COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - City Hall, Room 400 Philadelphia, Pennsylvania Wednesday, March 1, 2006 10:40 a.m. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - BILL 060003 RESOLUTION 060099 RESOLUTION 060100 V A R A L L O Incorporated Litigation Support Services 1835 Market Street, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 3/1/06 - Whole - Bill 06003, etc.
Good morning, everyone. We are resuming the public hearing of the Committee of the Whole. I would ask Mr. McPherson to please call upon our first witness to testify.
Good morning. Please identify yourself for the record and proceed with your testimony.
Good morning, Council President Verna and Members of Council. I'm Vince Jannetti, the acting director of finance of the City. I'm here on behalf of the administration, the employees of the Office of the Director of Finance to provide testimony on the department's proposed FY '07 operating budget. The Office of the Director of Finance is comprised of six divisions: 3 3/1/06 - Whole - Bill 06003, etc. Executive Direction, the Office of Budget and Program Evaluation, Minority Business and Enterprise Council, the Account ng Bureau, Office of Administrative Review, and Risk Management. Joining me here today are representatives from those decisions who are available to answer any questions. The Finance Office's FY '07 budget for all funds totals $1.2 billion. The largest single component of the fund's budget is employee fringe benefits at $952.7 million. This represents an increase of 96.3 million or 11.2 percent over the current FY '06 projection. The General Fund budget request is $1 billion. Of this amount 854.8 million is in employee compensation and fringe benefits. The office's budget this year includes funding for a new contract legislation unit. This unit will be responsible for implementing and monitoring the City's compliance with the finance contract legislation. 4 3/1/06 - Whole - Bill 06003, etc. The proposed '07 budget anticipates 183 full-time positions, an increase of eight positions from the '06 adopted budget. Other significant elements of the Finance budget are legal services, which will increase by $659,000 from $33.6 million to 34.3 million; the City's $35 million contributions to the School District and 22.47 million for Community College and $34.1 million in indemnities, which represents an increase of 251,000 from the '06 estimated obligations. This concludes my written testimony on the proposed operating budget for the Office of the Director of Finance. Other departments and commissions under the direction of the finance director will be here to provide separate testimony. I will be happy to answer any questions you may have.
Thank you very much. Mr. Jannetti, the City's 5 3/1/06 - Whole - Bill 06003, etc. proposed 2007 General Fund budget for personal services is approximately 1.304 billion and employee benefits are over $845 million per the budget in brief. The fringe benefit budget is roughly 65 percent of the payroll expenses. The percentage of fringes to payroll in FY '05 was 56.6 percent. What has caused this dramatic increase? Does this mean that every employee the City hires we must add 65 percent of his or her salary to cover their benefits.
Council President, the biggest increase in fringe benefits is in the area of pensions. In '07 the pension payments are estimated to increase about percent of what they 19 are in the current year. 20
Well, I would ask again about what does that mean? Does that mean that every current employee that's hired we must add 65 percent to his or her salary to cover the benefits? 6 3/1/06 - Whole - Bill 06003, etc.
If that's the ratio, yes, but I would have to get clarity on it if that's the actual ratio.
Were you having some conversation back there for an answer?
While that's being done, can you provide us with an analysis of a hypothetical hire and its related benefits?
Yes. I think that's what we were talking about. 7 3/1/06 - Whole - Bill 06003, etc.
A new employee, when they are hired, would get their salary. They would be signed up for -- they would be signed up for Blue Cross or an HMO. They would get their dental, optical, prescription. They would have FICA, and they would have their pension.
So again I'm asking: What percentage would that be?
And I'm reminded per member, per month health and welfare payments, bargaining unit. Peggy is still working on the numbers.
While Peggy is doing that, I think we're running really behind schedule. I will go on with my other questions. In yesterday's hearing for OHCD they testified that the Housing Trust Fund will be included in their CDBG application. The funding for the trust fund is generated by additional recording fees on the transfer of property. Can 8 3/1/06 - Whole - Bill 06003, etc. you tell us the amounts and where these funds are appropriated in both 2006 and 2007.
Council President, I will have to do a report on that and send that to the Chair.
Miss Reed, did you have the answer? Is that why you are approaching the table? If you do, I'd appreciate your coming up to the table and testifying.
The Records Department? What page? Good morning.
Peggy Van Bell. I'm deputy budget director. The Housing Trust Fund is not a part of the City's operating budget. 9 3/1/06 - Whole - Bill 06003, etc.
The City's accounting bureau determined that the nature of the legislation did not require that the Housing Trust Fund be part of the City's operating budget.
We will ask the accounting manager and get back to you on that also. He's here in the room.
Why doesn't he come up to the table to enlighten us if he will?
From where? 10 3/1/06 - Whole - Bill 06003, etc.
Michael Kauffman, director of accounting. The question about the Housing Trust Fund, when we read the legislation that established that, based on our analysis of that we determined that it could be set up as a special fund within the accounting system that didn't require Council approval of the budget every year. If I remember correctly, the legislation put all the spending power within the Office of Housing and Community Development, and that's a part of the reason that we made that determination.
Can you tell us the amounts and where these funds are appropriated in both 2006 and 2007?
While you are sitting there I hope, because we 11 3/1/06 - Whole - Bill 06003, etc. are being told we will forward you information, and the budget is passed or voted upon and we never get the information, so I would like to get that.
Thank you. Can someone at the table explain for the record how these funds flow from the City to the trust fund in very clear language that we all understand, please?
Yes, ma'am. The money comes into the records department I believe and the -- for the -- I don't remember the exact tax this is for, but it's divided in half, and the half that goes to the Housing Trust Fund is deposited and credited to that account right away and the other half goes to the General Fund. So whenever a taxpayer pays that particular tax, it's split up and 12 3/1/06 - Whole - Bill 06003, etc. the appropriate amount goes into the General Fund, goes into the Housing Trust Fund.
I do not see any reference in your testimony to MBEC. Can you give us an update as to the City's goals and what the City's performance is?
Council President, I think Michael Williams is here and I believe he has separate testimony.
Good morning. Thank you. Michael Williams, deputy finance director, director of the MBEC.
And my question is: I do not see any reference in Mr. Jannetti's testimony to MBEC. Can you give us an update as to the City's goals and what's the City's performance?
I handed in the 13 3/1/06 - Whole - Bill 06003, etc. City's performance for fiscal year 2005 to the finance director, and it is my belief, after speaking to the finance director, that he handed that in to the administration.
And the administration is charged with giving that to City Council. So would the administration -- the Mayor's office. I'm sorry. Excuse me. Not the administration; the Mayor's office. Thank you, Councilwoman. The Mayor's office has that information. As to the goals, my team is setting up a retreat in two weeks to set the bench marks for the rest of fiscal year '06 and '07, and when we have those, we will forward those over to Council.
Whatever you had provided to Mr. Jannetti, I would appreciate it if you would forward it to me and to every member of Council. 14 3/1/06 - Whole - Bill 06003, etc.
The Chair recognizes Councilman Goode for a point of information.
Per the executive order, a report is due to the Mayor after a 12-month period. They are supposed to show the experience of the prior 365 days, but also per the executive order there was a report due not only to the Mayor but to Council on July 31.
As per the executive order, I don't think that that information was just due to the Mayor for the Mayor to present to Council, but that information was due -- in fact, it says to Council. It says, "The MBEC shall provide reports to the Mayor and City 15 3/1/06 - Whole - Bill 06003, etc. Council on January 31 and July 31 annually setting forth the dollar value and percentage participation by M/W/DSBEs on City contracts. "Reports to the Mayor and City Council shall set forth as a measure of accountability the performance of each department as measured against its bench mark during the immediately preceding period. "The report shall also list the City-related special projects including M/W/DSBE's participation ranges in the federally assisted public projects of Philadelphia that have DPE participation ranges and level participation achieved on each project: "The MBEC shall deliver its first report on July 31, 2005."
Thank you, Councilman. We were late on the first report getting the information because we didn't receive the correct amount of 16 3/1/06 - Whole - Bill 06003, etc. information from the City departments to generate the report. Once we did receive the report and reconciled the information from our computer-based reports and the reports from the departments, we took that information and gave it to -- presented it to the finance director. I will speak to the Mayor's office and --
According to the executive order, the report was due to both the Mayor and City Council on July 31, 2005.
I called you in, I believe, early September. You told me that information would not be available until late October, I believe, 17 3/1/06 - Whole - Bill 06003, etc. at the earliest. In the Mayor's budget address the Mayor said that, yes, the reports were late but there would be a figure that would be provided in budget testimony. Is that not the case now?
As I testified, we handed the report to the finance director. He gave it to the Mayor's office. It was my assumption that the Mayor's office was going to release it to Council.
Well, the executive order says MBEC shall provide reports to the Mayor and Council on January 31 and July 31 annually. So you missed July 31, 2005. You missed January 31, 2006, but essentially if you have any report, whether it's for July 31 or January 31, according to the executive 18 3/1/06 - Whole - Bill 06003, etc. order we are supposed to get it.
Councilman, I believe that when I sent it to the Mayor's office I erroneously did not send it to Council.
Can we get the report now? I mean essentially the executive order says we are supposed to get the report. Unless somebody told you not to give us the report, we want the report now.
I was going to suggest that somebody at the table make a phone call and have a member 19 3/1/06 - Whole - Bill 06003, etc. of their staff deliver 16 or 17 copies, please. I'm sorry. I've been corrected. May we have 20 copies so staff can also see it?
Thank you. Mr. Jannetti, are we able to answer my first question now?
Good morning, Council President. Yes; in terms of the FY '07 General Fund budget, the percentage of payroll that makes up fringe benefits is 65 percent. The percentage of total compensation that was represented by fringe benefits is 36 percent. So while the calculation does equal 65 percent, we generally, when we 20 3/1/06 - Whole - Bill 06003, etc. look at the cost of hiring a new employee, we don't apply that fringe benefit rate because a significant portion of fringe benefits is the unfunded pension liability and we only estimate the cost of the additional employee in our calculation because whether you hire someone or not, that unfunded liability is a fixed cost.
Wouldn't it be very helpful to show it in a different way in the budget? Because as it appears, it's really very misleading.
I believe what we could do is we could further break down our fringe benefit figure to show the pension payment in terms of normal cost and unfunded liability.
I think that would be much better than what we are presently showing.
We can definitely do that for you. 21 3/1/06 - Whole - Bill 06003, etc.
Thank you. Councilman Nutter, are you prepared to be recognized at this point in time, or should I go to the next person?
This may be a first. Go to the next person. That will not be the new policy.
And you don't want to make a habit of it, I'm sure.
Council President, we have an answer on the Housing Trust Fund.
The first part of your question, the other determination of why we did not include this as a budgeted fund is according to the ordinance, any assets remaining in the trust fund at the end of the fiscal year shall be carried into the next fiscal 22 3/1/06 - Whole - Bill 06003, etc. year including all interest and income earned as well as any repayments of forfeitures of loans and/or grants.
What's the difference between this and the special gasoline tax which is shown as an appropriation?
I believe the special gasoline tax, everything has to be spent within one year and nothing gets rolled over into the next year. They work on a calendar year basis and that's the way that works.
I think that what we find a little provoking is the fact that there is nothing shown in the budget for 2006 and 2007. And we don't know -- I don't think you're making it very clear to me -- I don't know about anybody else -- as to why this isn't being shown.
It is currently not being shown because we have a few of those special funds that don't have to be 23 3/1/06 - Whole - Bill 06003, etc. budgeted, and the balance in them just rolls forward from year to year. And that's what we understood the intention of this fund was, that the money would be collected and just spent for those purposes from year to year. With the other funds, whenever there is budgeting involved, the appropriations, if they are not spent by the end of a particular year, they lapse. In this case it doesn't happen like that according to the ordinance, but things were meant to go on from year to year, and they were authorized to be spent under a specific purpose. So that's why that decision was made.
Well, I think we should have a City solicitor's opinion on that.
Fine. The other piece of that that you'd asked, this fund has only been collecting revenue for fiscal '06, and to date we have $5.6 million collected in 24 3/1/06 - Whole - Bill 06003, etc. that fund and it's available for expenditure, but there have been no 4 expenditures made or encumbrances against that amount. So it's $5.6 million so far in fiscal '06.
I have been told -- and I wasn't here for the OHCD hearing yesterday, but I'm being told that OHCD testified that there was over $11 million in that account. And they were projecting in '07. 13
All I can tell 14 you is what I was told here this morning, that there is 5.6 million. I will go back and verify those numbers, but the gentleman that gave me that information, I would expect that he would be a hundred percent accurate, so I'm not sure where OHCD got their figures from.
The Chair recognizes Councilman Nutter for a point of information.
Thank you, Madam Chair. 25 3/1/06 - Whole - Bill 06003, etc. Based on yesterday's discussion, not that we should ever assume anything, but the conversation was that for FY '06 the Housing Trust Fund was supposed to have $11.5 million, one and a half million from NTI and $10 million from all of the fees. Now, maybe that is a projection for FY '06, and I don't know when you got your figures. We are a little more than halfway through the fiscal year. Maybe they are anticipating the rest of the balance to come in by June 30, but when you look at the budget, you apparently are showing decreases in funding from anticipated tax revenues on real estate transfer tax over some period of time. I will come back when it is my turn to get back into this whole in the budget, not in the budget discussion, but I mean that was the discussion yesterday, and the projection was 15 million for FY '07. But all you're testifying to is 3/1/06 - Whole - Bill 06003, etc. what is actually in the account?
Yes, sir, what has been collected and allocated to that account through yesterday.
Good morning, Mr. Jannetti. And I'm sorry. I did not catch your name.
Mr. Kauffman, okay. I'm looking at Bill 050059, which is the bill that was passed to create the Housing Trust Fund passed by the Council June 9 of last year, signed by the Mayor July 8. What is it in this bill that you can tell me indicates that by creating the Housing Trust Fund it somehow took the dollars out of the 27 3/1/06 - Whole - Bill 06003, etc. budget process for City Council?
Councilman, the quote is that it said it is the intention of City Council that the trust fund be used for the purposes of this ordinance. Therefore, any assets remaining in the trust fund at the end of the fiscal year shall be carried into the next fiscal year including all interest and income earned as well as any repayments of forfeitures of loans and/or grants.
So what is it about that particular statement that all of a sudden removes the funding and the Council authority through the budget process over those dollars?
As we interpreted that was that the original ordinance gave the authority over that to the Office of Housing and Community Development and then the nature of carrying over the fund, rolling --
Stop right there. 28 3/1/06 - Whole - Bill 06003, etc. Does it say that in the legislation?
I do not have the legislation in front of me. I have an excerpt.
You may want to hold onto paper. It's not a bad thing. Those Blackberries are going to be shut down. Can you tell me what section of the bill says that since it's under the purview of OHCD it takes it out of the City's budget process?
Councilman, I have to look at this and make sure I see where we were making our decision, what it was based on.
Well, you made an interpretation. I'm sure you gave it long and hard thought. And given the fact that we don't take dollars out 29 3/1/06 - Whole - Bill 06003, etc. of the City's budget process on a regular basis, I would think it would stand out in your mind as a quite unique situation. You may have created history. I only see a reference to OHCD once in this entire bill, and that's on under Section 8 4 where the Housing Trust Fund makes recommendations to the Office of Housing and Community Development regarding the types of projects and programs to be funded with trust fund monies. That's the only reference I see so far to the Office of Housing and Community Development in the bill, and you're telling us that you've made an interpretation that based on one paragraph in the legislation you have, in effect, removed us from direct budgetary process. I'm trying to understand how you got the interpretation. By the way, what is the legal status of the Office of Housing and Community Development?
I'm sorry, 30 3/1/06 - Whole - Bill 06003, etc. Councilman. I really can't answer that question.
The other question, as far as where we got this information from, is in this bill. In 21-1602 it says, "Establishment of the Philadelphia Housing Trust Fund."
Right. It says you're going to create a separate fund by the finance director.
It means established as a separate fund not to be commingled with any other fund. And in the second paragraph after that it says, "It is the intention of Council that the trust fund be used for the purposes of this ordinance."
Well, that's 31 3/1/06 - Whole - Bill 06003, etc. what we used as our deciding factor on this particular instance.
Okay. Did you think that that was significant? Have you ever done that before?
Whenever there is -- other funds have been established and they were established differently.
Other funds have been established, and I believe they were established differently that were meant to be -- or according to our interpretation, they were meant to be included in the budget.
Right. Can 32 3/1/06 - Whole - Bill 06003, etc. you think of a recent occurrence where anything else like this has been created and was outside of an appropriation power?
Excuse me, sir. We generally don't establish too many new funds. I think this and the other new fund we established in the last five years or so would have been the car rental tax fund.
Yes, which was created by action, I believe, of the General Assembly, enabling us to create such a fund. Obviously we didn't have that situation here, right? And it goes through our budget process, correct?
I mean, look, you're trying to do your job. You read something. Maybe you didn't participate in the hearings, but I can only suggest to you if you have such a 33 3/1/06 - Whole - Bill 06003, etc. unique situation that you don't do on a regular basis, you may either want to find out, A, what was the legislative intention by the body; B, you might want to touch base with the Law Department to see what it's all about; and, C, if you come to the conclusion that you have obviously come to, you might want to let us know before you get into a budget hearing to now tell us that $11 million in '06 and $15 million in '07 is anticipated to not be a part of the budget process. This is what we do. You just cannot make that manner of interpretation and not tell anybody. So where do we go from here?
Councilman, I think we will ask the City solicitor for an opinion on this, and for this year at least we can report to you the activity to fund, what we have collected, what has been disbursed, for what purposes.
Well, I 34 3/1/06 - Whole - Bill 06003, etc. don't think there has been any disbursement.
Okay. All right. Madam Chair, I have other questions not on this particular topic. I don't know what's on the board. This is a very serious situation. It really gives me grave concern about how people are functioning and operating and what's going on and interpretations being made, and with every respect to you and what you do and you're serious about your job, I think I have to honestly say to you that this kind of decision and interpretation may have needed to go up the chain a little bit before you arrive at such a conclusion. Thank you, Madam Chair. I have other questions. I'll come back. 35 3/1/06 - Whole - Bill 06003, etc.
Fine. Thank you, sir. The Chair recognizes Councilwoman Tasco.
I just want to ask a question. Mr. Jannetti, you said that you have given the report from MBEC to the Mayor. I will just cite that during the Mayor's budget message he pointed out -- he says, and I'll quote, I'm pleased to report that the City has substantially increased its minority participation on City contracts. A comprehensive report will be presented during our budget testimony. I do want to assure Council Members Tasco and Goode, who have been leaders on this issue, we will continue to do more. So is the study prepared, report ready for us today during the budget, course of the budget discussion?
I believe that Mr. Williams has asked that copies be 36 3/1/06 - Whole - Bill 06003, etc. produced for the Council.
What is the status of the revised DJ Miller disparity study?
My pleasure. There has been no further movement except by the drafting the executive order from the DJ Miller report. I think that's --
I, as I told you I guess a couple years in a row, brought them over here and I forget what Councilman participated -- I think it was Councilman Nutter -- said they are in the 37 3/1/06 - Whole - Bill 06003, etc. building. I will send a letter to the administration to ask if we can send this report out to City Council.
Do you believe that the study is still in the building?
I do believe, Councilwoman, that the study is still in the building.
I will send a letter to the Mayor's office and ask that it be released to the City Council.
October 7 I also wrote a letter to the Mayor requesting the report that was due July 5. Of course, we have not received a response to that letter. Do you believe, Mr. Jannetti, we will get the report today? 38 3/1/06 - Whole - Bill 06003, etc.
For the participation numbers for '05? Absolutely. We will actually get them -- I spoke to someone on Mr. Jannetti's staff and on my staff and we will get those reports over to you. They are being copied right now. So you will get them before the session is over.
Will you look at the report and then also go back to the disparity study and do an analysis to see if there has been any progress?
Point of information. 39 3/1/06 - Whole - Bill 06003, etc.
The Chair recognizes Councilman Goode for a point of information.
Thank you, Madam President. That was too many absolutlies. My particular problem is that I don't care about the former disparity study, which I do have a copy of. My particular problem is even if we have participation numbers in our hands right now, that's not enough data. I mean essentially what the bill that we passed in 2003 did was call for annual disparity studies that would do a measurement of the capacity of disadvantaged businesses versus the amount of work that they are actually getting. So the percentage of participation is just one part of the formula. We also need a measurement of how many businesses were actually qualified to do that work so we can actually look at what the 40 3/1/06 - Whole - Bill 06003, etc. underutilization is. So suggested percentages of how many people were used doesn't fully tell us the disparity. What tells us the disparity and what the underutilization is is also measuring the capacity of how many disadvantaged businesses could have been performing that work. And unless you actually have that information, have been working on that, then it absolutely meant nothing is not true, because unless you know how many businesses were qualified to do the work versus how many businesses got the work, you haven't done your job. And that's what MBEC was created to do. That's what the law we passed was intended to do. That's what the executive order was supposedly to do, but participation numbers are only part of the equation. What we really need is a data-driven process that is focused on disparities to show how much those businesses are being underutilized.
Thank you, 41 3/1/06 - Whole - Bill 06003, etc. Councilman. We will get you the information that the executive order asked us to give to you.
What about the information that was required by law? Even if you don't acknowledge the law, you can acknowledge the information that was supposed to be done under that, given under that law.
I don't have that information. I am not -- I have heard of the law. I may have read about the law when I first came in, but I don't know anything else about that. I don't have that information.
In the end -- if you say you went from 2 percent to 10 percent to 15 percent in the end means nothing to us because if there were enough qualified businesses with capacity to perform those services at 30 percent and you are at 10 percent, that means you discriminated against two-thirds of them, and we need to know that. 42 3/1/06 - Whole - Bill 06003, etc. Thank you, Madam President.
You know, I don't want to shoot the messenger because the messenger has been -- but I think that what clearly -- what is clear is that there is no real commitment on the part of the administration to -- and the numbers might be so poor that they don't want to share them, but clearly after all of this tug-of-war through these years we have not gotten the information. There is no real commitment to follow the ordinance as it was passed and/or the executive order. It was all done, to me, for show but not a real commitment to making any difference in how we do business in the City. And until there is a commitment there, I mean we will go through this ad infinitum, until the end of the term to see just what is happening in terms of dealing with minority participation in 43 3/1/06 - Whole - Bill 06003, etc. City government, and so we will just wait to see what we get, but, again, Councilman Goode points out all the information that should be produced so that we can have a clear picture of what's going on in the City. And if that's not going to happen, it doesn't seem like it is going to happen, so I don't have any faith in it happening. Thank you.
Are there any other questions from members of the committee? The Chair recognizes Councilman Nutter.
Mr. Jannetti, two items for you: First, what's the status of the proposed I guess reform, if you might call it, on the bond financing process? We have had some discussion over time about competitive bid and how the professionals are selected. You and I have talked about 44 3/1/06 - Whole - Bill 06003, etc. this on a couple different occasions. And then there was a proposal or, if not a commitment, that there would be an executive order covering these particular issues. What's the status of those items at this point?
Councilman, we have been working on that document for three or four, five months now.
There are a lot of issues around fitting what we do into the legislation, and so part of the process has been involved and, you know, I'm confident and hopeful that we are coming to the end of this road very soon and so the status is we are working on it and we are hopefully almost done.
Can you 45 3/1/06 - Whole - Bill 06003, etc. tell me just a little bit more? I know you to be a hardworking guy, so I'm not questioning whether you are working on it. I mean what are you doing? What are its components?
For example, bond insurance, insurers, how do they fit into the legislation?
I hate to refresh your recollection, but the City solicitor determined that the bond financings, or at least some components of it, were not covered.