COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FINANCE Room 400, City Hall Philadelphia, Pennsylvania Wednesday, May 26, 2010 11:45 a.m. PRESENT: COUNCILWOMAN MARIAN B. TASCO, CHAIR COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN BILL GREEN COUNCILMAN JAMES KENNEY BILLS 100129, 100305 and 100357 - - - 2
Good morning. We will now call the Committee on Finance to order, and we will ask the Clerk to read the bills that will be heard today.
Bill No. 100129, an ordinance authorizing the City Treasurer, on behalf of the City, to enter into an agreement with Wachovia Bank, N.A. for provision of payroll banking services to the City, under certain terms and conditions. Bill No. 100305, an ordinance 15 constituting the Tenth 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 and sell one or more series of tax-exempt or taxable Airport Revenue Bonds of the City of Philadelphia; designating the obligations to be refunded from certain portions of such Airport Revenue Bonds; setting forth 3 5/26/10 - FINANCE - BILL 100129, etc. the use of proceeds; providing for the pledge of certain passenger facility charges solely for bonds which refund the City of Philadelphia, Pennsylvania, Airport Revenue Bond, Series 1998B; determining the sufficiency of pledged Amounts Available for Debt Service; covenanting for the payment of interest and principal; authorizing the Bond Committee to take certain action with regard to the terms and conditions of the Airport Revenue Bonds and related agreements and the elections under the Amended and Restated General Airport Revenue Bond Ordinance; authorizing the Director of Finance to take certain actions with regard to the sale of such Airport Revenue Bonds, the investment of the proceeds thereof and the City's continuing disclosure obligation; and specifying applicability of sections of The First Class Revenue Bond Act and the Amended and Restated General Airport Revenue Bond Ordinance. 4 5/26/10 - FINANCE - BILL 100129, etc. Bill No. 100357, an ordinance 3 authorizing the Director of Housing, on behalf of the City, to file applications with the United States Department of Housing and Urban Development (HUD) for a Community Development Block Grant (CDBG); to participate in the HOME Investment Partnership program and the Emergency Shelter Grant (ESG) program; and for a Housing Opportunities for Persons With AIDS (HOPWA) grant; and to file 13 applications with the Commonwealth to obtain grants under the Act of April 12, 1956, Public Law 1449, Section 4, as amended, to prevent and eliminate blight; authorizing the Director of Housing and Director of Commerce to file applications to obtain other grants from the Commonwealth; authorizing the Director of Commerce to use the Section 108 Loan Guarantee Program; and authorizing the Director of Housing and the Director of Commerce to enter into all understandings and assurances contained in such 5 5/26/10 - FINANCE - BILL 100129, etc. applications and take all necessary actions to accept the grants; all under certain terms and conditions.
Thank you very much. Please let me note that we do have a quorum in the presence of Councilmen Kenney, DiCicco, Goode, Green and Councilwoman Blackwell. I believe we're going to have the Airport come forth first, next we'll have Wachovia, and then the Community Development Block Grant program. (Witnesses approached witness table.)
Would you state your name for the record and begin your testimony, please.
My name is Rob Dubow. I'm Director of Finance. With me today is Mark Gale, Chief Executive 6 5/26/10 - FINANCE - BILL 100129, etc. Officer for the Airport; Tracy Borda, Assistant Airport Director; and Nicole Diorso (ph), Assistant City Treasurer for Debt Management. We're here today on behalf of the Tenth Supplemental Ordinance, Bill No. 100350. The bill would authorize the City to sell Airport Revenue Bonds in a principal amount not to exceed $605 million. That's exclusive of cost of issuance and certain other costs. The bill provides authorization for the issuance of new money bonds totalling $535 million to fund the cost of capital projects, which will be described in more detail later, and the remaining authorization of 70 million would be used to refinance a portion of the Airport Revenue Bonds, Series 1998B to generate savings through lower interest payments. The current plan of finance for these bonds is to issue fixed-rate bonds for both the new money and the refunded portions. 7 5/26/10 - FINANCE - BILL 100129, etc. The City's general practice is to issue refunding bonds when the debt service savings realized from a refunding would be at least three percent. Subject to market conditions, the City intends to refund a portion of the Airport Revenue Bonds, Series 1998B under this ordinance. Other portions of the 1998B bonds as well as the 1997A and 1998A bonds will be refunded based on authorizations that were provided in the Ninth Supplemental Ordinance, which was previously approved by Council. All revenues pledged to secure the payment of the bonds will be derived from Airport System revenues and not from the City's General Fund. As required by Section 8 of The First Class City Revenue Bond Act, the Administration has submitted its financial report demonstrating that the Airport System's revenues are projected to be sufficient to pay all costs and expenses of the Airport System and meet 8 5/26/10 - FINANCE - BILL 100129, etc. the debt service coverage tests for their proposed bonds and all outstanding bonds under the General Ordinance. I would like to request a suspension of rules for this bill to allow first reading at the next meeting of City Council. That concludes my testimony. Mr. Gale has some testimony, and after that, we'd be happy to answer any questions.
Good morning, Madam Chair and members of the Finance Committee. As Mr. Dubow has indicated, my name is Mark Gale. I'm the Chief Executive Officer at Philadelphia International Airport and I'm pleased to be before you today and have the opportunity to testify in support of Bill 24 100305, the Tenth Supplemental Amendment to the Amended and Restated General 9 5/26/10 - FINANCE - BILL 100129, etc. Airport Revenue Bond Ordinance of 1995. This bill will provide the City of Philadelphia with the authority to issue up to $535 million in, quote, "new money" airport revenue bonds; and, two, issue up to $70 million in refunding airport revenue bonds. 6 million passengers and close to one-half million aircraft operations in terms of takeoff and landings, making it the ninth busiest airport in the country. Last year, new non-stop service to Tel Aviv, Oslo and Birmingham, England has enabled international passenger counts to remain strong. Low fare air service has continued to positively impact domestic air fares, including next month's inauguration of five daily Southwest Airline flights to Boston, a route that has been plagued with high air fares due to the lack of airline competition. While new competitive air 10 5/26/10 - FINANCE - BILL 100129, etc. service has stimulated travel and economic vitality within the Philadelphia region, the additional activity places great demands on the Airport's facilities as they currently are. Consequently, the 2010 bonds are needed to fund several key expansion and rehabilitation projects to increase Airport capacity, enhance customer service and extend the useful life of our infrastructure. The expansion of Terminal F is one example of a capital initiative made essential by increased activity. Since the opening of Terminal F in 2001, passenger use of this facility has increased by over 60 percent. This key 2010 bonds project includes expansion of the security screening checkpoints and passenger hold rooms, expansion of the central hub to accommodate additional food and retail shops, and the construction of a new baggage claim along the Arrivals Road so that it would be consistent with other baggage claims in 11 5/26/10 - FINANCE - BILL 100129, etc. our other terminals. This new location should improve baggage claim capacity and eliminate some of the directional challenges that exist today in the terminal roadway use. The previously mentioned increase in the international service has prompted the need for additional gate capacity. To solve near-term capacity issues, we are in the midst of a major airline relocation project that will maximize gate utilization throughout the Airport and convert three Terminal A-East domestic gates to hybrid international -- or hybrid gates with international preference. However, future growth in international service looking down the road, particularly to remain competitive with other East Coast gateways, will require more international gate capacity. Therefore, passage of the 2010 bond ordinance also provides for an international gate expansion program to accommodate service for future 12 5/26/10 - FINANCE - BILL 100129, etc. international destinations from the Airport. S. airports, comprising only 2,300 acres. Our capacity enhancement program for which the Federal Aviation Administration has recently announced a preferred expansion alternative will both increase airfield capacity and serve to reduce aircraft delays. A key element of this capacity and enhancement program is the geographic expansion of the existing Airport boundaries. Therefore, the proposed 2010 bonds will provide for property acquisition that will assist in the effort to increase airfield capacity and that could also facilitate the creation of new international gates. The remaining 2010 bond projects are primarily designed to enhance customer service, improve airfield efficiency and complete the final phase of an infrastructure renewal 13 5/26/10 - FINANCE - BILL 100129, etc.
program that the signatory airlines at the Airport approved in 2007. These projects include, but are not limited to, a major restroom renovation project, terminal signage upgrades, new taxiways and rehabilitation of one of our major parallel runways, Runway Left-27 Right. 9 As indicated in the Finance Director's testimony, this bill also provides for the refunding of up to $70 million of the Airport's 1998B bonds. Subject to favorable market conditions, our intent would be to refund the 1998B bonds, along with the 1998A bonds and the 1997A bonds, as previously authorized by City Council. At the Airport, we place a high priority on the inclusion of disadvantaged businesses within our operating and capital programs. 6 percent, respectively. For federally funded projects, our DBE 14 5/26/10 - FINANCE - BILL 100129, etc. 1 percent, respectively. Please be assured we will make every effort to maximize inclusion levels for those specific public work contracts and professional service contracts that will arise out of implementing the 2010 bond projects. Finally, I'd like to take the opportunity to thank you again for the opportunity to present testimony in consideration of this bill. Over the years, through the passage of similar bills, Council has supported capital initiatives to improve the City's airports. In recent years, Council's support has led to the opening of a highly acclaimed new international terminal facility, the extension of Runway 1735, enabling it to handle additional aircraft jet traffic, and the expansion of Terminals D and E. We ask that City Council give us the opportunity today to continue this important 15 5/26/10 - FINANCE - BILL 100129, etc. progress. And I stand ready, along with members of my staff, Mr. Dubow, my Assistant Director here, to answer any questions that you may have.
Thank you very much. I see that you are going to expand Terminal F. Would you explain in more detail how you plan to alleviate the problem of passenger confusion about pickup?
Most certainly, Madam Chair. The expansion of Terminal F includes several different pieces to it. One piece that I mentioned was the expansion of what was referred to as the hub or the very center of where three concourses come together in Terminal F. That hub will be expanded with additional concession offerings, food and retail beverage shops and whatnot, but it will also be redone in such a way that it will be able to provide better signage and directional opportunities for passengers 16 5/26/10 - FINANCE - BILL 100129, etc. to either get on the airfield buses that run around to other terminals or direct them over towards the baggage claim facilities. The new baggage claim facility that we're looking to build will actually pick the baggage claim up where it is today and move it over on the other side of the roadway, which would be consistent with all of the other terminals, A through E, so that passengers -- or meeters and greeters rather that are coming down the roadway looking for parties where they would pick them up, the parties will actually be on the --
So a brand new baggage claim, along with the other project that's listed in the infrastructure here, not just Terminal F 17 5/26/10 - FINANCE - BILL 100129, etc. but Airport-wide, we're looking to do a major signage upgrade and restoration process from A to Z to take a look at our interior signage to improve wayfinding throughout the Airport for all passengers as well. The other pieces of the Terminal F project include: Today, you're able to go from Terminal A-West at the far end of the Airport up to Terminal E completely behind security by walking, if you had some time that you wanted to kill. But if you wanted to go to Terminal F, you would either have to exit out of security and come back in again, which can be obviously an inconvenience to passengers, or find your way backwards to get on the shuttle bus. This project will actually bring Terminal F in behind the secured lines so you'll be able to go from anywhere in Terminal F all the way through to A-West completely behind security without having to take a shuttle bus, and you can take a look at the 18 5/26/10 - FINANCE - BILL 100129, etc. Airport's artwork or take advantage of all the other shops and whatnot that we have in the facility.
Will this project be bid through the Procurement Department?
We anticipate that this project will be bid a public works bid. However, we are looking at various opportunities on how this project would be let loose, but we're still in the design stages right now.
We've done several projects at the Airport that have been implemented through an agreement with PAID in order to enact certain improvements at the Airport. The new international facility, for example, years ago was built under an agreement with PAID. Our recent expansion that we just opened up in Terminal E, that seven-gate expansion that Southwest is 19 5/26/10 - FINANCE - BILL 100129, etc. currently occupying, that agreement was done in agreement with PAID where Southwest was our developer on the project as the primary user. U.S. Airways was the primary developer and builder on the international terminal, because they were the primary user. We may do something similar to that with respect to Terminal F with U.S. Airways. The final decision has not been made yet, but we are looking at those things. But in any event, we'll be looking for U.S. Airways or ourselves to properly bid the work out.
In that case, if you go that route, would U.S. Air or some other airline be bound or PAID -- I know PAID would be bound -- to the M/W/DE -- the minority set-aside?
Yes, Madam Chair. We actually provide the DBE percentage levels to them for them to meet in any agreement that we do with them.
Is there 20 5/26/10 - FINANCE - BILL 100129, etc. ever any effort to go beyond 23 or 20 percent? It seems that OEO may say 20 percent and everybody gets stuck at 20 percent. Is there any effort to go beyond that?
Absolutely, Madam Chair. Whether we're talking on our professional service side or on a public works side of the house or even through our airport concession program, we're constantly striving to increase and better those numbers. A goal that is set at percent for us is not the top cap. 15 It really is the bottom level, if you 16 will, and we want to exceed those any 17 time we can. So through various outreach 18 programs to contractors, to consultants 19 and vendors, to match and team partners, 20 both major firms along with possibly 21 smaller DBE firms that can provide 22 certain services, we do that pretty 23 continuously on all sides of the house. 24 But, again, you would have our commitment 25 that we would look to exceed the goals 21 5/26/10 - FINANCE - BILL 100129, etc. whenever possible.
Thank you, Madam Chair. I have a question about the percentage of people involved in the bond offerings by the Airport that are domiciled in Philadelphia; in other words, underwriters, attorneys, et cetera. Do you have that percentage?
At this point, the members of the team that have been picked are only the bond counsel and the financial advisor. So the underwriters haven't been picked yet. So a big portion of the team has not been picked. The co-bond counsel are Saul, Ewing, which is in Philadelphia; Gonzalez, Saggio and Harlan. They have a West Chester office. And then there's the 22 5/26/10 - FINANCE - BILL 100129, etc. co-financial advisors is First Southwest. They're from Texas. And Frasca and Associates. They were from New York.
Can you explain that to me? We don't have qualified financial advisors within the City limits?
We have financial advisors for a number of our different issuers. So for a number of issuers, for example, we use Public Financial Management, and they are in Philadelphia, but we don't use them on everything. We go through a competitive process. We look at who we think is most qualified to help us with a particular issue. First Southwest has extensive airport experience. They have experience with us. So we thought they were the most qualified for this particular deal.
So with respect to financial advisors, you're saying that -- I don't know who submitted bids, but I understand people are 23 5/26/10 - FINANCE - BILL 100129, etc. encouraged or not encouraged to submit bids as part of this process often. Oh, you're not going to get this, don't submit a bid for that, you might get it for that. But, I mean, there are --
-- we get proposals from a number of financial advisors. We look at their capacity to help. If they're on three other of our issues, then we think that it might make sense to use someone else. We don't say, Oh, we're not going to use you, but it's something we consider.
Why is that, if they're qualified and they're in Philadelphia versus somebody qualified who is not in Philadelphia? Why do we have an objection to giving Philadelphia-based businesses as much business as possible? 24 5/26/10 - FINANCE - BILL 100129, etc.
One of the things we consider is whether they're from Philadelphia. We consider a range of issues, and for this -- for the Airport, First Southwest was the most qualified. It's not just about where someone is located.
So the point I was making before is, you asked why don't we use a Philadelphia financial advisor, and I was saying we do use Philadelphia financial advisors on a number of our issues. Just not on this one.
No. I understand. Okay. So with respect to Gonzalez, are they -- Saul, Ewing is not a minority or woman-owned firm.
So the 25 5/26/10 - FINANCE - BILL 100129, etc. suggestion once again is that there's not a qualified minority or woman-owned law firm in Philadelphia that could be co-bond counsel on this issue?
I wasn't involved in that selection process. I'm not involved in bond counsel selection. So Nicole Diorso will address it.
Nicole Diorso, Assistant City Treasurer for Debt. We go through the same process for bond counsel as we do for financial advisors. We have a number of bond counsels on deals now that are 5/26/10 - FINANCE - BILL 100129, etc. Philadelphia firms. So we have Gonzalez, Saggio and Harlan that does have very good airport experience and were qualified for this deal to do this work.
I mean, are we going to have to start setting specific percentages, which we can do for locally owned businesses as opposed to goals, with respect to locally owned businesses? I mean, there is a five percent preference right now for bidded contracts, but in terms of a specific percentage of locally owned businesses as part of each of these transactions, I mean, do we have to legislate that or is that something that you think when you look at the investment banks you choose in this deal, you can try to get, I don't know, 50 percent of the underwriters based in Philadelphia?
Well, I don't know whether it will be 50 percent, because, again, what we look at is who is most qualified, who can help us the most with 27 5/26/10 - FINANCE - BILL 100129, etc. a particular deal. We do look at where they're located and, like I said, for a number of issues, there's heavy Philadelphia involvement, but if we go through the process and the underwriter who is most qualified to help us is from New York, I mean, that's who we're going to choose. The team -- every one of our teams winds up having representation of firms who are from the City. I don't --
Do we require that of our New York underwriters, that a certain percentage --
We have co-bound counsel. We could require a co-book runner to be local to work with -- which would increase the compensation to the local investment bank?
The underwriters don't pick the rest of the investment 28 5/26/10 - FINANCE - BILL 100129, etc. banking team. We do that.
Do we ever require a local firm be co-book runner, which would give them much more of a compensation rather than just as --
Yeah. There are times when local firms are co-book runners. For example, for the Justice Center deal, PNC was the senior underwriter. So they ran the books for that. So, I mean, that does happen.
Okay. Would you have any objection to the law requiring even if you pick someone outside the City that at least one Philadelphia-domiciled investment bank be co-book runner with whoever is picked?
I would want there to be a test of their ability to actually deliver. I mean, if we had firms -- as long as there's some kind of restriction on their ability to actually help us, I think that's something we should consider, but I wouldn't want to get into 29 5/26/10 - FINANCE - BILL 100129, etc. a place where we were choosing senior book runners purely on location and not on ability.
Okay. That's certainly true. Thank you. I have a question for the Airport, and, that is, does this bond offering and the refinancing in any way encumber assets owned by the City of Philadelphia at the Airport or is this a general obligation bond?
It is not a general obligation bond. In terms of the encumbrance, no. 16
Specifically I'm referring to the parking structures. There's a ten-year deal which is about to be up with the FAA and the City of Philadelphia. That is a strategic asset of the City of Philadelphia and I want to make sure that those lots are not going to be encumbered by this offering specifically such that the City can look at its strategic assets and decide what 30 5/26/10 - FINANCE - BILL 100129, etc. it wants to do with them.
They are not. It's just pledge revenues from the Airport. There's no facility pledge.
First, provide a few examples of majority minority partners that are already in place at the Airport.
Yeah. You indicated in your testimony that you do have examples where you have majority 31 5/26/10 - FINANCE - BILL 100129, etc. minority partners participating in contracting opportunities at the Airport.
The first one that comes to mind I believe would have been Daroff Design, is one. We have a list for you, Councilwoman. If I may, Councilwoman, I'd like to ask our Acting Director for Compliance, Caleb Gaines, to respond to the individual companies. (Witness approached witness table.)
Good morning. My name is Caleb Gaines, Acting Director of Compliance for the Philadelphia International Airport. Councilwoman Brown, one of the companies that come to mind would be, of course, as our CEO, Mark Gale, said --
-- Daroff Design. Another company we would have multiple contracts, has bid as a prime as well as 32 5/26/10 - FINANCE - BILL 100129, etc. a sub, would be Aurora Engineering, would be another company. Carter Hayes would be another company that's been involved like in construction management, cost estimating.
She's actually both. She's actually both. The owner is an African American female. So she's actually both. Those are several where we -- contracts where we've actually had minorities bidding as prime as majorities at the Airport, as well as subcontracting opportunities.
On the issue of financial advisors, would there be opportunities -- would it be appropriate to have majority minority financial advisor relationship on matters of this scale? I'm asking. When I hear you say that --
One of the 33 5/26/10 - FINANCE - BILL 100129, etc. financial advisors is a woman-owned firm. We have two financial advisors on the deal, and Frasca is a woman-owned firm.
To Councilman Green's concern shared by many on this Committee when it comes to the -- oh, it's for bid. The record needs to reflect that we do care a lot about opportunities that go to residents of the City of Philadelphia. So when you say that, and I quote, you look at -- you say you look at residency. And then what happens after that?
Well, it's one of the criteria we look at in selecting 34 5/26/10 - FINANCE - BILL 100129, etc. participants in our bond teams.
Things for underwriters, ability to sell the bonds. Financial advisors, experience in the relevant area. So in this case, for example, one of the financial advisors is First Southwest. They have extensive airport experience, so understanding of the deal that we're doing. So there are a lot of different criteria we use in looking at who to pick.
What type of outreach does whatever the designated department -- I don't know if that should be the Airport or OEO or Finance, but what type of outreach is done to grow, if you will, financial advisors that are capable, that will have the ability to deliver, which is your quote, and local?
We have kind of a regular meeting process with financial advisors where we talk through kind of 35 5/26/10 - FINANCE - BILL 100129, etc. what our requirements are, what we look for with people. We try to make sure they get in on deals with firms that are more experienced so that they can learn, with the goal of ultimately having them be able to be the senior financial advisors.
When we look at the fact that the Philadelphia Airport's budget, based on Minority Business Enterprise Council 2008 listing of budgets, your department is the biggest at 170 million in 2008. So it really does matter that you seek to exceed the goal of 20 percent since that is the largest department, and I would submit going the extra mile is required to help financial advisors be available for these huge opportunities at the 36 5/26/10 - FINANCE - BILL 100129, etc. Airport.
Recognizing that this is $170 million. So to hear that other departments are getting opportunities to use financial advisors that are minority or women doesn't go a long way, when the Philadelphia International Airport's budget is $170 million.
The choice of financial advisors really comes from the Treasurer's Office and the Office of Director of Finance.
The choice of the financial advisors really comes from our office or the Finance Department and the Treasurer's Office. So that's why I said who would make the decision is the Finance Department and the Treasurer's Office. It's not the Airport who is really picking the financial advisors. 37 5/26/10 - FINANCE - BILL 100129, etc. We consult with them to make sure they're okay, but --
And if my memory serves me correctly, the Treasurer's Department fell short when it came to opportunities for MBE, WBEs based on testimony from last year.
I didn't think so. I think our participation in bond deals we did pretty well.
I thought so. I thought our numbers were good for our participation in deals.
So state again for the record all of the partners on this particular bond deal and where they come from.
Well, so far most -- all that's been picked so far have been the financial advisors and the bond counsel. The underwriters have not been picked yet. The co-bond counsel are 38 5/26/10 - FINANCE - BILL 100129, etc. Saul, Ewing, a Philadelphia firm; Gonzalez, Saggio and Harlan, which actually has a Philadelphia office, they're a minority-owned firm; First Southwest, which is from Texas; and Frasca and Associates is from New York, and they're a woman-owned firm.
What is the composition of the personnel, the professionals of those companies you just identified?
I don't know. I'd have to get back to you on the composition of their personnel.
So let me say going forward that for any and all deals tied to the Airport, be prepared in your testimony to tell us where they come from, the diversity mix at the top, as well as the composition of staff.
That will become a standard operating ask of this Committee going forward forever. 39 5/26/10 - FINANCE - BILL 100129, etc.
The Chair recognizes -- let me just follow up on that. We'd like to have that information before we pass this bill.
Mr. Dubow, what you described was somewhat an informal rotation system in terms of you may have a qualified firm working on several different projects and so you may go to another firm, but there was not a rotation system necessarily for Philadelphia-based firms or for firms owned by women and people of color. In the past, the City has used a rotation system for those purposes. Isn't it just possible to pre-qualify firms and then 40 5/26/10 - FINANCE - BILL 100129, etc. take Philadelphia-based firms and minority-owned firms and women-owned firms through a rotation system?
Well, for underwriters, that's what we do. We do a pre-qualified pool and then we pick from that pool.
So if you have a pre-qualified pool of Philadelphia-based firms, minority-owned firms, women-owned firms, then you can actually institute a rotation system, so that we know that we have Philadelphia-based firms and disadvantaged firms that are qualified that continue to get work and continue to gain experience.
Right. And we do have -- I mean, we do have Philadelphia firms and DBE firms on every deal as underwriters --
Point of 41 5/26/10 - FINANCE - BILL 100129, etc. information.
We hear clearly that there are women and minority-owned firms on every deal. We care equally about growing to capacity women and minority-owned firms that live in Philadelphia, that have residency in Philadelphia. We care about putting Philadelphians to work.
Right. I understand, and we have Philadelphia firms on every deal, too.
Simply put, if you have a pre-qualified list, you can increase participation of Philadelphia-based firms and disadvantaged businesses beyond what you have.
Thank you 42 5/26/10 - FINANCE - BILL 100129, etc. very much. Any other questions? (No response.)
Yes. Come forth, please. (Witnesses approached witness table.)
Thank you, Madam Chairwoman. I want to restate for the benefit of the Airport leadership, to the Airport leadership, Mr. Rob Dubow, I do not want it to go unrecognized that we do expect to see in writing the makeup of the diversity of all those firms on this bond deal.
That's what we're talking about right now. 43 5/26/10 - FINANCE - BILL 100129, etc.
Thank you. Good morning. Well, it's good afternoon right now.
Would you please state your name for the record and proceed with your testimony.
Thank you, Madam Chairperson. My name is Robert Archie, members of the Finance Committee. I'm a partner in the law firm of Duane Morris and I am here today as special counsel to Wachovia, a Wells Fargo company, also known as Wachovia. I'm here along with Donn Scott to my left, an Executive Vice-President; Stephanie Wall to my far right, Senior Vice-President; and Shelley Metz-Galloway, Vice-President, also a Vice-President. We're here to testify on behalf of Wachovia in support of Bill No. 25 100129. This bill authorizes the City 44 5/26/10 - FINANCE - BILL 100129, etc. Treasurer, on behalf of the City, to enter into an agreement with Wachovia Bank for provisions of banking services to the City, under certain terms and conditions. Let me state some historical background, if the Committee will permit me. City Council in 2005 --
Can I just ask for the record why Wachovia/Wells Fargo is presenting testimony?
We had a hearing on April 22nd. The City Treasurer's Office offered testimony. I had some questions of Wachovia/Wells Fargo at that time. Wachovia/Wells Fargo 45 5/26/10 - FINANCE - BILL 100129, etc. chose not to testify on April 22nd, to offer testimony on that date. So my question is, why have you chosen to offer testimony today?
My question is, Wachovia/Wells Fargo chose not to testify on April 22nd. This was a recessed hearing. So my question is, one, why did Wachovia/Wells Fargo choose not to testify on April 22nd, and then why did you choose to testify today?
If you'll let me go through my testimony, that will perhaps give you the explanation why they chose to testify today.
It really was a simple question of why, first. I'm not bothered by the testimony. I'm just wondering what the testimony -- the purpose of the testimony is.
There is some uncertainty as to the questions which 46 5/26/10 - FINANCE - BILL 100129, etc. were posed to them at the hearing on April the 22nd. They're now back to augment and supplement that testimony from that day.
They did not offer testimony from that day. They offered responses to questions.
Well, those questions were not understood on April 22nd and that's why they came back today, to answer those questions.
Can I just ask an additional question before you do that?
This is Shelley Metz-Galloway, Vice-President, Home Mortgage Disclosure Act, CRA Manager, Wells Fargo Home Mortgage. 47 5/26/10 - FINANCE - BILL 100129, etc.
Ms. Metz-Galloway, I gave you a copy of the transcript from April 22nd, specifically where you said that lending to African Americans in 2010 I think at the percentage rate of 8 percent is, I believe, is accurate for 9 this point in time. The markets continue 10 to contract, and we actually expect that 11 lending overall will in 2010 decline year 12 over year from 2009. So I think the 24 13 percent is likely to be an appropriate 14 peer average for 2010. 15 Is that accurate? 16
Can you 19 explain that statement for the record in 20 context? 21
Yes. I'm first asking her whether it's accurate, 48 5/26/10 - FINANCE - BILL 100129, etc. then I'm asking her to explain it for the record.
Councilman Goode, the statement that was made as of that date is accurate per what is in the letter of the record. I would respectfully submit that I'm not sure that I fully understood your question and would like to request, please, clarification of your question so that I can confirm whether or not my response was accurate, please.
I believe that you were responding to questioning regarding the strategic plan and Wachovia's response to disparities that were found in the lending study and what that response was and what the peer average was with regard to home purchase loans to African Americans. And so I believe in addition to Ms. Wall's testimony, that both of you stated that you sought to match or exceed peer lending performance in the area of home 49 5/26/10 - FINANCE - BILL 100129, etc. purchase loans to African Americans, as is required under the City ordinance, and that you believe that that peer average would be percent of loans to African 6 Americans in 2010. Is that correct? 7
I'd like to 8 clarify that as it pertains to the 9 strategic plan, that there were no 10 previously established goals for the 11 African American community in the 12 strategic plan. 13
I'm asking 14 you about in the transcript and 15 whether you could explain what your 16 statement meant on that day. 17
May she confer 18 with me? Because I think I have an 19 understanding of your question and her 20 response. 21
I'm not sure 22 she needs to confer with legal counsel in 23 order to answer whether her words were 24 accurate what she has and, two, to explain what she meant. 50 5/26/10 - FINANCE - BILL 100129, etc.
You may answer the question. The question is -- may I restate it? The question is, is your response accurate?
The second question was, could she explain her statement in context, what she meant by the statement.
So, Councilman Goode, the statement here as recorded in the document is what I did say. In terms of accuracy around the percentage of lending to African Americans for 2010, I would submit that that was purely an estimate. I have no 25 way of knowing what lending to the 51 5/26/10 - FINANCE - BILL 100129, etc. African American community will be for the City of Philadelphia or for the nation. It was purely an estimate based perhaps on prior lending within the City of Philadelphia.
Again, it is an estimate of what I suspect may be peer averages, but I have no way of confirming with any level of accuracy whether or not that is true or correct.
Were you suggesting that if that is the peer average for 2010, that that should be Wachovia and Wells Fargo's goal as relates to the City ordinance?
No, that would not be my statement. I would not state that.
I was stating that it would be my estimate that 52 5/26/10 - FINANCE - BILL 100129, etc. based on prior years' performance, that may in fact be the rate of lending in the City of Philadelphia for 2010.
And should Wachovia/Wells Fargo aspire to that rate or not, according to the City ordinance?
Wachovia/Wells Fargo is not permitted by law to establish any particular goals that are race or ethnicity based, so --
So what is your understanding of the City ordinance 14 as it relates to disparities that are disclosed in the annual disparity study? Are you not supposed to develop a strategic plan that addresses those disparities?
According to the City of Philadelphia ordinance and the annual community reinvestment plan, is that your question, sir?
According 53 5/26/10 - FINANCE - BILL 100129, etc. to that document, it is my understanding that we are intended to or we are expected and required by the ordinance to develop goals that target low- and moderate-income neighborhoods within the City of Philadelphia.
That is not correct. Let me read you the section of the ordinance. 19-201 reads, "Each depository shall provide the City with an annual statement of community reinvestment goals, including the number of small business loans, home mortgages, home improvement loans and community development investments to be made within low- and moderate-income neighborhoods in the City of Philadelphia. Each depository shall also certify compliance with Section 17-104 of The Philadelphia Code and provide the City with a long-term strategic plan to address disparities in its lending and investment activities. The strategic plan shall 54 5/26/10 - FINANCE - BILL 100129, etc. address how the depository will match or exceed peer lending performance and target capital access and credit needs disclosed in disparity studies commissioned by the City." The original provision in the Code laid out community reinvestment goals within low- and moderate-income communities. We added a section that deals with fair lending. We require an annual disparity study and we require a strategic plan in response to that annual disparity study with regard to any disparities that are found. Those disparities are not just limited to low- and moderate-income communities.
So does the strategic plan address disparities by race and ethnicity?
May I answer that? The ones which were submitted? The ones which were submitted for 2006 to 2009 does not. It only addresses low- and 55 5/26/10 - FINANCE - BILL 100129, etc. moderate-income communities.
Should it have addressed disparities by race and ethnicity?
So are you saying that the City ordinance is unenforceable?
What we -- based upon the package of laws that I handed up, it indicates that you cannot use race and ethnicity to set goals, but what you can do retroactively, you can look at the number of loans made based on race and ethnicity. So you can find out exactly, but it's always retroactively. It can't be prospectively, because if you set a goal based on race and ethnicity for Asian Americans, African Americans and Latinos and you fail to meet that goal, what you've done is given a right -- a cause of action against those minorities whose goals you didn't reach. 56 5/26/10 - FINANCE - BILL 100129, etc.