COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE ON FISCAL STABILITY AND INTERGOVERNMENTAL COOPERATION - - - - Room 696, City Hall Philadelphia, Pennsylvania Wednesday, March 31, 2004 10:00 a.m. - - - - RESOLUTION 040276 - Resolution providing for the approval by the Council of the City of Philadelphia of a Revised Five Year Financial Plan for the City of Philadelphia covering Fiscal Years 2005 through 2009, and incorporating proposed changes with respect to Fiscal Year 2004... PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL CLARKE COUNCILMAN FRANK DICICCO COUNCILMAN W. WILSON GOODE COUNCILMAN JACK KELLY COUNCILMAN JAMES KENNEY COUNCILMAN BRIAN O'NEILL COUNCILMAN JUAN RAMOS COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILWOMAN MARIAN TASCO - - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 I N D E X RESOLUTION 040276 JOYCE WILKERSON, Chief of Staff....... ROBERT DUBOW, Budget Director......... 15 JANICE DAVIS, Director of Finance..... 18 DEBRA KAHN, Education................. 46 PHILIP GOLDSMITH, Managing Director... 99 STEPHANIE NAIDOFF, Commerce...........130 PAUL DEEGAN, PIDC, PAID...............137 RAY ZIES, Finance.....................173 CHARLES MCPHERSON.....................189 DEBRA KAHN, Education.................238 3 03/31/04 - FISCAL STABILITY - RES. 040276
Good morning, everyone. Sorry for the delay. This is the public hearing of the Committee on Fiscal Stability and Intergovernmental Cooperation. I would ask Mr. McPherson to please read the title of Resolution 040276.
Resolution providing for the approval by the Council of the City of Philadelphia of a Revised Five Year Financial Plan for the City of Philadelphia covering Fiscal Years 2005 through 2009, and incorporating proposed changes with respect to Fiscal Year 2004, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority.
Thank you. Ms. Wilkerson. Good morning. Kindly identify yourself for the record and proceed with your testimony.
Good morning. My name is Joyce Wilkerson. I'm Chief of Staff to Mayor John F. Street. With me this morning 4 03/31/04 - FISCAL STABILITY - RES. 040276 at the table is Rob Dubow, the City's Budget Director; and Janice Davis, the City's Finance Director. I think my testimony has been distributed earlier.
I'll not read the whole testimony, but will read selected portions of it. Thank you for this opportunity to present testimony in support of the Administration's proposed FY 2005 through FY 2009 Five-Year Financial Plan. This is the 13th plan developed by the City. The City of Philadelphia is facing its biggest fiscal challenge in a decade. While I'll discuss in more detail the reasons for the fiscal challenge, there are two numbers that quickly explain our problem. Based on figures provided by the City's actuary, the FY '05 budget includes an increase in the General Fund's pension contribution of over 40 percent. At the same 5 03/31/04 - FISCAL STABILITY - RES. 040276 time, taxes and other local revenues are projected to grow at less than 3 percent. Clearly, this kind of imbalance between revenue growth and one major area of expenditure growth forces the City to take dramatic action in order to balance the Five-Year Plan. At the end of the unprecedented national economic expansion in FY '02 and the slow recovery have had significant impacts on the City's finances. Growth and per employee compensation costs exceeded the growth in tax revenues in FY '02 and '03 due to the effect of the 2001 recession and slow recovery. New and unanticipated homeland defense expenditures, continued increases in criminal justice costs, and the formation of the City's partnership with the Commonwealth to avert financial crisis at the School District also combined to produce consecutive declines in the City's fund balance during FY '02 and FY '03. In addition, during FY '02-FY '03 ordinances were passed that instituted fixed and potentially accelerating wage tax 6 03/31/04 - FISCAL STABILITY - RES. 040276 reductions. While these tax reductions benefit long-term economic health of Philadelphia, they complicate the task of preparing a balanced budget and Five-Year Plan while maintaining services that are essential in these difficult economic times. The jobless economic recovery and continued weak stock market are compounding these negative financial effects further in FY '04 and throughout the life of this plan. Tax receipts are projected to grow slower than the rate of contractual salary increases for the third year in a row in FY '04. The City's required contributions to its pension fund are expected to increase by $437 million over the life of this plan when compared to last year's Five-Year Financial Plan. Arbitration panels awarded substantial increases. The fire fighters arbitration panel awarded a 37 percent increase in the health and medical benefits to fire-fighting officers. By the end of the contract, the health benefits for each fire 7 03/31/04 - FISCAL STABILITY - RES. 040276 fighter will approximate $1,000 per month per employee. As a result of these and other factors, in preparing the FY '05-FY '09 plan, the Administration eventually faced a $227 million projected deficit in FY '05. The City has taken a four-prong approach in crafting this Five-Year Financial Plan, and I'm not going to step through the details, but the plan turns essentially on a strategy of increasing revenues through changes in the tax structure. The Administration also proposes approximately $27 million in additional revenues from other governments. Throughout this plan are a host of fee increases. The City last adjusted its fees around 1991-1992. This plan proposes approximately $6 million in fee increases in order to permit the City to more adequately reflect its cost to providing services. And as you'll hear in the coming weeks, those fee increases range through virtually every department in the City. Some are to be paid directly by businesses and residents in 8 03/31/04 - FISCAL STABILITY - RES. 040276 Philadelphia. Some, like the increase in the EMS fee, will be reimbursed through insurance.
After the Administration identified additional revenues, we were still left with a deficit of about $35 million that we propose addressing through cuts in expenses within the Administration. While we were putting together this Five-Year Plan, the administration strategy has had four basic components. The first is providing resources to stimulate economic growth in the City, and we do that through two different strategies. One is by making strategic investments in the City. And the Mayor has articulated in his budget message a $500 million pool in order to stimulate economic growth. The second part of the Administration's strategy turns on initiating a number of tax reform provisions. And I'd like to turn to of my testimony that begins to step through what we think are particularly critical components of the Five-Year Plan. Drawing on the work of the Tax Reform Commission, this Administration 9 03/31/04 - FISCAL STABILITY - RES. 040276 proposes to adopt a number of the initiatives. The first is this Administration proposes establishing accurate land and structure values for all property parcels. This will provide more comprehensive and accurate data collection for the real estate tax assessment process. This plan includes $5 million in funding in FY '05 for the Board of Revision of Taxes to carry out this recommendation. The Administration also proposes to eliminate fractional assessments. The BRT will attempt to value all properties at a hundred percent of market value. The administration BRT's proposal to implement this recommendation in FY '06 following a pilot establishment of more accurate land and structure values. This proposal would entail adjusting real estate tax millage in future years. One of the more controversial proposals of the Tax Reform Commission is a land value tax. This Administration proposes to implement the land value tax over the 10 03/31/04 - FISCAL STABILITY - RES. 040276 10-year period proposed by the Tax Reform Commission beginning in FY '06. The Administration also proposes to adopt a single factor or apportionment instead of basing the net income portion of the business privilege tax on property, payroll and sales in Philadelphia, the tax would be amended to rely solely on sales in Philadelphia. Although this change is projected to cost the City $13 million annually, it will eliminate the current penalty for businesses that operate and invest within Philadelphia. This change is proposed for FY '05 in conjunction with the proposed increase in the parking tax from 15 percent to 20 percent in order to, in part, offset the cost. The final proposal from the Tax Reform Commission that the Administration proposes to adopt is a shift to January 1st implementation of changes in wage and earning tax rates. Changing the effective date of reductions in the wage and earning tax rates from July 1st to January 1st, beginning in 11 03/31/04 - FISCAL STABILITY - RES. 040276 FY '05, would remove the compliance burden for businesses that are required to file annual earnings tax reconciliation forms. In addition to modifying the City's tax structure, the Administration is committed to continuing its tax reduction program. 8475 percent for non-residents beginning January FY '05. If, however, the State does implement the Governor's proposed State-wide tax reform, the City would accelerate its tax reduction program, and the resident rate would drop below 4 percent. 9 mills. Since the beginning of this Administration, the tax reduction program has returned approximately $243 million to taxpayers. This plan calls for reducing the 12 03/31/04 - FISCAL STABILITY - RES. 040276 gross receipts portion of the BPT by 58 percent and reducing the wage tax by 4 percent from their FY '95 levels when the 5 reduction program began.
6 These reductions will provide 7 Philadelphia taxpayers with an additional 8 $375 million in relief through FY '09, 9 bringing the total reduction from the 10 beginning of the Street Administration through 11 FY '09 to over $600 million. If State-wide 12 tax reform is implemented, the resident wage 13 tax would be reduced by approximately 26 14 percent. 15 In addition to the tax reform, the Administration continues to support NTI. NTI continues to be a critical component of the City's strategy. This Five-Year Plan provides resources for cleaning vacant lots. It provides resources for better mobilization of City services in Code enforcement. It provides adequate resources to remove graffiti, litter, and take care of other blighting influences on the neighborhoods. I want to skip down to . 13 03/31/04 - FISCAL STABILITY - RES. 040276 In addition to providing the economic backdrop through tax reform and strategic investments, this Five-Year Plan supports what the Administration feels are core City services. Unlike past years, this Administration has spent inordinate time going over the City's finances. The Mayor has met directly with most City departments. The departments were challenged to identify with clarity what the core missions were for each department. This budget, we believe, provides adequate resources. The Administration continues its support for Operation Safe Streets. There is no reduction in that initiative. Although there are, as you will hear when the Police Department testifies, any number of changes that are being made in the Police Department in order to cut its cost of overall operation, this plan could not have been developed without tackling some of what have become longstanding problems for this City. This Five-Year Plan proposes a number of restructuring and right-sizing initiatives 14 03/31/04 - FISCAL STABILITY - RES. 040276 that are essential if we're going to be able to survive into the future. This Five-Year Financial Plan proposes changes in the deployment in the Fire Department to reflect the changes in the demand for service. The Five-Year Financial Plan also calls upon the City to take a hard look at how we deliver services in the area of recreation in the City. And we'll be happy to answer additional questions. This Five-Year Plan makes several strategic investments that are new for this year. The plan invests approximately $1 million in order to support initiatives to limit domestic violence. As a result of the work done by the 21st Century Forum, the plan also calls for increased investments to the Inspector General's Office. The City compared its support for the Inspector General with that in other cities and has increased the support for the Inspector General Office. I won't go into anymore detail. The assumptions that support the Five-Year Plan are outlined on . And with that, I'll 15 03/31/04 - FISCAL STABILITY - RES. 040276 end my testimony.
Thank you. Each Councilmember on the first go-around will be given minutes for 6 questioning and then we'll proceed on the 7 second go-around. 8 Ms. Wilkerson, how is the 9 Administration proposing to deal with the Act 10 46 issue with regard to eliminating fractional assessments?
We understand that there will need to be legislative changes. When we increase the assessment, we'll have to decrease the millage that requires that there be legislative changes in Harrisburg, and we'll be working closely with the Delegation in order to address that issue.
What is the Administration's position on making technical changes to the real estate transfer tax?
We support the 16 03/31/04 - FISCAL STABILITY - RES. 040276 recommendations that were made in the Tax Reform Commission for closing some of the loopholes in the transfer tax.
Well, I know you support it. Is there a reason why we haven't received legislation to close the loopholes?
The Administration is going to be transmitting additional legislation within the next several weeks. As you go through the Five-Year Plan, there are a number of revenue-generating initiatives and other items that are going to require City Council legislation. We hope to be transmitting that legislation within the next few weeks.
Thank you. Can you tell us what the savings to the City of delaying the wage tax reduction until January 1st from June the 30th is?
I believe it's about between 5 and $6 million. Mr. Dubow is getting the exact number.
The 17 03/31/04 - FISCAL STABILITY - RES. 040276 Administration is proposing to increase --
The 6 Administration is proposing to increase the 7 Board of Revision of Taxes budget by 8 $5 million for the reassessment of properties. 9 Why aren't you taking this funding out of the 10 productivity bank? 11 I think we have about $30 million, do we not, Mr. Dubow, in the productivity bank?
Yes, we do. It's an interesting idea. We will explore that. A portion of the funding goes towards salaries and that portion can't go through the bank, but there is also a portion that's for contracts and for equipment. So we will look at that. That's a good idea.
How much do you think -- I'm just trying to calculate as we go along.
I think there's probably about four and a half million that would be 18 03/31/04 - FISCAL STABILITY - RES. 040276 productivity bank eligible.
All right. Ms. Wilkerson, can you explain about the self-insurance on health and medical benefits? Explain what the Administration means by self-insurance.
And I would appreciate it if she could tell us how the program would work, what employees would be included in it. We're actually in the dark on this entire issue.
Good morning. Self-insurance as we envision it -- and I would like to preface my comments by saying it's one of several options we're looking at for bringing down the cost of providing medical benefits to the employees. Self-insurance as we envision it puts the City in the place of the insurance company in bearing the risk associated with providing the benefit. So instead of paying 19 03/31/04 - FISCAL STABILITY - RES. 040276 to the insurance company a risk factor, the City assumes that risk without the risk factor. The immediate savings are that risk factor that's calculated in. There would be additional savings related to any profit or reserves that the insurance company would be setting aside. The way it would work -- and there are several models that could be employed. Either the City becomes the full service administrator and insurer, in which case we handle all decisions related to the level of benefits, what benefits a person receives, and we establish those networks of doctors and hospitals. There is an interim level where we would not handle administration but would, in fact, create the networks of doctors and hospitals. And there's a third level where we would hire a third-party administrator such as Blue Cross and have access to their networks and they would provide administration. Your level of savings depends on the amount of work that's involved and a direct City 20 03/31/04 - FISCAL STABILITY - RES. 040276 participation. But those are still items that we're investigating.
And these are things that are subject to negotiation with both AFSCME and the other unions. As you know, we have unilateral control over exempt employees but have to bargain and so have already begun talking and will continue to do so in the coming months.
So would this be all employees or just the City-administered plan?
It's anticipated that it would eventually be for all employees.
Who would make the determination if a medical procedure is covered or not?
It, again, would depend on which level of participation in the administration the City chose. If we left administrative decisions to the third-party administrator in a case where it's Blue Cross, that third-party administrator makes those decisions. If we bring full administration 21 03/31/04 - FISCAL STABILITY - RES. 040276 in-house to the City, then the City's Office of Insurance would be responsible, using the same standards and guidelines that govern the insurance industry.
To the extent that we're providing insurance for retirees at this point, they would.
So we don't know who would actually administer the plan?
That's a decision the City would make as we progress and determine what level of savings we're willing to go after.
You know, there are an awful lot of "ifs" in your response.
That's why we put the minimum amount which makes an assumption that there would be a third-party administrator who would, in fact, have a network already in place. The level of savings does not go the 22 03/31/04 - FISCAL STABILITY - RES. 040276 full gamut.
Let me ask you a question. Did the City attempt to do this once before several years ago?
It's my understanding that the City has never been self-insured.
I think it may have been and it was not at all successful.
We got information from the labor relations guys, and they said we've never been self-insured.
Can we get back to you on that information that we have?
Thank you. I don't want to dominate. The Chair recognizes Councilwoman Tasco. Before you ask your question, Ms. Wilkerson, time is not in our favor as you well know. So any legislation that we spoke about earlier should be sent to Council as promptly as possible so that we would have 23 03/31/04 - FISCAL STABILITY - RES. 040276 ample time to consider it.
Have you done an analysis of all the possibilities for becoming self-insured Plan A, Plan B, Plan C, and what the cost savings would be for each of those plans?
We've not gone into the most extreme cases. We have looked at the small we-go-to-Blue-Cross type of situation, and I think we've anticipated $5.6 million.
Are there other models around the country that you have looked at? What other cities are self-insured?
The City of Houston is self-insured, School District in New Orleans is self-insured. The self-insured model is a model that became very popular in the '80s and then again in the '90s and there are several large cities that -- Birmingham, Alabama, is self-insured. It's not a novel concept. And with the third-party administrators who are as sophisticated as they are now, it is almost a seamless transition from being insured to 24 03/31/04 - FISCAL STABILITY - RES. 040276 being self-insured, particularly when you use a third-party administrator such as a Blue Cross that has their own network. There are other health delivery mechanisms that we are looking at and are discussing, one of which would be a health reimbursement arrangement that would not necessarily change anything about the benefits that are being received but just the manner of funding them. So we are looking at many different ways to get to the same savings. The bottom line is, we have to find a way to maintain those healthcare costs and still provide a benefit that's worth having for our employees. The usual method is to reduce the benefits. We're attempting to find a model that would not reduce the benefits but would reduce the cost. And that's been our aim in looking at self-insurance. It's attempting to maintain benefits.
Is that something that we would have to vote on, or is that once we pass the budget you all just go 25 03/31/04 - FISCAL STABILITY - RES. 040276 out and decide that you're going to implement this self-insurance program if we approve it in the budget process?
A lot of it will depend on negotiations with the employees, and I don't know legislative requirements.
I'll ask the Law Department to do a memo on which aspects, if any, would have to be approved by City Council under the various scenarios that the Finance Director has described.
But if we accept the Five-Year Plan and budget, we're in essence approving the concept?
I will ask the Law Department to put something in writing. I don't want to speculate on that.
I'd certainly like to know that please before we get too far along with this, given the nature of health insurance and people's concern about who makes the decision or what service or procedure is approved and given problems in the past. I have some concerns about that. 03/31/04 - FISCAL STABILITY - RES. 040276
We can provide additional information on the implementation, what's involved in the implementation under the various strategies, as the Finance Director said, they vary dramatically. The health reimbursement would be almost indistinguishable from what we have presently. A self-insurance, depending on which strategy we use might have a larger impact. But we will provide a report that identifies what the differences in implementation will look like. And I'll also have the Law Department do a memo that would outline what control City Council would have on deciding which strategy the City adopts.
I think it's important we get that prior to passing this budget because if it's not clear, if I'm voting on this when I vote on the Five-Year Plan and the budget that I approve this, then I'd like to know that before we come to a vote and in time for us to have a discussion about it.
This is one of the 27 03/31/04 - FISCAL STABILITY - RES. 040276 most critical challenges that the City faces. The 37 percent increase in the fire fighters health coverage cost has imposed enormous strain on the budget, and we are not in a position to continue doing things as we have been doing. And I think that's the theme that's recurring throughout the Five-Year Plan. We're going to have to make some fundamental changes in how we provide the services or support that we've done over the years, and health benefits is one of those areas but it's only one of the areas where the Administration is proposing a fairly dramatic change.
And I think I'm open to a discussion about that except that we have such a short window of time to pass this budget. If we're going to make drastic changes in how we provide access to healthcare to employees and even to myself, I'd like to know what that is and how it's going to work and all of that before you vote on this budget and Five-Year Plan. And given the short length of time we have, I think it's important 28 03/31/04 - FISCAL STABILITY - RES. 040276 for us to look at that. I had one other question. In your assumptions, you assume -- you know, the last week or two we've been talking about PGW -- and you assume that you're going to 45 million and the million. And given the financial 8 condition of PGW, are you still going to make 9 that assumption in your Five-Year Plan? 10
We're continuing to 11 assume that in the Five-Year Plan. I think we 12 all understand the challenges in front of the 13 company. The Board of PFMC and the commission 14 staff as well have been working with PGW to 15 try to develop a more aggressive strategy for 16 its collections. We're doing that on a number 17 of fronts, and I think that's then brought out 18 in the testimony on different matters over the last several days. But at this point, we're still maintaining an expectation that we'll get the $18 million next year and that the 45 will be repaid.
And what happens if that -- what's the downside if that doesn't happen? 29 03/31/04 - FISCAL STABILITY - RES. 040276
If that doesn't happen, then we would be in a position of probably having to amend the plan and, as with any of the other initiatives that don't materialize, we will be back here with additional cuts that will have to take place or additional strategies for generating revenue.
Well, given the present scenario, what hope do you have for PGW that they will come out of their financial straights? I mean, the collection is one thing, and we've talked about that for years. What other strategies do you have in mind to figure out what to do for this company financially?
Well, the company is looking at not just collections, we're looking at trying to increase our share of the LIHEAP and Crisis money. The company is looking at trying to increase the diversification in its customer base. One of the biggest challenges has been the increasing reliance on residential customers as opposed to commercial 30 03/31/04 - FISCAL STABILITY - RES. 040276 and industrial customers. So the company is taking a hard look at its assets trying to figuring out are there better ways of using some of those assets in order to decrease the dependence on residential customers. We're also looking at the lines of business in the company. PGW provides services that are not provided by other utilities, things like equipment repair, appliance repair, and some of those other services and are taking a look at whether we can continue to afford those lines of operation in the future. So in addition to --
And that's been on the table for a long time. I think that what happens with PGW, the decision to act on a lot of those measures take so much time because of the bureaucracy involved. What can the Administration do to give the management at PGW the wherewithal to make those recommendations so they can look at them now and make those recommendations? I mean, yesterday during the course of the hearings there was a discussion about 31 03/31/04 - FISCAL STABILITY - RES. 040276 some aspects of the company that probably don't need to exist. And if they look at that, given the scenarios that were raised yesterday, maybe they ought to just be eliminated. And so I don't know if the management feels that they have the authority to move in the direction -- and this is not from any conversation I've had with anybody, but it just takes so long to move from A to B, and I don't know what the problem is. I think some assurance or some push from the Administration to say it's okay to do these things might make them move a little faster in cutting some of the expenses that they need to cut.
Janice Davis, I sit on the Board, the Law Department attends Board meetings and we are working with PGW to try to focus better. Over the last several years, I think there have been a number of initiatives that have pulled PGW in a lot of different directions. I think that in the coming weeks you're going to see the company focused on some very specific initiatives that will 32 03/31/04 - FISCAL STABILITY - RES. 040276 support increasing the revenues in the company, but also cutting expenses. We are going to be making a decision about the appliance repair and some other lines of business. We're going to be taking a hard look at some of the neighborhood offices and how it is that we provide services with an eye towards shrinking the cost for the company.
Thank you, Madam President. Good morning, Ms. Wilkerson, and thank you for your testimony. The Five-Year Financial Plan is required by PICA. It's also a good tool for fiscal management. But it also represents actually a blueprint for economic growth or a lack of a blueprint for economic growth. And in the Mayor's budget address and in the Five-Year Financial Plan document, it seems that the Administration asserts that the $227-million deficit proposed for next year is 33 03/31/04 - FISCAL STABILITY - RES. 040276 the result of flat revenue growth and that flat revenue growth is a result of bad economic times nationally. To what extent is that flat revenue growth a result of the Administration just turning its public policy focus to economic development the second term rather than the first term?
I'm sorry, the last part of your -- to what extent is the --
Flat revenue growth a result of the fact that the Administration is just turning its public policy focus to economic development?
I think that the projected deficit is composed of a number of things, it's not just what's going on in the national or local economy. Probably the bigger stresser over the last several years has been what's happened with the stock market. That more than anything has really rattled the City's finances. I think that this Administration has been making strategic investments in order to grow the economy in a 34 03/31/04 - FISCAL STABILITY - RES. 040276 number of different areas. What we hope to do during this administration, though, is become clearer about that. The Mayor has proposed an economic summit as a way of beginning to develop a clear strategy for growing the economy. We've got to do better. We have, I think, done a good job, a very good job retaining companies in Philadelphia, but we haven't seen the growth that we want to. So with the economic summit with the tax initiatives that we've adopted from the Tax Reform Commission, with those combined strategies, we would hope to see --
Clearly business retention is not going to do the same thing as business and job creation. And I notice that in your testimony part of what you chose to delete is discussion of that $500 million economic development investment fund. Can you describe, when you talk about an economic development investment fund, what you mean by economic development?
What we mean by the fund is -- 35 03/31/04 - FISCAL STABILITY - RES. 040276
What the Administration means by economic development is growing businesses and jobs within the City.
What we plan to do is have -- we plan to do it in a couple of ways. One, we have proposed the tax reform changes in order to --
I'm speaking specifically to the economic development investment fund with that half billion dollars that we basically would be mortgaging our future for, what do you mean by economic development and how we accomplish it with that half billion dollars?
That half billion dollars would be focussed on capital investments. The first $125 million, we propose generating that from using the reserves currently in the Water Revenue. We 36 03/31/04 - FISCAL STABILITY - RES. 040276 would --
My question is, how do you achieve business creation from that half billion dollars?
The initial focus will be in laying infrastructure to provide support for development. It's a strategy of not "build it and they will come," but "they need this in order to build it." We're looking first at water and sewer-related infrastructure in those areas that the Mayor has identified as creating the new river City, the miles of waterfront. 15
I understand the description of it. I yet cannot understand how it's going to create one business or one job. Similarly, in discussions this week I asked a question regarding neighborhood transformation initiative and whether that actually has led to the construction of even one new unit yet. If I made the statement that the Neighborhood Transformation Initiative has not 37 03/31/04 - FISCAL STABILITY - RES. 040276 led to one new residential unit, would that be a fair statement?
Where are the units that have been developed as a direct result of the Neighborhood Transformation Initiative?
I think one of the clearest -- what neighborhood transformation, if nothing else, has allowed the City to do is to acquire land. Having control over land is essential for development. And if you look at what has slowed the growth of development of units in the City of Philadelphia, it's been the City's inability to fund --
Ms. Wilkerson, the reason I use that as the context for this discussion or this questioning is that if we spent tens of millions of dollars, if not hundreds of millions of dollars, on preparing land for neighborhood transformation and it has not led to necessarily one new unit yet and it definitely has not lead toward an 38 03/31/04 - FISCAL STABILITY - RES. 040276 improved economy within the City and new businesses and jobs, to what extent should we be trying to invest a half billion dollars again in preparing land and infrastructure improvements in the same, "Clear it and they will come" type strategy. And what do you have planned for the half billion dollars that's going to directly lead to business and job creation? Because that's why I believe we have flat revenue growth beyond the fact that we have bad economic times nationally.
I don't think it's accurate to say that NTI is not going to result in any --
And some of that is simply because of the timeline associated with acquisition and development. That is a multi-year process, and the Administration didn't get authority to issue bonds and couldn't begin the land acquisition process until the last one or two years. And so to say that the NTI dollars expended has not 39 03/31/04 - FISCAL STABILITY - RES. 040276 resulted in any --
-- I think is inaccurate. I think that but for the NTI dollars there are tens of millions of dollars in housing development that could not happen. The City did not have the resources to acquire the land; and without the land, the development cannot happen. That we haven't cut ribbons has more to do to the fact that it takes --
No, it has not happened historically in this City in these kinds of neighborhoods.
Well, I'll ask the question I asked the other day, too. Since NTI, has housing production increased, decreased or stayed the same, 40 03/31/04 - FISCAL STABILITY - RES. 040276 particularly since you're using the same type of strategy for the economic development investment fund? "Clear it and they will come." And after spending what would be probably close to $800 billion, you still have not shown me at least directly how you will produce housing units, businesses, and jobs.
I don't know how to answer the question. What we intend to do with the money is, for example, at the naval yard the development there is slowed, in part, because they've not the resources to make the infrastructure investments. And I can have the people from the Commerce Department, or they can do it in connection with their testimony, talk to you about what the plans are for the naval yard and how those dollars link to economic development.
The question for me is whether it is a direct link or indirect 41 03/31/04 - FISCAL STABILITY - RES. 040276 link? And what I'm seeing is the spending of hundreds of millions of dollars without a direct link to housing production and without the direct link to the creation of businesses and jobs. And that's what contributes to flat revenue growth. I'll ask you another question. In testimony before the Commerce and Economic Development Committee last week, the National Community Reinvestment Coalition cited a study that said that Philadelphia was dead last among the 100 largest metropolitan areas in terms of small business lending to economically distressed areas. Can you explain why that would be?
So you have really no answers regarding economic development this morning?
The Chair recognizes Councilman DiCicco. 42 03/31/04 - FISCAL STABILITY - RES. 040276
Good morning. In your testimony, Ms. Wilkerson, you speak about the proposed plan for a scholarship program where the City will be putting in $4 million, the School District will be putting in $6 million, which I think is a very admirable plan. My concern is, though, we're asking Community College -- I think you're cutting their budget by $750,000?
I find that to be somewhat contradictory to what you're doing here. If you're saying that you want to provide opportunities for people to go to college, why would you be cutting our contribution to the City Community College at the same time? Doesn't that mean that in a sense that the students who will be going to Community College by way of tuition more or less will be helping fund that program? It's kind of like borrowing from Peter to pay Paul, isn't it?
I think it's 43 03/31/04 - FISCAL STABILITY - RES. 040276 important to go back over time. The Administration over time has increased its commitment. This does reflect a retrenchment in the dollars invested. We have had to make a number of difficult decisions, have decided that our proposing that the last dollar scholarship is a more effective strategy for increasing college opportunities for young people in the City. But this is only one of the very difficult decisions that we had to propose in trying to craft this budget.
Councilwoman Tasco just was whispering in my ear, didn't we have a responsibility to maintain and fund Community College?
There is a mix, a statutory mix. You want to talk about what the formula is?
I think there's a State mandate or something that we --
There's a formula of State, City, and tuition contributions which really has not been adhered to by any of the 44 03/31/04 - FISCAL STABILITY - RES. 040276 parties in years. I think it's a third, a third, a third.
Could you explain that. You said no one has adhered to that?
I think the balance has not been a third, a third, and third in quite sometime in part because Community College had a fund balance that related to the amount that we contributed. So the fund balance was part of what we viewed as our contribution.
So we were not even putting our third in because there was a surplus?
Correct. Since this Administration's come in even after the change this year, we've increased our annual contribution by over $2 million a year.
I can get back to 45 03/31/04 - FISCAL STABILITY - RES. 040276 you on that. I don't know that it's --
That third of the City's contribution from time to time, I assume, was not going to the Community College; did that money stay in the General Fund? I mean, where does that money come from? Where would that third --
Do you know what the value of that third would be in a typical year?
Who would be eligible for this scholarship program? Would it be eligible just for public school students 46 03/31/04 - FISCAL STABILITY - RES. 040276 or would it be eligible to even non-public school students.
I'd like to have Debra Kahn come up. She's Secretary for Education and she's been dealing with the public school/private school issue.
I fully support education. I think that's one of the areas where we need to always put more resources into. I think that when people are more educated, we have less problems. So I'm not condemning this program, I'm just trying to figure out how the money's being moved around and the cut in Community College at the same time we're offering scholarships. I'm a little bit concerned about that. Identify yourself for the record.
Deborah Kahn, Secretary of Education. I believe you asked, Councilman, who would be eligible for the program. As it's currently structured, it would be all students who graduate from any of our public and charter high schools.
So non-public 47 03/31/04 - FISCAL STABILITY - RES. 040276 school students presently would not be eligible?
At the present time, they are not included in eligibility the way the program was originally designed.
Is there a legal reason for that or is that just a policy?
There's no legal reason. Let me give you some of the background for how the program came to be. It was really originally an idea that had been proposed by Congressman Chaka Fattah for what I understand to be for several years now. And the real rationale and the driving force for the program was really to increase the college going rates among our population. And I think this really ties in, I would say, to the economic development issues here because in my mind education and economic development really need to be linked. And Philadelphia's college going rate has traditionally or the percentage of the population that holds a college degree has historically been low. I think it's 48 03/31/04 - FISCAL STABILITY - RES. 040276 around percent now, and that's much lower than a lot of our competitor cities. And among public school students, that rate is particularly low, although I will say I don't know that we have the best data available, but we think it's somewhere in the 30 percent range just going. So the real driver here -- I know a lot of reasons for why students don't go on to college, but economics is certainly one of them. And the other is about expectations. And this program is very much about increasing expectations for public school students so that they can go to college. So we wanted to be really the first City in the country to put into place for our public school students really a universal program for all graduates as both an incentive and a reward and an enabler for public school students to be able to go onto college and to get additional funds which will really help them succeed in that critical first year.
Thank you. I don't want to get into the separation of 49 03/31/04 - FISCAL STABILITY - RES. 040276 church and state, but there are probably just as many -- I'm going to use the parochial schools as an example. There are probably just as many non-practicing Roman Catholics who attend parochial schools in this City of Philadelphia as there are practicing Roman Catholics. By that, what I mean is -- and you've probably seen when you drive by many of the parochial schools, there are signs on them saying we have saved the taxpayers $60,000 annually, a million dollars annually, which in fact they are doing. I know in my district, but for the fact that there are -- were it not for the non-Catholic students, many of those parochial schools would be closed which would be an additional burden on the Philadelphia Public School system. These are children whose parents I would believe are taxpayers in the City of Philadelphia. So they're basically, if this program moves forward and excludes non-public school students, those students and their parents are basically cut out of the opportunity to even qualify for a scholarship. And I don't know how I as a 50 03/31/04 - FISCAL STABILITY - RES. 040276 District Councilperson or any other Councilperson I think in the City can go around explaining to the taxpayers that because they choose -- and I understand choose a key word here -- to send their children to a non-public school that their tax dollars which will be funding the scholarship programs will not be available to them. I think that's a very slippery slope we're going down. I think it's going to create a lot of concern. Many of the people who leave this City of Philadelphia leave because of the quality of education. And we can debate whether South Jersey has a better system than Philadelphia. I don't think it really does, but there's that perception. I think this just encourages people, gives them another reason to leave. And I think that if we were to open this program, assuming it goes forward, to all Philadelphia students, I think we can keep a lot of those families from leaving. So I think when you talk about economic development and how the school system 51 03/31/04 - FISCAL STABILITY - RES. 040276 and educational system goes hand in hand with economic development and neighborhood revitalization, it's clear that many of our neighborhoods because of the loss in population had a lot to do with the public school system or the perception that it wasn't good. And here it is again, that we're just going to fire another shot across their bow and say, you know, "You're out of it. You don't qualify." And again, I know my district, and I think it's probably across the City. I would venture to say that 50 percent or close to 50 percent of the students who attend the parochial schools in my district are non-practicing Roman Catholics. They go there because parents believe they're going to get a better education. Again, that's debatable. But if those schools and every time that parochial school closes up, it's an additional burden on the taxpayers of the City of Philadelphia because we now wind up increasing our population with the same basically amount of money, or less in some cases, to provide a 52 03/31/04 - FISCAL STABILITY - RES. 040276 decent education. I do have other questions, but my time is up at the moment so I just wanted that on the record. I think we need to talk about that going forward. Thank you.
And, Councilman, I certainly want to echo your sentiments on this issue. With the scholarship, is that for one year?
I think this is an issue that we're certainly going to talk about.
Because many of us are not really in favor of this.
Let me ask just a general question. And I hope I didn't miss 53 03/31/04 - FISCAL STABILITY - RES. 040276 something before I got here, and I apologize. The PICA staff that has to get involved with the Five-Year Plan, have they signed off on it? Has there been discussions with them? That there have been differences that you're working out? I just want to get an idea where you are with the PICA staff, because I think this is the most serious year by far since the PICA was put in place by the State.
I'll ask Mr. Dubow to respond in detail. We meet on a weekly basis with Mr. Vignola and members of his staff throughout the course of the year reviewing the City's finances. There have been a number of conversations with them about the Five-Year Plan. They've raised concerns about the gas company. They've raised concerns about revenue projections. And, Rob, you can respond to some of the details.
Yes. We have been meeting with PICA. We've briefed them on the 54 03/31/04 - FISCAL STABILITY - RES. 040276 plan. They have copies of the plan. They sent a letter to the Mayor and to Members of Council expressing three specific areas of concern. One we've talked about this morning already is the PGW payment. We have it out in '04, the $18 million payment, then coming back in '05 and for the rest of the year is in the plan and we assume that we receive the $45 million loan repayment. They --
They classify that in the legislator that they sent us, "unlikely revenues." They also put into category some of the new legislation that the plan assumes from the State, specifically on reimbursements for Department of Human Services and the prison system and police. They also thought that our property tax assumptions were overly aggressive. In all, they said that they saw about $300 million in either aggressive or unlikely revenues.
I didn't realize the morning newspaper had already done 55 03/31/04 - FISCAL STABILITY - RES. 040276 a story. I picked it up when I left the house and haven't had a chance to read it. So I'll look at that. I just wanted to know what the give and take was at this point with the agency. I just have a couple of questions on the first round. And one involves the highway patrol reimbursement from the State and the other involves defined contribution plan on the pension. So with the reimbursement of 5.6 billion from the State, is that in the Governor's budget, the reimbursement for highway patrol?
At some point, do we keep it in the budget if it doesn't make it in the Governor's budget? I believe his budget is a few months old now.
That is one of the items that they include in their unlikely revenues. Unfortunately, the way the process works, their budget gets concluded after our budget 56 03/31/04 - FISCAL STABILITY - RES. 040276 does, so we won't know by the time our budget is done whether these items wind up in the Governor's budget. One of the things that we've told PICA is that we will share with them and share with Council too a list of cuts that we would have to implement if these unlikely revenue items don't come through.
The State usually gets worried about those, from times past. I'm kidding. But we will have a judgment a month earlier as to whether we collectively think there's a good chance, let alone any chance, of these monies getting in in the following month of June. It makes it a lot more difficult with nothing at this point positive coming from the State. I've heard these monies mentioned now -- it's my seventh term, and it's come up at least once, if not more, in each of those terms and we've never gotten a dime. It was actually even before Councilman Rizzo was elected, if anybody can believe that. The other is, shifting from the 57 03/31/04 - FISCAL STABILITY - RES. 040276 defined benefit pension plan which we all are in now and it has always been the history of the City to have a defined contribution plan which would be more like a 401K in the private sector, 457 in the public sector. First, could you tell me as part of the general description of it whether, even if it were implemented, whether it affects current employees?
It would not impact current employees. They're already vested in a plan, and we would not be taking a benefit from them.
So could you just define for the record what it involves if you were able to do it?
What it involves is instead of guaranteeing employees a benefit at retirement, we would guarantee that employee that we will make a distribution of a certain amount every year. This is a shift that is occurring across all funds, not just public funds but also private funds, as the cost of providing defined benefit plans continues to 58 03/31/04 - FISCAL STABILITY - RES. 040276 escalate. It's favored among younger employees because they have the flexibility of directing their investments and they're portable under most circumstances; whereas, your defined benefit isn't portable.
And what savings do you anticipate in the Five-Year Plan if you're able to do this?
Thank you. The Chair recognizes Councilman Clarke? Is he here? Since he's not here, the Chair recognizes Councilman Ramos.
Thank you, Madam Chair. I made a commitment when I came to the City Council that I would not learn how to be a representative of the people of Philadelphia passively but that I would learn actively. And I want to say that concerning the scholarships that were referred to just a few 59 03/31/04 - FISCAL STABILITY - RES. 040276 minutes ago and the concerns of some of my colleagues here that it was very well documented in our City's papers a few weeks ago that I used my not learning passively but to learn actively got involved in trying to find a way that we can settle the disbursement of the scholarship money that would include non-public school students. And to that goal, I convened a meeting of a prominent business leader, the Archdiocese, Congressman Fattah, Deborah Kahn and myself. And at that meeting we agreed that we would work very hard to make these scholarship dollars available to all the high school children of this City. Since then, I have been involved in a series of meetings with the Archdiocese and the people that were involved at that meeting. And as of today, I would say that we're very close to reaching an agreement where all the students, all high school students of the City of Philadelphia will be able to participate. And I am today waiting on a call from Congressman Fattah because I have floated already at least three proposals, and there 60 03/31/04 - FISCAL STABILITY - RES. 040276 has been some very -- and I believe that Secretary Kahn can testify that we, in fact, have put in significant hours into this. Because at the end of the day, unless all the children are involved, I would have a very hard time voting in favor of that allotment of money.
I did not read the article that you referred to. Where would the money come from?
It would come from the same pool that is being presented by the City and the School District.
So how much would the amount have to be increased by? I mean, we're talking about $4 million.
I prefer not to get into the particulars until I hear from Congressman Fattah, hopefully today. It would be within the same numbers that the Administration has proposed, which is around $10 million, 6 from the School District -- correct me if I'm wrong -- and 4 from the City of Philadelphia. 61 03/31/04 - FISCAL STABILITY - RES. 040276
I believe there are some federal dollars, right, Deborah?
A portion of the School District's contribution to this program would, in fact, originate as federal dollars.
Madam Chair, my point is to let you know that I am involved, I took an active approach to this and that I have been meeting back and forth with the Archdiocese, and there's very good will to make this happen within the framework of the money that the Administration is talking about, not anything additional and not anything less.
Well, I applaud you for that. But the question is, are we going to have to put in more money or do you think that the 4 million -- can you explain where this money is actually coming from?
I also am not prepared right now to go into all the details, and I will say that we do appreciate Councilman 62 03/31/04 - FISCAL STABILITY - RES. 040276 Ramos' involvement in convening the meeting and speaking with all the parties. The way that this program is currently structured and how it was designed was that it would be a cost-sharing arrangement between the City of Philadelphia and the provider, in this case the public school system, and that there would be a cost-sharing arrangement. All the issues that were raised by the Councilmembers are comments and positions that we appreciate. And there was never an interest in discrimination and the issue of religion was really not the reason for this. But there were cost considerations and we wanted to see how this could be handled. And we also felt strongly and continue to support the position that this cost-sharing arrangement is the model that we would like to pursue. So we have among the different approaches that Councilman Ramos referred to, we have really said that we would be interested in having other schools and students participate in this if we can 63 03/31/04 - FISCAL STABILITY - RES. 040276 maintain this same model that we have established here for public school students. So that's one of the issues that we're looking at as we continue to discuss the options with the Councilman and the Archdiocese.
I'm sorry. I think we're at a total loss up here with your response. Are you then saying if the parochial school children would be eligible that the Archdiocese then would have to appropriate X amount of dollars along with what the City is appropriating?
I am saying that the way the program is structured now, the City would be paying a portion of the scholarships for public school students and the School District would also be.
They have made a commitment for up to $6 million a year for each of four years. The City has in its plan up to $4 million a year for each of four 64 03/31/04 - FISCAL STABILITY - RES. 040276 years. So that's what I referred to as the cost-sharing arrangement. I'm saying that's the model that we have in place now. And so certainly, an option that we have proposed to the Archdiocese, because that's who we've had a conversation with now, is if they could have a similar matching arrangement, that is an approach that we could see pursuing.
I'm very disappointed with the last comment made by the Secretary because she very well knows that in the last proposal that I presented that was discussed on both sides clearly says that the Archdiocese will not, because of their fiscal situation, contribute. Within the realm of those $10 million that we're talking about there is a very good proposal -- and I'll be glad to get back to this Body and report to you as soon as I hear maybe as early as today particularly from Congressman Fattah.
Could I ask where the source of the $6 million is from? You said the Archdiocese. I thought that was the federal government. 65 03/31/04 - FISCAL STABILITY - RES. 040276
The School District, I'm sorry. You said from the School District. I don't understand. I mean, I thought it was the federal government.
Again, the School District gets a variety of grants. And as I understand it -- and I think the School District will really have to speak to its own budget. But a portion of the 6 million that it has allotted, I believe, originated as part of the Year Up Program which is a federally funded program aimed at increasing college attendance for public school children. But it's money that is in the School District's budget.
I don't want to speak to that. I would have to get back to the School District on that.
How soon can we get this information? 66 03/31/04 - FISCAL STABILITY - RES. 040276
Could you make a phone call and find out before the end of the hearing? I think many of us are eager to know what the response would be.
Please proceed. I think we're so embroiled in this one issue.
Back to the Administration. If we have an obligation -- first let me ask you the question. Can these students, are they limited to what colleges they attend?
No. They are either 67 03/31/04 - FISCAL STABILITY - RES. 040276 Community College of Philadelphia, any of the universities within the state system of the 4 Pennsylvania State System of Higher Education 5 or any of the four State-related colleges 6 which would be Temple, Penn State, Pitt and I 7 believe it's Lincoln. 8
I really 9 support giving young people an opportunity to 10 go to college, but we have a fiduciary 11 responsibility to Community College, and what 12 puzzles me is why do we take money from the 13 Community College to give money to other 14 colleges, when we have a responsibility to fund Community College?