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.