 14. It's probably been longer than that, but I'm not familiar with those days.
See the nuggets of wisdom that you gave us, and the one, two, three, four or five points seems so clear and sound that it's like a confessional saying somehow or other, though these are so clearly obvious, we in the airport didn't think about them until maybe two 168 05/27/03 - FINANCE - BILL 030373, 030377 years ago when that Resolution was passed at the instigation of City Council. It seems awfully strange to suddenly be raising this issue. We have too much respect for you to believe that you hadn't thought of all of these issues beforehand, that they were applicable. If they are applicable now, they've been applicable for many years as to why the City should have had it. But the City must have had some good reasons through the Rendell Administration, through the Wilson Goode Administration that preceded it, even the Bill Green Administration, and through the current Administration, Mayor Street. There have been many years in which we could have done this, but we found out that, for one reason or another, it was important not to do it. So it just seems very strange that suddenly -- and as Councilman O'Neill pointed out -- at this very late date in the current year's budget process this is being raised. We wonder why, what brings this about, and is everybody leveling with us? It also seems strange to me to be pitting two government agencies against each other. If the Parking Authority is for it, you ought to 169 05/27/03 - FINANCE - BILL 030373, 030377 come here and you ought to say, both agencies agree. If the Parking Authority doesn't agree, you ought to say, the other agency involved does not agree. And it seems to me strange indeed that we would be talking about forcible operations against one government authority in favor of another government authority, particularly when, say, in Philadelphia Housing, the Mayor won't even require his own appointed head of the agency to come and testify before City Council because apparently he thinks it's unseemly for him to use that kind of power. " You know, this seems so mysterious to me. I don't know about confessions. Maybe they make people good. Are you saying that the airport has been wrong all these years, that you've missed the boat; that all the trained professionals operating the airport missed this opportunity to develop a first-class airport to bring in lower fare increases? Are you telling us that this new historical low in interest rates is new? There have been historical lows for years now in interest rates. And they may go much lower or 170 05/27/03 - FINANCE - BILL 030373, 030377 they may not. Nobody knows. But five years ago we thought they were then at a historic low rate. So all of this, Mr. Isdell, does not seem as if it's coming from you, or at least that you were not the creator of it. But that there is a higher authority, which must be the Mayor, because I know of no higher authority other the Mayor, and that there's some form of Administration policy. And if we knew that, we might be able to consider it. Maybe there's something more to it that what's been presented to us. Because it makes no sense on the record. That's why we're having difficulty on it. We don't like to feel that we're a thoughtless body, that for 30 years we can have one policy and then overnight decide, well, you know, we thought we were talking about being a world-class City, but we've been adopting policies that move against it all these years. And the worst part of it is, we didn't understand it. We thought the old policies were producing a world-class City. Now we're told they've been blocking us from becoming a world-class City. So we're very troubled by this and by the testimony here. We don't like the two 171 05/27/03 - FINANCE - BILL 030373, 030377 agencies fighting each other. We don't like the idea of threatening force, that we're going to do it that way whether the other agency likes it or not. If it's a good policy, I suspect government ought to be able come to one mind.
They are my concerns, and I'd like to hear your response to that. Because I know your sincerity. I know your dedication to the airport, and I know how hard you've worked over many years with many obstacles in front of you to bring the airport to its present stage of development. Thank you, Madam Chair. That's my comment, but I'd like to hear if Mr. Isdell has any comments with respect to it.
Thank you, Councilman Cohen. Truly, from my vantage point, this is a business decision, a good business decision. It has been contemplated for a number of years. Mr. Anastasi reminded me that it actually was the defeasement of the parking bonds was actually part of two contemplated transactions involving turning the airport into an authority back in 1991, when Jim DeLong was our director, and 1995 when Mary Rosloney 172 05/27/03 - FINANCE - BILL 030373, 030377 was director. Because the authority transactions did not move ahead, the change in governance of the garages also did not move ahead. But within the last two years, in particular, the airlines call to us for us to do everything in our power to reduce their costs, to increase revenues in any way that we can has caused us, in particular, during our last two rounds of airline budget meetings this time last year and in the current year to really scrutinize our budget in every possible way to look for places where we could save a few bucks, where we could increase revenues. This is an area that we feel is right for that type of improvement. We've tried not to characterize it as negative or a hostile transaction, and perhaps that is naive on my part. I apologize for that. But we certainly still feel that -- at least I can speak as Airport Director that I would be much more comfortable and positive in my ability to manage the airport parking if we had direct control over it, and that's really my sole motivation. It's not just economics, it's also customer service and it's facility maintenance and management. These are things that we think we do very well. We'd like to extend these skills that 173 05/27/03 - FINANCE - BILL 030373, 030377 many of my staff people bring to bear to the airport terminal buildings to the garages as well. We have tried not to characterize this as a criticism of the existing management structure there. If I've done that today, again, I apologize, and don't want to do that.
Thank you, Madam Chair. I don't want continue this because I'm aware that sometimes when you're not the top person in a department or in a government, you're limited in what you can say. I'm willing to take your words for what they say, but I must admit I'm confounded that you didn't present this 10 years ago when you first become Airport Director. Because every reason you've given, I'm sure you've thought about hard and long, and you would have supported it when you first become the Airport Director. And before you became it, you would have been an advocate for those positions. I wonder whether recent changes in the management of the Parking Authority have something to do with the Administration's change of position. Why they were against talking about it when Councilman Nutter and 13 Members added to his, made 174 05/27/03 - FINANCE - BILL 030373, 030377 it 14 Members of Council, raised the question almost three years ago. Nobody in the -- was it because the idea came from City Council and therefore was unacceptable to the Administration? Or was it because of certain recent developments between the State and the City on the management of the Parking Authority? I happen not to agree with the action taken by the State, but I don't think there ought to be retribution. I think government is too important to get involved in that kind of battle. We've got to decide whether the change is a good change or not as it exists, but not to use that change of political control as a justification for taking other steps. If the proposal is sound, then it ought to be adopted. It should have been adopted when the City was clearly in control, not at a time when the City is no longer clearly in control -- though I don't know that anybody knows who is in control. But certainly in this muddled political atmosphere is not the time to take decisive action, in my judgment. I think we have enough other problems to deal with. Thank you, Madam Chair. 175 05/27/03 - FINANCE - BILL 030373, 030377
Thank you, Madam Chair. Mr. Isdell, first, we can go back to that Resolution you made mention of, it being introduced with co-sponsors. What name is the 9 first name on that Resolution as the person who 10 introduced it? 11
So Councilmember 13 Rizzo introduced that Resolution back in 2000?
That's what that means. If his name is first, that means he introduced it. So at the time, back in 2000, when Councilman-At-Large Frank Rizzo, who is a Republican, introduced that Resolution, there was no 20 interest in this particular issue. But three years later there is tremendous interest now on this particular issue. That's factually correct, right?
The only thing I would say is, I wouldn't say there was no interest in 2000. I think that the matter was -- there was a certain 176 05/27/03 - FINANCE - BILL 030373, 030377 amount of time spent in the Law Department. There was a document produced, which I think if you read it today, it doesn't differ in any way from what we've said already. Again, at least in my case, at the behest of the new Commerce Director, we felt like we should defer that decision.
Give him a chance to try to work with the Authority and the airport as a mediator, so to speak.
We received a big package of information, which I certainly appreciate. One is deemed Appendix 2, Report of the Airport Consultant on the Proposed Issuance of City of Philadelphia Series 2003, prepared by Lee Fisher Associates, San Francisco, California. What is the purpose of this report?
This is a feasibility study that the Director of Finance must sign off to that will state that there is sufficient revenues to pay for the debt service of the new bonds.
And how did we arrive at this particular company? Was this a 177 05/27/03 - FINANCE - BILL 030373, 030377 professional services contract? Was this a competitive bid? Was this through an RFP? How did we end up with this firm?
Lee Fisher is a professional services contract. The airport did a competitive RFP in 2001 in which we did a national recruitment. Lee Fisher is one of the most, if not the most, highly regarded aviation consultant in this business, and they were one of two firms that we selected.
You did that back at that time, anticipating this transaction?
No. We used Lee Fisher as a financial consultant on numerous financial matters.
So they're under contract to us? Whenever there's a financing, they swing into action and work on a report? Is that the way it works?
Yes. But we also have used them for other financial analysis projects, such as ground transportation revenues and related -- primarily financial and revenue-related issues, as well as bond issues. 178 05/27/03 - FINANCE - BILL 030373, 030377
When were they engaged for this particular transaction?
They were already on board with a, what we call an on-call consulting contract.
Two to three months ago you knew you were going to do this?
We at least wanted to explore whether it would be good financial sense to do so, yes.
Did you have to sign a separate contract for this particular engagement, or since they're already under contract, you just basically call them up and say, "This is what we're looking to do," and they start working?
As you said, they're already under contract. What we asked them to do is to submit a proposal to us for this specific work that would be done under that contract.
When exactly did you 179 05/27/03 - FINANCE - BILL 030373, 030377 call them and ask them to do that?
Well, we were looking at the feasibility of at least starting some groundwork and doing some preliminary work with Lee Fisher concerning our Airport Operating Budget. This was a major part of our Airport Operating Budget, the non-airline revenues that we get from the parking operation.
The cost of the engagement, I think it's around 125 to $150,000.
But now going back to, I guess, the amendment discussion, the report is not complete; is that right? 180 05/27/03 - FINANCE - BILL 030373, 030377
We received word from Lee Fisher that the report will be complete by the end of this week, and you will have a signed certificate accompanying that from the Finance Director.
That's happened since we raised this issue an hour ago?
There was some misunderstanding between Lee Fisher and the City as to what specifically was required for this hearing, whether or not it would be a draft, whether or not it would be a final report, whether or not it be signed. And we did have a discussion with them after this point came up this morning. They will be able to provide a signed report to us this week.
Do you anticipate that the signed report will be different than the report we have presently, dated May 22nd?
Not materially. 181 05/27/03 - FINANCE - BILL 030373, 030377 What does that mean?
I would say in no 4 material aspects. There won't be anything major in terms of changes. There may be some comments that we receive from the City Treasurer's Office and the Finance Department, but I would not expect, at least at this point in time, that there would be any major changes.
Okay. That's good. Let's talk about the report. I had a chance to take a little look at it the other day. On page -- what is this considered -- II75. The report says, public property is integral to overall airport operations from the standpoints of both finances and customer service. Transferring responsibility for parking operations at the airport from the Parking Authority to the City could result in savings in direct and indirect administrative expenses through the consolidation of functions and other efficiencies. The report goes on further to say -- on page II83, Given the provisions of the current management agreement that the fine level of staffing and current labor agreements, transfer of operating 182 05/27/03 - FINANCE - BILL 030373, 030377 responsibility for airport parking from the Authority to City will not in itself allow the parking operator's contractual services expenses to be reduced. With direct day-to-day responsibility for parking operations, the City might be able to realize operational efficiencies, such as by adjusting cashier, customer aide, supervisory and other staffing levels. However, for purposes of this report, the direct expenses for contractual services were assumed to increase from the FY 2003 level with inflation and increases in originating passengers. Then it further goes on to say, that beginning in FY 2000, following an agreement among the Authority, the City and the Federal Aviation Administration, the Authority has allocated its administrative expenses to airport parking in proportion to direct operating expenses, subject to a maximum allocation of 28 percent to the airport. So now, does this mean that the City reached an agreement with the Parking Authority and FAA about these administrative expenses out in the airport in FY 2000? Is that what that means?
That's correct. The 183 05/27/03 - FINANCE - BILL 030373, 030377 initiating action for that matter started in 1994 as a result of an audit by the Inspector General's Office of the United States Department of Transportation. They questioned the methodology whereby central administrative costs of the Authority were allocated to the airport, at that time, I think, based on proportion of total expenses -- I'm sorry, total revenues. The matter was, I guess, negotiated over a multi-year period, and actually multi-director period, and ultimately a proposal was made, I believe, at the end of the tenure of Dennis Bouey in late 1998, whereby the allocation method was switched from airport proportion of revenues to the airport's proportion of expenses. And on top of that --
The Authority's direct expenses out of the airport through airport operations?
I thought I heard 184 05/27/03 - FINANCE - BILL 030373, 030377 you saying earlier that you were concerned that their administrative expenses were covering all kinds of costs related to the Parking Authority for downtown operations and a wide variety of other places. Didn't you say that earlier in the testimony?
I don't think I said exactly those things. The idea, though, is that it's --
-- an apportionment of a central cost that's based on a formula.
I thought the agreement was cost directly out of the airport. That's what your consultant's report says.
Proportional to the expenses of the airport relative to the total expenses of the Parking Authority. It's still really just a mathematical formula whereby $1.7 million is extracted from our gross proceeds before we get them --
-- to pay for PPA 185 05/27/03 - FINANCE - BILL 030373, 030377 administrative costs. It's not based on actual expenses. It's based on a mathematical formula that enables them to calculate those expenses.
Well, you have to tell me -- beginning in FY 2000, following an agreement among the Authority, the City and the Federal Aviation Administration, the Authority has allocated its administrative expenses to airport parking in proportion to direct operating expenses subject to a maximum allocation of 28 percent to the airport. What does that mean?
It means we have both the direct operating expenses and then on top of that we have an apportionment of overall PPA administrative expenses that is calculated based on that percentage of the whole. Again, Mr. Anastasi might be able to say it better than that.
It was certainly an improvement over the previous calculation method. It did reduce the annual allocation number by about 1.2 million in the first full year that it took effect, but it was certainly step in the right 186 05/27/03 - FINANCE - BILL 030373, 030377 direction. But it was not --
Well, we question whether that expense should be charged to the airport at all. It was a step in the right direction, if not an ultimate solution. It resulted in an increase in our net revenues and it was satisfactory to the FAA after what had been at that point, I think, a five-year or six-year protracted negotiation in which various alternative solutions were offered. I also think that the cost allocation method, if I'm not mistaken, was repetitively criticized in the City Controller's annual audits that it was not a proper allocation of costs, administrative costs. And this proposed compromise was acceptable to the Controller's Office. Again, it was not the ideal solution, but it was certainly an improvement.
Well, if it wasn't what you wanted, then why did you agree to it?
I would have to let my predecessor answer that question. I did not agree to it myself personally. 187 05/27/03 - FINANCE - BILL 030373, 030377
You were around, though, right? I mean, you must have had a conversation with someone about it at some point in time, right?
Not really, no. Maybe Mr. Anastasi could shed light on the actual agreement.
Well, I think the reason why the City agreed to it was because it was an improvement in our finances. Before this new allocation method was devised, we were paying $2.8 million of the Parking Authority's overall $7 million administrative expense. And when the basis was changed to comply with the FAA's request, we ended up being charged $1.7 million only out of the total administrative cost pool of $7 million. So it was an improvement, from our perspective.
This issue about the City having this unique standing of not being in full control or management or operation of parking facilities. In the other major cities or cities that we compete with for air traffic, do they manage their parking facilities directly? Do they have an authority? Do they have private entities managing them? 188 05/27/03 - FINANCE - BILL 030373, 030377 What was the last City that you flew into, Mr. Isdell?
I believe it's done through a contract with a private contractor.
So, does that qualify as being in control of their facilities or are they contracting it out?
The City is in control of the Streets Department and the Recreation Department and the Police Department. That's what we're control of. So even when you talk about control, you're not talking about airport employees being in control, right?
Well, as I said earlier, 189 05/27/03 - FINANCE - BILL 030373, 030377 there's a possibility that we would bring some of the tasks under Civil Service. That remains to be seen. But assuming that we would leave the present contractual arrangement in place, we would be one step closer to control than we are today. Again, we would probably look at contracting most of the tasks that are currently contracted out. I believe that's the way it is done at most major airports in the US. But we would have the option in the administration, in the writing of that contract to take back that work if we thought it was a better way to do things.
Now, when you flew into Logan, was thier operation of their parking garages prominent in your mind? I mean, you're obviously an airport-type person, so I bet you think about a lot of things when you're flying. Is that what's on the minds of most people when they're flying into all these cities, who runs the garages?
To be honest with you, I got picked up at the airport, so I didn't have the use of the -- it wasn't a good example to use my trip to Logan. But I believe that the parking facilities are much more important to the citizens in the community that the airport serves. 190 05/27/03 - FINANCE - BILL 030373, 030377 Frequently -- as I'm sure you do when you fly into a different city, you either rent a car --
I don't get many calls from my constituents about what's going on at the airport. Now, they do talk about the CLIP Program. If you have any money for that, they would like to talk about that. But they really don't call me that much about what's going on about at the airport. You know, you get on a plane, you fly, you get off, you have a good time, you come back. That's pretty much it. We're not intimately involved in the travel plans.
We're known as a strong origination destination airport, which means that two-thirds of our passengers or more originate in this area. There are airports that are less intensely origination airports. They might actually have smaller parking facilities because a lot of their traffic is just connecting traffic. As a strong origination airport, our parking facilities have a big impact on the citizens of this community who use our airport, more than they do on visitors.
I asked you this the other day. Hopefully, you've looked into this. How 191 05/27/03 - FINANCE - BILL 030373, 030377 many garages does the City actually manage itself, similar to our running of the Streets Department, the Police Department, the Recreation Department? Do we actually run any garages ourselves?
You're going to just be a pioneer out there and deal with the parking garages out at the airport.
I believe that with the experience that I've had and the members of my staff have had over the last years or so in the 14 interaction between our facility and the parking 15 facilities covers everything from maintenance to snow removal to maintenance of elevators. We've actually taken over the maintenance of the elevators in the garages as a way to ensure that the elevators work on a regular basis. I believe that we have that capability. It certainly would be a pioneering effort on our part, and we take it on with a great deal of sobriety and seriousness.
I'm sure. Your testimony in this case is that you will consider allowing Central Parking Corporation to continue 192 05/27/03 - FINANCE - BILL 030373, 030377 operating the facilities through the end of its current contract. How long is the total of that contract and how much time is left? And what does it mean when you say you will consider; does that mean that you may or may not?
The current contract is in a first option year of two option years, and that first option year expires October 31st, 2003.
Yes. So they're in the first of the two. Again, as I mentioned earlier, we've been advised that if the Parking Authority wished to terminate the contract October 31st of this year, they would have had to give notice already to do so. So we assume legally that we will inherit that contract through October 31st of next year.
Do you anticipate a long-term contract? Even if you keep Central in 193 05/27/03 - FINANCE - BILL 030373, 030377 place for however long the term is, then it would come up for bid. Do you anticipate a long-term contract?
It would certainly make sense that this would be a long-term contract, yes.
Well, what we anticipated was a single year with three one-year options.
I love it. At least you tell the truth right up front. You consider that to be a long-term contract, one year with three one-year renewals?
My feeling about the contract is there are a whole lot of balls in the air and we're not sure, again, whether this would be a concession contract. I think if it's a concession contract, in the end we would probably structure it in a way that would require some investment, and that would require it to be a longer term contract. If it's treated pretty much the way it is today as just an operating contract, then I think it's fairer for me to say one plus three, as I did the second time.
I think it's going 194 05/27/03 - FINANCE - BILL 030373, 030377 to be whatever gets you not to have to come over here. If you maintain a contracted out situation, what is it in the contract that will allow you, in accordance with your consultant's report, to adjust cashier, customer aide, supervisory or other staffing levels? If you had this opportunity, the City would actually tell the contracting company how many people to have on staff and what their work hours should be and how many bodies and all that? That's what you plan to do?
I do think that there are companies that specialize in parking operations. And I also think, as we said, one of the reasons we need them is I believe that we may actually have no 20 option and that we, in fact, will inherit the contract for another 15 to 18 months.
One of those entities is called the Parking Authority. Go ahead. I'm sorry.
We would have the 195 05/27/03 - FINANCE - BILL 030373, 030377 opportunity during that period to evaluate what the best follow-up contract, what form that should take and what term and what controls we would have over the operation.
All right. Just hang in there just a little while longer, Mr. Isdell. It will be over soon. of the Bill, "Allows the borrowing of an amount not to exceed $325 million, exclusive of cost of issuance, underwriter's discount, original issue discount, funding of deposit to the Sinking Fund reserve account and similar items. And in the event the bonds are issued with such items, the Bond Committee is hereby authorized to increase the aggregate principal amount of the bond so issued by the amount of such items." Does that, in fact, mean that you could end up with an issuance of more than $325 million?
Well, actually, when we put 196 05/27/03 - FINANCE - BILL 030373, 030377 the 325 in, we were contemplating doing a new money piece of it for some projects at the airport. But since then, we decided not to do that. So based on our current projections, the $292 million will be our ceiling at this point, based on current interest rates.
And you went through all of that with Councilman O'Neill. Let me just ask about Exhibit F in the document. Now, the one other thing I found somewhat interesting about this report, it has this disclaimer down at the bottom on all the pages that says, "This preliminary draft report is subject to change and is intended for discussion purposes only. It is not to be made available to parties other than those to whom it has been issued directly and should not be relied upon for securing financing or making investment decisions." It's on every page.
That's the standard draft language, which would be removed from the final version of the report.
But you sent it to us in order to convince us to do the transaction. The report is not done, although we've found out 197 05/27/03 - FINANCE - BILL 030373, 030377 within the last hour that it will done soon. So am I to believe what's in the report now, or should I wait until I get the final version?
I would reiterate what Mr. Anastasi said, that the final version will not be materially different from what you have in front of you.
Okay. Now, you said that the primary reason you wanted to do this was to save on the administrative costs, which you said will go to zero because you'll have no 13 administrative costs, which should be quite fascinating, because all of those activities are going to absorbed by current staff. That's your testimony, right?
Again, at least the way I understand this, there are two levels of administrative cost involved here. There's actual administrative cost and then there's this administrative allocation of -- it's an allocation of centralized cost for everything from human resources to I don't know what else. That's the area we feel we do not need to hire additional people. 198 05/27/03 - FINANCE - BILL 030373, 030377
How is it that your folks -- I assume that they're working hard like the rest of us. They're putting in their 40 hours, at least, a week. They're doing whatever it is they are doing presently. How are they going to do all this other work which they're presently not doing? You won't have to hire anybody else to do anything with this, even pick up a major new responsibility that you presently don't have? No cost?
Again, our understanding of the existing arrangement is that there's only a small number of Parking Authority staff that actually works at the airport.
The administrative cost that you're referring to, the reason we're optimistic that we can eliminate them entirely or almost entirely, is because I think they represent costs similar to -- for example, the City has a central services cost allocation plan that's allocated to all different City agencies for the costs related to central personnel and central Public Property and all the downtown departments. 199 05/27/03 - FINANCE - BILL 030373, 030377 This is a similar allocation. And again, from our perspective, it's kind of a double hit on our budget because we're paying a portion of the Parking Authority's central expenses the same way we do a portion of the City's central expenses.
Let me ask this. So you had that issue and then you had the airlines, who naturally are pushing you to try to make things as cost efficient as possible out there. They're going through what they're going through, trying to get money from the Feds, in bankruptcy, out of bankruptcy. But now they're chasing after us for every dime that might be available, and I understand that. So the second reason here is that you want to try to help the airlines in order to reduce their -- what do you call it, fees and charges?
So in your document, in Exhibit F, you have the year 2000, net parking revenues were $21 million. Year 2001, net parking revenues, $23 million. Now, was there a reduction in rates and charges in 2001, since you made more money than you did in 2000? 200 05/27/03 - FINANCE - BILL 030373, 030377
The parking operation is in a cost center at the airport. It's called the Outside Terminal Area Cost Center. It's the principal source of revenue in the outside terminal area. The deal with the airlines is, any net revenue in the Outside Terminal Area Cost Center is split 50/50 between the airlines and the City's Aviation Fund. So as parking revenues increased like it did from the year 2000 to 2001 by $2 million, that represented a reduction in the airline's rates and charges of a million dollars, or 50 percent of the increase.
So 2001 seems to represent a high point for net parking revenues; is that right?
Now, in your Exhibit F, you have 2002, which I'm assuming that a big impact on net parking revenues actually was 9/11. 201 05/27/03 - FINANCE - BILL 030373, 030377 Would that be right?
And then 2003, whatever happened in 2003, you had -- it looks like 100,000 fewer in plane passengers. And you also in 2002 close to an eight-and-a-half-million-dollar increase in debt service payments; is that correct?
Which seems to have affected your bottom line by eight-and-a-half-million dollars. What caused such a significant increase in your debt service?
The debt service for the new garages that were being constructed kicked in during that Fiscal Year.
So you had your revenues down. And then you have, according to your document, net parking revenues going back up to $23 million in FY '04, for which I can only see one reason, which is the accrued net revenues at transfer, which is letter C, and that's the 202 05/27/03 - FINANCE - BILL 030373, 030377 estimated net parking revenues from the Parking Authority for April through June 2003. Can you explain that? Not only are they going to turn the garages over to you, but they're going to give you $8 million? That's an incredible deal.
One of the things I would like to do before I answer that specifically, is get back to Lee Fisher Associates to make sure that I have the explanation correct.
Well, I think it's a number of things. I know for sure that it's the reduction in the administrative costs, which would be about $1.7 million. But I think there's other things. I could take a look at this schedule --
Yeah. I can take a look at this exhibit closer with them just make sure I give you an answer which is correct. We could provide that to you.
Okay. Well, then just answer this. This will be my last question. 203 05/27/03 - FINANCE - BILL 030373, 030377 For the Fiscal Years '05 through '09 -- and part of the premise here is you want to increase the amount of revenues generated. That's a good goal. And you want to help the airlines reduce their rates and charges by increasing the bottom line, right?
For the five-year period, from FY '05 to FY '09, your exhibit shows that the net parking revenues never reach the high point of 2001, which was $23 million, where they go from $16 million in '05; $17 million in '06; $18 million in '07, $19 million in '08, and $20 million in 2009, which are all less than the net parking revenues of the years before.
Well, I think the main reason for that is because we have two new garages now. And those two new garages cost us annually, I'd say $6 to $10 million.
Well, you're going to have that cost whether you're in charge of the 204 05/27/03 - FINANCE - BILL 030373, 030377 garages or whether the Parking Authority is in charge of the garages.
That it makes it more important for us to reduce other costs that we have some type of control over. We don't have control over that debt service. Those garages have been built, and that debt service, unfortunately or not, is in the rate base. So we have to recover as much as we can from other sources.
But the revenues are lower than what they had been in previous years, and this exhibit assumes that you're in control of the garages, right?
Correct. And if we operate based on information we have currently for the Fiscal Period 2003, which ended on March 31st, we've been told that our net revenues will be 205 05/27/03 - FINANCE - BILL 030373, 030377 approximately $10 million. They went from $23 million in Fiscal 2001, which you correctly identified as the high point, down to $16.8 million in Fiscal 2002, the last year for which we have audited statements, and they're projected to go down to $10 million in Fiscal 2003. And despite repeated requests, we do not have a budget from the Parking Authority for Fiscal 2004, which we're two months into right now. So these numbers in the report you refer to are significantly more robust than what we're looking at if we leave the status quo.
Councilman, I would like to say one other thing regarding that bump that you see in Fiscal 2004, which is $23 million. As we talked about before, the Parking Authority's Fiscal Year ends March 31st. If we were to take over the parking operation, there would be the revenues that we would get from the Parking Authority from April 1st through September 30, 2003. And that's significant because there is no debt service payment during that period of time. So most of the revenues for the period April, May and June would come right to the City and be recorded as Fiscal 2004 revenue, which I believe explains that bump in 2004 net 206 05/27/03 - FINANCE - BILL 030373, 030377 revenue to $23 million.
I understand. Lastly, was it mentioned earlier you would need to come back at some point in time for some subsequent approval by us, do you need a transfer ordinance or any other legislation related to this particular transaction?
I believe that would not be the case. Because, as we said, in the Fiscal 2004 Sinking Fund Aviation Budget, there is significant debt service appropriations in order to start making the debt service payments on the new General Airport Revenue Bonds.
Well, I understand that. But that goes back to Councilman O'Neill's question. What are you not doing, going forward?
I don't believe there were specific projects identified that we would need the additional debt service for. I think it was really for new borrowings. That's the way it was put in the testimony, but I don't have it in front of me.
With no explanation as to what those borrowings were for? 207 05/27/03 - FINANCE - BILL 030373, 030377
I think it was general funds that we put in. As a matter of fact, we've done that in the past, as well, to include some new funds in debt service for new borrowings in the event that something like this does materialize.
You'll be getting a sharper eye on your situation next time you come over here.
Was it testified to at that time? Did you tell us at the time that that's what you're anticipating doing? And where did you actually get the debt service money from?
It's an appropriation within the Sinking Fund's debt service budget for aviation.
No, there's no transfer. There's a direct airport budget within the Sinking 208 05/27/03 - FINANCE - BILL 030373, 030377 Fund, a special airport budget, just like there is a special Water Department budget within the Sinking Fund. And the funds were appropriated in the Aviations portion of that Sinking Fund budget.
No mention specifically of this particular transaction when you're over here in probably February or March?
I do not believe so. I was not present at the Sinking Fund Commissioner's budget testimony.
Thank you. We will take a 10-minute recess for our stenographer, before we lose her, and then we'll try to finish up. Thank you. (Brief recess.)
We're ready to resume. The Chair would like to announce that our Finance Hearing on PGW, which is Bill No. 23 030244, will be continued until June 3rd at 10:00. So all the folks who are here for PGW need not stay. June 3rd at 10:00 I don't know whether you're happy 209 05/27/03 - FINANCE - BILL 030373, 030377 or sad. There may be a correction on the date for PGW, so we'll announce that date at the end of this hearing, as soon as we're clear. We have two days of hearings, CDBG on the 2nd, and all the Condemnation Bills on the 3rd. Either way, I don't know how we will get through. But at any rate, we will announce the date shortly. Are there any other questions with regard to the airport Bill? It's been so long, I forgot what we were talking about. Thank you very much. I'm sorry. I didn't call on Joe Egan.
Certainly. You're always welcome to testify. It appears that it is the wishes of the majority of this body that we end up holding this, anyway. Mr. Egan, please come forward. Welcome, and thank you for your patience.
Thank you. The 210 05/27/03 - FINANCE - BILL 030373, 030377 pleasure is mine. Please identify yourself for the record.
My name is Joseph Egan. I'm the Executive Director of the Philadelphia Parking Authority. First of all, to make it simple, obviously, we're opposed to this change in governance at the airport. And without getting into a long statement -- and I'll paraphrase Charlie Isdell. He said, this is big business. This is the sale of a business. And I think if anyone looks at a business -- and I sold my business a few years ago -- you have to look at due diligence. How do you protect that asset if you're buying it? And I've looked at this situation. In fact, I spent quite a bit of last night. When you go through a whole statement, you see all the numbers that float before you. I kind of sympathize with you all when you do look at those numbers. The issue that I saw on this process is that, even though it's a good time to finance at a low interest rate bond, it's the worst time to purchase an asset. I don't know of any timing in history that the airline industry -- because of terrorism, because of 211 05/27/03 - FINANCE - BILL 030373, 030377 a worldwide turn-down in the economy. I think the impact of those kind of issues in terms of revenue generation -- and that's the integrity of revenue. When you buy something, what's that flow of revenue? From a pure business decision, that's an important part. The second part of that is, how do you execute this? What's the management team that will drive this process? What's the experience? We started there in 1970. Under an ideal world -- there's no question what Charlie Isdell said was right. Airport parking should be with the airport. But we didn't make that decision as a City in 1970. So 30 years of institutional memory, 30 years of an intellectual asset, that's what is in place today. And I think it's foolish to give up that. I also think you have to look at the track record to execute these projects and to think about you're not going to have a learning curve is naive. I've been in the sale of businesses. I've been involved in venture capital. There is always a learning curve. The next day and everything is fine; it doesn't work that way. That's just good 212 05/27/03 - FINANCE - BILL 030373, 030377 common sense. The other is, I think right now when we do this, we're really saying, we're ready to raise rates. And 50 percent of the people that come into that terminal come in for less than an hour. That's 4 percent, I think, or our total revenue, the total dollars are. When you start thinking about raising rents and you don't have the insulation, the Parking Authority and the airport that we have today. Because we are a regional airport, I guarantee you we're going to have a lot of people at our door because of those raising of rates. Thank you very much for hearing me. I appreciate being here and being before you again. My special hello to Councilman Cohen, who I have known for a long time and respect. It's nice to be back in front of you, Councilman.
Reverend Dr. Moore, we certainly want to recognize you and ask you if you would like to make a statement?
My name is William B. Moore, and I'm Deputy Director of the Philadelphia Parking Authority, and I support the statements of our Director, Joe Egan. 213 05/27/03 - FINANCE - BILL 030373, 030377
It is true that both gentleman are dear friends over years standing. Let me ask you for the record one question, were you consulted before this Bill was presented to City Council,? Were you consulted by anybody in the City Administration with respect to the Parking Authority views?
You're welcome. Are there any other questions? (No response.)
Thank you both. We're longstanding friends of all who are here. This will end our scheduled hearing. 214 05/27/03 - FINANCE - BILL 030373, 030377 - - - 215 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING COMMITTEE ON FINANCE - - - May 27, 2003 - - - Public Meeting conducted by the Committee on Finance, held in Room 696, City Hall, Philadelphia, Pennsylvania, on the above date, to consider action on the following: BILLS 030251, 030335, 030373, 030377, 030397. - - - PRESENT: COUNCILWOMAN JANNIE BLACKWELL, Chair COUNCILWOMAN MARIAN B. TASCO, Vice Chair COUNCILMAN DAVID COHEN COUNCILMAN FRANK DICICCO COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN O'NEILL - - - 216 05/27/03 - FINANCE - PUBLIC MEETING
We will now enter into the stated meeting part of our day. The Chair would recognize Councilman O'Neill with regard to a motion on the School Tax Authorization with reporting it out of Committee with a rules suspension.
Madam Chair, I move that Bill 030251 be reported out of this Committee with a favorable recommendation, and also a recommendation that the rules of Council be suspended to allow first reading at next Session. (Duly seconded.)
It has been moved and seconded that Bill No. 030251 be reported out of Committee with a favorable recommendation, and furthermore that the rules of Council be suspended so as to permit first reading at our next Session of Council. All in favor? (Aye.)
The ayes have it, and so this Bill is reported out. 217 05/27/03 - FINANCE - PUBLIC MEETING The Chair will note for the record that Councilwoman Tasco votes no on this. The next is the Philadelphia Municipal Authority's Bill. The Chair recognizes Councilman Nutter for a motion and also for a suspension with regard to Bill No. 030335.
Thank you, Madam Chair. I move that Bill 030335 be reported out of this Committee with a favorable recommendation, and a further recommendation that the rules of Council be suspended so as to permit first reading at our next Session. (Duly seconded.)
It has been moved and seconded that Bill No. 030335 be reported out of Committee with a favorable recommendation, and furthermore that the rules of Council be suspended so as to permit first reading at our next Session of Council. All in favor? (Aye.)
Opposed? 218 05/27/03 - FINANCE - PUBLIC MEETING (No response.)
The ayes have it, and so that Bill is likewise reported out. The next is Bill 030373. There has been an amendment. I will entertain a motion for approval of the amendment or adoption of the amendment. Councilman DiCicco.
I move for the adoption of the amendment to Bill 030373.
Is this the amendment that we discussed earlier which seeks to --
I think it was a technical amendment that was passed out.
-- delete the requirement on the certification letter; is that what this amendment is about?
Yes. It is the one amendment passed out today. 219 05/27/03 - FINANCE - PUBLIC MEETING
What is the pleasure of the Committee? There is a motion on the floor to adopt the amendment? Is there a second? If I am in order I will second the motion for adoption of the amendment. All in favor? (Aye.)
There is a role call on the floor. Councilman DiCicco.
Councilman Nutter. 220 05/27/03 - FINANCE - PUBLIC MEETING
The ayes are two. The nays are four. And so the amendment fails. The Chair will now recognize Councilman DiCicco with a motion with regard to Bill 030373.
I move for the adoption of Bill 030373 with a suspension.
I'll second it. It has been moved and seconded that Bill 18 No. 030373 be reported out of Committee with a suspension of the rules so that it may be considered at our next Session of Council. All in favor? (Aye.)
All right. 221 05/27/03 - FINANCE - PUBLIC MEETING Obviously, that vote is two to four, and that Bill 3 fails. Next is Bill No. 030377. The Chair will ask Councilman DiCicco for a motion with regard to Bill No. 030377, that it be reported out of Committee.
I move that Bill 9 030377 be reported out of Committee with a favorable recommendation, and a further recommendation that the rules of Council be suspended.
I will second. It has been moved and seconded that Bill 17 Bo. 030377 be reported out of Committee with a favorable recommendation, and also a recommendation that the Rules of Council be suspended, so as to permit first reading at our Session of Council. All in favor? (Aye.)
The ayes are 222 05/27/03 - FINANCE - PUBLIC MEETING two. The nays are four. And the bill fails.
The next Bill 4 is Bill No. 030397, which is the library Bill, and that bill is being held until June 2nd at 10:00 a.m. If we have to change it, we will announce at that day because that is our Committee of Finance and the Whole on Community Development Block Grants. So that's 6/2 at 10:00 a.m. We also had a Finance hearing scheduled for 2:00 on PGW's Capital Budget. That hearing will be postponed until May 28th, which is tomorrow, at 2:00. So ends our Finance hearing. We thank you all for your patience. I thank Members of the Committee. (Council adjourned at 3:03 p.m.) - - - 223 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of May 27, 2003, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE ON FINANCE ___________________________ Lisa C. Bradley, RPR and Notary Public