That is correct. For the fixed income portfolio, our managers returned 1.5 percent for fiscal year '04 versus a benchmark of 0.9 percent for the year.
Okay. You'll send us the rest. Part of the point of this is, I'm trying to figure out overall the value of what sounds like -- I'm assuming these are all active money managers?
They are primarily active managers. We have a few passive managers in there.
I'm trying to figure out the value of the $8.8 million in fees last year from active money management, as opposed to... I mean, why don't we just buy the market? And then make some other investments to hedge on the other side for protection? I mean, if we're either trying to 574 Operating Budget - 3/9/05 preserve what we have or grow a little bit, and we know that there's always a need for downside protection, then why don't we just buy the market?
I do believe that over time active management will outperform the passive market. The selections that have been made in the fund --
What's been the performance based on that theory -- How has that worked out over the last few years?
Okay. Have you thought about bringing money management inside? Are there some large pension systems that manage their own funds? 575 Operating Budget - 3/9/05
There are, but they are staffed much more. They are better staffed, and their compensation is a lot higher. It's a different -- What you're doing is you're building an internal money management company. And you need to compensate and staff it appropriate with the proper tools.
I understand that. Do you think it cost more than eight and a half million dollars for us?
Okay. All right. Madam Chair, you've been tremendously patient with me, as usual. I'll come back.
Thank you. And Mr. Johnson, along with a copy of the analysis that the Councilman asked for, would you also send us a copy of your asset allocation? 576 Operating Budget - 3/9/05
Thank you. Mr. Johnson, the administration has testified that at some point they would like the City to go to a defined contribution plan. If that were to occur, what changes would that have on your operation?
I don't believe there would be a large change. We simply... We would still select the same managers. In a defined contribution plan, I think that the City is proposing the employees who make their contributions into their own accounts, as if it were a 401-K. But someone still has to make the selections and monitor the managers in that program. And our staff would continue to do that.
It would be -- The allocation decisions would be made by the individuals or the employees, but the selection of the funds in that plan would 577 Operating Budget - 3/9/05 still be selected by the City or the Board of Pensions.
Well, would you detail the impact this would have on the investment side of your operation?
If we were to go to a defined contribution plan, would you detail the impact this would have on the investment side of your operation? How would you pick the investment bankers? I mean, give us the money managers.
Same process. Let's equate that to the Deferred Compensation Program. It is incumbent upon the Board to make sure that we select those mutual funds in that plan. For a DC plan -- For a conversion from a DB plan to a DC plan, the Board still would have to make the same diligent thorough selection of money managers.
Well, if we weren't be saving money, why would we be 578 Operating Budget - 3/9/05 going in that direction?
It would decrease the City's contribution. In a defined benefit program, it is incumbent upon the City to primarily provide that benefit. In a DC plan, it is a shared expense between the employer and the employee.
There are costs in the transition. I just don't have a sense of what the cost would be. The transition costs would be there, but ongoing in the future you'll find that the City's contribution would be much less going forward, and the employees' contribution would increase.
Do you have an actuary report on showing that, please? Do you have an actuary report on that? 579 Operating Budget - 3/9/05
The answer is, we are waiting for that report. We just don't have it.
So, actually this is something that may... may happen in the distant future.
We are nowhere near coming to some conclusion on this.
Thank you. I think there are other Council members that want to be recognized. The Chair recognizes Councilman Nutter. 580 Operating Budget - 3/9/05
Thank you, Madam Chair. I'm not used to my turn coming back up so quickly. Just a few last questions. Miss Bell, could you explain? In the testimony it says that your technology unit moved to MOIS, M-O-I-S, during July of 2004. And then if I'm reading this correctly, it appears that you then hired a technology firm?
No. We replaced -- We had a technology firm that was working with us in conjunction with the four staff persons and our tech unit. We replaced them. We replaced them last summer.
We replaced them. We did not hire -- We did not hire a new -- We hired new consultants, but it was to replace the current tech -- tech consultant that we had been using for a number of years.
What I'm trying to understand, though, you had a technology unit.
Yes, we did. We had four people. We had a manager, we had two programmers and a P.C. person.
Okay. So, why did you take the employees, transfer them to M-O-I-S, and then...
Part of the reason was, with going to M-O-I-S, there were -- especially for the programmers, there was an 582 Operating Budget - 3/9/05 opportunity for them to learn more programming, so we wouldn't have to depend on the limited number of people we had. One of the persons actually was not well, and so was not there all the time. So, moving to M-O-I-S was part of the cluster theory. It also gave us other resources. So, our programmers are working in conjunction with other MOIS employees, that we actually have two people that come over to visit with us and have staff meetings on a weekly basis from MOIS that are looking at some of the issues we had. We have a list of 60 projects we're working on. And the staff at MOIS has given us additional resources. And we've moved through approximately 10 of those, with their expertise. And I think we had... honestly, we had a manager that didn't know how to program. So, I think we've -- the merger with MOIS has benefited us tremendously.
Okay. Well, 583 Operating Budget - 3/9/05 yeah, that could be a problem.
Mr. Johnson, just a couple few last questions. Presently what is our unfunded liability for the Pension System?
Based on the estimated report from the actuary, we are about 50... I think it's 60 percent funded.
The ultimate goal is to be fully funded, which is 100 percent.
I guess our goal would be about 70, 75 percent. Higher would allow us to pay out the Pension Adjustment Fund.
That would be the next question. We received -- I received a document not too long ago. And there are 584 Operating Budget - 3/9/05 provisions in the bill that created the Pension Adjustment Fund. You're familiar with that?
And I believe the way we wrote that, if there's any 18-month period during which there is no 9 distribution from the Pension Adjustment Fund, the Board is to notify Council in writing and explain why no distribution has been made, and provide a full financial report of the current balance in the Pension Adjustment Fund. To my knowledge -- I don't know about other members -- I don't recall receiving such a report. And I know that we've not had a distribution in some time. Are you familiar with that provision?
A letter was sent to the -- to the City Council several months ago. And I don't know if -- I don't believe a report accompanied the letter. But we did send an explanation, based on information we received from the 585 Operating Budget - 3/9/05 actuary, explaining that we were not at the 76.7 percent funded ratio, and we would not be making cost of living payments. We are now at 59.8 percent.
And that letter did come over. I don't know what documentation should have accompanied it, but the letter did come over.
Could you do me a big favor and possibly re-send it to all members? I don't recall receiving such a letter, but I appreciate your efforts in that regard.
We've had a sudden increase in payments from the General Fund for the pension costs. What are those increases over the past couple years?
I'm sorry. Do you want the dollar increases? Do you want an explanation for why the increase has occurred?
We'll get to that. Just me the dollar increase at the 586 Operating Budget - 3/9/05 moment.
Based on the preliminary report from the actuary, the payments for fiscal year ending '06 will be 305 million. Fiscal year '07, 348 million. Fiscal year '08, 379 million. Fiscal year '09, 390 million. And fiscal year 2010, 400 million. And those are based off of the minimum municipal obligation schedule.
Okay. And maintaining that schedule, and I think you went up through... Did you go up through '09 or '10.
and what would you anticipate the funded, unfunded liability ratio to be at that point?
That would depend on the investment returns of the Pension Fund. If we can meet that nine percent actuarial target, then this schedule will hold true and we will -- and the funding will improve, but it really depends on the returns, primarily.
Okay. Are there 587 Operating Budget - 3/9/05 any other thoughts or plans for... I mean, this is obviously an extraordinary growth in payments over the past few years. I mean, how does... What's the Pension Board's outlook on how to deal with that?
Well, part of the payments -- The reason the payments are increasing relates primarily to our past performance. Although the Pension Fund has done well in the past two years, we're still counting three years prior to the past year. So, a five-year smoothing. The earlier three years are still holding back the Pension Fund. If we continue to do well... Last year we had 11.8 percent. Today we are about 7 or 8 percent return. If we continue to do a little bit better at the end of the year...
Why don't we do this: Tell me, from your perspective, let's say we just meet our nine percent target. You have the payment schedule that you have just on minimum municipal obligation. 588 Operating Budget - 3/9/05
At the end of five years, if we meet our targets, what will the funded, unfunded ratio be?
Hold on one second. The numbers I have are outdated. I will try to get you the more recent numbers as quickly as possible.
You asked for how well -- where our funding ratio would be in five years out?
The numbers that I have here are outdated. I have to try to supply you with better numbers.
Okay. Last question. How much are the payments regarding the pension obligation bond from a couple years ago? Probably more than a couple years ago.
The payments for the 589 Operating Budget - 3/9/05 pension obligation bond do not come out of the Pension Fund. I don't have that information.
Okay. So is there a plan, other than trying to meet the nine percent goal, for increasing our level of funded or decrease in the level of unfunded liability, and getting our pension payments under control?
Allocating assets to what we call alpha-producing strategies or return enhancements like portable alpha, like hedge funds, like private equity is our plan to increase the return of the fund. In addition, it's the long-term allocation that we've set that we hope will also enhance the return of the fund. We recently did the allocation study in July --
I know these are the tools that you're going to utilize. 590 Operating Budget - 3/9/05 I mean, is there an actual plan developed in the utilization of these tools and options that is leading toward a particular goal?
The Board approved an asset allocation study in July of '04. We are now in the process of hiring managers in the new asset classes and moving assets to the other asset classes, accordingly. There is a plan to do so.
Okay. Lastly, I know the Council President asked about the 72 money managers, but you also made reference to consultants. Now, they work with the managers or the managers by class or something like that?
Those consultants work with the Board on those particular asset classes, correct.
If you could provide us with a list of the consultants, their fees, how long they've been working with the Board, and what their area of expertise may be, as well as who the 591 Operating Budget - 3/9/05 principals of the various firms are, that would be helpful.
Thank you very much. Are there any other questions of our witnesses? (No response.)
We will now hear from Procurement. Good afternoon. Thank you so much for your patience. Please identify yourself for the record and proceed with your testimony.
Good afternoon, Council President Verna and members of City Council.
I am William Gamble, 592 Operating Budget - 3/9/05 Commissioner of the Procurement Department. With me today are Deputy Commissioners Mergis Funkie and Sandra Early. I am presenting for your consideration the Procurement Departments --
Mr. Gamble, I don't mean to interrupt you, but if you would summarize your testimony, I will give a copy of your testimony to the stenographer. It will be transcribed in full.
So... In order to save some time. I'd appreciate it. Thank you.
Okay. The Procurement Department is requesting a total appropriation of all funds of $4,460,891, of which $4,347,847 is in the General Fund. General Fund budget for fiscal year 2006 provides $2,814,617 for Class 100 expenses. Supporting Class 300 and 400 supplies and equipment. 593 Operating Budget - 3/9/05 This budget represents an overall decrease of $142,875 from fiscal year 2005 projected obligation of $4,490,722. The grant revenue fund budget provides $50,000 for Class 200 purchases of services, and the Water Fund budget provides $63,044 for Class 100 expenditures for two employees. This concludes my testimony.
Thank you very much, sir. Mr. Gamble, you indicate the mission of your department is to obtain quality goods, services and construction in a timely, cost effective and professional manner through a competitive, fair and socially responsible process, in accordance with the law. Can you tell us the socially responsible process you use. I don't understand that one.
Well, the social process that we use is to make sure that we... to make it very competitive, that we 594 Operating Budget - 3/9/05 open the process. It's an open process we want everyone to use. And that when we go out, we make sure that it does coincide with or does allow everyone to bid on our projects or our commodities.
Okay. Mr. Gamble, please explain what interaction your agency has with MBEC.
What we do on a regular basis, every bid that we put out, we make sure that MBEC has either determined that the arrangements are there or they are not there. So... And we make sure that if MBEC says that a company is not responsible, then we make -- then we do not award the contract to them. So, we work in partnership with them, in trying to make sure that we increase the number of participants in the Minority 595 Operating Budget - 3/9/05 Business Enterprise Council.
Thank you. Also in your testimony, you state, quote, the Public Works Division processes capital projects and concession bids, administers the city-wide advertising program and coordinates the inspection and disposal of City property. Would you please explain what the City-wide advertising program is, and who administers it.
Well, we're responsible for advertising or putting in the paper -- putting advertising in the newspapers.
Couple examples? A couple examples may be where City Council has decided they wanted -- they will have a public hearing, and to notify. They will submit to us the... what the advertising is, 596 Operating Budget - 3/9/05 and we will place it in the newspapers for them. All of the election... All of the election notices for the City comes through us as well. Each department, if they have anything that needs to be advertised in the newspapers, they will come through us. So, we're the central location or central depository.
But Mr. Gamble, I'm a little confused. I thought that the Chief Clerk's Office sent notices offer public hearings directly to the newspapers. I mean, they send it to your office?
Oh. I thought it went directly to the various newspapers.
No. We in turn -- We're the ones who would send it out to the actually to the newspapers.
Okay. Very well. 597 Operating Budget - 3/9/05 Thank you. The Chair recognizes Councilwoman Blackwell.
Thank you, Madam President. Certainly we want to thank the Commissioner for always being responsive whenever we call.
By piggybacking on the state computer contract, has this given us much of a savings in the City computer maintenance costs?
Councilwoman Blackwell, this... We're just in the beginning stages of it.
So, I cannot give you a cost savings at this juncture because the cost savings is anticipated.
I understand. Let me ask just one more question, in terms of minority vendors. Given the 598 Operating Budget - 3/9/05 Mayor's Executive Order -- and I see here that you're able to use many more minority vendors with your purchase offer -- your purchase procedures that were revised.
Does the Mayor's Executive Order somehow impact or give you the ability to increase minority vending?
What we do is that, Councilwoman, we meet on a regular basis with MBEC, and we determine -- Actually, the ranges are determined by MBEC for a particular project or commodity. So, we... That really won't impact us doing it. We've always done that. So this is not something new that we're doing. 599 Operating Budget - 3/9/05 We have been doing it for years.
You're welcome. The Chair recognizes Councilman Nutter.
I'm sure you might find this hard to believe, but I may be without a question. But I'll press on. Commissioner Gamble...
...in a budget hearing not to ask you at least one question.
Just tell me a little bit for the record, with regard to professional services contracts or often referred to as no-bid contracts, presently the role of the Procurement Commissioner is what? 600 Operating Budget - 3/9/05
There is no role, professional services for the Procurement Commissioner. Professional service contracts are actually handled by each department. So, each department head or commissioner will be responsible his or her own professional services.
Okay. Do you get any notification that a contract is available or that there's an opportunity for a contract?
Okay. Is there a standard procedure for notifying people of the availability of those kinds of contracts?
Anywhere within the government? (No response.) 601 Operating Budget - 3/9/05
There's no... Are there... To your knowledge, are there any rules for how professional services contracts are either advertised, notification how they're awarded? Is there anything written anywhere?
Excuse me, Councilman. I'm corrected. It seems that some of the professional services contracts are posted on the web sites.
Is that required? Is there a requirement to post professional services contracts?
Okay. And again, based on your experience and knowledge, if a department had a professional 602 Operating Budget - 3/9/05 services contract, how do they get people to respond to the opportunity?
Well, it varies, actually, from department to department. Some departments will actually go out and solicit from companies that they have done business with in the past and received proposals from that. Some may entertain proposals that were not solicited but were unsolicited proposals.
And some departments probably will deal with people that they have been doing it for a while, that they know.
Well, for example, if you're a company that hasn't had the pleasure of the experience of working with the City over some time -- you're a new company or you have a new product or service or you've decided younger person, older person, whatever, that entrepreneurism is the way you want to spend your life -- if you're not in that network, then how do you find out that these opportunities exist? 603 Operating Budget - 3/9/05
What we attempt to do, when we go out and do an outreach, meetings, or whatever, we let... well, professionals know that there is an opportunity, but it's incumbent upon them to contact the departments in which they want to do business with. So, that way they -- informally they know that those -- the opportunities may exist. And... But it's up to them to actually go out and solicit ads.
You have experience beyond Philadelphia, obviously, and I'm sure you talked to counterparts in other cities. Are there other ways of getting information out, so as to in a broad fashion expand the range of opportunity to let more people know that these situations exist? And, in fact, we might actually be able to increase the participation by either Philadelphia firms or minority, female, disabled, disadvantaged business firms, and the like, by having more information out in a 604 Operating Budget - 3/9/05 wider variety of places? Would you agree with that premise?
Yes, Councilman, that's true. We're in the process of actually going out and doing more outreaching in the community, to actually inform vendors or contractors of the opportunities. And also, we are looking at the Procurement Department being the depository of notices of opportunities, so that when we go out, we will have a listing of different opportunities that are available that individuals may be able to contact the departments with opportunities. So, we are trying to broaden the horizon so that the opportunity that does exist, looking for small companies, minority companies and other companies.
Okay. Last question is, do you have any sense that by either broader advertising opportunity, making more people aware, as well as the... some, I guess, standards of 605 Operating Budget - 3/9/05 either selection criteria or negotiation, do you think there are some opportunities where the City might actually be able to save money by promoting additional forms of competition among people pursuing professional services or no-bid contracts?
There are probably opportunities. I would -- I would -- I would say that there are probably opportunities that are... that will be probably enhanced if we advertised more. I think that the key is to advertise more so that people are aware of the opportunities.
Right. And I mean, some form of overall coordination of... throughout the government. I mean, it is a little surprising, I guess, as I've spent a little time working in this area, to understand that there is no one centralized place for information to flow through, with regard to professional services contracts.
That, you know, 606 Operating Budget - 3/9/05 ten operating departments and probably a couple other entities -- I mean, there could be upwards of different units of the 5 government at any particular point in time. 6 While you were sitting here 7 answering these questions, where you probably 8 would rather be just about anywhere else than 9 sitting at that table, there are people 10 potentially actively engaged in professional 11 service contract activities. 12 And as Procurement Commissioner... 13 Not doing your job. But no opportunity for 14 the information to all flow through a central 15 place so that everyone knows what's going on, that is... I'd be a little concerned about that.
Well, we are concerned. And that's why we're taking steps, to make sure that... We try to make sure that the information is available.
I understand. Been on the web site, and I know there have been some enhancements, so...
I was just given some information. I wasn't sure if it was appropriate or not.
Decision was, we're in the process. As I said earlier, we're in the process of taking the lead in making sure that we do this.