Okay, 'cause I was looking for it since it was a subject of discussion, and couldn't find it. Second question. On of the bill, under subparagraph g. entitled "Rehire," there's a flat statement that there is no return to regular employment from a DROP, that's clear. Once a person participates in a DROP, they can never be reemployed by the City. And then in the same paragraph, it says that a retiree may be rehired by the City subject 51 6/8/99 - WHOLE COMM. - Bill 990288 to the provisions of this title, but no former DROP participant who is rehired by the City may be eligible to participate again in the DROP. So the first line says there is no such thing as a rehire, and the last line says, But if he is rehired anyhow -- and I don't know how he gets to be rehired -- he's not eligible to participate in a DROP again. I -- you have to be more than a Philadelphia lawyer, I think, to understand that.
How does a DROP participant who cannot be rehired by the City manage to get rehired by the City so that he or she is forbidden from participating the second time in a DROP Program?
We might have to go to staff for the answer, but I'll take a crack at it. You can be rehired. Under the present pension system, you can be rehired.
And there's a section in the ordinance that deals with how your pension will accrue if you are rehired -- first year, 52 6/8/99 - WHOLE COMM. - Bill 990288 second year, and if you stay three years, we recalculate the entire pension based on all your years of service. What I think that is saying is that if you are a DROP participant and you retire, you formally retire, you take your lump sum, and three years later, you are rehired by the City for some particular reason, you cannot re-enter a DROP Program.
But the law says you cannot be rehired if you participate in a DROP.
I don't think that you could prevent the City of Philadelphia or any organization from hiring somebody just because they took advantage of the DROP. You know, they can't get in the second DROP. I think we were talking about that earlier.
Well, then shouldn't we eliminate that first sentence that says there is no return to regular employment from a DROP when, in fact, there is?
When you're in the DROP, you cannot come back -- you can't return to normal employment. You can only retire, you can only 53 6/8/99 - WHOLE COMM. - Bill 990288 separate once you get in the DROP. You're still an active employee, right, follow me? You're still an active employee, you're a participant in the DROP plan. Then the only option you have is to separate employment.
Between zero and three years. If you separate and you return to employment in the future --
Well, how do you do that? Doesn't this language prevent that?
Councilman, it's two different situations. One is a return from retirement, an employment return from retirement. The other one is discussing coming back into employment while you're in the DROP. You haven't retired yet. You cannot do that. That's what's irrevocable.
Councilman Nutter, I cannot follow that. That may be my inability to -- but I cannot --
I think it's in the -- it's probably more in the language, Councilman. 54 6/8/99 - WHOLE COMM. - Bill 990288 Mr. Herkness, the sentence that the Councilman is talking about specifically says that there is no return to regular employment from a DROP.
Don't you really mean that while you are in the DROP, you cannot come back to whatever you call "regular employment"? Isn't that what you are really saying?
Because if you read it the way sentence is written, the Councilman is absolutely correct. In the first sentence you're saying that there is no return to regular employment from a DROP. Now, someone could take that to mean that once you have ever participated in a DROP, you could never come back to regular employment. And then a sentence or two later, it says that a retiree may be rehired by the City. You're talking about after the three-year period and when they have actually separated, retired, started receiving pension payments. 55 6/8/99 - WHOLE COMM. - Bill 990288
Would it make it clearer if the sentence said, "There is no return to regular employment while a person participates in a DROP"? Isn't that what you're trying to accomplish? You're saying that once you sign up, you can't go back to regular employment during your three-year period?
We believe that's what it says. Is it possible to make it even more clear? Yes, that makes it even more clear.
Councilman, is that the point that you were trying to make?
I was just trying to find out what it meant. So I had assumed from the clear language from that first sentence that it meant that the City would not be able to hire -- rehire any person who had retired and who had gone through a DROP proceeding. Well, then I think that language has to be changed drastically in that first sentence. It's paragraph g. of . I'm only thinking of clarity. I couldn't under -- I was going to ask you, why do you forbid the hire? There may be 56 6/8/99 - WHOLE COMM. - Bill 990288 circumstances where the City may be anxious to rehire somebody, you know, for a special project, and I couldn't understand why this is forbidding.
Councilman, I think if you read g., it does say in the second sentence, Once entering a DROP, the employee is in the DROP until separation from City service, at which point, the member is retired. A retiree may be rehired by the City subject to the provisions of Section 22-204, but no former DROP participant who is rehired by the City may be eligible to again participate in the DROP." So that's like no second DROP, but if you're rehired -- so if you're in the DROP and you separate, you retire, and you're out for three years, and you come back as Council staff, then you come over to the Pension Board and say, "I want to get in the DROP plan."
Yeah, we say no because 57 6/8/99 - WHOLE COMM. - Bill 990288 Section g. says if you are retired, no former DROP participant who is rehired may be eligible to again participate in the DROP so. The Pension Board staff would say you're not eligible as a rehire from retirement employee for a second DROP.
Well, I understand that, that's clear, there's never been any question on that. What is unclear in the language is whether or not somebody who participates in the DROP may at any time return to employment by the City. The answer seems to be yes, once you finish the DROP, you're like every other retiree and can be rehired, and I expect that will happen. That is, that assumes the three-year period is ended, the person may be rehired on the very next day. That happens currently now, I understand.
'Cause I remember one time there were a lot of retirements from the Police Department, but the City felt they lost too much talent and they hired a whole host of people at the end of the early retirement. But I think the language ought to be cleaned up. I don't think the language ought to 58 6/8/99 - WHOLE COMM. - Bill 990288 remain in its present form.
Councilman Cohen, would language like this help to clarify? "There is no return to regular employment for a person during their participation in a DROP"?
That would that would be an improvement. I can't say whether it would --
It's difficult but it's certainly a vast improvement over what exists now. All I think we ought to do is to pass a law that's clear.
And that if people read it, they ought to be able to understand it.
One other question. I thought I'd seen it and now I can't find it again. At the time person enters the DROP, do 59 6/8/99 - WHOLE COMM. - Bill 990288 they make their choice as to -- say it's a husband-wife situation, husband working, has a wife who he wants to receive pension if he passes on. Is that an irrevocable decision made at the time the employee enters the DROP?
Yes. In order for your DROP to be determined, the amount of payment will depend on your survivorship option selection and you will make that at the time you enter the DROP. In other words, the amount of money that you will receive during the DROP credited to your account will depend on the survivorship option that you select. So that's a very, very important option, which is why you cannot rush entrance into the --
You can't change it unless certain circumstances took place -- a death, if the survivor predeceases you and you're in a particular plan, you have an option to change it. But if nothing changes other than you just decide to change your mind, you cannot change that. 60 6/8/99 - WHOLE COMM. - Bill 990288
Could you refer to what section of the bill refers to that, Mr. Herkness.
I don't know if we address survivorship, but that's in order to -- in order to retire, you have to make a survivorship selection.
To get a payment, you have to do that. If don't do that, you're not going into the DROP. You can take that to the bank.
We had a lawyer try to tell us that we had a problem there, but you're not going to get out of our offices unless you make -- for DROP purposes, unless you make a survivorship selection. We're just not going to okay it because we wouldn't know what to put in the account for you.
Right. Now, I don't 61 6/8/99 - WHOLE COMM. - Bill 990288 understand really why there should be an amendment to provide retroactivity on the interest rate. It seems to me if we make a bargain with an employee, it ought to be a bargain, and that both sides ought to live up to it. And the bargain is, you're going to get 4.5 percent rate. I understand the City wants to have a cushion. The only other option I could see is why don't we have an option, if an employee wants to do his or her own investment, would the City lose anything if they made the payment available immediately to the proposed retiree instead of waiting for the three years? Maybe the employee feels he or she could do better in their own plan of investment.
They can do that in their 457, but I believe if they touch the money --
I'm sorry. I believe they can do that through their 457 Plan, but they can't touch this money until they actually separate from the City. There is also an issue again of 62 6/8/99 - WHOLE COMM. - Bill 990288 administration and keeping track of all these individual trades if you had separate accounts. We're trying to start off with the most efficient system possible. We can always improve it going forward, but if we make it too complicated now, it just may not work.
Are there any other members from members of the committee? The Chair recognizes Councilman O'Neill.
Thank you, Madam President. Gentlemen, I have a copy of the proposed amendment that was circulated.
I have the only copy, I'm sorry. And basically, I appreciate you drafting this; it's in response to my concerns from the briefing last week. That while we be cautious up front with the 4.5 rate, because we don't know what is going to happen, that there be a mechanism for a review assuming that the Pension 63 6/8/99 - WHOLE COMM. - Bill 990288 Fund did as well as it was intending to do, that there be a way of increasing that interest rate retroactively similar to a dividend that might be paid on an insurance premium that -- where there was good experience. So to the extent that we have good experience, as we expect, the fund doesn't make out -- it just breaks even, and the DROP people go up from this 4.5. And what I was hoping this amendment would say is that prospectively, obviously anytime for any new person in this test, the rate could be changed -- for instance, downward. And there's a mention here of 3.5 percent. But I hope we can somehow make it clear that if I start in the DROP Program this year at 4.5 percent, next year someone's not going to retroactively make that 3.5 percent and cut me down a point over what I agreed to get in at. And that's not clear here. This amendment would allow it to be done retroactively as well as prospectively.
Okay. The second 64 6/8/99 - WHOLE COMM. - Bill 990288 thing is, why is the retroactive upside limited to percent? And I can understand some 4 administrative fee or maybe a percent or something 5 less than the rate of return of the fund; I just 6 don't understand the cap. I mean, even when we 7 were dealing with the cap on the COLA bill, we 8 were going 9 percent and 1 percent over and on and 9 on, but we weren't capping any, you know -- because again, if the fund would make percent, 11 then instead of the DROP people getting the 12 benefit of the area between 9 and 13 or even, say, 13 take off a point for some fee expense, 12 percent, this caps it at 9. I just don't understand how that levels everything out, and I would hope that the retroactive number may be like 1 percent, up to 1 percent less than the actual return on the fund. There's a couple of things I'm hoping it would accomplish. One is to get more people into the fund and into the DROP Program, and then also get them to stay in, because they would see that potential. Particularly the first year, get in as many people in that first year as possible. And I think we can -- if you're agreeable, we can 65 6/8/99 - WHOLE COMM. - Bill 990288 get this language worked out fairly quickly. I mean, I don't want to hurt fund, but I want to help the DROP Program in terms of its return as much as possible.
I think we can address that. I don't think there's anything magical about the percent cap except we believe there 9 needs to be a cap in there, just for purposes of self-restraint, but I'm sure we can work out something that meets those ends.
Thank you,. The Chair recognizes Councilman Cohen.
Just one question. This is a three-year program; is that right?
So that the decision by an employee to retire under the DROP Program can be made at any time during the three years after this bill becomes law?
In other words -- and say if somebody joins the program two years and eleven months down the road, the program has 66 6/8/99 - WHOLE COMM. - Bill 990288 one month to go, somebody joining at that point would be able to continue for the three years.
So everybody's clear. Okay, I wanted to make sure. So it's not that if go in after one year, you're only going to have two years.
-- to continue to work after you've signed off on all of the papers as we talked about earlier.
If, despite all our best efforts, this is a disaster and we have to end it, those people in the program get their three years.
We just don't accept new participants. 67 6/8/99 - WHOLE COMM. - Bill 990288
Thank you. Are there any questions from members of the committee? The Chair recognizes Councilman O'Neill.
A couple quick questions. One, are there any other DROP programs in the country that have ceased to exist once they begun? I know it's a fairly new --
Not that I know of. John Reilly, one of the Board members is a member of the National Commission of Public Employee Retirement Systems. John might be able to answer that. I don't know if there's ever been a DROP that ceased. They seem to be expanding them either in the length of time or the number of people that are eligible. There are about 50 DROPs, 35 to 50 now. There are no less than 30 plans looking at it. In my opinion, there's probably over a thousand plans. In the next five years, this will spread wild fire when people begin to understand just what the advantage is to 68 6/8/99 - WHOLE COMM. - Bill 990288 a public employee.
Thank you. Mr. Reilly, please identify yourself for the record.
Madam President, my name is John A. Reilly. I'm a member of the Board of Pensions and Retirement for the City of Philadelphia. Brian, the question you asked was about the irrevocable when you join the program. The answer is yes, except for Baltimore. In Baltimore, you go into the system when you're eligible, you do your three years, then you go back in the system. Everybody else --
No, I think you misunderstood me. What I'm looking for is, we're testing this, it's a three-year trial.
But in reality, have there been any other DROP programs that proceeded cautiously then just found it was a 69 6/8/99 - WHOLE COMM. - Bill 990288 loser and stopped it?
No, they haven't. In fact, Houston, Texas, started five years, and they just upgraded to seven years. Dallas, Texas, their plan is now six and a half years old, there's no limit. You go into it, it started six and a half years ago, and they're still in it.
Now, a follow-up question, and I'm not sure who should answer this, but three years seems rather modest in terms of the DROP period, and again, I understand the caution initially. When would we in Council and also eligible employees look for a threshold period where you could say in a year, eighteen months, two years, we'll know whether we can push this to five years or seven years, depending on --
We're going to calculate the, quote, costs as best we can. The first will take place in no less than nine months so that the Board, when it receives its report in one year, would have the decision of whether to move that interest rate. We will have at least nine months' experience and will give them an estimate. The following year, we cold do the same. We would 70 6/8/99 - WHOLE COMM. - Bill 990288 then have almost two years. So we will have this information well before the three-year, you know, deadline so that Council or the Board can make its decision. And the --
So if that first group wanted to extend, then you would have some time during that three-year period where you could make decision as a Pension Board to recommend extending the program for three years to five years for an individual or to seven years or whatever.
That's certainly possible. I mean, Council could amend plan, you know, at anytime and make it three or five.
Right, but is there any time that you're thinking now, Boy, by 18 months, we ought to have an idea of whether this not only is a good thing rather than a bad thing, but we can go into that longer DROP period, which I believe helps everyone if it's possible to do.
After the meeting in the afternoon after we had the Council briefing last 71 6/8/99 - WHOLE COMM. - Bill 990288 week, we met with the actuary and committed to between six and nine months, we would have the numbers of people who would be in, and we could have a ball park figure for those, the early entrance into the DROP, and then begin to project it and then kick those numbers around, whether there was an actuarial loss or gain. And if there was, is it attributable to the DROP? It's difficult to attribute 100 percent of someone's decision to a DROP plan. So that's the challenge that the actuary and the Board will have, to say, Well, this projected change might be $100, but is it $100 attributable to a DROP decision? It's a difficult thing, but in nine months, we will have some numbers so that the Board's first decision is twelve months afterwards on the interest rate, and they can move that. We believe that they could move it prospectively, even under the present language, under the amendment that you're alluding to. You could then make it retrospectively to the day one when the people are in it, and let's say you moved it to seven or eight, then the people would have a 7 percent credit retroactively. 72 6/8/99 - WHOLE COMM. - Bill 990288 We're going to give 'em a DROP statement, what we're calling a DROP statement, within 90 days after they sign up so that they'll get their payment and it will show what grows at the rate of the interest. If the rate of interest would change, we would expect to send 'em a new statement so they will be able to look and plan on what their DROP account will grow to, and then they can make a decision on when they want to get out.
Thank you. Are there any other questions from members of the committee?
Do you know how long it will take to get that language worked out?
I'm sorry, I didn't hear your question, Councilman.
This amendment needs some tweaking, just needs a little bit of work to --
It depends on your availability. 73 6/8/99 - WHOLE COMM. - Bill 990288
The Council President's office has copies of that amendment.
Madam President, we do not have a copy of the amendment.
I don't think any of us have a copy of the amendment.
I can quickly explain what we're trying to accomplish because this is going to get. . . Councilwoman, what the amendment attempts to do is, instead of leaving the 4.5 percent as the rate of return, and that's it, have a mechanism for the Board of Pensions to review what the actual experience was and, hopefully, bring the 4.5 percent up additionally later on, within a year. And that's the language we're trying to work out. It's how high up that can go above 4.5 and ensure that it won't go below 4.5 as well, but the language will be clear. And that's what we're going to be working on. This doesn't quite do it, 74 6/8/99 - WHOLE COMM. - Bill 990288 but it gets pretty close.
And someone's going to be working on the amendment before we go into our public meeting?
Council staff does have a copy but it was not a complete amendment and not ready to be introduced, but we'll have a satisfactory amendment ready for Council, I guess, next week.
If it's as simple as Councilman O'Neill is saying, why couldn't you work something up today before we adjourn the meeting?
Tom's in, Tom Erekson's in. I think we could go forward quickly.
'Cause we have another bill to hear, and hopefully after that bill, we will go in a public meeting. And I don't see any reason why we couldn't have the amendment ready. 75 6/8/99 - WHOLE COMM. - Bill 990288
Okay, I think Mr. Erekson is right here, so he'd be more than happy to work with you on that. And Councilman O'Neill, maybe you could speak to Mr. Erekson. Do we have anyone else to testify on this bill? (Audience member raises hand.)
Kindly approach the witness table and identify yourself for the record.
My name is Israel Zeitz. I'm a retired City employee, 1988. I was asked or requested by many of the civil service people, City employees now that do not want to have their names published to come and represent 'em at this hearing as being opposed to the bill. But from what I hear, the bill opposes itself. Mr. Herkness said that you're going to have the money held in escrow because they didn't 76 6/8/99 - WHOLE COMM. - Bill 990288 want to put 'em out at 55. What's the difference if you start paying them at 55 or if you hold the money till 58 and they get the money? There's still going to be that amount of money coming out, but besides that, there will be no money going in. The people that had sent me here had requested that we go to something that the City has done since 1954, when they first incorporated this with the amendments, that you give incentives to people to go out on pension. If they go out on pension, not only will the City not have to pay for the pension money going into the Pension Fund, the City won't have to pay for their benefits or hospitalization, the City won't have to pay Social Security and other things. We are in a two-tier system as was mentioned before, it may even be three by now. The people that are in the higher tier would retire, thereby the people at the high levels of those pay ranges would leave and the people filling those positions, if those positions would be filled, will be filled by people with a lower pay range, thereby the City saves money there. Also, the new employees that take over for the 77 6/8/99 - WHOLE COMM. - Bill 990288 open vacancies would be under the second tier and get much less benefits. But getting back to this Pension Fund, there is nothing here for the 30,000 employees that are not eligible a pension, but there is a plethora of things for people that are going on pension. They can come back and serve -- besides serving as Councilman Cohen had mentioned, besides serving the City again, they may be able to pick out a higher job and go out on pension again at another higher rate after collecting 50 to 80 percent raise that they did over those three years that they were working under this DROP plan. So the people that sent me, which is a few that didn't want to speak mainly, they feel like --
How many years have the employees who sent you here have with the City?
How many years of service do the employees who sent you here have with the City?
They average somewhere 78 6/8/99 - WHOLE COMM. - Bill 990288 around years. They're in a position to take the next positions, yes. But they can't take them as long as these people in the higher positions will not leave if they stay instead of retiring. There's no incentive to leave. That's what their concerns were.
They asked me to come 11 down. Instead of having a DROP plan, give an 12 incentive similar to 1988. Have the people get an 13 incentive to leave instead of taking -- the 14 money's coming out of the -- the money will be 15 coming out of the pension anyway, no matter how 16 you look at it. The Pension Board will not be 17 saving any money with this DROP plan. They have 18 to pay the money out whether it's after they 19 retire at 55 or whether they go till they're 58, 20 the money's coming out.
Are there any questions from members of the committee?
What is the concern that the people have who you say asked you to come here? What are they concerned about? 79 6/8/99 - WHOLE COMM. - Bill 990288
Well, the concern is that the City of Philadelphia was always looking to find a way to put people on early retirement instead of keeping them because it was costing the City to keep the employees. If they could get rid of the higher-priced employees, the people that were here longer, then they would be able to fill 'em with lower-paying jobs and open up jobs for other people to come in, or eliminate jobs, which has happened in 1988 when I left and they closed my district.
And as a result of this bill, how are these people hurt that you are representing?
They are staying instead of leaving, and they are eligible to go on retirement, and some of them were going to go on retirement till this bill hit the floor.
Oh, you mean you're representing people who are currently working?
They asked me to represent them because they couldn't be here and they didn't want to have their name on the record.
Councilman, we're not saying it's compulsory for employees to enter into the DROP Program; it's their choice, it's their choice. (Applause.)
So we're not compelling anyone to join the DROP Program.
But the DROP Program was supposed to save money for the Pension Fund, for the pension. The DROP system, as Joe Herkness said, is going to keep the money in the pension system, but they're still going to have to pay it out after the three years. I can't see how this is going to help 81 6/8/99 - WHOLE COMM. - Bill 990288 the Pension Fund.
The intention, sir, is not to save money for the Pension Fund; the intention was to provide an additional benefit that we can now afford because of the Pension Bond and other things that Council and the administration has done. Our goal is to be revenue-neutral, and we believe the DROP Program, as constructed, will be neutral, but our goal is not to save money for the plan.
Maybe we don't understand the issues as presented to us this morning. What we might -- what the gentleman might want to do is have his people put their position in writing so that we can understand what points they are concerned about, just for clarification and information. 'Cause I don't understand -- I don't know how you get hurt. 82 6/8/99 - WHOLE COMM. - Bill 990288 (Unidentified person responds inaudibly off-mike.)
If you want to say something, please come up to the witness table and identify yourself and give us a response.
Hi, my name is Carol Stukes. I believe the gentleman's trying to say that the people who he represents think they're going to get hurt because the people who will go into the DROP Program at their own option would not make space available for those who move up and get promoted, and that's what his issue is; am I correct?
But what the gentleman don't understand is, whether the person's going to the DROP or not, they never have to retire, so that option to promote may not never be there.
That answers the question. Is there anything else you would like to add, sir? 83 6/8/99 - WHOLE COMM. - Bill 990221
Thank you very much. Is there anyone else to testify on this bill. (No response.)
Before we hear testimony on our next bill, I would simply like to announce that the Law and Government Committee meeting schedule to meet today at noon has been recessed until Thursday, June 10th, 9:00 a.m. The next bill to be called for consideration is Bill 990221. The title is, amending Title of The Philadelphia Code 17 entitled "Contracts and Procurement" by amending Section 17-107 entitled "Contractors, Labor Management Relationships," by revising and prevailing wage ordinance by extending the prevailing wage requirements to include all building and construction work contracts with City agencies and City-related agencies, and by extending the prevailing wage requirements to building or construction work contracts on which 84 6/8/99 - WHOLE COMM. - Bill 990221 City, City agency, and City-related agency funds are allocated or spent, all under certain terms and conditions. May we hear from the administration first on this bill. (John Kromer comes forward.)
Good morning, Council President Verna and members of the Committee of the Whole. My name is John Kromer. I'm Director of the Office of Housing and Community Development. I have submitted written testimony on this bill and so I just want to make a few brief comments on what is proposed. First of all, a comment with respect to the current applicability of prevailing wage to programs that are administered through the Office of Housing and Community Development program. Prevailing wage currently applies to nearly all of the rental housing development, new construction and vacant structure rehabilitation. And the reason for that is because most of that type of development, rental housing, is done through the 85 6/8/99 - WHOLE COMM. - Bill 990221 Low-Income Housing Tax Credit Program. And so to organize a project for tax credit financing, it really isn't feasible to think about fewer than eight units. Generally, the developers assemble projects that range from 30 to 70 units. You just capital organize a tax credit deal with fewer than eight units. So the majority of rental development is already subject to the prevailing wage requirements. The Mend II Program, a rental repair program administered by the Redevelopment Authority, is not subject to that requirement, but Mend II accounts for a very small number of units. The home ownership programs that are administered through the Community Development Block Grant Program do not require that prevailing wage be paid if they are community development block grant funded. However, those programs really can be divided into two categories. One is large-scale development, such as Poplar-Nehemiah and the current Cecil B. Moore sales housing. And on both of those ventures, there has been prevailing wage applied to a substantial portion of each of those ventures, although not required 86 6/8/99 - WHOLE COMM. - Bill 990221 by federal law. The other home ownership activity is the Home Start Program administered by the Philadelphia Housing Development Corporation. Again, prevailing wage is not required, but Home Start involves a relatively small number of packages of houses for rehabilitation, frequently 7 or 8 or 9 or houses per package during the 10 course of the year. So that is the applicability of prevailing wage at this time. Prevailing wage is also not required with respect to the home repair programs -- Basic Systems Repair Program and the Philadelphia Home Improvement Loan Program administered by the Redevelopment Authority.
It is not required, that is right. One point of information. The Mayor had scheduled a meeting between representatives of various City agencies and representatives of the building trades to discuss some of these issues several weeks ago, and a follow-up meeting is 87 6/8/99 - WHOLE COMM. - Bill 990221 scheduled for this Friday at the Redevelopment Authority to discuss how we could implement some of what is being proposed here, and I look forward to that further discussion. I think we can accomplish a lot. I just want to make two brief comments on the effect of this proposal. One is that if the prevailing wage is required for all of the programs across the board, then the home repair programs, Basic Systems Repair Program and the Phil Program, the Philadelphia Home Improvement Loan Program, really will change substantially. My understanding from the building trades representatives who met with me and others in the Mayor's office several weeks ago was that they were not concerned about these programs. My concern about these programs is that much of the participation, much of the contractor participation is by neighborhood-based, Philadelphia-owned, small repair firms. And if prevailing wage is required here, I can't predict, you know, who will be involved and who will not be involved. Maybe it will be the same proportion of Philadelphia-based firms. But the cost of each 88 6/8/99 - WHOLE COMM. - Bill 990221 unit of repair will definitely go up. The cost of delivering the program will increase, and fewer units of basic systems repair will be produced every year. That is just one effect of the program. So I am concerned about the repair programs. And, again, my understanding from Ed Keenan and the representatives of the building trades was that the repair programs really were not the focus here. My final comment with respect to the issue of employment of Philadelphia workers. I sat here exactly one week ago in the budget hearing on the Community Development Block Grant Program and heard expressions of dissatisfaction from Councilmembers about the level of Philadelphia employment associated with Section 19 108 finance downtown development ventures. The two ventures that were illustrated through statistics distributed by Kevin Brooks of my office both happened to be prevailing wage ventures. Now, does that mean that you can conclude that prevailing wage will mean 89 6/8/99 - WHOLE COMM. - Bill 990221 insufficient neighborhood employment, Philadelphia employment? No, you can't, but I know that this is a concern of Councilmembers and it's a concern of mine as well. And I hope that in the meeting that is coming up this week and in further discussion of this subject, we can set specific goals for Philadelphia resident employment on all City-funded work. I had attached an example of a housing development venture to my testimony. This is the Cecil B. Moore Phase I-A Sales Housing Development, and this is a development that was not required --
Mr. Kromer, I'm sorry. I don't have that attachment and I don't know if anybody else does. You don't have a copy of his statement?
You will see that the statistics on that venture are similar in some respects to what had been presented last week. 90 6/8/99 - WHOLE COMM. - Bill 990221 And so my expectation would be that Councilmembers, at least some of them, would want to see us do better. And so my hope is that at the meeting with the building trades representatives, we can discuss how to equal or better that performance while maintaining the prevailing wage standard that is being requested. So I think these issues can be addressed and I look forward to working with Council and with the building trades to implement a program that achieves the goals of the building trades but also provides for the neighborhood employment, Philadelphia resident employment that we all value. Thank you.
Mr. Kromer, can you give us your definition of prevailing wage.
I will defer to the experts on the definition. And if Gerry Murphy is here, I think he would be the best source of that definition.
Yes, The Chair recognizes Councilman Kenney. 91 6/8/99 - WHOLE COMM. - Bill 990221
I had requested earlier from the representative of the building trades who are going to testify in favor of this bill to give us a kind of history and a short synopsis of what exactly is prevailing wage, how it came about and what it entails.
And I think they are prepared to do that post the panel from the city.
Great, thank you. Mr. Hankowsky, are you prepared to testify?
Yes, I am. I have written testimony, which I've prepared, which I'd be happy to quickly go through. I'm William Hankowsky, President of the Philadelphia Industrial Development Corporation, and am here today to testify about Bill No. 22 990221. PIDC has reviewed this legislation, and we'd like to offer a few comments. First, we believe that this legislation would apply to PIDC and our related authority of 92 6/8/99 - WHOLE COMM. - Bill 990221 the Philadelphia Authority for Industrial Development, or PAID. I think, as you all know, PIDC and PAID serve as the City's economic development implementation agencies. In this role, we operate loan programs, a series of 11 7 industrial parks, and the conversion of 8 approximately 1,000 acres of closed-fence 9 installations. We deal with a myriad of clients 10 from small, family-owned businesses to Fortune 500 11 corporations. PIDC and PAID do or have received 12 appropriations from the City, entered into 13 contractual relationships with the City, and 14 operate under a legal authority either granted by 15 established by City ordinances. Hence, one, we 16 believe this bill would cover us. 17 My second comment is that PIDC and PAID 18 do directly contract for building or construction 19 work at various times. PIDC and PAID have no 20 objection to being covered by the City's prevailing wage requirements for such work that we directly undertake. I want to be clear that we are not opposed to this aspect of the proposed legislation. My third comment does deal with that 93 6/8/99 - WHOLE COMM. - Bill 990221 aspect of this bill which gives me some concern. I believe, as currently drafted, this bill could be interpreted to apply to those firms, businesses, or projects to which PIDC or PAID provide financing or land. These firms and their projects are implemented in a variety of ways. Sometimes they purchase specialized equipment which requires manufacture installation. Sometimes they use their own employees to undertake a renovation project that we might finance. I believe that allowing this bill to cover our clients' projects would be a detriment to the growth of businesses in the City. We'd like to allow the flexibility for the companies to execute projects the way they'd like. And in this regard, I propose that the bill be amended to include the following addition: "Provided, however, that where a City agency provides funding to a private individual or private entity which has legal title or will require legal title to the buildings or construction work on which the funds are being expended, the limitations of Chapter 17-107 shall 94 6/8/99 - WHOLE COMM. - Bill 990221 not apply." This amendment actually parallels language included in state statutes with regard to state loan programs -- for example, the Pennsylvania Industrial Development Authority Program -- and, therefore, would be consistent with our overall guidelines. Thank you. And I'd be pleased to answer any questions you might have.
Thank you. Maybe we ought to hear from all of the witnesses first. Mr. Feder?
Thank you, Madam Chair. Richie Feder, from the Law Department, Deputy City Solicitor. I'm here because I have expressed to the Administration and to Councilman Kenney's office two legal concerns with this bill. I believe I have solutions to those two legal concerns, but the Administration has asked me to testify about those two problems. And then I have an amendment here which I believe would rectify the problems I'm going to identify. The two legal concerns I have is that 95 6/8/99 - WHOLE COMM. - Bill 990221 this bill, as written, would have City Council and have the City directly regulate the affairs of various public authorities. Those authorities are generally considered State agencies -- the RDA, PAID, PHA are all State agencies. Although the City funds a lot of them and the City has contracts with them, they are entities of the State, and the City does not have the power to directly regulate entities of the State and tell them what to do. Traditionally what we have done in this instance, and Council has done this in the past, most recently with the imposition of the McBride Principles. What Council has done is rather than directly regulating the affairs of the authority, Council requires the City, in its contracts with the authority, to require by contract that the authority would provide for prevailing wage. And so then the City would not be regulating, through its police powers, the affairs of the authority, but rather, the City would be entering into a voluntary contract with the authority, and the authority could choose whether to enter into it or not, as a condition of accepting City funds. 96 6/8/99 - WHOLE COMM. - Bill 990221 And so what I have here an amendment which would -- it's virtually verbatim from the language that's used in the McBride Principles and has also been used in other ordinances adopted by this Council, which would require that the City, when it enters into a contract with one of the City-related agencies, it would require the City to include language in that contract which would require the City-related agency itself to impose prevailing wage. The other legal issue that we've identified is the problem that in some of these instances, the City-related agencies are actually spending federal dollars and may be subject to federal or State requirements, which may in some instances prohibit the use of our local prevailing wage ordinance. And so what we have done here is propose an amendment exactly the same as that used in the McBride Principals Ordinance, which would allow the City to waive the requirements of prevailing wage if applying the requirements would cause the City agency to lose the federal or State grants. 97 6/8/99 - WHOLE COMM. - Bill 990221 And so, with the Chair's permission, I'd like to hand up a proposed which accomplishes exactly what I've just described.
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam Chair. Just so the record's clear and the procedure that I'd like to follow this bill is clear. We will be hopefully taking some testimony today on this bill and then rescheduling the -- continuing the hearing on this bill to a date certain, which I believe Miss Diaz has indicated that June 16th is an available day, so I wanted to make sure that there was no effort today considering the request for additional conversation with OHCD and the concerns expressed by Mr. Hankowsky and the legal issues expressed by Mr. Feder that we do have some more discussion that we have to enter into. 98 6/8/99 - WHOLE COMM. - Bill 990221 But my question to Mr. Kromer is, and stipulating from your testimony that the home repair work is not something that is a concern, a major concern to the building trades in Philadelphia, but the construction or renovation of larger projects. What are the number of properties that trigger prevailing wage currently on OHCD projects, home construction, or renovation? Isn't there a number of properties that over a certain number, prevailing wage applies, and under a certain number, prevailing wage does not apply?
Yes. With respect to Community Development Block Grant-funded rental development, the requirement is triggered on ventures of eight or more contiguous units. There is another source of funding for our programs, and that is Federal Home Program. And with respect to development activities supported through Home, prevailing wage applies if more than 11 units are contracted together, either sales or rental.
I believe they could be 99 6/8/99 - WHOLE COMM. - Bill 990221 scattered as well with respect to Home, but the primary funding source is the Community Development Block Grant.
Part of the problem that has occurred and the reason that we're here today is that some developers take the literal language of this requirement and do it in a way to bypass intentionally the payment of prevailing wage. For example, on the eight or more contiguous properties, some developers will build five and then have a break and then build three and have a break and then build two more, and get to a to a large-scale development anyway but circumvent the spirit of prevailing-wage ordinances intentionally. And long ongoing discussions to try to get those developers to stop that process has been fruitless. The building trades, their representatives, people from the City Administration, to their credit, have attempted to have this conversation with the developers involved to no avail. Ad at that point in time, we wind up needing some vehicle, some legislative vehicle, in order to mandate it, to keep them from 100 6/8/99 - WHOLE COMM. - Bill 990221 trying to get around what we all intend to be a fair wage for this kind of work. So if we take the home repair program out of the mix -- and we can probably do that at some point with language in this bill -- and concentrate on what it is some of the developers are doing to circumvent prevailing wage, which is a readily accepted State and national issue, I think we'll get to where we want to be. I can tell you, this is not something that we necessarily wanted to do, but all of our efforts to discuss this and to negotiate this have gone for naught, and that's the reason why we're here today. I mean, do you recognize the issue or the situation that I'm talking about?
To the extent that developers are felt to be circumventing the requirements, we need to take that seriously because we are committed to upholding the requirements. And so at our discussion this week and later, I'd be very interested in reviewing the specific cases where that is felt to be true so that we can do something about it now. 101 6/8/99 - WHOLE COMM. - Bill 990221
Now, if you have a developer who acts in this manner, who requests a certain amount of money to accomplish a certain development project and then go through and does this kind of circumvention, the money that's saved in not paying the prevailing wage doesn't stay with OHCD, the Community Development Fund, it goes to the developer's bottom-line profit. Is that an accurate --
Well, I'd really like to look at specific cases with you because, as I said, the tax credit development cannot be structured in this way, and that's the biggest producer of housing in our program. The second biggest is the large-scale development, and that can't be structured in that way as well. That doesn't mean that we shouldn't take seriously the requirement, but we should be addressing that as a matter of our obligation to the federal government. So I would like to pursue that with you.
Okay, thank you Madam Chair. (Councilwoman Krajewski assumes Chair.) 102 6/8/99 - WHOLE COMM. - Bill 990221
Mr. Kromer, do you know what is the occasion now for this action? How old is the prevailing wage in the City?
The prevailing wage requirement has been in effect for some time as a federal requirement, which we are committed to upholding.
But the Philadelphia ordinance has been in effect for many years, hasn't it?