VOLUME I COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, December 10, 1997 10:25 a.m. - - - RES. 970801 - Approving the execution of a Lease and a Master Agreement between the Commonwealth of Pennsylvania, the Delaware River Port Authority, the Philadelphia Authority for Industrial Development and Kvaerner, Inc., for the development by Kvaerner of a shipbuilding facility within the Philadelphia Naval Business Center Tax Increment Financing District. - - - PRESENT: COUNCILMAN JOHN F. STREET, Chair COUNCILWOMAN HAPPY FERNANDEZ COUNCILMAN JAMES F. KENNEY COUNCILMAN W. THACHER LONGSTRETH COUNCILWOMAN AUGUSTA A. CLARK COUNCILMAN DAVID COHEN COUNCILMAN FRANK RIZZO COUNCILMAN ANGEL ORTIZ COUNCILMAN FRANK DiCICCO COUNCILWOMAN JANNIE L. BLACKWELL COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN BRIAN J. O'NEILL - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center Plaza, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 I N D E X RES. 970801 Edward G. Rendell, Mayor, City of Philadelphia--------------------------------- 6 Manuel Stamatakis, Chairman, Delaware River Port Authority------------------------------- 34 7 William P. Hankowsky, President, PIDC----------- 63 Vincent Satilli, Citizen------------------------ 147 Ronald Williams, Sr., President and CEO, Aerospace Technologies, LLC------------------ 153 Leon Norris, Representative, ITTI--------------- 157 - - - 3 RESOLUTION 970801
May I have your attention, please. What I would like to do, while we wait for the Mayor, who is on the way, is to explain what will happen in the Council chambers today. As is usually the case, coming to this end of a portion of our session, there are a number of things that have been scheduled. We have today scheduled a Council Committee of the Whole. What we are getting ready to do right now is take testimony on a resolution 13 which will be read later, which essentially provides for a conditional approval of the Kvaerner Shipbuilding deal. (Applause.)
Thank you. We also have in front of the Council Committee of the Whole a resolution regarding the PGW/QST proposal, that PGW joint venture with QST to sell electricity. This resolution will be heard after the resolution regarding the Kvaerner deal. And if there is anyone here who would like to testify on that resolution, I can tell you it will be not 4 RESOLUTION 970801 coming up until later in the day. We will notify representatives of PGW when they should return to the chambers. So I don't want to keep people here unnecessarily, if you are interested in the PGW/QST resolution. At 1 o'clock we have a scheduled meeting of the Council Committee on Labor and Civil Service. It is our plan at this time to proceed with that hearing. It is my understanding, at the request of Councilman Mariano, that we proceed with that hearing. Significant arrangements have been made to have witnesses, and we want to have that hearing. It is also my understanding that we have a 3 o'clock Licenses and Inspections scheduled hearing that we wish to have. So that we will have the o'clock hearing. We will have the o'clock hearing. In the meantime, we will get as far as we can on the resolution on the Kvaerner deal. If we do not get finished by o'clock and by 3 o'clock, we will recess. And we will either continue with the hearing either later 5 RESOLUTION 970801 on this afternoon, depending on how long those other hearings take, or early in the morning. But we will finish this whole Kvaerner discussion in time to consider it at the Council session for tomorrow. I appreciate very much the Administration's cooperation with City Council in this. We will have our discussion completed in time to vote on that resolution at our Council session tomorrow, even if we have to delay the session, have part of it, recess. But we will make sure we complete this discussion. Is there any member of Council who has any question about what we would like to do in this regard? As soon as the Mayor arrives, we will start testimony on Resolution No. 970801, and we will proceed with the consideration of the Mayor's testimony and other witnesses' testimony, and we will work through lunch, if necessary, until it is time for the Labor and Civil Service hearing. If we have to do the PGW/QST meeting tomorrow, hear the resolution tomorrow, we will do 6 RESOLUTION 970801 that. We will go as far as we can on the Kvaerner resolution. It is my understanding that the Mayor is here. And we would appreciate very much if the Mayor would take the witness stand at this time. (Applause.)
Thank you very much. At this time the Council Committee of the Whole will come to order. Today we will take testimony on Resolution No. 970801, which is a Resolution 14 approving the execution of a Lease and Master Agreement between the Commonwealth of Pennsylvania and the Delaware River Port Authority, Philadelphia Authority for Industrial Development, and Kvaerner, Inc., for the development by Kvaerner of a shipbuilding facility within the Philadelphia Naval Business Center Tax Increment Financing District, under certain terms and conditions. We appreciate very much the Mayor being with us. And at this time, if there are no 24 questions from any member of Council, we will proceed directly with the Mayor's statement. 7 RESOLUTION 970801 Good morning, Mr. Mayor.
Good morning, Mr. Council President. I would like to thank you all for that ordinary and typical welcome for my arrival. (Applause.)
Mr. President, let me begin by thanking you for the opportunity and thanking all the members of Council for the opportunity to come before you and address some, what I believe, are legitimate concerns that have been raised by this Council. This has been an unusual deal, but it has been an unusual deal because of what have been from the very beginning, from 1991 when this city and this region received the word that the Philadelphia Naval Shipyard would be closed, it has set off a very painful, unusual, and unique in this city's history chain of events. That chain of events went through our efforts to convince Meyer-Worth to come to the naval shipyard, and other efforts which I will delineate a little bit later, that culminated with the Memorandum of Understanding that the Governor and I 8 RESOLUTION 970801 signed with the Kvaerner officials in Rastatt, Germany. And it has been an unusual chain of events and an unusual period of time. But I believe it was one of the most crucial things that we as a city had to deal with. And I believe for reasons that I will, again, set forth in my brief testimony, I believe it is a tremendously beneficial resolution 11 that we are close to reaching here today, tomorrow in City Council, and hopefully as early as next week, when Kvaerner folks will be in Philadelphia again, hopefully, and the Governor and I and others from the Delaware River Port Authority and others will sign a final document. Council had every reason to be concerned about what was in that document. I think the Project Summary that Mr. Hankowsky has prepared and has been distributed to City Councilmembers addresses the elements of this deal as fully and completely and as forthrightly as possible. During my testimony, I will offer an amendment -- or, not an amendment in the legislative sense, but I will ask that we delete one brief 9 RESOLUTION 970801 portion of that Project Summary and replace it with some what I believe is very good news for all of us, and for this City Council, as well. So with that, let me begin by focusing. And my testimony is going to break down into the following areas: One, I am going to talk about the financing of the deal. Two, I want to talk about the nature of the shipbuilding industry worldwide. Three, I want to talk about what the City of Philadelphia's return on this deal will be. And then, fourth, I do want to, as I say, offer clarification, or a change, in part of the Project Summary that has been offered up. I know that many of the Councilmembers are aware of this, of these figures. , to the Navy shipyard to rehabilitate two buildings, to build two new buildings, and to build a huge roof over one of our dry docks, and really to change forever 144 acres and two dry docks of our defunct Philadelphia Navy 10 RESOLUTION 970801 Shipyard. The Commonwealth of Pennsylvania is providing $227 million towards the total public financing of this project. $182 million of it, as you know, is in a Capital Budget grant that was approved by the Pennsylvania legislature. $25 million comes in training dollars, JPTA dollars. And there is a $20 million PIA loan, which amounts to the $227 million of public financing from the Commonwealth. The Delaware River Port Authority, led by Ed, its great Chairman, and Mr. Stamatakis, who is with us here today, has granted this project $65 million in funding. The federal government, in a combination of Defense Department grant and Department of Labor grant that Vice-President Gore announced last week, will give 75 million to the direct costs of this project. The City of Philadelphia is putting into this project a $19 million grant from our Economic Conversion Fund. This is $50 million that we received from the Clinton Administration in 1994 to help with 11 RESOLUTION 970801 the economic conversion of the Navy Yard and base. We have used some of that money already on other projects.
It is a fund that must exclusively be used to help convert the base property and the yard property economically. It cannot be used in any area of this city other than the yard. It is federal pass-through monies that we do control, but must be solely used for the conversion of the base and yard property. We were also going to offer into this project financing a $10 million HUD 108 loan. All of you are very familiar in Council with 108 loans. It is a program that was really expanded dramatically by Secretary Sisnarose, where we are able to borrow against future CDBG allocations for both housing and economic development projects. And in addition to that $29 million, $30 million of the financing of this will be a Tax Increment Financing Note, which will be, in fact, financed by approximately just over $3 million a year in the taxes that will be produced in Real Estate taxes, Use and Occupancy taxes, and Business 12 RESOLUTION 970801 Privilege taxes from the operation of these 144 acres and two dry docks by Kvaerner Philadelphia. All told, it brings the public financing to $429 million. Kvaerner has agreed to contribute $215 million in financing to this project. $80 million of that is in the three ships that they will produce and take the responsibility of selling. But that is a direct Kvaerner investment. $15 million of that is in their initial equity investment over the first five years. And $120 million is their requirement that they invest in the yard from Year 6 through Year 15. The total altogether of Kvaerner's investment in this project is $215 million, which brings the total investment in the project, both public and private, to $644 million. The incentive that Council is asked at this hearing to vote for is the $30 million Tax Increment Financing Note. It is less than 7 percent of the total government financing and 4 percent of the total investment made in this project. 13 RESOLUTION 970801 If you take all of the money that the city is putting in, which is Economic Conversion Fund, federal pass-through money, HUD 108 loans, HUD pass-through money, federal pass-through money, and the $30 million TIF, our $59 million represents 7 percent, 9 percent of the total project costs of 8 this transaction. 9 And Council is being asked to confirm the use of these future tax revenues consistent with the already created Philadelphia Navy Yard Tax Increment Financing Districts. And, as I said, these revenues are projected to total just over $3 million a year. So that is a brief, but concise and correct, outline of the federal funds, state funds, DRPA funds, city pass-through dollars that are going into this project, and the investment by Kvaerner itself. When we look at this $644 million package, of which $429 million are government public funds, the question has been raised by a number of people, isn't this a very rich subsidy? Well, to answer that question, I think, first you have to look at the nature of the 14 RESOLUTION 970801 shipbuilding industry worldwide. There is probably no industry in this world that is as highly subsidized throughout the world as shipbuilding. We face competition from Asia, Europe, Latin America, and the competition is fierce. American shipbuilding was at its low ebb in the last three years of the decade of the '80s, when only one commercial ship was produced by American yards. Only one in three years. That was the extent of the battering we were getting by the subsidized foreign competition. Thanks to President Clinton and Vice-President Gore's shipbuilding initiative that was launched also in 1994, we are doing better. Right now American yards across the length and breadth of this country have in production 19 ships, 19 commercial ships. A significant improvement from where we were in the late '80s, but nowhere near where we were when this country dominated the shipbuilding industry throughout the world.
We believe, and so does President 15 RESOLUTION 970801 Clinton and Vice-President Gore, that having a shipbuilding company like Kvaerner, with its skill and its talent, its technology, its reach, and its breadth come to Philadelphia is not only a great thing for Philadelphia, for this region, and for the state, but a great thing for the United States of America, and, most of all, for the working men and women who will build these ships and produce the goods that are necessary to fuel these ships. So if you understand the nature of the industry and the history of the industry, this is a good deal. And let me just give you one frame of reference. As you know, Governor Ridge and myself and Bill Hankowsky and Terry Gillen went to Rastatt, where we signed the Memorandum of Understanding with the Kvaerner officials. And in Rastatt, we saw a shipyard that had essentially been totally rebuilt by Kvaerner. It had been taken from a moribund, dead shipyard, and revitalized into one of the most active and productive shipyards in the world. The German government, the unified German government, gave Kvaerner Mosel a $600 16 RESOLUTION 970801 million subsidy in public German funds to recreate that yard, basically along similar lines to the way that the 144 acres of the Philadelphia Naval Shipyard will be recreated. So it is fair to say that Germany spent almost a third, again, what the public investment is in this project for, basically, the same results, the total revitalization of a once-dead, dying shipyard. And, again, I wish funds would have allowed every member of this Council, every member of the Pennsylvania legislature, every member of Mannie's Board -- and, of course, Mannie accompanied us and signed the documentation -- to allow every one of them to have gone to Rastatt. Because I am sure Mannie will tell you in his testimony, it was incredible what we saw, the technology, the vibrance, the dynamism of that yard, working men and women earning good, terrific salaries and good benefits. It was an inspiration to see the way this yard had come to life. So I think in balance, looking at the deal overall, it is an excellent deal for the 17 RESOLUTION 970801 citizens of Pennsylvania and for the people of the Delaware Valley. For Philadelphia, it is a great deal. No if's, and's, and but's about it. It is a great deal. Because understand that we are receiving -- and I want to make sure I have the exact amount -- $585 million of investment; $215 million from Kvaerner, 370 million from DRPA, the federal government and the state government. We are receiving that investment, that total of $585 million of investment, and we are not spending $1 of our current Operating or Capital Budget. We are getting $585 million in investment into the City of Philadelphia, and not spending $1 of Capital or Operating funds. )
The $19 million in the Economic Conversion Fund are federal dollars given to the city by the Clinton Administration. They can only be used down at the Navy Yard. The $10 million HUD 108 loan is, in fact, a loan, but is guaranteed by a federal 18 RESOLUTION 970801 program, HUD 108. And the $30 million that we will expend on the Tax Increment Financing Note, those are dollars -- and I will get into this just a little bit later -- that would never have existed without this deal. We are giving up nothing. Because if we don't do this deal -- and I know that is not going to happen; I know that every member of this Council realizes how significant this is to the working people of Philadelphia and this region -- but if we were not to do that deal, understand the tax revenues we are giving up, Business Privilege tax, Use and Occupancy tax, and Real Estate tax, wouldn't exist. Nor -- and I will talk about this in a moment -- is there an alternative for use of this 144 acres that would produce any tax revenues. Understand, this acreage is not producing tax revenue now. And without the Kvaerner project, there is an overwhelming likelihood that it would not produce tax revenues in the future. So we are giving up nothing for $585 million of investment. And what will our return as 19 RESOLUTION 970801 a city be? Our return as a city will be, number one, and most importantly, jobs. (Applause.)
Now, in my six years as Mayor -- and while I was not here and while I wasn't Mayor for the base closure announcement -- but in my six years as Mayor, I have had many occasions to go down to the yard, to go down to the yard as we were working on the last several ships. I was down at the yard as the KENNEDY sailed, the USS KENNEDY sailed, and to the yard to begin the final work. I was there as the KENNEDY left. I looked into the faces of the men and women who were really heroes and heroines. To this day, my mind boggles at the effort that the remaining almost 4,000 workers put forth on the KENNEDY. They knew that when the KENNEDY sailed out of Philadelphia, their jobs were over. But they cared so much about what they had done and what they had created at the Philadelphia Navy Shipyard -- and understand that the day that it was 20 RESOLUTION 970801 closed, announced to be closed, the Philadelphia Naval Shipyard was the only government shipyard turning a profit. The only government shipyard in the United States of America turning a profit. I don't believe that that type of skill and energy and dedication should have been rewarded with closure in the first place. It was the only government shipyard turning a profit. And these men and women had enough pride in what they did, that they finished the KENNEDY on budget and two weeks early. They finished it and worked themselves out of the last two weeks of remaining salary. And many of these men and women had no idea where the next paycheck was coming. And I, over six years, have looked in the faces of those individuals. I have talked to many of them. I have talked to them in large groups; I have talked to them one on one. And it is a sad and tragic tale. And today and tomorrow and next week, all of us will have the opportunity to bring hope back to that work force and hope back to that Navy Yard. 21 RESOLUTION 970801 There is no doubt that there will be a thousand direct jobs created by this project. There is also no doubt that there will be a thousand direct and immediate supplier jobs, what Bill Hankowsky refers to as "outside the fence," created by this project. Then the multiplier effect is subject to much debate. Carnegie-Mellon, a very respected university, one of the most respected in the state and in the nation, has produced a study that, over the next years, Kvaerner will be responsible for 13 13,800 jobs. So a multiplier of almost 12,000 jobs, 14 on top of the 2,000 direct jobs. 15 I tend to be a little bit more 16 conservative. I believe that the multiplier we'll 17 see in the next half decade or decade will be three 18 to five thousand jobs. 19 Take the most conservative, the most 20 conservative cut of that, and those 3,000 multiplier jobs, added to the 2,000 direct jobs, will produce 5,000 jobs. And they are not just 5,000 jobs. As the men and women who are here today in City Council chambers can tell you, they are 5,000 good jobs. 22 RESOLUTION 970801 They pay in living wage. They have significant benefits. (Applause.)
They allow workers to not only provide the immediate needs of their families, but to save money so that they can send their kids to college, or that they can some day buy their dream house. To do things that every American family hopes that they have the opportunity to do. There are very few things on the horizon, almost none that will produce even the low-ball estimate of 5,000 jobs for the City of Philadelphia. Many of you have heard me talk often about riverboat gambling. And one of the reasons I am such a strong advocate of riverboat gambling is, it will produce six to seven thousand jobs for Philadelphia and for Philadelphians. And jobs that you don't have to have a college degree to hold. But those five to six or seven thousand riverboat gambling jobs are at the lower end of the wage spectrum. Not at minimum wage. They will be 18, 19, 20, 21 thousand dollar jobs multiplied by overtime, but not jobs with the 23 RESOLUTION 970801 significance of these jobs. And if we are going to have a vital Philadelphia economy, we need those hospitality jobs. And the hospitality jobs have been a God send to us. And in my judgment we will create more and more and more of them in the next half decade to a decade. But we also need the good, hard, honest, blue-collar jobs that pay good living wages, that pay living wages, that pay wages that you can build a family's hopes and dreams on and that you can have an assured future. So that's our number one return. It is a return for people. It is a return for that 50-year-old who gave 31 years of his life to the Philadelphia Navy Shipyard, and who was smart and tough and effective and well trained and all of the sudden, through no fault of his own, found himself without a job. That's the most immediate return. It is the return of hope for many Philadelphians. But, secondly, we will net as a city a significant amount of tax revenues from this. 24 RESOLUTION 970801 Number one, although Business Privilege, U & O, and Real Estate taxes go into the TIF for the first years, we will garner all of 5 the wage taxes of those 2,000 direct jobs. We will 6 garner all of the post-TIF taxes. 7 We anticipate, knowing Kvaerner's 8 skill, that this is going to be a yard that our 9 grandchildren and our great-grandchildren are going 10 to get the benefits of, because this yard will still 11 be going 30, 40, 50 years down the road. 12 And all of those post-TIF Real Estate 13 taxes, U & O taxes, and Business Privilege taxes 14 will be kicking into the city's treasury. 15 We will also get the wage tax of any 16 of the multiplier vendors that are located in 17 Philadelphia. We will get their Wage tax, their 18 Business Privilege taxes, all of their growth. 19 And we will get the Business 20 Privilege tax of any of the vendors, even whether they be in Jersey or Delaware or in the Philadelphia suburbs, who do business with Kvaerner. Because if you are doing business with Kvaerner, you are doing business with the City of Philadelphia, and you are subject to our Business 25 RESOLUTION 970801 Privilege tax. There will be no company that supplies any good, item, or service to the Kvaerner project that will be not subject to our Business Privilege tax. So the reward in increased revenue for the City of Philadelphia is great. And I don't have to remind this Council that the needs for that increased revenue are enormous. They are enormous so that we can continue our economic development programs. They are enormous so that we can continue the very proud record we have of being the first Council and Administration in decades to contribute money to housing programs. The needs are great because we can use those revenues to continue and maybe even deepen the tax cuts that we have given in Business and Wage taxes, that are taking us down from being the number one, most highly taxed business tax city in America, and the number one highest Wage tax of any city in America.
And we can use those revenues to deal with the number of needs we have in our RESOLUTION 970801 neighborhoods, whether it be after-school programs in the rec center, whether it be street trees, whether it be an expansion of our wonderful library system, whether it be additional policemen or additional firemen. Whatever the needs, these additional revenues will help meet those needs as we look to the future of the City of Philadelphia. Thirdly, the third benefit -- jobs, revenues -- the third benefit will be that Kvaerner Philadelphia will rekindle the Navy Yard portion of the entire base and yard in a way that nothing else can. And I am going to let my colleague and good friend, Mannie Stamatakis, tell you about that from the perspective of the port and from the perspective of the shipping industry, what a dramatic effect having Kvaerner Philadelphia in the Navy Yard will have on rekindling that yard. I believe ten years from now you will see an absolute virtual beehive of activity in the yard because Kvaerner is here, even in businesses that have no direct or even indirect relationship with Kvaerner. And I will let Mannie go into that. 27 RESOLUTION 970801 And, lastly, where are we if we don't do the deal? Well, I said to you just a few minutes ago that I believe that there was an extreme likelihood that these 144 acres that are currently generating practically no revenue would continue to generate practically no revenue. And why do I say that? Well, I say that because I think I have been one of the primary actors in the effort to redevelop this shipyard, from the day that I became Mayor. And it has been a rollercoaster. It has been an incredible rollercoaster. As we began to close in on the Meyer-Worth deal, I cannot tell you the emotions that I felt. I cannot tell you the optimism and the anticipation I felt. I cannot tell you how I worried over that deal like an expectant father. And when it came crashing down around us, it was a brutal reality to deal with. We dispatched Mr. Cohen to Papenburg. And literally I was on the phone at 2:00 in the morning Philadelphia time trying to reach Meyer-Worth officials in that fateful weekend when 28 RESOLUTION 970801 our effort to reconstruct the deal also fell apart. And then after my work fell apart -- we are nothing, if we are not dogged -- and at my direction Mr. Hankowsky and Ms. Gillen sent out letters to virtually every shipbuilding company in the world, every company that we thought had the financial wherewithal to develop a yard here in Philadelphia. And with the exception of Kvaerner -- and I will talk about Kvaerner in a second -- we were met with a veritable stone wall. Nobody was interested. Nobody was interested enough to even begin preliminary discussions with us. Fortunately, Kvaerner showed some interest because of its overall expansion plans. And even with Kvaerner, we had to do an incredible sales job. And the Governor of the State of Pennsylvania deserves an enormous amount of credit for being the leader of that sales team. And the trips to Norway and Finland, and the trips of Kvaerner officials here, all done without virtually anybody knowing what was going on, those trips were frequent, the selling was intense. The bartering and the negotiations was as focused as 29 RESOLUTION 970801 I have ever seen. And, finally, we were able to put together the package that made this a reality. Finally we were able to get commitments from Kvaerner, which, as the Chairman of the Board, Mr. " And the Governor said that the state and the city and DRPA don't often make commitments at the level we have made. And Mr. Tonset did make that commitment. But understand that this was our only expression of interest. We have tried hard. We have tried hard with a number of American companies, foreign companies. We have tried hard to get little repair work here, scrap work here. And were this deal to fail, we would continue to try. Because we are nothing if we are not dogged.
But our chances of success, our chances of ever bringing the type of development to this yard that Kvaerner is going to trigger, in my judgment, are practically nil. So for all these reasons I think this 30 RESOLUTION 970801 is an excellent deal for the Commonwealth of Pennsylvania, and an absolutely spectacular deal for the citizens of Philadelphia, and, most importantly, for the people who need to get back to work, for the people who need to feel good about themselves, for the people who need to do what they do best. And those people we owe a great deal to. And, lastly, I am happy to have told the Council President this as recently as last week, and again this morning, to tell you that I have been talking to the lead Kvaerner official, Detreich Schnitzler, who, up until the end of this year, has headed up shipbuilding operations for Kvaerner, and Bill has been talking to other people, and Kvaerner has expressed a willingness to enter into some agreements on MBE and WBE programs. And I would like to refer you to your Project Summary, . You will see on that there are four bullets. " Well, I can tell you, and I would 31 RESOLUTION 970801 like to substitute, Mr. President, the following language in that Project Summary to read as follows. " And the reason that we cannot set even specific goals for the latter is because Kvaerner does not know what the existing contractor/supplier network is in the Philadelphia region. They have no idea. Some of their needs, for example, will probably not be supplied by anyone in this region; need for radar equipment, for example. There is no one in this region that does that type of production. But they have indicated to us a real good-faith interest in, once they are in operation, 32 RESOLUTION 970801 trying to develop, as best they can, legitimate and achievable goals for suppliers/subcontractor infrastructure. And I think that is good news. And they did it under their own volition, and they did it because I told them that is something that we in the City of Philadelphia consider to be very important. It is goals that are consistent with, in terms of construction, the men and women who are gathered here with us today did projects like the Pennsylvania Convention Center and the CoreStates Center under the operation of these goals. And I will tell you without hesitation -- and I am accused of being a cheer leader or a chauvinist for the city -- but I will tell you that these men and women and their colleagues, under these goals, created flat out the best convention center in America and the best indoor sports arena in America. )
And the reason I say that is, conventioneers, every convention that's in town, just rave about our convention center. All of 33 RESOLUTION 970801 them say it is flat out the best that they have ever seen. And for those that access the center, the CoreStates Center, say the same things. I had the occasion Monday night in Washington to go to the new MCI Center. And it is a very, very nice building. Can't hold a candle to the CoreStates Center. Not a candle to the CoreStates Center. We did a great job, and we did it pursuant to those goals. And we will do it again, working with the great folks at Kvaerner. And I am real pleased. And I want to thank Detreich specifically. As I said, he is leaving Kvaerner to become head of the largest oil company in Norway. And someone told me that's the best job in the Country of Norway, the one that he is going to. But he has been a champion. He has understood Philadelphia and our environment. He has worked hard to do that. And I think this is going to be a great, great relationship. I thank Council for its support up to 34 RESOLUTION 970801 now. And, again, I thank you for all agreeing to this compromise. I think it will work tremendously well for Council and the people of Philadelphia, and well for Kvaerner, additionally. So, Mr. President, I would, with your permission, yield the microphone to Mr. Stamatakis. (Applause.)
The Chair recognizes Mr. Stamatakis and asks him to please identify himself for the record and identify his official role at the Delaware River Port Authority.
My name is Mannie Stamatakis, and I am Chairman of the Delaware River Port Authority.
We would also like to know, do you have your limousine with you today?
It is out front. Good morning, Mr. President and members of City Council. My name is Mannie Stamatakis, and I am the Chairman of the Delaware River Port Authority. I am honored to appear before you today to discuss one of the most significant 35 RESOLUTION 970801 economic development opportunities in the city's history. I want to commend Council President Street for his diligence and his sense of responsibility in this matter. I am also honored to speak to this body because over the years you have played such a significant role in the city's progress. Today, just as in years past, Philadelphia is at a cross-roads. Your choice is simple, yet momentous. By approving the city's portion of the Kvaerner investment, you will be assuring future generations of Philadelphians meaningful employment, and you will be providing a framework that will assure continued economic growth for this region. This is not a new role for City Council. You have never shirked your responsibilities when the future of the city was at stake. In a very real sense, you men and women of City Council understand the heart beat of this great American metropolis. Because you are so close to the 36 RESOLUTION 970801 people and understand the challenges confronting them, I am sure you will do the right thing and contribute to the revitalization of the Philadelphia Naval Shipyard and the restoration of America's pride of place as a center of shipbuilding and repair. As such, it is important that everyone recognizes that this project is much more than an economic development project. This project is about revitalizing an industry. First in this region, and then in our country. It is ironic that Philadelphia should be the place to jump-start commercial shipbuilding once again, because shipbuilding began right in this country, right here, over 200 years ago. For years the United States was one of the top shipbuilding companies of the world. Today we rank 23rd. Since 1990 we have lost 25,000 shipbuilding jobs. And if we don't reverse this trend, we could lose 50,000 more jobs by the turn of the century. " Recent cuts in the Department of Defense procurement budgets have called into question the viability of an industry that has relied exclusively upon naval ship construction for the last two decades. S. shipyards are to remain in business, they must reenter the commercial shipbuilding market. S. shipbuilding firms must learn to build ships competitively by streamlining their management structures, employing new manufacturing processes, and revitalizing their labor force. Today, only seven privately owned yards are producing large vessels in the United States. I believe this is why the President and Congress felt this project was important enough to appropriate $75 million. S. S. S. shipbuilders must overcome the technological advantages enjoined by foreign competitors. S. shipbuilding industry. The new technologies include state-of-the-art computer-assisted design and computer-assisted manufacturing systems for the design, installation, and future maintenance of ship hulls, models, modules, and systems. Foreign shipbuilders concentrate on perfecting methods of ship design, steel work, outfit drawing preparation, production, design, and project planning before assessing the need for computers to support them. 39 RESOLUTION 970801 In particular, the Norwegians have significantly reduced their production times and costs by improving processes. They are considered to be the best in class for modularization and other production processes. In addition, Norwegian shipbuilders are particularly successful in ergonomically planning the yards themselves. They consider the space needs of the fabricators, installers, and assemblers involved in the production process, and make significant investments in process improvement techniques.
Their finely tuned yard layouts are fully integrated with their production methods, which result in cost benefits in processes such as fabrication, grinding, painting, and fit-up. The study states that the commercial shipbuilding forecast looks promising, compared to that of naval shipbuilding. And this study was written before we undertook this project. Some forecasts show that there is an estimated 300 to 400 billion in existing pent-up demand for the new building of world fleets. 40 RESOLUTION 970801 During 1995, commercial orders rose percent. South Korea, Japan, China, and Taiwan, 4 unfortunately, hold two-thirds of the commercial 5 market. Europe holds 20 percent, with Germany 6 holding the largest percentage. 7 The United States ranks 23rd among 8 major shipbuilding nations, holding less than 1 9 percent of the world market share. This needs to 10 change. 11 Why Kvaerner? Forbes magazine states 12 that the only true international shipbuilder, 13 building in six nations, is Kvaerner. 14 Kvaerner has 12 yards in operation. 15 Kvaerner has the technology and the corporate resources to provide a catalytic spark to this region. Kvaerner is an existing Pennsylvania company, with over 1,000 employees in Pennsylvania today, and nearly 750 employees in New Jersey, and 10,000 employees in this country. Kvaerner has a stake in the United States, in Pennsylvania, and will have a stake in Philadelphia. Kvaerner is the only shipbuilder in 41 RESOLUTION 970801 the world with a proven track record in turning around the shipyard in shipbuilding communities. And as the Mayor mentioned, Kvaerner did this in the Varner Yard in Rastatt, Germany. When they took that yard over in 1992, the yard was dying. The German government was unifying, and they could have selected a German shipbuilding company. But, instead, they chose a Norwegian company by the name of Kvaerner. And after five years, which is the amount of time that we have allocated for our transition period, they have turned that yard around to the point where recently they took orders for container ships in competition with Korea, Japan, and the Far East. Clearly, the Varner yard is now globally competitive, and Kvaerner's plan is to make this Philadelphia yard competitive globally. Kvaerner is a large company. It has the financial wherewithal to take this project on. Their operating revenues are $9 billion. Their assets are $8 billion. They made $160 million last year shipbuilding. 5 billion. 42 RESOLUTION 970801 Why Philadelphia? Because the Philadelphia yard provides the best infrastructure for reestablishing commercial shipbuilding. The dry docks that we have at that yard are impossible to replace, and their value is in the hundreds of millions of dollars. And Philadelphia also has a work force, a work force that knows what to do, with years of experience. It has a history and, most important, it has the leadership from Governor Ridge and Mayor Rendell and other elected officials to make this project happen. Kvaerner's vision for Philadelphia is to create a world-class competitive yard, a yard that will focus on container ships and tanker ships, and hopefully will ultimately build cruise ships here. Kvaerner would like to build nine ships during the transition period. And their Business Plan calls for building five ships a year thereafter. The efficiency of the yard will be of compact layout, modern building strategies, steel 43 RESOLUTION 970801 processing lines, and a slim, efficient organization. Steel production will be on the same level as the best world-class yards. Overall productivity could be better than in all the commercial yards in the United States. We could have a yard that will compete globally. And that is not only important to Philadelphia, but it is important to the rest of this country. Because we believe that if Kvaerner succeeds here, other yards will succeed in this country. And we need to regain our position as a premiere shipbuilding country.
This Kvaerner project is truly a bipartisan effort. And it would not be possible, without the cooperation of many government agencies, the city, the state, the Port Authority, the federal government. When we initially began talking with Kvaerner, they didn't believe that that could happen, that that many agencies could get together and work in a unified fashion. But it did happen. A lot of good 44 RESOLUTION 970801 people worked a long time to bring this project to the point that we are. The Mayor mentioned the study prepared by the Carnegie-Mellon University. And I just want to share with you some of the comments from that study. The study says that the analysis concludes that the proposed project will yield substantial returns to the region and to the Commonwealth, in terms of the number of high-quality, high-skilled permanent new jobs that will be created. Increased tax revenues will accrue to both the state and local governments as a result of the new business venture, the introduction of dynamic new technologies and manufacturing techniques that will be diffused throughout the region, and the potential for Philadelphia to become the shipbuilding center of the United States. There are other advantages. The Philadelphia yard will be Kvaerner's most extensive use of just-in-time production. Kvaerner will, therefore, become an agent for introducing new techniques and technology 45 RESOLUTION 970801 work practices in the host firms that will supply the 30,000 parts needed to construct each ship. Kvaerner's just-in-time strategy is likely to contribute to modernization and investment in the region, in Pennsylvania. Kvaerner's production system necessitates that steel plates arrive in near-final shape. This will require investment in advanced steel-making technologies that could lift the overall competitiveness of the steel industry. Kvaerner can be expected to ignite similar investment patterns in large diesel engine technology. The diesel engine is equal in cost to the steel content of each ship, approximately $8 million. The Kvaerner project should act as a magnet for both investment in engine production and expansion. And just to take a minute here and tell you about what was happening in Rastatt, it is just incredible. And, as the Mayor shared, it would have been ideal if everyone could have seen that. While we were at the yard, they were 46 RESOLUTION 970801 delivering the engines and components ready to be put on the ships. There is no room for inventory, because they don't have inventory. They wait until they need it, and they bring it in. It is very cost effective. And the actual facility is right on the premises. Kvaerner believes in out-sourcing. One of the reasons why you only see a thousand jobs in the yard is because a lot of the work is out-sourced to suppliers. And for those yards that have the work done in-house, you would see more workers in the yard. But the work will still be done in the region. Finally, as the hub facilities, Kvaerner will act as a research and development lab and technology transfer center for Philadelphia industrial base. Kvaerner will introduce an entirely new ship design in the Philadelphia market. The design features a potted propulsion drive capable of rotating 360 degrees. In addition to enabling ships to turn 47 RESOLUTION 970801 faster, the system will make Pennsylvania the launch point for a range of technologies. Kvaerner brings to Philadelphia and to the United States high-value manufacturing, high-value ship design and construction, new labor management practices, new relationships and opportunities for suppliers and vendors across the region and the state and the nation. In short, Kvaerner is a radical and necessary departure from the status quo here in the United States. The United States has demonstrated that it can hold onto its high-value manufacturing base. S. auto industry for proof.
A few years ago people were thinking that maybe Japan was going to take over Detroit's place, but today Detroit is back. We can also see evidence in other industries, like steel and aircraft. Kvaerner can be to Philadelphia what Boeing is to Seattle, or what Honda is to Ohio. We will once again be able to stand tall in the world market. And the economic 48 RESOLUTION 970801 generator that makes this possible will be located right here at the foot of Broad Street. This project is also critical to reinvigorate our ports, so that we as a port community can stand tall. A great part of our regional economy depends on the many industries along the waterfront; port facilities, railroads, steel mills, refineries, and, hopefully, the shipyard. And we cannot forget the important role that our unions will play in this project. )
To succeed, union workers must be an integral part of the project. (Applause.)
While we have every reason to believe that we will successfully conclude our agreement with Kvaerner, we are not there yet. And even when we do conclude the agreement, it will take hard work and cooperation to make this effort succeed. I believe we can succeed, but it is critical to our success to bring our entire community on board. 49 RESOLUTION 970801 I applaud Governor Ridge and Mayor Rendell for having the courage and the vision to move this project forward. And I want to thank City Council and President Street for their willingness to listen and to help with this project. In conclusion, ladies and gentlemen of City Council, I want to thank you for giving me the opportunity to speak with you this morning. As I indicated earlier, the future is quite literally in your hands. Many people of good will have worked very, very hard to make the Kvaerner dream a reality. Today I invite you to fulfill your historic role. Thank you. (Applause.)
Thank you very much. I would like to express my personal appreciation to the Mayor for being willing to be with us today and for bringing Mr. Stamatakis. (Applause.)
I have to tell you that over the course of the last six years in 50 RESOLUTION 970801 particular, he and I have had a unique working relationship. And I think the fact that he is here today, and that we have placed ourselves in a position where we can meet the objectives of this Council, satisfy its legislative prerogatives, and get done what we need to get done, on time and in a way that's fair and reasonable to this Council and to the citizens of Philadelphia, is, once again, a tribute to what we regard as being the best run and the best operated local government in the entire country. The Mayor has informed me that he really does have a number of other things that he has to do today. He is willing to entertain as many questions as possible, although he is on a little bit of a string. We appreciate his willingness to be here. Mr. Hankowsky will be around to answer all of the hard questions, as always is the case. But I believe that there are a couple of Councilmembers who would like to be heard at this time. And I will hear them in this order: First, 51 RESOLUTION 970801 Councilwoman Tasco.
Thank you. Good morning, Mr. Mayor and Mr. Stamatakis. I just want to make a comment to say that I thank you for coming this morning and want you to know that I can appreciate the need to create economic and employment opportunities here in Philadelphia. But I want you to know that I was not going to sign off on a Don-King-type contract, with nothing in the middle. What I want to say to you, and the Mayor, that you can appreciate the concern of us on City Council, who sought to have additional information before we signed and agreed to the resolution. Because in this morning's Inquirer, relative to First Union, Backtrack On Area's Role In Merged Bank, we can see that you weren't aware of some things that were going on relative to that merger. And so the need to know is very important to those of us who have a responsibility 52 RESOLUTION 970801 to the taxpayers of this City of Philadelphia. So that's why we require, at least I require, that we have some information relative to this contract. And I have a lot of questions that we will ask Mr. Hankowsky. But I want to make it clear, and I hope the people in this room will understand, and that you, Mr. Hankowsky and Mr. Stamatakis, will make it very clear that this is not going to be the kind of Navy Yard that we are used to. Mr. Stamatakis, during your testimony, you kept talking about new technology. And new technology brings different kinds of jobs. And we have to make it very clear to the members of this union in this room that these jobs are highly skilled, technical positions. There are only a few, 500-and-some. And we need to be clear on what kind of jobs they are. Are they going to be the jobs that these union members can qualify for, or are they going to be jobs for engineers and those people who know how to use computers? I want those questions answered. 53 RESOLUTION 970801 So my concern, in knowing what the details are, are in the interest of the residents of the City of Philadelphia, so that you know what you are in here for, agreeing to, and applauding. That you in the end will benefit, and not that you supported something that you will not benefit from. So I am very concerned about what kinds of jobs they are and the levels of jobs. Because it is new technology; it is not the Navy Yard as we know the Navy Yard to be. It is a different kind. And I am sure Mr. Hankowsky will make that clear during the course of the testimony. Again, Mr. Mayor, thank you. And I am glad that you and the President were able to work out some way that we would be able to give consideration to this contract today. (Applause.)
If I can just respond very briefly, Mr. President. I did, and I think at all times I understood, the concerns of Council. But the First Union analogy I don't think is an accurate one because we were not a party 54 RESOLUTION 970801 to that negotiation. We were not the negotiating party. In this transaction, we are a party to the negotiation. And the Project Summary that's being submitted to you by Mr. Hankowsky does, in fact, include every important element of this transaction. Having said that, I think the compromise that we worked out was beneficial for everyone. And, secondly, as to the training, it is true that this is a different type of yard. But let me begin by saying the construction jobs -- and there will be many construction jobs, which I didn't mention in my testimony -- (Applause.)
-- those construction jobs will be done the same way the CoreStates Center was and the Convention Center. Because those are the best methods available for construction in this country, and we have them here. (Applause.)
Secondly, as to the displaced workers, Navy Yard workers, what 55 RESOLUTION 970801 Councilwoman Tasco said is absolutely true. And we should all be aware of that. However, this deal, and this negotiation, gives an extraordinarily high level of funds to training, extraordinarily high level. And that is because whoever is chosen, whether it be an engineer coming out of college or a displaced Navy Yard worker, will have to be subjected to intensive training by the company in their methods. And the reason the training dollars are so high is because there is a hope and an anticipation that a significant number of the eventual thousand jobs inside the fence can be held by people who were employed at the Navy Yard. Will they have to change their work methods? Will they have to learn some new things? Of course. But we believe they are very, very capable of doing that. Very, very capable of doing that.
Thank you very much. The Chair recognizes Councilwoman -- 56 RESOLUTION 970801 (Applause.)
Thank you, Mr. President. I would like to express my appreciation for the explanation which we have received in detail today, because understanding permits us to make an informed judgment. And when we were insisting on greater information, it was so that we could more fully carry out our elected duties, which is to represent all the people in the City of Philadelphia. I am particularly pleased that the language which the Mayor had circulated to us today, which substitutes for a shorter paragraph, gives us an example of a recent large-scale development. We won't fight over what a good-faith effort is. But between us we will know that it means more than passing, more than a hit and a miss, as my mama used to say; but the real go shape the bushes, do everything to make sure that inclusivity marks this project of all people who in the past have watched their jobs go somewhere else. 57 RESOLUTION 970801 I thank you for the intensity of this explanation. And I am glad that, Mr. President, we have reserved the right, on further examination of these and all of the supporting documents from which this summary was drawn, to again either approve or raise a question, so that at all times we will all be on the same page. And again to you and Mr. Stamatakis, I appreciate the briefing today.
Thank you, Councilwoman Clark. And I want to say that when you get the final documents, there will be specific goals as to the construction portion of this project, very much similar to what we all approved for the CoreStates Center.
Thank you very much. The Chair recognizes Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Mr. President. Good morning, Mayor. I want to take this opportunity to thank you for being here today. 58 RESOLUTION 970801 And during the approximately two years that I have been in Council, I have had the pleasure of standing next to you on a number of occasions where we had both either cut the ribbon or thew the switch to create new jobs and development. And each of those things that we have performed, as recent as last night at the Reading Terminal, are all important to the City of Philadelphia, to the economic growth, and in creating jobs and doing the things that are important for this region. But, in my opinion, there is probably nothing, as you have stated in your testimony and Mr. Stamatakis has stated this morning, is probably nothing more important than what is going to take place at the Philadelphia Navy Yard. On behalf of myself, my constituents, the great men and women here today representing the unions and the union leaders who worked hard, and in particular PIDC and all the folks over at PIDC, I want to take this opportunity to thank you for moving this great city forward. And it has been a pleasure. Anything you need me for, I will be there. You had my vote 59 RESOLUTION 970801 from the beginning, and you have my vote to the end. (Applause.)
Mr. President, I would like to thank Councilman DiCicco for those remarks, and particularly for clearing up what he meant about throwing the switch. There has been a prior Mayor who talked about throwing the switch, as well. But he meant throwing the switch to turn on lights or signs, or whatever. So with that explanation...
Thank you very much. The Chair recognizes Councilwoman Fernandez.
Thank you, Mr. President. I too want to thank you, Mr. Mayor, Mr. Stamatakis, for coming today, and mainly laying out in such a clear, concise way the economic benefits of this project, and also so clearly articulating, essentially, what the cost is for us here in the city. 60 RESOLUTION 970801 And as you so clearly stated, the costs, there are no investments here out of our current Operating or Capital Budget, but basically funds and tax resources from the Business Privilege tax, part of the Property tax, and part of the U & O. Those monies that we will get if the project goes through will be used to pay back the loan. So, again, unless the project goes forward, those are tax monies we would not realize. And, in addition, as the backup material notes, there are other taxes, Wage taxes, that will come both to the city and the School District. So it will be a net plus for us, in addition to all the jobs and employment for people in the region. So I want to thank you for laying it out so clearly. But also wanted to ask, you had said quickly, and I wasn't certain if I heard you right, that you expect to conclude the negotiations next week?
Yeah. Well, if I could, I would. We are hopeful. There are, as Mr. Stamatakis said, some last-minute details to get ironed out. But we are hopeful that we will be gathering next week. The Kvaerner officials are now here on a day-to-day basis, talk to Mr. Hankowsky and Mr. Stamatakis on a day-to-day basis. We hope to do it next week. VOICE: Close it up.
Again, mainly for the public record, this Council has had two briefings, now we have this formal public hearing, we have all this backup information and the responses to the list, the lists of questions that were asked. I, for one, am very supportive of this project and do intend to vote positively for it. (Applause.)
Thank you, 62 RESOLUTION 970801 Mr. President. Good morning, Mr. Mayor. And before I make any of my usual caustic remarks, I also wanted to welcome you to Council. We have been looking for you for some time. I am glad you were able to make it to be here with us this morning. I do have a couple of questions for you. From the Project Summary on , there is mention made of the Philadelphia Shipyard Development Corporation, PSDC. And I just wanted to inquire as to whether or not the creation of this entity in some way limits the city's control or involvement as to what happens down at the shipyard, given the composition of the appointments to be made. I understand that you will be making some appointments, the Governor makes some, and the DRPA. Could you comment on PSDC?
It only affects the Kvaerner tract. It doesn't affect the yard in general, number one. And, number two, our ability to 63 RESOLUTION 970801 oversee this agreement in no way, shape, or form is compromised.
Okay. Lastly, in terms of questions for yourself, I also notice on the same page, in that same section, it talks about the initial term of the deal being years, with options to renew at least 9 for an additional 82 years, although previous news 10 reports just seem to indicate that it was a flat out 11 99-year lease. 12 Can you just comment on how it was 13 arrived at 17 years, and what are the various 14 renewal options and terms? 15
Mr. Hankowsky, 17 please identify yourself for the record.
I am Bill 19 Hankowsky, President of the Philadelphia Industrial Development Corporation. The 17 years is derived as a function of, that's what's remaining on our terms with our lease by the Navy for the shipyard. We signed the lease approximately 3 years ago; it is a 20-year lease. So we can sign an 64 RESOLUTION 970801 initial 17-year base term. And then the renewal is, basically, an extended term. The agreement would provide that if we get title from the Navy sooner, then there would just be a simple lease. This is the way we have to accommodate it, given that we don't own it right now.
Actually, Mr. Mayor, I do want to say with you that I am quite thrilled from your testimony that you chose today to announce your full support for full funding for street trees here in the city. And while I do expect to support this deal, I do have some additional questions that I will ask Mr. Hankowsky and his people. I think that it is a stunning moment in your Mayoralty to propose this opportunity.
I do want to just make clear, if we can read back the record, I said when these future revenues are realized, we can use them for things like street trees. And that will probably be, knowing the project schedule here, that will probably be 65 RESOLUTION 970801 after I am gone.
Mr. President, can we make sure the notes of testimony from this hearing are available soon. Thank you, Mr. Mayor.
Thank you very much. The Chair recognizes Councilman Kenney.
Thank you very much, Mr. President. Mayor, during the course of the last six years I have been in this Council, I have watched this Administration do a number of tremendous things, from our budget deficit, to the way we deliver services, to the change in attitude of the people in the city as it relates to what our government is all about. This may be, if I can say, your Administration's -- perhaps will be shown to be your Administration's -- greatest legacy. And I know you have many things to do in the future and it is not the end of your public service, I hope. 66 RESOLUTION 970801 But I think this is an opportunity for men and women from Northeast Philadelphia to Southwest, from South Philly to Northwest, to work at dignified, family-raising jobs in this city and in this region. Because this is a regional asset, it is very important that with Mr. Stamatakis at the table here, we recognize that parochial Philadelphia, as myself or Councilman DiCicco may be, this is a regional asset, with regional dollars from the state and from the DRPA. And I just want to make sure that we thank you for all your efforts, both yours, Mr. Stamatakis, Bill Hankowsky, Miss Gillen, and all your entire team for sticking with this to the end. And I really want to thank you for the opportunity today and tomorrow to cast the two easiest votes I ever have to cast as a member of this Council. (Applause.)
Mr. President, if I might, of course, thank Councilman Kenney for his 67 RESOLUTION 970801 remarks. Secondly, echo his remarks to DRPA. It has been that way even before Mannie took over as Chairman. But since he has been Chairman, there has been a renewed energy to using DRPA as an economic development motivator and incentivizer. And it has just been terrific. And we have enjoyed a great relationship in not only making the city better economically, but the region. And I think we all do, notwithstanding our parochialism, all do understand the benefits of regionalization. And the DRPA has been an important part of that. Mr. President, if I might, unless there is anybody who has any question that Mr. Hankowsky can't answer -- and I don't think there are any -- if Mr. Stamatakis and I can take our leave. I have a meeting upstairs about another construction project. Another big one. (Applause.)
Mr. Mayor, there are three additional Councilmembers whose lights are on. If you could give us just about another minute. 68 RESOLUTION 970801 The Chair recognizes one of the least tall members of the City Council of Philadelphia, Councilman Mariano. (Applause.)
Thank you, Mr. President. They already know I am short. They have been reminding me for years. But thanks for 9 reminding them now. 10 Mr. Mayor, as one of these people on 11 this side of the rail who has actually worked at the 12 Navy Yard, I would like to thank you. Because I 13 remember the faces and the names of those displaced 14 workers. 15 And one of my Council colleagues here 16 talked about we may not be ready for the 17 technology. Since the Meyer-Worth deal fell down a 18 couple of years ago, I happen to know that the 19 building trades has been trained. 20 The electricians, the sprinkler fitters, the sheet fitters, the sheet metal workers, and the painters, they have been working on the metric system. But the electricians have been working on the metric system, robotic welding. So it is things that Meyer-Worth -- 69 RESOLUTION 970801 they may be surprised, Kvaerner, when they get here, to see just how trained these workers are. (Applause.)
I would just like to take another minute just to thank you, Terry, Mr. Hankowsky, Mr. Stamatakis. But I would like to thank the leadership of the building trades. Because I know how you guys sweated this for a couple of years because I am there with you. I walk with you. I talk with you. I know what's happening. And we appreciate it. And let me tell you, I was ready to vote for this deal the first time we were briefed in Council eight months ago. Because it is about jobs, jobs, jobs, and jobs. Thank you. (Applause.)
Thank you, Mr. President. 70 RESOLUTION 970801 Mayor, I want to also congratulate you and your team for bringing this Navy Yard back to life. Thank you, sir. (Applause.)
Mr. Mayor, I think everybody here feels awfully good about the prospects from the Navy Yard. But considering the fact that Council from time to time has to deal with these situations, could you explain to us why it is not possible to have all the documents available at the time we make the decision?
Well, number one, that was a request by Kvaerner and by the Commonwealth. But, number two, if I can add -- and, again, I don't want to open this up because I think we have reached a successful resolution -- but when we voted, for example, on the PSFS TIF, or on the Marriott Courtyard TIF, you didn't have the documents there to look at. You didn't have the 71 RESOLUTION 970801 final documents, or even the draft documents. You, in those matters, accepted a Project Summary from either PIDC or the Commerce Department. So I don't think it is entirely unusual not to have the documents. What I believe Council always deserved, always deserved, was a full and complete Project Summary. And I think through this process, the Council President and others, yourself included, have saw to it that the Project Summary now, I think, is as complete as it can be in every detail. And having said that, Mr. Hankowsky has given written testimony through me to some specific technical questions, and is here to answer more of those. But, really, when you think about documents themselves, Council rarely reviews the documents in these transactions. And, again, in the TIF transactions that we have done, I am not sure that you have ever seen the final documents, or even the final draft documents. But, again, I don't want to dwell on 72 RESOLUTION 970801 that. Because I think what the Council President and many of you have come up with as an alternative here works very, very well.
Mr. Mayor, thank you very much. Mr. Stamatakis, we appreciate your being here. (Applause.)
At this time Council will take a five-minute recess, a five-minute recess. (Short recess.)
May I have your attention, please. Can we resume the Public Hearing. Can we please ask the media to leave the floor of Council. Can we please get Mr. Hankowsky and those folks back, so we can proceed with the hearing. At this time we will continue with our Public Hearing. The Chair recognizes Mr. Hankowsky. Mr. Hankowsky, do you have opening remarks? 73 RESOLUTION 970801
I do not, Mr. President. I think the Mayor sufficiently summarized where we are at. So I would be happy to entertain questions.
All right. Thank you very much. If I could have your attention. Can we, those people who are in the chamber, if you really do have to talk, we would appreciate it very much if you could leave the chamber. Other than that, we would appreciate it very much if we could give our attention to the Public Hearing. The Chair recognizes Councilman Nutter.
Good morning, Mr. Hankowsky. The last question I asked, I believe, was regarding the term of the lease. And you explained about the 17 years and the remaining 82 years. Can you further expound on the rest of the statement from that talks about options to renew the lease for an additional 82 74 RESOLUTION 970801 years? Is that five renewal options, at 4 years a piece? 5
It is, in addition to 6 the base term of 17, which is code terminus with our 7 lease with the Navy, then there are four renewal 8 periods over the 82 years, which I think are three 9 20s and a 22. Right, three 20s and a 22. 10
Okay. Where did 11 this idea of the PSDC come from? Why did that need 12 to be created? 13
It came for a couple 14 of reasons. 15 One was, the Commonwealth, as a 16 function of using their capital funding as a contribution -- and I am not a tax expert, but I will say the words as they have been described to me -- needed an indicia of ownership. So if they are a member of a nonprofit, that gives them the indicia of ownership to give them the capital dollars to invest in the probability. So it had a technical funding origin. Secondly, Kvaerner was looking for --
I am sorry to 75 RESOLUTION 970801 interrupt you. Is that a requirement, or is that a mechanism that they have used in the past?
Well, generally -- and I will caveat this with saying I cannot speak with total certainty about how the state has spent all its Capital funding. But, basically, the state, when it uses capital dollars -- with one exception, which I will explain -- does those at facilities, quote, unquote, they own. And they can be simple stuff, highways, state universities, health facilities. But you will even notice on college campuses, say at Drexel or someplace, where they have given money to build a building, you will actually see "Building Owned by Department of General Services." And they own it, and then lease it to the university. And I think at the expiration of the bond term, then it gets deeded to the university. The one exception is what's known as Redevelopment Capital Assistance Funding. The Commonwealth elected, in this 76 RESOLUTION 970801 transaction, to use their general Capital funding approach, which I would typify as kind of the DGS model, versus Redevelopment Capital Assistance; ergo, the need for them to have some indicia of ownership in the asset to which the state capital funds are invested. The second reason to create PSDC was from a Kvaerner perspective. Kvaerner was looking for, to use the term, a one-stop shop. In other words, as Mr. Stamatakis indicated, there is sort of this myriad of players coming together in the transaction, various kinds of federal dollars, DRPA, state, city. And that there would be a single point where those dollars would all flow in and flow out, so that there would be a single disbursement agent and vehicle. And PSDC is the vehicle that will serve that role.
Okay. And with regard to the appointment and the number of members of this Board of Directors, is there any information on that at this point? 77 RESOLUTION 970801
The entity has not been formally incorporated. What is clear is that the three local governmental funding agents -- the Commonwealth, DRPA, and the city -- would have seats and would appoint. With the Governor being the appointing power, the Mayor being the appointing power, and the Chairperson of DRPA being the appointing power for those respective entities. The number of seats hasn't been totally determined. But the concept is that the seats would be in relationship to the funding. And I think that comes out -- I am doing this -- I think that about 60 percent of the seats would be what I would call Commonwealth seats, percent city seats, and 20 percent DRPA seats. 19 That's a little bit of a rounding, 20 because it is not exactly that way in the funding approach. So if you had five, 3, 1, and 1. If you had ten, 6, 2, and 2, something like that.
Now, who appoints all the people to the DRPA Board? 78 RESOLUTION 970801
Who appoints to the DRPA Board? The DRPA Board has a modestly complicated appointment structure. On the New Jersey side, they are all Gubernatorial appointments. On the Pennsylvania side, there are a couple of seats filled by officials by virtue of their office. The Auditor General, as an example, has a seat, and I believe the State Treasurer has a seat. And then the remaining seats are Gubernatorial appointments. And I think it is eight and eight.
Eight seats per side. So on the Pennsylvania side, two are by virtue of their office, six are Gubernatorial appointments. And then they also have very -- there is a requirement, I think, that a majority of each side's eight must vote in the affirmative for an action to happen. So, in a sense, there is a backward veto by each state over an action. 79 RESOLUTION 970801
Okay. So the Mayor doesn't appoint anyone to the DRPA Board?
So our representation on PSDC is, Governor appoints people to the Board. Governor appointments, except statutorily designated state office holders, appointments everyone else to the DRPA Board, and then the Mayor gets whatever is left?
I wouldn't quite characterize it that way. But, yes, I mean, basically you have a three-way split. That's correct.
Okay. Let me ask you this question early. I don't know if the gentleman is still in the room. But one of my constituents, who somehow miraculously is not fully convinced about the deal, inquired as to what, if any, guarantees exist to ensure that Kvaerner continues its presence at the Navy Yard. And, as seems to happen in the private sector, is there a possibility that Kvaerner could somehow be bought out of the yard, and a 80 RESOLUTION 970801 subsequent negative impact by way of employment?
Right. Those are, I think, correctly two different questions. So let me try to deal with them in pieces. On the sort of proactive side of, what is Kvaerner required to do to be there, the transaction is structured in what I would call sort of three phases over that lease term: What's characterized as the transition period, Years 1 to 5; the initial operating period, Years 6 to 15; and then the remaining term of the lease. During that first 15-year period, the transition/initial operating periods, Kvaerner is required to operate the yard in conformance with the business plan that would be an exhibit and attachment to the agreements, that lays out sort of the steel production activity and the kinds of ships, and that kind of detail. So that they basically have a, to use a term, kind of an affirmative operating covenant to be there and run a shipyard. They can't make kites, or whatever. Secondly, there are requirements in the transaction that provide for Kvaerner to employ 81 RESOLUTION 970801 minimum numbers of people, which is not to be different from the numbers that are anticipated fully. But clearly when you write a penalty clause, people want a little bit of room. Suppose we have a big worldwide recession, and there are not that many ship orders. So there are numbers of people that they need to employ. And if they do not, then they enter into a penalty phase, which has a formula that deals with for how many years are you below the number, et cetera, et cetera, that has an outside overall penalty of $20 million, should they in fact really not do this based on the calculations overall. There are also provisions that Kvaerner, for example, during the transition period, can't take, quote, unquote, profits or distributions out of the yard to the parent, so that they stay invested there. That partially is related to the second question. With regard to, can Kvaerner sell it to somebody else, I think the answer probably is yes. And that that party would then have 82 RESOLUTION 970801 to affirmatively -- I mean, they can only sell it pursuant to all the penalties and requirements, et cetera, et cetera. But could, you know, years -- 5
You don't have to 9 be too heavy into this question. 10 If the number two shipbuilder in the 11 world came along and decided to buy -- 12
Where that would have 13 its most adverse impact, because of all the other 14 provisions, would be from Years 16 on, where some of 15 these provisions no longer apply. 16 At which point, then, there is what's 17 called a recapture provision. That deals with the 18 fact that if you are not using it and you fall below 19 another employment threshold number, then the public 20 has a right to take it back. So that to use a very stark example I hope will never be the case, the number two shipbuilder does buy it and says, "I am going to buy it and moth ball it to get it off the market, so it is not competing with me," in that scenario they 83 RESOLUTION 970801 either have to be doing something at a certain level or the public could recapture it.
But your basic response is, based on the documents and leases and national leases and penalties, Kvaerner is fairly locked into operating a shipyard at the Philadelphia Naval Shipyard and Naval Business Center?
of the Project Summary seems to indicate, it talks about the installation of modern, state-of-the-art steel fabrication equipment capable of producing approximately 37,500 tons of steel per year.
No. The steel would be delivered from a steel mill, or mills.
And then they do a lot to it, right. These are steel production lines. So if they would do it, for example, the way they do it 84 RESOLUTION 970801 in Germany, it comes in meter lengths, pre-coated, and then it is cut, fabricated, bent, turned.
I never made the 6 conversion to the metric system. It was starting to 7 pass me by in school. 8
So, and then in some 15 places there are things, the pickling of steel and 16 other painting of steel. So it is the processing of that amount of steel, through what is in fact -- and then there is robotic welding and plasma cutters and stuff.
Okay. Let's talk about the $45 million in professional services costs.
Somewhere in 85 RESOLUTION 970801 either this document or another document, it kind of mentions that a component of that is architectural and engineering fees. And, to be honest, I don't know whether that is a lot or a little bit. But I assume that various professionals at some level will be involved in this. And, actually, I would like to go back to, I guess, kind of where we are now and then going forward. Who are the people and/or firms that are presently representing the various parties to the transaction? I assume that you have some representation somewhere at the negotiating table? I think I recall at one of the briefings, for instance, I saw Marilyn Cutler --
-- in the room. Now, I think she mentioned to you that she was PIDC's attorney.
So I assume that PIDC has representation, the state has 86 RESOLUTION 970801 representation, the city has representation, DRPA has representation, and Kvaerner has representation.
Who is representing who, and who are the individual parties?
PIDC, in terms of legal support, is represented by Schnader, Harrison, Segal & Lewis on what I would call the document phase. We have also been using -- which we were using prior to this specific transaction -- Manko, Gold on environmental legal issues.
For Manko, Gold, Jonathan Rinde has been the point lawyer. Occasionally Joe Manko. And we actually have, it is kind of interesting, at a law firm they actually have a technical person, Darryl Borelli, who actually can read an environmental assessment and understand the engineering and technical implications. 87 RESOLUTION 970801 Kvaerner is represented by Drinker, Biddle & Reath, and they have been using a variety of attorneys. Bob Strause has been what I would call the point attorney. But there has also been real estate counsel, attorneys who have expertise in real estate, Fisher. John Fisher, Drinker's environmental lawyer. The Commonwealth is represented by Saul, Ewing. And basically Saul, Ewing -- I actually am not sure I should say this. DRPA does not have outside Council. But I guess it would be fair to say DRPA technically representing -- or Saul, Ewing is representing the state. Fred Strober has been the point attorney. And, again, there have been environmental lawyers and real estate lawyers at that firm. For example, there are lease documents and, you know, environmental clauses. And so they have been dealing with those various provisions. To your first question -- because I did want to make sure I responded to it -- with regard to the professional fee category in the project budget, fundamentally there are two 88 RESOLUTION 970801 components to that number. One component is what I think all of us would consider the usual third-party professional services you retain in a large construction project; architects, engineers, surveyors, environmental testing firm, whatever all those kinds of skill sets are that are brought into a transaction. And that's a portion of the number. And also in that category, perhaps a little different than a normal construction project, given you are designing buildings and also a production facility, there will probably be firms that will specialize in laying out a steel processing line, or how to -- you know, robotic designing, robotic welding machines, or those kinds of things which you wouldn't find in a normal, typical engineering architectural firm. Also in that number are costs related to costs that Kvaerner would incur bringing their personnel in those areas, construction, design, production layout, et cetera. So it does include certain direct Kvaerner costs.
Now, are there 89 RESOLUTION 970801 any other firms that are providing either representation or plan assistance? I mean, it seems like Kvaerner has a fair amount of work to do before they get to --
I have other questions about the MBEC plan. There are questions about how people are getting hired. There are curriculum issues. What other firms are working with Kvaerner presently to assist them in any of their plans going forward?
I think, to the best of my knowledge -- which I think is pretty good knowledge -- I think in terms of third-party firms they have engaged, they have engaged only two others. I believe Ballard, Spahr is providing certain representation as it relates to labor issues. And an environmental firm, O'Brien & Geary, they have engaged, who is reviewing -- there are a 90 RESOLUTION 970801 whole bunch of environmental reports the Navy had done on the conditions of the facilities. There's EPA, DEP kind of reports. So they are environmental consultants. Kvaerner had not engaged any of the other professional service firms, design firms, architects, engineers, et cetera. And have done in all of their work to date, in terms of laying -- you know, there is what is called the infrastructure plan that sort of lays out where buildings might go and what kind of equipment. They have been doing those in-house, given that they are in all these shipyards and have people that, you know, know how to buy cranes and things like that. So they have in-house expertise that they have utilized. And I don't think they would be engaging any of those kinds of firms until after, quote, unquote, all the approvals are in place, documents are executed, et cetera. And I do know, again as late as last evening, that they are even thinking through under 91 RESOLUTION 970801 what scenario, sort of what model they might use. Will they use general contractors or construction managers. And, you know, would they have a single architect, or would they have multiple -- you know, somebody laying out fabrication lines and somebody designing buildings. They are sort of still working through how they might do that. And I should say, there are moderately decent differences between what I would call standard op construction procedures in Europe versus standard op construction procedures in America. So they are also sort of sorting some of that through.
With regard to , that big number seems to be the 953 full-time direct jobs. These are the people who actually work at the site once all this other stuff gets done. Now, it is my understanding that there is some search firm that's being engaged to potentially look for workers at this site; is that correct?
Well, no firm has 92 RESOLUTION 970801 been engaged to date. And, in fact -- which I probably would surprise no one in this room, we have been taking in a lot of calls. We have had 400 resumes today and over a thousand phone calls that we have logged of individuals just saying, once there is a process, I would like to be part of it, however that gets done. The discussion -- and perhaps this is the point to which you are inquiring -- has been that, given a variety of factors, one is that there are all these funding sources. And some of these funding sources have mechanical requirements, particularly the Federal Job Training dollars, as they relate to who is eligible, under what circumstances, to be eligible to be trained via those dollars. So if you sort of think of funding eligibility on one side of the matrix, and then you have skill sets that are looking for, and aptitudes and backgrounds and whatever. And so, for example, you would be looking at the universe of laid-off shipyard workers, and then there would be perhaps people who 93 RESOLUTION 970801 would -- the skill set would be what would be called ship outfitting, which is the kind of more minute finishing off of the ship, where you are installing the radar and, you know, various kinds of component aspects to it. And that has a whole skill set to it. The thought has been that the project, to make all that work fast and well, might be the engagement of a third-party firm with a background in that, who would work for the company you were asking about earlier, the nonprofit, the Shipyard Development Corporation, as a way to review, interview, assess, figure out, okay, this person is going to need this training regimen to go from their current skill set to the skill set they will ultimately need. And this can be funded in part from some of the state money and some of the federal money and some of the DRPA money, and sort of figure out almost a mini-budget per person of the training aspect of moving those individuals along. And perhaps that's the firm you are talking about, in terms of that function. But they would have sort of a host of responsibilities in 94 RESOLUTION 970801 terms of making all that come together. It has been done that way in some of the large automotive plants that have been developed, where, you know, a thousand jobs are being created by Saturn, and how do you kind of get everybody in the various discrete skill sets that are needed, and train people to the degree there is a gap between those skill sets and the job.
I would like to come back to that. But lastly for this round -- the President has been most accommodating -- the Mayor put forward amendment language to this shorter version of the reference to MBE/WBE program. And I just have one question about that. It is clearly focused on good-faith goals for construction subcontracting and construction employment, similar to those in the MBE/WBE plan for the CoreStates Center, which, I have to be honest with you, I have not put to memory.
Maybe you have. But we can talk about that in a second. 95 RESOLUTION 970801 And good-faith efforts to include MBE/WBE firms in the operation of the shipyard and the supplier/contractor infrastructure. Is the terminology MBE/WBE firms in the operation of the shipyard put there to create a distinction between firms involved, MBE/WBE firms involved, in the operation of the shipyard, as opposed to workers involved in the employment operations at the shipyard?
Oh, there is a distinction. I mean, so, I am not sure that the phraseology was meant. But there is a distinction, to be fully responsive. The phraseology that was distributed earlier this morning is specific to firms. An operation being somebody, maybe the security firm for the operation or the janitorial firm or the -- you know, you hire somebody to keep your boilers working, or whatever all those things are you do to keep a thing functioning; that's the operational aspect. The supplier/subcontractor infrastructure are references which are mentioned in another part of the Project Summary, to actually 96 RESOLUTION 970801 that vendor network that's going to deliver engines and bolts and the steel that goes into the ship. And on the full-time permanent employment side, distinct from the construction, which is mentioned in that phraseology, yes, I think it is fair to say that there would not be specific goals.
So your testimony is that with regard to the 953 full-time direct jobs, there is no commitment anywhere with regard to good-faith goals or good-faith efforts to have any level of minority, female, disadvantaged individuals as a part of the 953 full-time workers, nonconstruction?
Yes. In part, that emanates from, going back to an earlier question you had raised, the notion of the way the funding lays itself out. In terms of being able to utilize that funding, a portion of the funding relates directly to training 97 RESOLUTION 970801 laid-off shipyard workers. A portion, if you thought of them as almost concentric circles, a portion relates to training more generally displaced or dislocated workers. So those are the sort of affirmatives who should you go out and try to get into this mix. At some earlier Council briefings the question was raised as a point of information, sort of, what was the nature of the work force at the shipyard prior to its closure.
And I think at one briefing, to be blunt -- because I sort of did it off the top of my head, then went back -- I was slightly in error.
Okay. The testimony at that time was 90 percent male, 10 percent female; 85 percent white, 15 percent black. I think I read different figures in the newspaper.
Yes. In fact, going back and looking at the snapshot when the yard closed, it was approximately 75 percent caucasian, 98 RESOLUTION 970801 percent -- thank you. I will be even more precise here. 22 percent African-American, 2 percent Hispanic, and percent other. And that was the snapshot when it closed. And it was 93 percent male and 7 percent female. Again, the snapshot when it closed.
Well, then, let 11 me ask you this -- this will be my last question in 12 this area -- if your earlier statement was that 13 there are no good-faith goals or good-faith efforts 14 with regard to the 953 full-time direct jobs as it 15 relates to minority, female, or disadvantaged 16 individuals, in securing employment, then is it 17 theoretically possible in a worst-case scenario that 18 there would be none? 19
Well, there are, in 20 the agreements, affirmative provisions that Kvaerner 21 and its parents and subsidiaries, whatever, cannot 22 discriminate on the basis of any characteristic of a 23 human being. 24 So though I guess as a theoretical 25 question, the answer is, I guess theoretically the 99 1 RESOLUTION 970801 answer could be yes. I think as a practical matter, that is not what is going to happen.
Councilman, you have had the floor for about 30 minutes. You are now going to yield to the Councilwoman?
That's real cute. Right? The balance of what time? Councilwoman Clark, can I ask for what purpose you wish to have the floor yielded to you?
Mr. President, I would like, so as to create a cohesive record, to 100 RESOLUTION 970801 follow on some questions that Mr. Nutter started. But if you need to adhere to some kind of structure, I will open this again at another point.
This is a hearing. It is not a good thing to have more than a question or two --
That is your characterization of it. What I would really like to do, with your permission, is move on to another Councilmember whose light has been flashing for a long, long time, and I think we will have to come back to it. And would like to recognize Councilwoman Tasco.
Thank you very much. Somewhat on the same track that Councilman Nutter is on, I would like to go back to the professional services contracts. There is work being done, I thought I heard you say something about environmental work, some preliminary work that's being done now at the 101 RESOLUTION 970801 Navy Yard?
Correct. Well, the question that was asked of me was, what professional firms to date has Kvaerner engaged. And they have engaged -- one of the three that they have engaged is a firm in environmental consulting and testing. There has been, to some extent, lots of environmental work done at the yard. The Navy themselves had an affirmative obligation to do testing. To the degree that there was a problem, to mitigate it. So there is -- and I don't mean this to be hyperbole -- but there is sort of a stack of environmental reports that pre-existed. So part of it was just going through that materials. So lots of people have done environmental work. But, yes, Kvaerner has engaged a firm to be their environmental consultant.
I guess my point 102 RESOLUTION 970801 I am trying to get to is, how do they identify these individuals to engage in work for them? Do you make recommendations? Do they ask you who are companies, environmental companies, or law firms? Or just how do they identify companies to do business with here in this area?
Well, I think there are two responses to that question. With regard to their current team, which is a moderately small team, they selected their own law firm, which they did. And then that law firm provided them -- because they were looking for somebody, because environmental issues, as are often the case, are the subject of the legal documents you negotiate in these transactions, and they wanted somebody at their shoulders, so to speak.
How did they pick the law firm? Did they ask you? Did they ask anybody?
Well, I would find it -- they did not ask me. And, generally, as a 103 RESOLUTION 970801 matter of just policy, I generally don't tell the party I am going to negotiate with who they might want to hire as the lawyer that's going to --
I thought someone locally may have recommended some law firms to them.
That may be the case, but I didn't. Could I respond to the second half of it? Because I would like to for clarity. And as I indicated to Councilman Nutter, I don't think Kvaerner is going to be, in the near term, hiring probably anybody else at this point. Because until there is a transaction and people know where we are going and whether they are going and whether it is all going to happen, I wouldn't see them or us, to be blunt, necessarily spending any additional resources. At the point where now Kvaerner would have to sort of flush out a full team, who is going to design it, who is going to do the engineering, who is going to do the survey work, all of those things that will flow out of the project, I have 104 RESOLUTION 970801 talked to them about providing them with information about firms in Philadelphia, and an inclusive list of those firms, so that they would have a good sense of who is out there, what's available, who can do what. And we would provide that assistance at that point.
Yes. Because there is a lot of up-front work that will be done prior to construction and the employment phase. And certainly we want to have some assurances that design firms, architectural firms, environmental firms that represent the community that I come from are included in that process. Because a lot of money is made up front in that process. That's where the bulk of the money, the professional services, really, that's where the dollars come from. So I would like to be kept abreast, informed, as to what they are looking for. We will give you a list of people we know in the Delaware Valley area who have capabilities. We would like to know who they are looking for, so maybe we could recommend two or three design firms. It could be their choice. But 105 RESOLUTION 970801 we want to see a diverse team from the design to the end. We have been talking. You know my concern is about these jobs. And in your briefing you told us that a lot of the former -- some of the former employees will come back, that they will be retrained. What is Kvaerner's commitment to the older worker? You know, the older worker probably made more money than a younger worker might make. What is their commitment to the older worker?
Well, there is no -- I am not a lawyer, but I am not sure you could do it anyhow. I'm not sure you could -- as we all know, there is a federal law that relates to, you cannot discriminate on the basis of age, either. I think it is the Older Americans Act, I think is the correct title. And Kvaerner is, therefore, obviously obligated to adhere to all those laws. I think it also kind of works in the converse. Which is, I am not sure you can affirmatively obligate somebody to do it the other way. 106 RESOLUTION 970801 Their obligation is to go into the laid-off shipyard worker pool as the first resource to fill the positions. They have no percentage goal -- I'm not sure how best to say this -- that they should hire so many people over 50, or so many people over 40, or whatever. That's the fact.
Now, how do you identify the former workers from the Navy Yard?
There are a variety of ways that that will be done. There was an office that the Navy maintained at the base, which was called the Career Transition Center, that was available to former workers to help try to find other employment. That office, though no longer -- I think it is fair to say is no longer functioning, but had information, at least sort of where was the first place the person went, you know, if they went to work for, I don't know, Strawbridge's. In other words, we know they went there. And they have their -- there is personal information, they used to live here. The Private Industry Council also was 107 RESOLUTION 970801 actively involved during the phase where workers were being laid off, again in terms of training and placement, et cetera. And they have an information base. The unions that had represented those workers, which is generally characterized as the Metal Trades Council -- in fact, there were a set of unions that represented the shipyard workers -- also has information about their membership and where they are now. And to be quite candid, as I think I mentioned earlier, the media has been somewhat helpful, simply from the standpoint that we have had over a thousand people call back in and say, "If you are looking for my number and address, here is where I am at. And as soon as you are ready, tell me what the process is to go through." So I cannot sit here and in all honesty tell you where to find every one of those 5,000 people. Because if they went to a different job after the first one, and if they moved from where they used to live, we may not find them. But the vast majority of them are accessible through those various databases. 108 RESOLUTION 970801
Have you been able to identify the kinds of jobs that will be used in this shipbuilding project? And, if so, what are the training programs that will be developed? How do you know what kind of training programs to develop?
There is basically what I would characterize as five job categories, to walk through them. Two are what I think we would tend to call white collar, and three that are blue collar, though it gets a little hazier when you get into this high tech, how that plays. But just to walk through them, on the white-collar side there would be sort of the classic administrative accounting; you know, somebody handling payroll and, you know, receivables and payables, and those functions in the office. That's a cluster. A second cluster on the white-collar side would be engineering and support people who are designing ships or doing the cad work for various subelements of it. On the blue-collar side, basically, 109 RESOLUTION 970801 the three categories are, there would be a cluster that would be shipbuilding. Going back to Councilman Nutter's question again, these would be sort of the individuals who would be on the steel production lines and the fabricating modules, bending metal. What we would generally term kind of sheet metal/boilermaker trades. There would be a cluster that would be the outfitting trades. So those are the folks that now the ship is kind of coming together, and now you are doing the most detailed electronic work, the HVAC systems, the engine propulsion systems, and sort of doing what's called the outfitting as you put all those together and connect them all up. And the third cluster, kind of interesting, but with all this metal and all this -- if you sort of think of the size of these ships, there is also a cluster that is painting and the metal preparation. There is so much of that going on, that that's actually its own cluster. The Shipyard College, which is a consortium of Philadelphia, Camden, and Delaware County Community Colleges, and Drexel University, 110 RESOLUTION 970801 have been working with Kvaerner to look at developing curriculum related to those five clusters I just described. Some stuff is, I would tend to call, basic across the line. A good example -- going back to another earlier question -- is metric. S. S. Navy uses the American system. So everybody is going to need to be able to add and subtract and divide with metric. That's a basic skill. Kvaerner doesn't presume that all 953 workers will know metric. So it is the case that many of the workers would need that element of it. So there would sort of be these common elements, or across the top of all five clusters. And then there would be specific aspects that would fall off that would be related to the five skill sets. We have been looking at a curriculum -- in fact, tapping into the existing, for example, Philadelphia Community College, and 111 RESOLUTION 970801 being able to use course curriculum out of there to provide that kind of training. And we think there is actually a very interesting scenario that can be developed here. Where people who will have gone through this training -- and on the blue-collar side it would kind of be analogous to an apprentice program -- with a couple more courses in like English and writing, they would actually be able to earn, the Community College would give them credit for, say, the technical robotic welding course. They would actually earn an Associate's Degree. And this speaks a little bit, I believe, Councilwoman, to a question made to the Mayor about can the current workers get the jobs. There is no question these are different jobs than the prior jobs. They are both more -- they are higher technical skill requirements, one. Two is, they are more flexible. So that a worker would sort of need to be cross-trained in various trades. So they have sort of cut two ways in terms of how they are different. But the prior shipyard work force, 112 RESOLUTION 970801 which is, again, totally analogous to the prior work force that Kvaerner had in Germany, it was the same thing, old shipyard, old techniques. I am a welder; that's what I do.
They didn't lift all those people, sweep them away, and bring in a whole new set of people. They took that work force and upgraded and trained it to do, as you correctly pointed out earlier, the new job, or jobs. That's, I think -- hopefully that's responsive to the question.
I have another question, but I will stay on jobs. Councilwoman Clark wanted to ask something on that.
We are not getting ready to vote right now. We will probably actually physically vote in the morning. You want to talk about the jobs, Councilwoman?
Thank you. 113 RESOLUTION 970801 Mr. Hankowsky, I thank you for this opportunity to follow on to comments that were made both by Councilmembers Tasco and Nutter. In retraining workers, Community Colleges, both Philadelphia and Delaware County, have you thought of suggesting to Kvaerner, since you know the resources of this Delaware Valley so much better than they ever will know, you, for instance, could be expected to know that OIC is a good place for training workers for totally different kinds of skills than they ever had before. And I would think you would want to involve the OIC whole structure in the retraining efforts, as well as Lions Institute. Again, I am offering you institutions that permit you to get the diversity that we are insisting that you have. We are not daring you to do it; we are helping you to do it by giving you these resources.
Councilwoman, I did not mean by my response to imply that no one else would be involved. 114 RESOLUTION 970801
What I meant was, to date, we have tapped into a resource on-site to work through in exactly the way you are characterizing it. Because Kvaerner doesn't know, okay, if we need somebody to learn something, who can do it, who can provide that training --
And if they stay here long enough, they would likely encounter the people that come to us firsthand. So I would want this record to show that we are going to go to those institutions which have a history of retraining adults to usable skills for an industry that we are building up. In the same way that OIC built up for the hospitality industry --
-- so too could you build up for this shipbuilding capability. I would like to now refer you to the 115 RESOLUTION 970801 Mayor's comment in his briefing to us when he said, in response to a comment of mine, that there are specific goals, specific MBE/WBE and DBE goals, in the program to make sure that we have more than a token representation. Is that your understanding, as well?
Yes. I don't want to say amendment, because amendment is to an ordinance. But the substitution to the language that was distributed this morning, and the reference back to the CoreStates Center project was, in fact, to make the point that there would be goals in the final document as it relates to construction, subcontracting, construction employment, et cetera, yes.
It seems to the term firms, you don't mean by that to exclude individuals, do you? I am now looking at your language.
I mean, a firm -- if the question is if -- let's take an example that was referenced by Councilwoman Tasco. If an individual is a lawyer, a sole 116 RESOLUTION 970801 practitioner, they would be a firm. If that's the nature of the question, yes.
Just for clarity, though, when you say individuals and/or firms, so that all of us are using the language to mean the same thing --
Right. There would be definitions in the exhibit, as there have been in prior plans.
Now, Marian Tasco talked about what is your commitment to identifying and assisting older workers. And she suggested that perhaps one of the drawbacks to hiring older workers is their higher salary requirement. And you suggested that it cuts both ways. So that since you can't discriminate against older workers, chances are you can't do anything for them. Let me argue with that just a little bit. Because this is that constant tension that runs between rank, fresh, brand-new, inexperienced employees, neophytes, and experienced trade workers.
And there is always a range, and, therefore, an opportunity, for the experienced worker to not start at the beginning.
Right. Let me both respond to your comment and make a point of clarification to Councilwoman Tasco's. Because I guess I really wasn't responsive to one -- an element which you have raised, which I appreciate. Without divulging, because Kvaerner hasn't done this yet, the nature of what would be their final labor management agreements with whatever unions or union might represent them -- so on the one hand I think we can all appreciate that I am not in a position to give out a schedule of salaries by position. But I think --
But I think I can say that the fact that a 50-year-old worker who had been at the shipyard, was at the high end of a range because of years in experience, in no way, from 118 RESOLUTION 970801 Kvaerner's perspective, is a constraint economically to hiring that person. That will not be the issue. Secondly -- and I think it is very consistent with the comments you just made -- is that Kvaerner is probably, in that balancing act, as you just characterized it, more interested in -- if they had to pick between -- more interested in the experience and skill set history, which would tend to move it more on the bell curve to the somewhat mid to older worker, than they would be in the neophyte. They want somebody that knows how to build ships now.
It seems to me that one of the things that, in addition to having some dry docks, was that in this work, this statistical Metropolitan area, are experienced workers who have worked so recently that they are not hopelessly obsolete in their skills.
That they are trainable and retrainable, and that may have had, hopefully, a good deal to do with their choosing us. 119 RESOLUTION 970801
Oh, yes. As Councilman Mariano pointed out, and as our experience points out, even to the degree that we were able to mitigate the layoffs with the shipyard and work with that labor pool to retrain them into something else, this is a trainable labor pool.
And that is a characteristic, in the much earlier comments of the Mayor and Mr. Stamatakis, in the sales job piece of this to Kvaerner, was, there is a trainable labor force here. If you come, that will not be your problem.
Right. Mr. President, I know you are ready to go back to Marian Tasco.
Mr. Hankowsky, we are obviously not going to be able to finish this this afternoon, but I would like to try to get at least one thing clear on this record. One of the most important and exciting things about this whole development is the 120 RESOLUTION 970801 potential investment in the Navy Yard. And in the Mayor's testimony, he indicated that this is a potential investment of $644 million, 215 of which would come from Kvaerner and 429 million would come from the various governmental agencies involved, a breakdown of which, I think, everybody has here. And I want you to correct me if I am wrong about any of this, and then ask you to comment on it. It is my understanding that of the $215 million that Kvaerner is expected to invest, 80 million of it is the cost of materials for the few as three and as much as nine ships that will be made in the first phase of this thing, which is like the first five years; is that correct?
So that I want you to let me go through this, and you can comment. So that $80 million of the Kvaerner investment is going to be the cost of the materials of the ships. And that's going to ride on out of the report. That can't be characterized as an 121 RESOLUTION 970801 infrastructure investment in our port, because it is not going to remain with us. It is also my understanding that of the $187 million training money, that that training money, in addition to everything else, is a labor, the cost of labor subsidy, to build those first ships. And that that money, in effect, will roll on out of our port with the ships. Because the ships will be gone, and the $187 million will have been used to supplement the costs of the labor in building those ships. So I see 187, plus 80, as being money that clearly will not be an infrastructure investment in the Navy Yard. Is that fair to conclude? So if you add the 80 and the 187 million, you have $267 million, leaving roughly $377 million. Now, when I look at the documents -- I am looking at of the Project Summary -- I see another part of the $215 million Kvaerner investment as being $15 million of its own funds in capital improvements after two years. 122 RESOLUTION 970801 And then I see another $120 million capital improvement and purchases for the project during Years through 15. 5 So I suspect that if I add the 80, 6 the 15, and the 120, that brings me to the total of $215 million. Now, of the $215 million, 80 of it is the cost of materials to build the ships. of it 10 appears to be an infrastructure investment, which is 11 what I am going to ask you. I would like to know 12 whether or not that's going to be cranes, or just 13 what that is envisioned to be for. 14 And then under the $120 million, it 15 says, "To invest approximately 120 million in capital improvements and purchases for the project during Years 6 through 15." How much of the $215 million Kvaerner investment will actually be in infrastructure at the Navy Yard, something that will be able to be around for a long period of time in the form of a revitalized Navy Yard for the City of Philadelphia and for the region?
Okay. If I could have a minute. Let me walk back -- much of what you 123 RESOLUTION 970801 said is accurate. But I also want to provide clarity.
The addition you went through to get to 215 was right. It was 80, 15, 120. The 80 million for the material for the ships, if I could spend just a second on that. On the one hand you are absolutely right as characterizing that as not an infrastructure investment, in the sense that it is actually right. Hopefully those ships go down the river. The aspect of Kvaerner committing to buy three ships, I think, has to be placed in the context of the overall transaction. And why is it important? Because without sort of -- and it is always hard to take two years of discussions and try, in such a compressed framework, to get the full spirit of it. As the Mayor indicated this morning, when it was first discussed with Kvaerner, what do 124 RESOLUTION 970801 you think about doing something here, they went through it in what I think all of us would probably consider a fairly logical process. At one point they came and they looked at it. And they brought some engineering people, and they looked some more. And they said, yes, physically it is a yard. You can do something here. But then they began to think about, but is it a business, would it ever work. And one of the issues they were concerned about was, you know, this is a closed yard. It has never built commercial ships. So now we are going to announce to the world, ships for sale, and invest in infrastructure and build the new facilities and train workers, and then sit there and wait for an order. And shipbuilding, in this case, is not analogous to automotives. You don't build them and put them in a yard and wait for people to order the red Mustang. You only build a ship when you have an order. And so the chicken and egg problem was, how are we ever going to get an order if we 125 RESOLUTION 970801 have never built one and have no credibility. How are we going to get the workers trained if there are no ships to be worked on to do the on-the-job training? What do you think about that? And we said, well, we think you should do something to make that problem go away. And it took a while. And ultimately Kvaerner said, all right, we will take the responsibility of saying that no matter what happens, three ships will get built there out of the gate, and we'll buy them for the cost of the materials. And we will take the risk that we can sell them or not sell them, and whatever the market price is for ships at the time. And to the degree there might be a profit, yes, they have the right to it. And to the degree that there might not be, they take the risk. And what it does is, it guarantees the shipyard you can train the worker and know there is going to be a ship that's going to get built, and you can begin the process. In that sense it is a commitment to kick it off. You might characterize it better as a working capital commitment. But, you are right, it 126 RESOLUTION 970801 is not an infrastructure commitment. With regard to the training dollars, the 187 million, on the one hand, again --
If I could ask you to stay on the Kvaerner 215 million for the moment.
So that we know where the 80 million comes from, that's the cost of materials for the three ships.
We know that the labor to build the three ships will be paid out of the 187 million; right? What about the difference between 80 and 215 million dollars as it relates to Kvaerner's infrastructure investment in the Navy Yard?
The 15 million in the last two years, the five-year transition period, is for capital. There has been no specific identification as to what it is. I think when you had been asking, is it cranes, it is not as if there is a budget that says, it is for two more cranes or one more welding machine. 127 RESOLUTION 970801
Is it something that can stay, or has to stay, or something that --
It stays. It is an asset of the yard. And from Kvaerner's perspective, as we get this thing up and we are going along, maybe there is a gap. Maybe we should have gotten one more of something, a robotic welder, or maybe we are missing something that would have made a difference. And as we have done this, as this is being built out the first couple of years, we will take that last and sort of fill the gap. 15 But, yes, it is for capital that is in the yard.
That is correct. The 120 million -- and, you are right, there is a distinction. So you are right to note the distinction. 128 RESOLUTION 970801 It could be for capital improvements that, I think the term, are depreciable under GAP as a capital asset, as a standard to differentiate it from paying for -- for example, they can't spend it on -- when you say the word "purchases," it specifically excludes the cost to operate the yard or to do normal maintenance, repair. That's their obligation as the tenant, to just do what you are supposed to do to run a business. So they don't get credit against the 120 for those normal operating expenses, what I think we would all normally characterize as the normal working capital requirements. Those are Kvaerner's expenses, for them to fill. And they don't get credit for this. To the degree they do spend in Years 6 to 15 on additional capital improvements, replace a crane, buy a new one, expand the building yet again, or something like that --
The purchases part is to deal with what I would call non-capital softer 129 RESOLUTION 970801 issues. And I am not a total accounting expert. They want to -- I will give you an example. They are building container ships and oil tankers. And they decide, you know, there is a market for cruise ships. Let's develop a medium-sized cruise ships, and let's invest $5 million on the design cost to create that spec, to market that spec, to induce people to order another kind of ship from this yard. That would be an eligible cost, to procure the design services to do that. It is not -- I don't believe it is a capital depreciable asset. I mean, you have drawings and a spec, and you go out and market it. So it is to cover, I will use the term softer -- with the understanding of what I am trying to convey with that -- costs that aren't capital, in the hard sense it is something you can keep.
It is an investment, I think it is fair to say, to the degree it creates further business opportunity, activity in the 130 RESOLUTION 970801 facility. But it is not an infrastructure investment.
I wanted to now move to the other $429 million. I really am trying to figure out how much of all of this money is going to be for improvements in the yard, improvements that will be there, that we will have, that, you know, for the foreseeable future will make our yard a working yard.
And my understanding now is that of the 215 million, there is possibly 15 million, and maybe some part of 120 million, that might go in the activities of the yard, but it is not an infrastructure improvement in the yard.
All right. Now, if we can turn to the 429. 131 RESOLUTION 970801 187 million of it is the cost of labor to build the ships.
The vast majority is on-the-job. And that's the point I wanted to make. We may not agree to interpret it the same way, but I at least wanted to have the opportunity to give this perspective. The fact that we are paying a worker to learn how to do robotic welding, while he is in fact doing robotic welding, and it has the benefit of it is producing a piece of steel that's going to be on a ship and go away, the training aspect of making this yard competitive, Kvaerner anticipates that sort of the first ship that would go out might take over 500,000 person hours to produce. It is just that much activity that will be required to kind of learn how to do it the 132 RESOLUTION 970801 first time. That, in fact, to be competitive, it should be below 300,000 hours. So there is a gap between the capabilities of the work force, the first couple of ships they do, and what is the competitive productivity that would allow that ship to be priced in the market normally. And, so, I would view the 187 million, totally agreeing that the vast majority is on-the-job training, but it is being invested in that work force. So the net end result is that it provides a work force that can produce ships on a productivity man hour, person hour basis that are competitive. And, in that sense, it is not a piece of infrastructure in a capital sense, but we would then have human infrastructure that -- and unless you have both of the pieces, human infrastructure and capital infrastructure, you don't have a competitive shipyard.
Mr. Hankowsky, maybe this helps me. Of the $429 million, 187 of it 133 RESOLUTION 970801 is the labor/training?
Is that the 242 that is referenced on in the Project Summary, "In order to develop this shipbuilding facility, KPI will make significant improvements to the project site totaling $242 million"?
I think that statement is a bit confusing, at best. Because this $242 million is a part of the government investing.
So it sounds here like, it sounds like -- KPI is defined as who?
Kvaerner. Kvaerner Philadelphia isn't making that -- Kvaerner Philadelphia, pursuant to some contract, is making the investment. But it is really the investment of 134 RESOLUTION 970801 public dollars?
Yes, if it was inarticulately said. But that's right. They spend the dollars, and in that sense they make it.
I understand that. And I would like to have it clear that Kvaerner isn't making $242 million worth of site improvements on the Navy Yard site. It is our government, and the people's money, who is making the $242 million --
-- through this Kvaerner subsidy. And, I mean, as far as I can tell, the real Kvaerner infrastructure investment is the $15 million in the last two years of the first five-year term.
And it appears to me that the total investment in the site is 242, plus the 15. And that's, basically, government money.
Yes. That's basically our money. And I am trying to understand this transaction. And I am bearing in mind, you know, Germany maybe did $600 million, and just brought them in to do the site. I mean, I don't know about all of that. But I am just trying to understand this transaction. It seems to me fundamentally what we have agreed to do is take city, state, federal, and Delaware River Port Authority money, and agreed to bring our site -- make that investment in our site. Kvaerner agrees to come in and supervise a work force that we substantially pay for, and build these ships, and then Kvaerner agrees to buy them at the cost of materials. And whether or not it can make a lot of money off of them or a little bit of money off of them, that's up to Kvaerner. But what we have is a Navy Yard that now has the capacity to build ships with the number one shipbuilder in the world. 136 RESOLUTION 970801
Is that a fair, fair recitation of what this thing is all about?
And the expectation is that if we bring the number one shipbuilder in the world, and put it in a business down at our Navy Yard, invest the 242 plus Kvaerner's 15, to be able to show we can build ships at a competitive cost at our Navy Yard, then Kvaerner will want to stay in business here and continue to build ships and continue to hire people and do all of the things necessary in order for us to have an operating, competitive shipbuilding yard facility in this country down at our Navy Yard.
Yes. That's right. And if, again, even to say it another way, same point, but just another way, in the world today -- and Mr. Stamatakis talked a little bit about the nature of the shipbuilding in the world -- in the world today there is excess shipbuilding capacity. What does that mean? That means there are a lot of closed shipyards that sit there analogous to ours, old 137 RESOLUTION 970801 ones, not up to date, not improved. In fact, there are a few that the U.S. government closed. There is one in Long Beach. There is one in Charleston. There is one in Mare Island, near San Francisco, all part of this base closure process. What are the value of those shipyards in the market today? Zero. Even if we invest and make them state-of-the-art, 242 million to make them technologic, and yet a work force that was totally productive and sophisticated after five years of training, it just gets you in the game. And then you have to compete. So, basically, to say it another way, Kvaerner is saying, "We think we, Kvaerner, and you with this facility, with these two investments, a capital investment and a human infrastructure/training investment, you can get in the game. And we are prepared to be in the game. "And we will make sure you get started in the game by buying the first three ships. And we will produce designs for Philadelphia, ship models that we are going to go 138 RESOLUTION 970801 after. "And we will provide, we will do the working capital and run the business, from the standpoint you have made it a business. Today it isn't a business; it is a piece of ground and some workers who have a skill set, but not enough."
And is it fair to say that the non-compete here is to say to Kvaerner, "Oh, yes, we will make the infrastructure, the government will make the infrastructure investment here in order to help us form a joint partnership, to go into business and build some ships, which we will be responsible for building, and we will buy at the cost of materials." And the people who negotiated this deal said, "We will do that. But you can't go into business anyplace else in this country."
"If you are going to be in business, if we are going to do this, this is where you are going to do it."
"You are going to do it here in America, and only here." 139 RESOLUTION 970801
I am starting to understand it a little bit. I mean, I can understand this. But, Mr. Hankowsky, it didn't come out this way. It really didn't come out this way. And it would have been very helpful to everybody, at least for me, if it had been explained in a different way. Because what happened to us here is, it came out different. We thought, I thought -- I have to tell you, I thought -- Kvaerner was coming in and making this big investment in our facilities, and it really isn't. And maybe it is totally unreasonable to think that Kvaerner or anyone else is going to come in and make this kind of investment down at our Navy Yard. And maybe this is the only reasonable way it could have ever happened. I don't know. I mean, we weren't there. None of us was involved in any of this. But if this was the only reasonable way that we would be able to have an opportunity to 140 RESOLUTION 970801 get back in this business, then so be it. It is very important for us to be competitive, both in this country and in this region. And certainly if it can be here, that's just fine. But I will tell you, it just didn't come out that way. And I think that's unfortunate. Because how we communicate what it is we are doing and what is being proposed is very, very important. Because there are a lot of people who I think completely misunderstand. I think this really is a project that's looking very much to the future, very much to the future. And, in all fairness, you know, I don't think, along Councilwoman Tasco's lines and Councilwoman Clark's, I don't see a whole lot in this for the existing work force. I think what we may have down there is a Cracker Jack, topnotch, first-class work force that can build ships to compete with anybody anywhere. I don't see it for displaced naval workers. And maybe we can. And I think every 141 RESOLUTION 970801 member of this Council would love to think that a way will be figured out to get some of those workers back on the job down there. But I got to tell you, I have a hard time envisioning at this point how that happens, given what we are now piecing together as being the overall vision for what that work force is going to be like, and how it will be trained, and the kind of expectations that Kvaerner and anyone else is going to have of it. That does it for me. Is there anything else you would like to add at this time?
No. 15 I mean, to be candid, I probably regret that it hasn't been clearer sooner. Maybe I am -- as they said, the forest from the trees, sometimes it is hard to step back. But one other story to just recite for context, which is, again, I think, just in the spirit of, again, confirming this theory. The German government, when East Germany consolidated with West Germany, faced the fact that there was more than one shipyard in East Germany that were not state-of-the-art and had work 142 RESOLUTION 970801 forces, and would never be able to compete in the world marketplace. And how did they compete before that? Well, because the East German Communist government just ordered their ships from them. It was a state-owned monopoly, and they only bought their ships from their own company. And in addition to getting Kvaerner to take over one yard, they asked a German shipbuilder to take over another yard, and provided an equivalent amount of government money, like $500 million. "Here. Go fix this yard and make it competitive." That German shipbuilder went bankrupt, and that yard was never reopened, trying to do it. So this is a very competitive, difficult environment to be in. And the Council President is right. Unless the government at every level, federal, state, local, and regional, is prepared to make significant comments, you can't even play. And that is the nature of this transaction.
At this time I am going to reluctantly ask Councilmembers to allow us 143 RESOLUTION 970801 to recess this hearing until tomorrow morning. There are two other scheduled hearings that need to go on because they have been previously scheduled, and people are here. And we knew they were going to be here. And it is unfair, I think, to disappoint them at this time. This, we can do tomorrow. Those, I don't think we can. Councilwoman Tasco says she has one little, itty-bitty question. Councilman Nutter never has an itty-bitty question.
On -- this is just a question about the tax impact -- on the Summary, it says, "Of the 96.7 million in taxes generated by the project, approximately 29 million, or 30 percent, of the total will accrue to the city. 6.1 million, or 7 percent, will accrue to the School District," which is a very small amount for over a 20-year period. 144 RESOLUTION 970801 But "61.1 million, or 63 percent of the total, will be used to fund the debt service on the TIF loan." I mean, isn't that a kind of high cost of doing business?
No. I think the answer is, it is not. I am not denying it is expensive. But that is based on borrowing the 30 million that will go into the project, at an estimated rate of a little over 8 percent, and then paying the principal and interest. It is like a mortgage over the term of the debt service for that note. And that's what that figure includes. So it is like when you buy a home, and you take a $100,000 mortgage. And they are forced to give you the freedom of disclosure. And they say this mortgage is actually going to cost you $350,000 over 20 years, when you look at the interest. And that's the analogy. On the School District comment, I don't want to ignore it. As you might recall, we had a fair amount of discussion about the TIF 145 RESOLUTION 970801 revenues at the Navy base in relationship to the district back in the spring, when the TIF district was, in fact, established. And one of the kind of unfortunate aspects of the TIF process is what taxes you can TIF and whose are they. And the district, as you know, has certain dedicated Real Estate and U & O taxes. So we actually provided in the June TIF district structure that the percentage of U & O that would be TIFed would decline by percentages in five-year increments. So that at least over time, more dollars would go to the district. And we also provided that, to the degree the Business Privilege Tax is throwing off money, we would also begin to slowly give, quote, unquote, begin to give the district a portion of its real estate taxes. So there was an attempt in June, when we did the whole district, to try to mitigate -- the numbers would look even worse if you all, if we hadn't collectively, changed that plan in June.
Okay. Thank you very much. 146 RESOLUTION 970801 I would like to make it clear that this committee is going to stand in recess until 8:30 in the morning. I think we are now going to have the Council Committee on Labor and Civil Service. We are going to do QST at 8:30 in the morning. QST will be done. We already told PGW. We will do them at 8:30 in the morning. So the Council Committee of the Whole will stand in recess until tomorrow morning at 8:30. VOICE: The public hasn't had a chance to say anything. I am one guy.
Can we have him right now. I am sorry. I apologize. And you know what, and I have your name, too. And that is absolutely my fault. I saw all these other names. And these other names are more the city professional witness. 147 RESOLUTION 970801 Your name is here. You have done precisely what it is you were supposed to do. You have also done right to interrupt us, and I appreciate it. And I would not want you to have to come back. And I offer my sincere apologies and offer you an opportunity to testify now on this deal. Is there anyone else from the general public here? Okay. Well, then, I want to get the general public right now. And I apologize to other people who have to wait, but it is unfair to the general public. I did not know you were here. I only have Mr. Satilli's name. Yes, sir.
My name is Vincent Satilli. I live in Manayunk. And the reason I appear before you today, Council President Street, is that I am for jobs, as all Philadelphians are. But I worry about one thing. We gave $37 million, the State of 148 RESOLUTION 970801 Pennsylvania gave $37 million, to the CoreStates Bank to create jobs in the Philadelphia area. CoreStates is leaving, merging with First Union, and leaving us with a net loss of $7,000, without refunding the $37 million to the people in the State of Pennsylvania. My concern as a citizen is, my tax money is going to be used to support the Kvaerner shipyard deal. And it is a great thing for Philadelphia, and I support it. But what I worry about is, what's going to prevent the same thing happening to my tax money?
Excuse me. Mr. Hankowsky, we can hear you here. And I know you are very anxious to talk to these reporters. But if you could do it at another place, it would be very helpful. Please, sir, continue.
And so I am concerned about my tax money being spent in that way. I am willing to make the investment. But what is going to be the return on my investment? And I am concerned with that, as I am 149 RESOLUTION 970801 sure many citizens in Philadelphia are. I am concerned about what the Chairman of the Delaware River Port Authority indicated, was a large part of the work appears to be outsourcing. And as an old union man, that means to me contracting out. I wonder if there is going to be a provision, whether Council can assure --
I can answer that for you. When he says outsourcing, he means that Kvaerner itself won't make a lot of the parts, do a lot of the work on the site. It will have a contract with somebody, someplace. But that's all union work.
Yes, it is all union. I am pretty sure of that. I can tell you all these union people wouldn't have been here today if that had not been covered. I mean, I could almost risk my life on that, that they are not talking about outsourcing in a way that's not going to protect the interests 150 RESOLUTION 970801 of the union worker. I can tell you that no Councilmember here would be interested in supporting that. And I think the Mayor tried to make that point when he said these are all good. The jobs that get created, both on the site and the other jobs, are good union, living-wage kinds of jobs. I think that's good for everybody.
My last point, Councilman, is provisions. Will there be provisions, can there be provisions, ensured or made for for folks, for poor people? A lot of people have been kicked off Welfare recently, and they could use the training for the kind of unionized jobs at the shipyard. Will Kvaerner consider poor people? And that finishes my comments. Everyone here is for, and I am not against.
And I will answer the question for you. Because we covered that turf. Right? The jobs that are going to be created at the Navy Yard, and the training that's going to 151 RESOLUTION 970801 require it, fundamentally, is not work for people who have been put off of the Welfare rolls as a result of this Welfare and all. It really isn't. And it would be unfair, and I am certainly not going to try to fool anybody about any of it. I think that was part of what Councilwoman Tasco was saying. We don't want to fool anybody about any of this. These jobs are not the kind of jobs that those people, for the most part, are going to qualify for. There may be some. I am not going to rule it out; there may be some. But in the main, it's not for that. And I tell you, when we first heard $187 million of training, there were some people who said, "Wow, this could be great. Maybe we could get some former Welfare recipients," this, that, and the other. It is really not for those people. Maybe some can. And I don't want to rule it out. Nobody here is saying it can't happen. But in the main, this is a very different kind of work force that it is proposed to be assembled at that Navy Yard. 152 RESOLUTION 970801 It is a work force that's going to be as high tech as any work force that exists in the country. Because the competition -- I agree with a lot of it. The competition is serious in this area. And this country -- not this city or this region; this country -- isn't competing. And I think it is going to be a very high-tech work force out there. It is probably not going to be composed -- I am talking about the people now making the ships -- of a lot of the folks that we sometimes worry about. Not that they aren't good jobs and it isn't worth doing. But I appreciate your comment.
Is there anyone else here from the general public? Yes, sir. Please come up, identify yourself for the record, and proceed with your statement. And we will try to get our next hearing underway briefly. But under no circumstances did we want to disrespect the public in this process. And I appreciate your patience. 153 RESOLUTION 970801 Good afternoon, Mr. President. I want to say, first of all, good afternoon to you and to the Council.
Sir, I need you to identify yourself for the record. MR. RONALD WILLIAMS, SR.: My name is Ronald Williams, Sr. I am the President and CEO of Aerospace Technologies, LLC, located in Southern New Jersey. I want to thank you, first of all, for these hearings and for the wording that has been cleared up on a lot of these matters involving the Kvaerner deal this day. But, Mr. President, I still have a concern. And my concern is even heightened by some of the language here this morning, in regard to involvement and inclusivity of small, minority, and women-owned businesses in the dealings and in the sharing of the money that's going to be involved with Kvaerner and the shipyard. I am all for the deal. I think it is going to be a very good thing for the Delaware Valley and for its people. But we also have people here that are 154 RESOLUTION 970801 in small business, that are in high-tech businesses, that do have viable professional services that they can offer, but have not been touched, have not been called, have not been asked, have not been entered. And my concern is, even after hearing that there are no provisions for small or minority businesses to be involved in this process, what is going to happen? And how will it be addressed, if it at all will be addressed?
It is being addressed. I have to tell you the Mayor testified that it is being addressed. He has offered a potential amendment to the resolution that really provides a mechanism whereby this whole project will be subject to the same kind of goals for minority and small business and MBE/WBE kind of participation similar to one of our more successful economic development projects in the city. The Mayor is very concerned about it. The Councilmembers have raised the question. This is a different process here. And, you know, if this were just a local process, if this was just the city, and only the Mayor and City 155 RESOLUTION 970801 Council were involved, we would be able to be really, really specific about everything. It is not that way. It is the state, it is the region, it is Delaware River Port Authority. But I will tell you that the Mayor is committed to work, you know, with Kvaerner in making sure that this project is inclusive of all of the various segments of the community, including small businesses, disadvantaged businesses, minority businesses, female-owned businesses. And hopefully you won't be disappointed. But it is something that is very important to the Mayor and to the Council. And it is being worked on aggressively.
Well, Your Honor, I appreciate that. And I thank you very much for taking that time. But I must tell you that my concerns stem from the fact that I am only one small businessperson here doing business in the Delaware Valley. And I myself have taken the steps initially to go through the process step by step, to 156 RESOLUTION 970801 talk to members of Council and members in the government and even, in fact, in the structure of Kvaerner itself, and have been able to get nowhere. And all I want to do is be able to have the same expectation and ability to be able to make a way and to be a part of this dream as everybody else wants to. We need to be a part of this and to be able to address this, so that our families, as well, can realize the greatness and be a part of this that's going to take this Delaware Valley. And that's all that we are asking.
We appreciate your testimony. We hear you. And I will tell you that we are committed to working on behalf of businesses like yours. And hopefully you won't be disappointed.
Thank you very much. Thank you. Is there anyone else from the general public? Sir, please identify yourself and 157 RESOLUTION 970801 come forward. We would like to hear you, but we also want to make sure that the committee that's waiting to go into session has an opportunity to have its hearing. Please identify yourself for the record.
My name is Leon Norris, and I am representing ITTI, welding training facility here in Philadelphia. And I am more or less echoing Mr. Williams' request. I, as well as my CEO, Mr. Jessie Turner, we have made several attempts to be part of this history-making event that's going to go on down here at the Philadelphia Naval Shipyard, the former Philadelphia Naval Shipyard. We are a welding training facility. And we have been here in Philadelphia since 1992, March, and we are located in the Frankford Arsenal area. And we have trained welders for the City of Philadelphia, such as the Philadelphia Water Department, fleet management, and the bridge maintenance people from the Streets Department. And this is all through the 158 RESOLUTION 970801 partnership of Community College of Philadelphia. And we are looking to be part of this, the training aspect, that's going to be going on down there. And, basically, I just wanted to make known for the records that here you have a minority training facility here in the city, in your backyard, that is capable of providing welding training, and as well as the other colleges that are involved in this. I am talking about the shipyard colleges. As they would have to staff up and get the equipment up to snuff, we, as well. We are capable of doing the same. So, in essence, what I am saying is that, whatever you can do would be greatly, greatly appreciated on behalf of the Philadelphia citizens here. And I just guess, basically, I wanted to say thank you. And I hope this deal goes through. And we support you very much.
Thank you very much. I appreciate it. Is there any other member of the 159 RESOLUTION 970801 general public here? If not, this committee, the Council Committee of the Whole, will stand in recess until 8:30 in the morning. I believe that we will now have a hearing by the Council Committee on Labor and Civil Service, chaired by Councilman Mariano. Thank you very much for being with us. (Public Hearing adjourned at 1:45 p.m.) - - - 160 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Wednesday, December 10, 1997, were reported fully and accurately by me, and that this is a correct transcript of same. RE: COMMITTEE OF THE WHOLE _____________________________________ DEBRA A. WHITEHEAD, RPR