COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, October 1, 2008 10:15 a.m. - - - PRESENT: COUNCILMAN W. WILSON GOODE, JR., CHAIR COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN BILL GREEN COUNCILMAN CURTIS JONES, JR. COUNCILWOMAN BLONDELL REYNOLDS BROWN BILL 080573 - An ordinance amending Chapter 19-2600 of The Philadelphia Code, entitled "Business Privilege Taxes," by expanding the program under which a credit against business privilege taxes is given... RESOLUTION 080103 - Resolution authorizing City Council's Committee on Commerce and Economic Development to investigate, and hold hearings on, the issue of diversity... RESOLUTION 080262 - Resolution authorizing the Committee on Commerce and Economic Development to hold hearings to inquire and investigate the missions, agreements, funding, policies, structure, business plans, operating and capital budgets, coordination of efforts and effectiveness of various economic development departments... 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 2
Good morning. This hearing is called to order. This is a public hearing of the Commerce and Economic Development Committee on Bill No. 080573 and Resolutions No. 080103 and No. 080262. My name is W. Wilson Goode, Jr., Chair of the Committee. I note that a quorum is present. To my far left is Councilman Curtis Jones. To my immediate left is the Vice-Chair of the Committee, Councilwoman Blondell Reynolds Brown, and to my right is Councilman Bill Green. The title of Bill No. 080573, amending Chapter 19-2600 of The Philadelphia Code, entitled "Business Privilege Taxes," by expanding the program to which a credit against business privilege taxes is given to certain businesses that contribute monies to community development corporations undertaking economic development activities within the City of 10/1/08 - COMMERCE - BILL 080573, ETC. Philadelphia, all under certain terms and conditions. The title of Resolution No. 5 080103, authorizing City Council's Committee on Commerce and Economic Development to investigate, and hold hearings on, the issue of diversity within Philadelphia's Building and Construction Trades, and further authorizing the Committee to issue subpoenas to compel the attendance of witnesses and production of documents and other evidence. The title of Resolution No. 16 080262, authorizing the Committee on Commerce and Economic Development to hold hearings to inquire and investigate the missions, agreements, funding, policies, structure, business plans, operating and capital budgets, coordination efforts and effectiveness of various economic development departments, authorities and agencies operating in the City of Philadelphia. 4 10/1/08 - COMMERCE - BILL 080573, ETC. We will quickly move from our public hearing into a public meeting to consider Bill No. 080573, for which we heard testimony last week, and the Chair recognizes Councilwoman Brown for a motion on Bill No. 080573.
Thank you, Mr. Chairman. I move that Bill No. 10 080573 be moved out of Committee with a favorable recommendation. (Duly seconded.)
Bill No. 22 080573 is reported out of Committee with a favorable recommendation. I will now move back into a public hearing. The Resolution No. 5 10/1/08 - COMMERCE - BILL 080573, ETC. 080103 will be held at the request of the sponsor, who is myself. The Resolution 4 080262 will be heard. That resolution's primary sponsor, along with myself, is Councilman Bill Green, and I ask Councilman Green if he has an opening statement on that resolution.
Thank you, Mr. Chairman. The City of Philadelphia has many fine agencies, corporations and commissions which have been set up to aid in the continued economic development of the City. Many of them also benefit greatly from the public trust, public land and public monies. As such, it should be obvious that it is essential for an elected official of the people of the City of Philadelphia to ensure that these agencies are using the best practices available to them and working for the best results of the citizens of the City of Philadelphia. Government oversight is an 6 10/1/08 - COMMERCE - BILL 080573, ETC. essential responsibility of legislative bodies like City Council. We have seen in Washington, DC that when our elected representatives advocate the responsibility of oversight, there is excess and abuse, and we may leave a $700 billion bill for our children as a result. The potential cost to taxpayers of having little or no oversight and regulation demand that government from time to time hold hearings like this one. All Philadelphians should have an equal and open opportunity to be a part of the economic development of our city, not just those residents who have the financial means to exert their influence and get a seat at the table. We have the ability to exert oversight to create an open and transparent system in which our development and our economy thrive through the joint efforts of Council and other public entities and not-for-profits, such as the ones here 7 10/1/08 - COMMERCE - BILL 080573, ETC. today. It may very well be that there are no problems, no necessary changes, that everything is running perfectly. We'd all like to believe that is true. All we want to know as elected representatives of the people of the City of Philadelphia is that it is true, or we want to be able to work with you to make it better. We want to come to you, not as adversaries, but as partners in working to expand economic development within the City for the benefit of us all. There are three essential aspects to effective oversight: transparency, accountability and disclosure. We have asked the entities here today to disclose to Council their missions, practices, governance, policies, budgets, et cetera. We are pleased with the response and positive reactions we have received from most participants and look forward to working 8 10/1/08 - COMMERCE - BILL 080573, ETC. with you all. Thank you.
Thank you, Councilman. Are there opening statements from other members of the Committee? (No response.)
Seeing none, Councilman Green, will you please call your first witness.
Then I'll call the PIDC. And I may interrupt the PIDC if Mr. Rosman or Terry Gillen show up. (Witnesses approached witness table.)
Please state your name for the record and proceed with your testimony.
My name is Peter Longstreth and I am the President of the Philadelphia Industrial Development Corporation.
And I'm James Fluck, and I'm Executive Vice-President of the Philadelphia Industrial Development Corporation.
And if it's permissible to the Committee, I would welcome the opportunity to make a four- or five-minute background introduction to the Philadelphia Industrial Development Corporation. I promise not to take too much time. But most of all, I want to thank all of you for giving us the opportunity to be here and to share with you our activities, which your input is such an important element to. And when I 10 10/1/08 - COMMERCE - BILL 080573, ETC. talk about input, I particularly welcome your thoughts as to how we can do a better job, because I think the Councilman's comments about all doing a better job, there's always room for improvement, and we would welcome that input. By way of background, the Philadelphia Industrial Development Corporation, PIDC, was founded in 1958. So we're celebrating our 50th year this year. From a technical standpoint, we're a private, non-profit Pennsylvania corporation, but, effectively, we are a joint venture between the City of Philadelphia and the Greater Philadelphia Chamber of Commerce, a public-private partnership whereby the Mayor and the President of the Chamber appoint our Board of Directors. From a practical standpoint, we really are an agent for the City. So we are the implementer of the economic 11 10/1/08 - COMMERCE - BILL 080573, ETC. development policies that the City defines, and the transactions that we effect come essentially with direction of the City. We effect those transactions in two basic categories. We have two basic product lines, in my way of thinking. One relates to low-cost financing, where we operate bond and grant and loan programs with public and private funds to provide low-cost capital to worthy economic development projects in the City, and then we also acquire, improve and sell land, once again, to stimulate the economy, historically in the industrial parks on the edge of the City, more recently in the whole defense conversion activity, and then we represent the City in the sale of major pieces of property that they have around the City. In these activities, the State authority, the Philadelphia Authority for Industrial Development, PAID, is an 12 10/1/08 - COMMERCE - BILL 080573, ETC. important vehicle for accomplishing a lot of the transactions. So we tend to use the term PIDC and PAID a little bit interchangeably. PAID is a state authority. It has five Board members appointed by the Mayor, and it is a vehicle for a lot of the transactions we do. Our clients are basically employers all over the City. Historically, there's been a lot in the business community, and more recently the non-profit community has become such an important employer, that it's a very important target market for us as well. We have 58 employees. We have an operating budget, as you've hopefully seen, of about $10 million a year, which is funded primarily from transaction and contractual fees that we generate in our daily business. In conclusion, we've been around 50 years. It's interesting to sort of total up some of the performance 13 10/1/08 - COMMERCE - BILL 080573, ETC. measures. We've closed about 5,000 transactions in that time period, representing about $9 billion. I know compared to 700 billion, kind of pales 6 these days, but $9 billion in financing 7 transactions, several thousand acres of 8 land sales, and retention and creation of 9 jobs totalling almost 500,000, which translates to probably $400 million in wage taxes. So it's a fairly, what we believe, a very significant impact. It's an impact that we believe comes with a tremendous amount of confidence and support from the government sector, which we very much appreciate, and we're delighted to answer any questions you have. Thank you very much.
Me? Again, I'm 14 10/1/08 - COMMERCE - BILL 080573, ETC. James Fluck. That's F-L-U-C-K. I'm Executive Vice-President.
Jim is effectively the Chief Operating Officer of our company, has been there for over years. If there's anybody that's 10 going to answer the difficult questions, 11 it's going to be him. 12
Thank you 18 for coming today. I want to thank you 19 for providing the documents that you did 20 provide. You covered a little bit of what I was going to cover in the questions in terms of getting you to describe PIDC, what it is you do, but let me just ask some general questions to 15 10/1/08 - COMMERCE - BILL 080573, ETC. begin with and then I'll get into some more specific criteria, just so people can understand really what it is that you do. How much money has the City of Philadelphia, through loans or grants, run through PIDC since 1958; do you know?
Yeah. I mean, if you take that $9 billion number, a lot of it relates -- really the majority of it relates to tax-exempt bond issues, which really is private funding and not the City. So if you focus on loans, which is where most of that activity would be, we've made in our history about a billion dollars worth of loans.
Well, I can talk about grants in a minute as well, but that would be included as maybe the differential. But of the billion dollars worth of loans, the vast majority is --
And that's not inflation adjusted. It's a billion 16 10/1/08 - COMMERCE - BILL 080573, ETC. over the 50 years.
So if you inflation adjusted it, it would be probably $4, $5 billion.
Yeah. I mean, I believe you. Of the billion dollars, or whatever that inflated number is, the vast majority is federal and state funding of our loan programs. The City has really provided relatively little. Obviously we are managing those federal and state funds because the City has decided that they want to do it that way. But in terms of the City money, I mean, I don't know the exact money, but it's relatively limited compared to the federal and state input. On the grants side, obviously you're all familiar with the Economic Stimulus Program, and that was a fairly -- a very robust program. There's probably total a couple hundred million 17 10/1/08 - COMMERCE - BILL 080573, ETC. dollars in its history that was City funded, and obviously has become much less of a factor in recent years. And then more recently, the $150 million cultural and commercial corridor bond issue would be an example of something that flowed through us. But other than that, the City funds tend to be significantly less than the other two public sources.
Mr. Longstreth, since you mentioned the Economic Stimulus Program, could you state for the record how that program was primarily funded?
Since you mentioned the Economic Stimulus Program, can you state for the record how that program was primarily funded?
Yeah. The Economic Stimulus Program was, I understand, established in 1994 during, I guess, the Rendell Administration, and 18 10/1/08 - COMMERCE - BILL 080573, ETC. the concept at the time was to make direct allocations from the General Fund, with the approval of City Council, to an individual account called the Economic Stimulus Program, which would then be administered and --
The fund, it was -- yes, Councilman. It was the General Fund, Mr. Chairman, the City's General Fund.
So the money didn't come from selling tax liens on people's homes?
No. That was a separate bond issue, I believe you're referring to, that the City went through us on that -- through PAID on that particular bond issue, but it was --
And half of that money went toward the School 19 10/1/08 - COMMERCE - BILL 080573, ETC. District and the other half of that money went to the Economic Stimulus Program.
Well, if it did, it went into the General Fund first. We get an appropriation out of the General Fund. There's not any particular indication what the source of the dollars are from the General Fund. It just comes from the General Fund.
I happen to have been at the Commerce Department at the time. There were tax liens that were sold on people's homes. Half of the money went to the School District and the other half of the money went to the Economic Stimulus Program.
Thank you. I know you told us what you do. What is the mission of the PIDC, as opposed to what you do on a daily, 20 10/1/08 - COMMERCE - BILL 080573, ETC. day-to-day basis with respect to transactional activity? What is your mission?
Our mission is to stimulate economic development in the City of Philadelphia by supporting the Administration in its efforts to retain and grow jobs and stimulate investment in the economy. That would be a sound bite that hopefully sums it up well.
When is the last time City Council exercised any oversight authority over PIDC where we had hearings with respect to the activities, operations of PIDC?
I'm not aware of hearings comparable to this since I've been there, which is a little over seven years. Having said that, specific transactions in our daily activity involve City Council participation.
So all approval of TIFs, all activities below 21 10/1/08 - COMMERCE - BILL 080573, ETC. fair market value and our land bank activities, all purchases of land. So there's a whole series of activities where City Council participates actively, but in this kind of an overview context, I'm not aware of it.
It's my understanding that in the 50 years since your creation and, let's just agree, over a billion dollars of inflation adjusted loans, grants and appropriations through the years, that we have never sat down and looked at your operations, business practices or tried to determine whether or not the mission that you're pursuing is a mission that City Council thinks is in the best interest of the City of Philadelphia.
It's a Pennsylvania corporation. 22 10/1/08 - COMMERCE - BILL 080573, ETC.
It's a little bit of a complex formula, and I'm happy to go through the whole thing. As I stated in the general comments, it's a combination of appointments by the Mayor and the President of the Chamber. And as I say, I'm happy to get into detail, if you wish.
I'll summarize it very quickly for people here. There are seven appointees that are by sort of the Administration. City Council has one of those appointees. Then there are eight appointees by the Chamber of Commerce. Then there are 15 appointees that are jointly appointed by the Chamber of Commerce and the Director of Commerce of the City of Philadelphia.
That's correct. And the only thing I would add is that the first 15 make up an Executive Committee that meets basically every two 23 10/1/08 - COMMERCE - BILL 080573, ETC. weeks and is very much involved in the operations of PIDC and approves all the individual transactions; whereas, the second group meets only four or five times a year.
And I'll be coming back to this point, but what they approve are transactions that the staff has brought to them, is that correct, that the PIDC and staff have put together and brought to them?
Yeah. I guess I would -- that's certainly true, but we take it to our Board very much with the blessing, if not the direction, of the City; that is to say, the Administration usually through the Commerce Department.
So can you describe the -- you did describe in your opening statement the governance structure of PAID, which is its five 24 10/1/08 - COMMERCE - BILL 080573, ETC. appointees from the Mayor. So how are the administrative offices of PIDC organized?
Well, our company, as I indicated, has 58 employees, and we're organized, just from an organizational structure, with a president's office that's basically myself and Paul Deegan, who manages the government relations; a group that relates to our clients, we have probably ten people in that group; two separate product groups, one obviously dealing with financing and the other real estate; and then an administrative group really run by Jim Fluck that handles all of the different functions in terms of the back office, on the one hand, and all the reporting and accounting functions that go with it. So that's a real internal staffing function.
And what does it cost to run your operations every year? 25 10/1/08 - COMMERCE - BILL 080573, ETC.
Well, as I indicated, we have an annual budget of about $10 million.
Well, basically I would say as a general statement, that very much in keeping with the Administration's sense of emphasis on minority inclusion as an economic development tool and priority, that PIDC tries to reinforce that at a whole variety of different levels. Our employment today is 72 percent women and 33 percent minorities. That's one way it's reflected. It's reflected in our contracts, which are basically percent minorities this last 20 year and 15 percent women, which is a number that increases every year and we hope will continue to increase. On our loans, we're about percent over the 24 last couple of years to minority 25 borrowers. 10/1/08 - COMMERCE - BILL 080573, ETC. So this gives you a sense of our performance on that sense of priorities. It's a very important element to the City and to PIDC. And, frankly, I could go on with a number of other things, but hopefully that gives you a sense of it.
I think we just touched on it and I was kind of going through it, but it was created in 1994 --
I'm sorry. Yes, you did cover that. Can you describe RCAP to us?
RCAP is a state grant program in which the State government includes in its budget grant allocations to non-profits throughout the state, including in Philadelphia. The Governor's Office then determines which of those projects will in fact be funded, because typically the State budget vastly 27 10/1/08 - COMMERCE - BILL 080573, ETC. exceeds the total -- excuse me; is much below the total needs. And then our role is to assist the local grantees in making the applications and sort of managing the process, and it's a process that takes quite a while and requires a lot of assistance, to be honest.
But that's sort of how it's written on a practical county-by-county basis. Who really decides where the RCAP money is spent?
I think -- I mean, I think historically -- and obviously it varies with administrations -- but historically each municipality presumably provides -- and I think in the case of Philadelphia did provide -- a list of priorities and a sense of what the really important projects would be. My sense is the Governor makes the final decision.
Right, but generally, it's very unusual for the Governor to make a decision that is not 28 10/1/08 - COMMERCE - BILL 080573, ETC. on the Mayor's RCAP list?
The State Legislature recently approved in the last session, I think, an $800 million number for a three-year period for the entire state. So that gives you a sense of it. I have heard that percent of that will 17 be allocated to Philadelphia. 18 What I would emphasize on RCAP, 19 I believe we play a very important role. 20 It's a role that essentially involves 21 following directions, which we receive 22 from the State, and the sense of 23 priorities that the City provides to the 24 State comes essentially from the 25 Administration. 29 10/1/08 - COMMERCE - BILL 080573, ETC.
Right. So essentially it's money provided from the State that the Administration determines the priorities without ever having to go through City Council; is that correct?
So we might not know where that money was spent, what the priorities were in the context of the broader things that we're trying to do as a body in the City of Philadelphia?
I mean, I guess I would assume and even perceive that the communication of the Administration to the various particularly district Councilpeople would take into account their sense of priorities in their districts, and I'm assuming that happens at the city level and is communicated to the Governor. We're not directly involved in that.
Okay. I'm 30 10/1/08 - COMMERCE - BILL 080573, ETC. going to -- I'm sorry. Councilman Jones has some questions, and then we're going to ask you to step aside so we can let a witness go and testify.
I was going to put that on the record, for full disclosure purposes, that for the last 14 years, I have had the opportunity to work with you guys as the President of the Philadelphia Commercial Development Corporation. I consider us colleagues in the economic development mission for the City of Philadelphia. I have, because of that, a slightly up-close-and-personal understanding of your mission, what you do and even your contribution to the economic development community and the City of Philadelphia as a whole. So having said that, also I'd 31 10/1/08 - COMMERCE - BILL 080573, ETC. like to thank you and your staff for taking the freshmen around to look at what PIDC does, where they do it and how you kind of integrate. So I want to thank you publicly for that experience, and hope to work with you closely in the future. It's my understanding that out of one of the subtexts of these hearings is to figure out for city purposes and general economic development efficiencies how we can do things, how things are done and how we can do them better. Nothing more emphasizes the priority and importance of that other than the events of the last couple of weeks on Wall Street dealing with subprime lending that we've dealt with as a Council, and knowing that that's like a pebble in the middle of a lake and the rippling effects have yet to get to us. So the spirit in which this Committee, and in particular myself, are asking these questions is to figure out 32 10/1/08 - COMMERCE - BILL 080573, ETC. how we can brace ourselves, how we can do things better and whether or not we're getting as much efficiency out of what we do, and to then make adjustments where appropriate. So that's the spirit of my questions that I'm going to ask.
For the people who don't know about the alphabet soups of government and the PIDCs, the PCDCs, can you clearly define some of the differences, for example, between you and PCDC, which is the agency I was involved in, and what kind of scope you kind of take on so that people watching on TV can kind of get a sense of what the differences are?
Yeah, but I would defer to you. You were there longer and probably understand it more fully, but I would have sort of said they're very similar agencies. PCDC and PIDC very much focus on the financing 33 10/1/08 - COMMERCE - BILL 080573, ETC. piece, PCDC really not so much on the real estate piece. So that would be a fundamental difference. But essentially on the financing side, a distinction between sort of scale and maybe stage of development in terms of the client type, particularly on the for-profit business side. So over the years, I have the sense that PCDC was focused on smaller companies and maybe in certain sectors that we were less focused on, like retail and some of these other activities. And with that exception. So it's a question of scale and kind of focus on the financing side. Very similar missions and very similar kinds of organizations. On the real estate side, I think that's a totally different function that I guess we have that PCDC did not.
So generally, if I were to stereotype it real quick, if you do stadiums, PCDC did the concession, individual business 34 10/1/08 - COMMERCE - BILL 080573, ETC. owner. That would be a kind of nice fit?
I mean, in my opinion, that would be kind of an extreme in comparison, just because the vast majority of what we've done over the years tend to be with small businesses. They're just a little bit larger and more in the commercial industrial area than maybe PCDC. But I would have said it's a similar kind of mix.
Just to give scope and size. The second thing is, primarily PCDC has CDBG dollars, and that's, I would say, 80 percent of their budget. If I were to look at the total pie, what does that represent for you?
Well, to give you a sense, I mean, when we talk about total financing for PIDC, each year we probably disburse about $300 to $500 million, most of which is tax-except financing that simply flows through PAID as a conduit. So then we have some grant 35 10/1/08 - COMMERCE - BILL 080573, ETC. money that may be $40 or $50 million, mostly redevelopment assistance. So if we focus on just the loan part, it's somewhere between 30 and 50 million a year, of which the CDBG portion is about $5 million, maybe ten percent.
Just to give a little context, the type of characteristics that CDBG dollars have versus, for example, UDAG dollars have, can you for the record talk about the different payback character of the two of them?
Well, CDBG is obviously a federal program and is very much focused on -- it's relatively small amounts of money. It's focused on job creation, but particularly in a moderate to low-income group and it tends to be, as I say, relatively small loans. We get, for example, PIDA, which is a state funding vehicle, very much focused on the industrial piece of the market, much larger amounts of money 36 10/1/08 - COMMERCE - BILL 080573, ETC. and very much in the sort of asset-based lending activity. HUD 108 is another federal program that we have that tends to be much larger transactions that go to corporate. Those would be sort of the three important funding groups that we have. And, once again, if I'm understanding, PCDC is limited to just the CDBG piece of it.
That helps me, but for the public, I'm trying to give people a sense of there's certain money that we get from sources that we get put out into the marketplace and then get back and have to be used again for the same purposes, almost in a recycled fashion. There's another type of money that has gotten, UDAG money and others, that after the first blush and it comes 37 10/1/08 - COMMERCE - BILL 080573, ETC. back is discretionary.
When I'm talking about CDBG, I'm kind of grouping the UDAG, EDA and CDBG together, which is missing your point, but, I don't know, two-thirds of the 5 million that we do a year in that business is CDBG and the rest is UDAG and EDA, which has a lot more flexibility to it. But when I talk about $4 or $5 million of CDBG each year, it's revolved. These are all repaid dollars. We haven't received new dollars in 10 or 12 years.
Would you not include HUD 108 in the category of CDBG and UDAG and the others?
When I'm 38 10/1/08 - COMMERCE - BILL 080573, ETC. talking about those three, I'm talking about revolved dollars that come back to us. HUD 108 is a series of either freestanding loans or pools, and I consider them separate.
But the HUD 108 dollars are borrowed against future CDBG allocations?
In HUD 108, about $200 million, but, again, that doesn't recycle. That is used to defease the bonds that give rise to the allocation. So it doesn't revolve back.
I guess part of the question that's being asked by Councilman Jones is, what type of access would PCDC have to HUD 108 dollars that are borrowed against future CDBG allocations versus PIDC in terms of how the agencies interact or in terms of 39 10/1/08 - COMMERCE - BILL 080573, ETC. access to resources, I think is part of the question.
Good question. Jim, do you know the answer? Because I don't.
No. The only thing I can say is, we make a request of the Administration, which is included in the CDBG budget that's approved by Council, and that's the only way we can access the HUD 108. It is through the City. We manage that program on behalf of the City. But certainly PCDC wouldn't be excluded.
Just a quick follow-up. Has PCDC accessed any of those HUD 108 dollars?
I'm not aware of that. I can't answer that. None of ours have been -- if you're asking --
I'm making 40 10/1/08 - COMMERCE - BILL 080573, ETC. these points to give context and differences between what the arsenal that PIDC has versus what PCDC has so that my colleagues and the public kind of know if we're trying to blow up something, we use a howitzer; if we're trying to do something more narrowly tailored, we use a different weapon. And so I say that now, having put a pin in that, and let's go to land use.
But I'm sorry. Could I interrupt you just to add one point here? Because I think it relates to our cooperation with PCDC. As I have informed, I believe, most of you, we have a relatively new program called our Emerging Loan Program, and essentially we've gone to the private banks. They've provided us lines of credit, and that, in turn, finances working capital loans to minority, women-owned businesses, and we're dealing directly with a whole range of 41 10/1/08 - COMMERCE - BILL 080573, ETC. businesses. I think what we are considering and in conversations with PCDC and others is, would PCDC, the Enterprise Center, some of the CDCs be good delivery systems for this program. So we would loan funds -- be a funding source for PCDC, which then obviously may have better access to certain sectors of the market. So that's an area where I think that kind of cooperation is very much underway, and I think it's relevant to your point.
And I appreciate you kind of seeing where I'm going with this. One of the things that I want to happen on this side of this table -- and I appreciate being on that side of the table, but now what I'm looking for us to grow to do is, if you look at models such as 8(a) at the federal level, what they tend to do is not just use one weapon to grow companies, they use every weapon at their arsenal, including financing, technical 42 10/1/08 - COMMERCE - BILL 080573, ETC. assistance and procurement opportunities. So that a company coming in at the beginning and let's say it uses a business cycle of ten years, a decade. A small company grows to be a middle company, grows to be a large employer/taxpayer, and then graduates from a program. What I'd like to see us grow to as a city and as an economic development community is where -- there was a company at Lindley Avenue called Medley Tool and Dye, once upon a time. I think it might have been even one of your clients.
They should have been able to come in on a small rung, maybe through a PCDC. I'm just using them as an example. Then grow to a point where if $500,000 is the threshold of loan, which generally the Board of Directors are comfortable in providing, then it should graduate then naturally for capital needs to PCDC or other 43 10/1/08 - COMMERCE - BILL 080573, ETC. sources like that. And at the point they do, if we start to look at a local business, not because it's a minority, not just because it may be female, but because it's local and has an impact in tax revenues and the ability to create jobs -- because Medley Tool and Dye had 100 employees, most of whom walked to work, most of whom walked to work. But what happened is, they should have been graduated and looked to for city contract opportunities, meaning that they were a defense contractor that did the self-contained communication units. They almost look like the cab on the tractor-trailer. They drop down behind enemy lines, they pop up some Internet stuff and they were able to provide for the Defense Department communications, mobile communications, and they welded those cabinets together. And you're familiar with that. At the point that the defense contract ended, there was no help for 44 10/1/08 - COMMERCE - BILL 080573, ETC. them to go into domestic markets. That same company, a welding tool and dye company, could have got the contract to do street signs for the City of Philadelphia, same skill set, same type of workforce, same kind of -- but a different marketplace, but they did not diversify and take advantage of Philadelphia opportunities. My point to you and my point to subsequent organizations is, we got to think not just in our box, but to kind of cross pollinate programs, resources for the benefit of small businesses that can, A, get capital; B, get technical assistance; C, get contracts from the City. It doesn't make sense that the lunch program for underprivileged children in the City of Philadelphia goes to a firm out of New York. It doesn't make sense to me that the grass cutting contract every 17 days that cuts the grass in Fairmount Park or Recreation 45 10/1/08 - COMMERCE - BILL 080573, ETC. Department-owned land is out of King of Prussia. In tough times we have to look at limited resources differently and kind of work together to create opportunities for Philadelphians, and the spirit of my comments today is all about that.
And your mention of technical assistance reminds me of another fundamental difference between PIDC and PCDC and another reason why cooperation on the Emerging Loan Program so that PCDC's capability of providing technical assistance, which is a critical piece of that kind of a relationship, is a further justification for that kind of partnership.
Let me note for the record that Councilwoman Jannie Blackwell is also in attendance. Councilwoman Brown.
Thank you 46 10/1/08 - COMMERCE - BILL 080573, ETC. very much. Good afternoon, gentlemen. I want to follow up on Councilman Bill 5 Green's inquiries regarding the composition of your staff, which you provided. Just speak to us, if you will, the composition of the Board. You've indicated from where they come, but always I'm looking to see the level of diversity on boards across the City, particularly those directly, intimately or indirectly tied to City government.
Yes. I'm turning to a list of the Board members, because I won't necessarily remember them all.
I mean, first of all, I guess I would say that -- I just would reiterate that the Mayor and the President of the Chamber make those appointments.
Of about 47 10/1/08 - COMMERCE - BILL 080573, ETC. eight of them, correct?
Well, no. The combination of the Mayor and the President of the Chamber make all of the appointments. Seven of the Executive Committee members are essentially ex-officio members of the Administration, starting with the Mayor, President of City Council and then essentially is primary cabinet members.
So those are ex-officio. The Chamber President appoints the other eight, who are on the Executive Committee, and then the rest of the group is appointed jointly by the two. And we make recommendations to them as to candidates that we think at a staff level that would be logical candidates. As in everything we do, minority and women representation is very important, but obviously the appointment is by the two principals. And I'm happy to go through 48 10/1/08 - COMMERCE - BILL 080573, ETC. the composition of our Board in terms of minority and women representation, but to be honest, I don't have a whole lot of control over it. It is a priority for us and -- would you like me to do that?
Please. Please. If we could just put it on the record.
Okay. And I'm going to kind of read the seven we all know. So it would be Michael Nutter, Andy Altman, Camille Barnett, Rob Dubow, Shelley Smith, Anna Verna and, interestingly enough, since the Planning Commission chair is not filled, there's a vacancy. Andy is meeting both of those roles right now, as you know.
Just a point of information. Excuse me, Mr. Longstreth. Councilwoman Blackwell is City Council's appointee, not President -- isn't that right?
I thought 49 10/1/08 - COMMERCE - BILL 080573, ETC. you were.
Well, I'll do my best to explain it. The way the bylaws read, the City Council President is an ex-officio member of our Board and the City Council person may appoint a representative, who is another Councilperson, and Councilwoman Blackwell fulfills that role and we very much appreciate her participation. So that would be the seven. The eight are -- I mean, I guess I would say, since you're interested in this characterization, one is an African American male and the others are white males, the other seven. So that composes the eight.
And then the 15, I guess you'd like me to just characterize their sex and race.
Please. Gender and ethnicity. 50 10/1/08 - COMMERCE - BILL 080573, ETC.
Helen Baik is a woman who is an Asian America. Reverend Audrey Bronson is an African American woman. Fred Cosenza is a white male. Frank Jiruska, Alan Kessler, Bill 7 Marrazzo, Jim McManus are all white males. Michael Rashid is an African American male. Guillermo Salas is a Hispanic male. Bill Sautter is a white male, and Barbara Wilson is an African American woman. And there are three vacancies at the current moment on the 15-member at-large Board.
The Executive Committee are the 15 people that I described at the outset.
Okay, then. I thank you for that background. Could you please provide an 51 10/1/08 - COMMERCE - BILL 080573, ETC. update, if you will, on the status or the progress of the cultural bond activities that supported the number of arts and cultural organizations?
Please. Only because we haven't heard much about the activity since the awarding of those.
And I guess I would emphasize, as I do on a number of these individual transactions, this is a program essentially of the City's. PIDC has been contracted to administer it.
And we've done that at the direction of the City. So a proper report would probably come from the Commerce Department, I believe. But essentially, 65 million of the 150 I believe was dedicated to cultural institutions. Of that, 60 million was focused on, I want to say, 20 individual institutions and then 5 52 10/1/08 - COMMERCE - BILL 080573, ETC. million of it was made available for a number of much smaller institutions.
And the 6 were designated by the Mayor a year and a 7 half ago. 8
I was 9 actually part of the process, but I've 10 been removed from it since the award. 11
I would sort 12 of say without being very specific on all 13 of this, virtually all of those funds 14 have been distributed. 15
That that has 17 been a piece of that bond issue that has 18 moved very quickly and pretty 19 efficiently. We have a woman who handles 20 all of our non-profit activities that's really been very much involved in this, working closely with the Commerce Department and each of the individual grantees. The commercial corridor piece, 53 10/1/08 - COMMERCE - BILL 080573, ETC. which is kind of the other half, has been a much slower process and it's nowhere near as far along.
Once again, we're not managing the process, but I would sort of say that -- I mean, we're taking direction -- that it's a much more complex process and, by definition, is going to take a lot longer. The cultural grants are for specific projects to individual institutions. I think on the commercial corridors, they're actually defining projects, and that takes a little bit longer.
Okay. Well, thank you for the update. Thank you, Mr. Chairman.
Thank you. When did PIDC's mission go from promoting industrial development to 54 10/1/08 - COMMERCE - BILL 080573, ETC. industrial and commercial development?
Yeah. I mean, I have had conversations over the years with different people regarding sort of the true meaning of those words as they relate to our mission. I consider our mission economic development in the broadest sense, and as I indicated in my opening comments, our clients are all employers in Philadelphia, which gets us into a whole non-profit area that doesn't sound industrial at all. So I would sort of say, without total knowledge, the organization was created at a time when manufacturing and industrial activities were a much more central part of our economy. Today they're still very important, but not as central, and obviously we have broadened our mission accordingly and spent a lot of time trying to broaden the product base that can address that broader client base.
How many 55 10/1/08 - COMMERCE - BILL 080573, ETC. other agencies in Philadelphia are providing financing or funds for not-for-profits? And same question for commercial economic development.
In other words, who are your potential partners? Who are your competitors, looked at another way, for resources from us?
Sure. I mean, I kind of view, when you're talking about anything that's related to job creation, it's essentially PCDC and ourselves, are the two primary agencies that are involved in that and as it relates to financing. As we get into marketing, as we get into workforce development, as we get into technology development and a whole bunch of other areas, hospitality, there's a whole bunch of other agencies that we kind of cross over with. But in terms of primary funding vehicles, I think it's the two of us. 56 10/1/08 - COMMERCE - BILL 080573, ETC.
Without making you go through that list now, could you please provide to the Chair an answer of all those agencies that you think touch in what you do in one way or another, workforce development, et cetera, that you just mentioned?
Mr. Longstreth, can you please describe how many of your programs are direct lending programs versus subordinated debt programs? In other words, is it true that most of the lending that you do is actually connected to traditional financing?
Is it true that most of the lending that you do is actually connected to traditional financing from banks and financial institutions?
Well, once 57 10/1/08 - COMMERCE - BILL 080573, ETC. again, if we're focusing on the loans -- because the bond activity, which is the largest part of our volume, is not -- or at least it's privately funded but in a tax-exempt bond structure, and likewise on the different grant programs we've discussed. So if we focus on loans, most of our loans have some kind of combination with a traditional usually first mortgage private lender, which is, I think, your question.
So you take a second position and in some ways, for lack of a better way of putting it, you subsidize private lenders?
Yeah. I mean, I guess we sort of view it -- I mean, obviously it depends on your point of view. I would have said we're subsidizing the borrower very deliberately and providing the kind of secondary or mezzanine financing that most of the borrowers that we lend to don't have access to, and in the process, 58 10/1/08 - COMMERCE - BILL 080573, ETC. we're reducing the amount of equity they have to put into the deals and make the deals that much more within their reach.
I'm just following up on Councilman Green's question. What you're doing is taking a second position to banks and other traditional financial institutions. Then potentially there are any number of other competitors or stakeholders who could choose to subsidize the borrower or subsidize the bank deal, however you want to view it. And so that list is actually larger than some of the traditional agencies that might just be listed, because at the end of the day, most of the deals you do are being done by banks and you're simply participating in them; is that correct?
Once again, when you say "most," on the loan side, correct.
Thank you. Councilman Green. 59 10/1/08 - COMMERCE - BILL 080573, ETC.
Thank you. We will come back to that point about who it is you do participate with. So just real quickly, can you -- let me follow up on this line of questioning. Could you just describe for us, does the City have any liability for PAID's obligations?
The biggest activity that PAID gets involved in are the tax-exempt bond issues, and they are non-recourse to the City, to PAID and to PIDC.
They're non-recourse to PAID and PIDC and the City as well?
Are there any bonds issued by PAID that are recourse to the City?
Ones that the City does through us. As an example, the airport, they've done several, and 60 10/1/08 - COMMERCE - BILL 080573, ETC. obviously the City is involved as a borrower in many of those. Yes.
And just for the record, we, City Council, approve those bonds?