All right. Thank you, Mr. Roundtree. Ms. Davis, the Administration is proposing to adopt single sales factor apportionment in FY05 for the business privilege tax. Why hasn't the Administration submitted legislation to do this?
That can be done administratively, but I'll defer to the Revenue Commissioner.
Nancy Kammerdeiner, Revenue Commissioner. The state enabling legislation for the business privilege tax indicates that the Revenue Commissioner is responsible for determining the allocation formula that will be used for Philadelphia business determination under the BPT. 169 Whole - 4/14/04 - Bill No. 040255 As a result, I can do that by regulation, changing the regulations. We don't need Council legislation in order to implement that change.
Ms. Davis, in the five-year plan, you say that you support closing the loopholes and the transfer tax. Can you explain why you have not submitted the legislation to -- back again -- eliminate the loopholes?
We had prepared legislation, I believe it was, a year or two years ago that was part of the legislative package that the Department of Revenue had recommended. That legislation, I'm not sure why it was never submitted or introduced in Council. I thought it had been forwarded to Council, but it never came up on the calendar. As a result, we are putting that 170 Whole - 4/14/04 - Bill No. 040255 back in again. It's been something that has been recommended by the Law Department after some court cases where we helped to identify the nature of the loopholes.
When do you think we'll receive such legislation?
Thank you. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Ms. Kammerdeiner, since you're there, why don't you hang out for a little bit, and I know you are coming up next. Your response on the single factor issue, you've always had the authority to do it by regulation; is that correct?
That's correct. And the Commissioner also has the authority to deal with requests from individual businesses if they feel that 171 Whole - 4/14/04 - Bill No. 040255 they're unfairly treated under the existing formula for allocation. And there have, from time to time, been appeals by individual businesses that have been reviewed. Some are granted and some are not.
If you've had that authority since the creation of the Act, why was it never exercised?
We have used that authority to establish the allocation formula that we have now. In more recent years as we've looked at it, and there have been proposals from time to time for single factor formula, we had reviewed it. The Administration had reviewed the option of going to single factor and had determined at those points in time that we couldn't afford to do so. This year, as we reviewed all of the proposals that came from the Tax Reform 172 Whole - 4/14/04 - Bill No. 040255 Commission and their support for single factor formula, that was one of the things that the Administration reviewed in trying to determine what that tax package should look like, and this time it was determined from a policy perspective that we wanted to implement it.
I should have worked on the Tax Reform Commission a long time ago. But notwithstanding the fact that you have the authority to do it by regulation, there's no conflicts or prohibition if a bill 14 were passed to do that, right?
You'd have to get some clarification on this from the Law Department, but it's my understanding that the State Enabling Act provided for administrative authority for that, not legislative authority, and, therefore, it would actually be in conflict with the state enabling legislation to have Council implement a formula for the allocation. But you could get clarification from Law on that. That's my understanding of the interpretation on that. 173 Whole - 4/14/04 - Bill No. 040255
All right. I will look into it, but it would be a somewhat unusual situation wherein somehow a regulation would have greater weight or greater authority than an ordinance.
Again, it's my understanding that that is an administrative function as set up by the legislation, not a legislative function.
Got you. All right. Ms. Davis, I want to go back to some of the questions I had about MBEC and Mr. Williams. While we were talking about this earlier, you indicated that you had reached out to two firms with a verbal request, and what I wanted to understand, I guess, better about that is, are there any limits or thresholds in terms of a contract which require contracts of a certain amount or over a certain amount to go to a bid situation?
Not for professional services. 174 Whole - 4/14/04 - Bill No. 040255
So in the professional services area, there is no limit and you could go out and secure services for an unlimited amount of money; is that what you're saying?
Do you think there should be any controls or constraints with regard to the size of contract that's allowed to go out in a no-bid situation?
It wasn't a no-bid. There was an informal solicitation. It wasn't something that -- it would have been a proposal situation or RFQ, RFI situation, but there was an informal solicitation.
Right. That was directed toward two particular companies that you solely selected. I mean, it's not like there was an ad in the paper --
-- to a broader universe of people and then they said, This is what we can do for you based on a 175 Whole - 4/14/04 - Bill No. 040255 document that we could see. And the ability or authority to do this is, one, of course the Finance Director has a tremendous amount of authority and power and discretion within the Government.
Yes. Informal solicitation is an accepted way of solicitation in the City.
Are you familiar with any other locales where either there is some amount of limit that over a certain amount there has to be a formal?
I am familiar with organizations that have it both ways with no 19 limits and then some that are very strictly defined.
Was there any particular reason that we wouldn't -- given all that has happened in this particular area, is there any particular reason, notwithstanding your in-depth knowledge and 176 Whole - 4/14/04 - Bill No. 040255 experience with at least one of the companies, if not both, was there any particular reason why we wouldn't have a broader solicitation and a more formal process for something that is so important?
I felt that City Council had already been patient in waiting for us to complete our process and that extending the process through a more formal solicitation would have just prolonged that even further.
The company, Innovative Strategies, you said they're out of?
The contract has not been conformed yet? 177 Whole - 4/14/04 - Bill No. 040255
Thank you very much. The Chair recognizes Councilman Ramos.
Thank you, Madam Chair. Hello, Ms. Davis. The last time you were here you talked about two significant changes in our contributions when it comes to health and welfare and pension, and I don't know if it was in your testimony or someone else in the Administration. If it wasn't you, it might have been Joyce Wilkerson, where it was stated there was no exact design for self-insurance programs that has been agreed upon. Does it still stand the same way, 178 Whole - 4/14/04 - Bill No. 040255 that you have not designed a clear self-insurance program?
We still have negotiations with our unions before anything would finally come forward.
I understand. I'm heading in that direction right now. Also, that very strongly the Administration and through you, you have also stated that the pension system will move from a defined benefit to defined contribution for new employees only --
-- is that correct? 179 Whole - 4/14/04 - Bill No. 040255 How far along are you with defining this new defined contribution plan?
But isn't it a fact that at the end of June we have contracts that expire with at least two of our municipal unions, District Council 33 and 47.
If we still have not gotten a -- consultant is what you mentioned?
Yeah. We have the concept on the table. The plans will be defined once there's been some determination and agreement among parties as to whether or not this is the proper way to proceed.
And all parties, do you mean, Ms. Davis, also the unions?
Ms. Davis, I have been told here a number of times that the 180 Whole - 4/14/04 - Bill No. 040255 negotiations with the unions or the talks with particularly 33 and 47 have already started. Is that your understanding?
What has happened is, we have received a proposal from District Council 33. There's been no exchange of proposals with 47.
That continues to be a very worrisome response for me, because I continue to hear it, that we're right around the corner, less than two months away, from expiration of contracts and there are -- I don't see enough movement going on to avoid what the Administration has clearly stated here, to avoid a strike in this City, which will cripple -- that has the potential to cripple the City and deny people some very important basic City services. Are you guys going to step it up?
The Labor Relations group is probably better able to tell you how this compares to in future years as to whether we're about where we need to be or not. I don't know the timing and I'd be just 181 Whole - 4/14/04 - Bill No. 040255 guessing.
They were here yesterday. They gave me a similar answer to the one you just gave me. Now, will you be directly involved yourself in these discussions with the two unions, particularly on these two issues of a different self-insurance program and your proposal moving the pension system from a defined benefit to a defined contribution?
I will be involved or someone from my office who also understands self-insurance plans will be involved from the very beginning.
I would suggest that you get involved directly, and I will tell you why. Because you make a very good argument and you make very good presentations. I say this because at times I might have to take a jab at you, so I'm trying to get in my padding in the back end.
Seriously, what I'm saying is that I think that you 182 Whole - 4/14/04 - Bill No. 040255 should be involved, and Secretary Hanna stated yesterday in a similar question that I posed to him that he has been involved. And I think he makes -- that he knows he's got a responsibility within the Administration. He knows what the directive of the Mayor is. And I would suggest that those of you that are in the position of leadership and understand the particulars of these two engage in those discussions with our unions.
Because we're moving into an area here that those of us that have been around this City and have some kind of involvement with labor organizations, we know that these are two very important parts to their organizations, and altering their systems is a very big pre-occupation of theirs. And these are things that I know through study and some degree of involvement is not resolved overnight, and they can have some very terrible consequences for the City of 183 Whole - 4/14/04 - Bill No. 040255 Philadelphia.
And you state here that the City had a percent 7 increase over the current FY04 projections to 8 your fringe benefit contributions. 9 Did you see this coming? Did anyone 10 see this coming? Can you talk to me just a 11 little bit about that? I mean, it went up 12 19.05 percent, according to your testimony. 13
A large part of it 14 was what happened with the economy and the 15 stock market and its impact on the pension 16 fund, and then the cost of health insurance 17 has been escalating over the past few years. 18 We've done what we could to hold it 19 down, but it was inevitable that we be hit. And then there was the pension of changes in some of the things that we have to provide to the Fire Department as a result of legislation or the negotiations that also increase that cost. The City, as with everybody, has been facing increasing costs. 184 Whole - 4/14/04 - Bill No. 040255 I have here a survey that Mercer did of health insurance plans alone, and in it they say the average per employee is $6,215 a year. When you look at the City of Philadelphia, we go from a low of $7,440 per employee a year to what at the end of next year with Fire will be $11,940. So we're leading the pack in an area that has seen escalations from year to year. Last year's escalation of 10.1 percent was much less than the 13.7 that had been experienced a year before. So, yes, we saw it coming. Yes, we thought we had taken actions that would have protected us against what was coming, but then we saw a second straight year of the same types of impacts. So we thought last year we were finished with problems when we adopted the minimum municipal obligation for pensions, only to face an increase again. So it's just kind of the reality and it's where we're living for the time being until the economy and jobs start to increase and we see some increased -- and maybe the 185 Whole - 4/14/04 - Bill No. 040255 Federal Government will get involved with healthcare, which holds, I guess, the greatest hope for everybody who is faced with the rising healthcare costs.
I believe this issue of the restructuring of how we contribute to the healthcare costs for our City employees and how we contribute to pension systems and how we define them is so important, that tomorrow I'm presenting a City Council resolution that we hold public hearings on this issue of defined benefits versus defined contributions, and at that point, I will want you and the unions and all interested parties of the City to come and talk about this, because I am of the opinion that this is something that needs to take -- these discussions need to take place. Also, among other things, that we avoid confrontations with our City workers, who do so much for this City, and this will, therefore, cause a tremendous amount of consternation and anxiety on their future when it comes to retirement. 186 Whole - 4/14/04 - Bill No. 040255 So tomorrow I'll present that resolution calling for public hearings on this issue.
Thank you. The Chair recognizes Councilman Rizzo.
Thank you. Secretary, an issue that you know that I've been involved with many years and I think the time has come where we retrieve the money from the state that we spend in patrolling the state highways. You all know what that's about. But I'm troubled that the Police Department is telling me, and I hope that you can guide them if they need the guidance on getting the information that I need, we have a number that's in the five-year plan that says it's about five and a half million dollars a year that is owed the City for patrolling 187 Whole - 4/14/04 - Bill No. 040255 those roadways, or they have the option, which I hope they don't, I'd prefer to see our police officers on the roadway because they've been doing it for a lot of years, but they could assume that responsibility. Now, when I asked for the numbers, I asked the Police Department to provide me how they came up with $5.5 million. Well, the first question was that they didn't know where that number came from. They didn't have a clue. We have personnel. We have equipment. We have overtime that they work out there. We have court appearances, that every time they write a ticket and it's protested, that they get paid overtime to go to court. We have police cars that are damaged severely, some of them totaled, that goes into that number. The big question when I asked, how much time, how much money is spent in court appearances. The Police Department's finance people came back and said, There's no way we can determine that. 188 Whole - 4/14/04 - Bill No. 040255 Now, I chuckle to myself and it's kind of laughable that an organization doesn't have the ability to tell me in total what a particular function that they provide, a service that they provide, costs. Are you able to show them how they can find how much money we spend in overtime or court time? Because if I'm going to get the state to give us five and a half, if the real number is 7 million, I want 7 million. I don't want five and a half. But they claim that they don't even know where the five and a half million dollar number came from because they can't verify that that's an accurate number. And that came from the legal counsel for the Police Commissioner. So I really need to know, what is the real number and does the Finance Department have the ability to come up with the real number that it costs to provide this service? Because if we're going to go to battle with the state over this, I want every dime we're owed, not half of it, not a third 189 Whole - 4/14/04 - Bill No. 040255 of it, not a million short, not a million -- well, maybe the million over. So add a little bit.
There's a police sergeant. I forget his name. The attorney. He's an attorney and a police sergeant. What's his name? Healy has been charged with pulling that information together, and, unfortunately, the court aspect of that piece, they tell me that they can't determine what those costs are. Are you telling me that we should be able to determine that?
Thank you. The Chair recognizes Councilman 190 Whole - 4/14/04 - Bill No. 040255 Nutter.
Thank you, Madam Chair. I'd like to ask Mr. Williams some questions. From your perspective, what is the charge of the MBEC and, second, what is the problem as you see it or have experienced it or have discussed with other people in terms of not only the performance of the agency operationally, because you've alluded to that, but also in terms of what I think the goal is, which is helping to insure that minority, female, disadvantaged or disabled business owners more fully participate in City Government procurement opportunities?
Well, Councilman, I think you just stated the charge, that historically MBEC's mission was to do just that, to get minority, women-owned and disabled businesses a fair share of City contracts. Now, I've been talking to a lot of folks and I continue to talk to a lot of folks and I welcome the opportunity to talk to 191 Whole - 4/14/04 - Bill No. 040255 everyone in Council, too, as far as what future plans I may have for the organization. Is there something that you wanted specifically answered?
Well, I mean, what's the problem? What do you see as the challenges or barriers to improving that accessed opportunity?
Thank you, sir. One of the first challenges I think we have is staffing. That seems to be everyone's lament anywhere when you get cuts in staffing. But because of the emphasis on this department, because of the importance of this department and because of all the things that folks have to do that have to be done in this department, I think that staffing has critically hurt the performance, the operating performance, of this department, and one of the things that I'm planning to do is to add more staff.
Well, there's no department in the Government that wouldn't come to the table and say they'd like 192 Whole - 4/14/04 - Bill No. 040255 to have more staffing, that they could do a better job.
I think the agency did get -- did the agency get additional people last year?
We were doing the Disparity Study and doing the other reports to see what a program needed to look like. Without having a Disparity Study to know if it would support goals-based or whatever, we didn't know what areas that the personnel should be put in, and rather than hire people without the requisite skill-sets, we waited until the various reports had been done.
Do we know 193 Whole - 4/14/04 - Bill No. 040255 where it is in the building yet?
So it's in the same place it was the last time we talked?
Do you know when it's going to be released? What is it doing over there?
The Disparity Study tells us about the availability and the utilization of minorities in the Philadelphia region. It identifies whether or not those who are ready, willing and able to participate in doing business are, in fact, being utilized within the business.
And does it tell us the kinds of things that you were looking for? For which reason you decided to 194 Whole - 4/14/04 - Bill No. 040255 not fill the positions last year, does the report answer those questions and --
It, in part, begins to answer that, because it tells us what kind of program we could support, whether it's a goals-based, gender, race-specific type of program, and it got us part of the way there. And then the additional studies by some of the other groups, as well as the survey, provided context. We did not want to hire people, again, who didn't have the skill-sets to accomplish what we've been tasked with accomplishing.
So now that the report is done, what kind of people do you need to hire and how many people are going to be hired and how many people were you authorized to hire last year which you didn't hire and how many do you plan to hire in the next fiscal year?
The department is authorized to have 22 people. I believe Mr. Williams said at this point there are 12. 195 Whole - 4/14/04 - Bill No. 040255 And we will, once he's firmly in place, we'll begin the process of interviewing and testing and hiring people.
So in the course of the next fiscal year, at the start of the next fiscal year, you plan to hire ten people?
We will hire the number of people that are required to -- if it's ten that we need, absolutely we'll hire that ten. If it's some number less than ten, we will hire the number that we need to accomplish our goal.
Well, your FY05 budget says you're going to be authorized for and you presently have 12, and 18 Mr. Williams indicates that the biggest 19 problem over there is that you don't have 20 enough people. 21
Sometimes it's the 22 right people, not a specific number. But if ten is what he needs, then Mr. Williams has the authority to hire those ten.
Okay. 196 Whole - 4/14/04 - Bill No. 040255 Mr. Williams, when will the restructuring of MBEC be completed?
At this point, Councilman, I can't answer that question because I'm still trying to find out what kind of things I want to do. Again, I have overall goals, but I think it would be premature at this point to come up with a completion date until I talk to all parties that will be interested, including Council.
Ms. Davis, you indicated that you've been in at least some amount of restructuring. I think I took it down. Your quote was --
Was that from May of '03? 197 Whole - 4/14/04 - Bill No. 040255
From May of '04. May 1st of '04. The first phase of what we're doing should take 90 days.
That will be identification of his mission, a rewrite of the Executive Order, to the extent that it's required, and just generally identifying the skill-sets, getting the tests put together.
Well, let me try to understand something. You started Monday, right?
And Ms. Davis has obviously been at this for some time. When I asked you when the restructuring would be done, you said that you weren't sure, and I understand that. Ms. Davis then came back and said 90 days from May 198 Whole - 4/14/04 - Bill No. 040255 1.
Phase 1. And that Mr. Williams was trying to figure out just what he wanted to do, and then Ms. Davis said that you will get a greater sense of what you're supposed to do as a result of Phase 1, which is going to start May 1 and have a 90-day time period.
Have you had many opportunities besides today to have much conversation with Ms. Davis about the job?
You talk all the time? Okay. Because I guess I'm kind of hearing a couple different things.
It sounds like we're saying different things, but I think maybe I should clarify what I mean.
I 199 Whole - 4/14/04 - Bill No. 040255 appreciate you at least confirming that, because I'm starting to think --
I'll clarify what I mean. There are certain things that we need to complete. Number one is to look at the existing Executive Order, which, by the way, has expired. We need a new Executive Order. And to --
Most Executive Orders don't expire until that Mayor, the new Mayor, any Mayor rescinds it.
The way this one was written, there was, as I understand it. 200 Whole - 4/14/04 - Bill No. 040255
Let me understand. I mean, was there a significant difference between the Executive Order and the Bill?
There are some significant differences. There are some differences.
Why don't you just send proposed amendments to the Ordinance? I mean, I understand in the larger scheme of things between an executive and a legislative body. Executives naturally love Executive Orders because that's what they do, and legislators love Bills and Ordinances because that's what we do, but our thing has a tendency to stay in place a little longer than the other thing and it's actually law. And I think a part of how people respond to things is, am I required to do it or is it nice to do? Is it a law or is it Executive direction? Which people shouldn't ignore Executive direction, but -- I mean, you just wrote an Executive Order last year after the Bill was passed and now we're talking 201 Whole - 4/14/04 - Bill No. 040255 about a new Executive Order.
At some point we may actually ask for amendments or changes to the Ordinance, because having done the Disparity Report -- and I would ask for Jim to kind of help me along with this one. Having done the Disparity Report, if it appears that the Disparity Report was developed to defend what that Ordinance 11 already calls for, there might be some problem with the defensibility of our program should we be sued if we choose to go to the full extent of what's provided for. So there might be a retooling of the Ordinance to fit the facts of the Disparity Report to make a more defensible program, create a more defensible program. I think I got that right.
You did. And the reason why a timetable was put in that particular Ordinance is, we were supposed to have a report that would indicate the levels of participation that minorities and females and disabled businesses would have achieved 202 Whole - 4/14/04 - Bill No. 040255 over that period of time.
It's in the annual report that we submitted to the Administration that you -- it's in the building. There's another document that's in the building that was submitted that we thought that you all had.
It's on a different floor. I mean, so that's tied up with the other document? They are all hanging out together?
What we had hoped to provide to you that's in this 203 Whole - 4/14/04 - Bill No. 040255 building is the '03 report and the interim report that will compare the activities from entire fiscal '03 and the interim between July 1 of '03 to, I think, December of '03. So you have an interim report and you have --
I have a note here that reports will be delivered shortly, that a letter to the President of City Council is being prepared.
Is that today? Is that while we're all still in the building?
All right. There's all kinds of buzzers and beepers going off.
Councilman, I don't mean to cut you short, but your time has been up some time ago.
So if you don't mind, I'm going to recognize Councilman Goode and I'll be happy to come back to you. Councilman Goode.
Thank you, Madam President. Have any of you at the witness table actually reviewed the Disparity Report?
Can you speak definitively about where the disparity exists in City contracting by any sector with regard to any type of disadvantaged business? 205 Whole - 4/14/04 - Bill No. 040255 Can you speak about the Disparity Study, since we don't have a copy of it?
There's underutilization across the board on minorities. There is underutilization in some circumstances for females. There is overutilization in every category for white males. And that's the basis -- those are the basic findings on which the rest of the report hinges.
I'm asking for specifics. Have you mastered any details within the study? Do you know any of the findings? Can you speak about any specific sectors where there are opportunities or where there are greater disparities, this sector versus that sector?
The greatest disparity is in the prime contracting for minority firms. It is close to a 92, I believe, or a 96 percent disparity between white firms and minority firms. White firms 206 Whole - 4/14/04 - Bill No. 040255 are receiving 90ish percent of all prime contracts in the City. That's the greatest disparity.
This is not broken down in any way by sector type or business type, this is just a generalized Disparity Study?
But the details, what we've provided for you is both an Executive summary and the details with all of the breakdowns in it, and it is numerous. And it will go past professional services, service of buying equipment.
That's exactly the type of things I'm asking. I understand why you haven't mastered that type of information in detail. In fact, I'll ask Mr. Williams to come to the table since he is your successor. We ask specific questions all the time about who is getting businesses, who is not getting business, where the disparity 207 Whole - 4/14/04 - Bill No. 040255 exists, where the opportunities exist, how do you expect to target it by sector, by business type. What areas of capacity are being built among disadvantaged businesses? Where are we making up ground in terms of capacity, but not making up ground in terms of participation? I mean, is there any specifics you can tell me? I mean, if I wanted a general answer, I'd ask you a general question, like how many Administration officials does it take to get a report from the second floor to the fourth floor.
Sir, the Disparity Study wasn't available to me until this morning myself, so I have not had a chance to look at it.
I'll move on to Ms. Davis. Ms. Davis, you've been working on financing for the Economic Development 208 Whole - 4/14/04 - Bill No. 040255 Investment Fund?
Can you define economic development with regard to that investment fund?
I've been working on it from the standpoint of making the dollars available. I've devised a plan and a program.