So what's the source of funding for each of your programs? We heard about Economic Stimulus. We heard about RCAP. Emerging Loan Program you mentioned. The Tax-Exempt Bond Program?
Well, the Tax-Exempt Bond Program is essentially with PAID acting as a conduit. Private and public borrowers, with obviously a heavy emphasis on the non-profit and small manufacturers, borrow from private lenders through PAID on a tax-exempt basis.
So those private lenders or other people go through PAID in order to issue the -- to 61 10/1/08 - COMMERCE - BILL 080573, ETC. give the loan to the entity actually making the borrowing, right? So PAID is --
Yes. And that's required so they can be tax exempt. That's a requirement, yes.
And so PAID is involved in the various lending institutions and professionals that are assisting with those issuances and should know who they are; is that correct?
That's correct, with the exception of authority counsel, which we do control.
But you know who the other parties are in the transaction, who the lenders are because they're going through you, who the borrowers' counsel is, who the lenders' counsel is, et cetera? 62 10/1/08 - COMMERCE - BILL 080573, ETC.
No. I understand. So, therefore, I'm not sure we keep much of a record or pay much attention to it. But at some point, we probably do know it, sure.
I mean, I would emphasize, in contrast to a number of other agencies, we do not select the financing team for the borrower. The borrower does it themselves, and the only selection we make is the authority counsel.
I understand, but you do know who else is involved in the transaction. That's my question. 63 10/1/08 - COMMERCE - BILL 080573, ETC.
To the extent that the legal documents would reflect the parties, yes. Whether they always --
And the opinions of counsel, which PAID requires and --
Again, that would be part of the legal documents. I'm not sure every individual involved would necessarily be part of the legal documentation.
Councilman, I mean, I'm happy to go through a list of our different sort of funding sources and kind of answer your question comprehensively, if you wish.
Well, I was going to ask them one at a time. The PIDA Loan Program, P-I-D-A, program?
P-I-D-A, PIDA. The State really makes three different 64 10/1/08 - COMMERCE - BILL 080573, ETC. programs available. They've been available for many years, and they're real bread and butter for PIDC. One is PIDA, which is, I guess, Pennsylvania Industrial Authority Loan Program. The other is MELF, which is Machinery and Equipment Loan Program, and the other is the Small Business First. And in all cases, basically we go through our normal underwriting process, we approve the loans, then we send them to the State. They approve them and then they fund them.
The Growth Loan Program is the name that we put on what actually Councilman Jones and I were talking about, which is sort of a combination of revolved federal funding sources, and to make it easier for our clients, we call it the Growth Loan Program, and that's the funding source. They're revolved federal sources. 65 10/1/08 - COMMERCE - BILL 080573, ETC.
CDBG, UDAG and EDA are the letters. Don't ask me to tell you what they mean.
Yeah. Once again, those are CDBG loans that we would have made over the years that have revolved back.
And then can you explain why PIDC would keep those CDBG dollars as opposed to turning them back over to the City of Philadelphia for us to allocate how we wish?
We actually do, in effect, get them reallocated on an annual basis as part of the CDBG budget that you approve. We report the repayments, and then we basically ask to have those 66 10/1/08 - COMMERCE - BILL 080573, ETC. dollars to re-lend, and that's approved as part of the CDBG budget.
So in theory, if we wanted to reallocate CDBG dollars away from PIDC if we felt somebody else's mission was more --
And the HUD 108 Loan Program, you described that. Is that all CDBG dollars?
That's actually -- it's a program whereby the CDBG allocation that the City gets guarantees bonds that are issued by the federal government, and the repayments, as I mentioned earlier, are used to defease the bonds. They are not revolved back to us. They go back to HUD.
So when you make loans of the Growth Loan Program or PIDA Loan Program or the HUD 108 Loan Program, you're aware of everybody else who's involved in the transaction, and, 67 10/1/08 - COMMERCE - BILL 080573, ETC. once again, that would be reflected in the legal documents?
Yeah. They may not reflect all the parties, but certainly a lot -- a number of them would be reflected.
Yeah. Everybody getting paid as a result of the transaction probably.
Not necessarily. As an example, we don't make disbursements for a project. We make disbursements to the borrower. We don't make the individual disbursements to the architects and that sort of thing. It would be to the borrower.
Okay. Non-Profit Pool Loan Program. 68 10/1/08 - COMMERCE - BILL 080573, ETC.
Yeah. The Non-Profit Pool is a new product that we've created just this last year in partnership with Citizens Bank, and what it does is, with a Citizens Bank letter of credit, guarantee an individual participance. It allows relatively small non-profits to have access to the very low-cost tax-exempt financing without the inordinate cost of having their own freestanding bond issue. And we've issued two of them this year. One was about 30 million and it had three participants. The other was about 50 and had a few more. And we would hope to have a third issued by year end in the $50 to $60 million range. So it's been a really nice way to take that tax-exempt money and get it to a much smaller borrower.
I'm sorry. I was making a note. What's the source of the tax-exempt money?
It's the same 69 10/1/08 - COMMERCE - BILL 080573, ETC. basic concept, that PAID is acting as a conduit and a bond pool is being issued and purchased -- or, that is to say, the funds are being lent by the private sector with non-recourse to PAID, the City or PIDC.
So a non-profit comes to you, you do some underwriting, determine the value of the assets that they're doing? I mean --
This is being underwritten largely by Citizens, because they're the ones that are assuming the risk. They issue a letter of credit to the marketplace guaranteeing the repayment of the portion of the bond pool that that particular non-profit will be borrowing.
Okay. Tax increment financing, could you just 70 10/1/08 - COMMERCE - BILL 080573, ETC. describe --
Yeah. Tax increment financing is individual transactions that are approved by Council. So obviously a little bit in our response, we assumed you have everything in your records that we have. But essentially, the concept here is that in relatively undeveloped and technically blighted properties in the City, there is the potential for significant upside in the taxes, and through an active Council, a small specific district is created within which the increment on the taxes will essentially be granted to an individual project and its developer. At least that's the way it's worked to date. And then those funds are used to -- are capitalized and used as a funding source for the project. And this is a tool that has a whole variety of different uses in different places. In Philadelphia, 71 10/1/08 - COMMERCE - BILL 080573, ETC. largely based on a model kind of established by the Rendell Administration, it's very much focused on project financing. It's a way to essentially provide a subsidy to an individual developer. And during the Rendell Administration, there was a very aggressive use of it, so that like 10 different districts were approved, and 11 about ten of them actually materialized 12 into transactions. 13 During the Street 14 Administration, I would say it changed 15 pretty dramatically, so that only four 16 districts were actually approved, three 17 of them actually disbursed. And it was 18 just a much, much more limited use of the 19 tool. And I would say that the Nutter 20 Administration right now is trying to 21 determine how they want to use it going 22 forward. 23 It was about -- I'm sorry, just 24 to finish -- about $120 million of total 25 funding, about 5,000 new jobs created by 72 10/1/08 - COMMERCE - BILL 080573, ETC. the different 13 projects that used this tool and, interestingly enough, about 42 percent on the MBE side -- or on the minority employment side, excuse me, and about 47 percent on the women side. So we've been very, very happy with the track record on the TIFs that have 9 actually closed. 10
11 Mr. Longstreth, for the record, I have a 12 long history with TIFs and opposing TIFs. 13 In most places, tax increment financing is not done on a project-specific basis but is actually done as a district; is that correct?
And is it also true that there are any number of TIFs that are done around the country that include housing and economic development?
That's what I'm told. 73 10/1/08 - COMMERCE - BILL 080573, ETC.
You say the model was created for how to use TIFs during the Rendell Administration.
Are you looking to revisit that to actually create tax increment financing districts that do more than benefit a project or do more than benefit a specific developer but actually benefit an area and actually --
-- take into consideration both housing and economic development? Councilman Jones.
Mr. Chairman, thank you. In specific, to piggyback on that, one area that I would like to get a sense of is the area which I share with Councilwoman Blackwell along Market 74 10/1/08 - COMMERCE - BILL 080573, ETC. Street from 46th to 63rd Street. We actually did a walking tour last week and it has been decimated, is a good word, by the El reconstruction. There is some consideration for transit-oriented development in that area, and the incentive to create dense housing, mixed-use development along those transportation nodes will require a rethinking of TIFs. So that they don't -- they aren't project specific, but are applicable to an area. And is that something that can be looked into?
In response to both those points, I would start off by saying, we don't dream up TIFs. We take direction from the Administration. So that's a great question for Andy Altman, and I would sort of say that he is very focused on district TIFs and how to take a tool that's been very limited in its use here in Philadelphia and broaden it so it can address a whole range of these things. 75 10/1/08 - COMMERCE - BILL 080573, ETC. Once again, I think he's better equipped to probably articulate that position. But we get a sense that they're very, very committed to precisely that kind of more comprehensive use of the tool.
That was one of the three state programs that I tried to summarize, and whereas PIDA is oriented towards larger industrial deals, MELF, machinery and equipment, Small Business First is really working capital for small businesses. It's a very flexible source of funds from the State, but it's very limited. I think the maximum is $100,000 a loan. And we use 76 10/1/08 - COMMERCE - BILL 080573, ETC. it pretty actively.
And can you explain if the City of Philadelphia could, with some of these same funds, use the Municipal Finance Authority or PCDC, would they be eligible to -- which of these that we discussed could be done through the MFA? Can you explain -- well, answer that question.
I think Municipal Finance Authority would have the authority to issue tax-exempt debt. That's one. They would not have, as I currently understand, they would not have the authority to deal with the State. The State recognizes PIDC as the area loan organization, and so we have access to the State programs on behalf of the City. So I think the answer is, none of the other programs at this point.
And to a certain extent, it's the State made a decision to utilize PIDC as the 77 10/1/08 - COMMERCE - BILL 080573, ETC. established economic development agency, but presumably they could always change.
Right. Mr. Rosman is here, so we're going to allow him to testify and head back to his office. He's working on several bills for me. We need to get him back there.
No. It's been 50 years since you've had Council asking you questions. You've had a good run.
And I just promised Councilman Jones that you would not leave. (Witness approached witness table.)
Good morning, Councilman. 78 10/1/08 - COMMERCE - BILL 080573, ETC.
I'm Lewis Rosman. I'm a senior attorney with the City Law Department.
I haven't prepared any testimony. I apologize. I was at another meeting I couldn't get out of, so I don't have the benefit of knowing exactly what went on earlier in the hearing.
Thank you. So, Mr. Rosman, you're here to answer some questions specifically with respect to our request of the Reading Terminal Market Corporation. I'm just 79 10/1/08 - COMMERCE - BILL 080573, ETC. going to put a few facts on the record. Six weeks before the hearing, we sent a letter to the RTMC asking it to provide various documents related to its mission, agreements, funding, policies, budget, structure, business plans. We asked the Market to provide those documents by September 15th, approximately four weeks later. On September 15th, we received a letter from the Market's attorney indicating that the Market did not think it was properly included and didn't have to provide us with the information, that our request was too broad. The Market provided several documents to the Committee, but not near the scope of the response provided by the other entities who are testifying here today. Out of 34 requests, the Market provided three complete responses and six partial responses. The three complete responses were documents that are already available to the public: the mission 80 10/1/08 - COMMERCE - BILL 080573, ETC. statement, the bylaws and articles of incorporation, the operating guidelines, which I note were approved by City Council in 1994, and the leasing guidelines. The six partial responses were to provide annual reports, operating and capital budgets for one of the six years requested, organizational chart for one of the six years requested, audited financial statements for three of the six years requested, capital projects for one of the six years requested, a list of current staff but no information as to job descriptions, salaries, both of which were requested. By providing only selected documents, the RTMC is effectively precluding City Council from performing its authorized inquiry into Market operations. For example, by refusing to provide requests for qualifications and proposals, responses thereto, meeting minutes, documentation of due diligence and lease agreements, the RTMC is 81 10/1/08 - COMMERCE - BILL 080573, ETC. preventing examination of whether it is operating in compliance with its mission statement, operating policy guidelines that were approved by City Council, leasing guidelines, the documents it did agree to provide to us. Mr. Rosman, did City Council have the authority to authorize the inquiry described in Resolution No. 11 080262?
I believe Council does. Council has very broad investigatory powers under the Home Rule Charter, and the resolution lays out a mission for the investigation of economic development agencies. That's extremely broad and, by its terms, clearly includes the Reading Terminal Market Corporation.
Thank you. Did City Council have the authority to include the RTMC among the 82 10/1/08 - COMMERCE - BILL 080573, ETC. entities to be examined under Resolution 3 No. 080262?
Thank you. Did City Council have the authority under Resolution No. 080262 to request the documents set forth in our letter of August 21, 2008 to the RTMC?
Thank you. What is Council's subpoena power? Could you describe briefly the subpoena power that Council has in the Charter?
Council has authority under the Charter to, if documents are not voluntarily provided by someone who the Council requests documents to provide, Council can issue a subpoena, which is essentially a formal 83 10/1/08 - COMMERCE - BILL 080573, ETC. statement of a demand for the production of documents. The subpoena is enforceable not by Council itself but by resort to court, and the Charter provides that Council can go to court and request the court to enforce the subpoena.
Thank you. Does this Committee have the power to subpoena the documents requested from the Reading Terminal Market Corporation?
Yeah. The resolution specifically authorizes the issuance of subpoenas, and I think Council rules were amended in the last few years to provide that all investigatory hearings include the power to issue subpoenas.
Thank you. PIDC. (Witnesses approached witness table.) 84 10/1/08 - COMMERCE - BILL 080573, ETC.
Thank you for indulging us there. I appreciate it. I think what we were talking about before Mr. Rosman walked in was sort of generally your mission versus the missions of other potential economic development agencies, and that's part of what we're trying to get to in these hearings, and as we look at other economic development agencies, I have a general question about that. Do you think it makes sense to have one agency responsible for everything or should we have more focused missions with different agencies focused on commercial development, focused on not-for-profit loans, et cetera?
I mean, I think obviously it's a great question and, to a certain extent, a little bit of a glib answer would be that we do have one agency, it's the Commerce Department and particularly now that the Deputy Mayor's responsibilities have been 85 10/1/08 - COMMERCE - BILL 080573, ETC. expanded and sort of pick up everything.
So essentially what you're saying is that you do no more or less than the Commerce Department and the Administration wants you to do?
Well, I wouldn't put it in such a sort of negative way. I mean, I just would sort of say we take our lead from the Commerce Department. The Commerce Department in its broadest sense today, which includes so many of -- really virtually all of the agencies that would be part of my answer to you flow through the Commerce Department. They're in the process of putting together a strategic plan that kind of picks up all these things, and I would sort of say we would definitely take our lead from them. How we actually implement that is where I think there's room for our initiative and creativity and innovation. But the lead and the policy is theirs. 86 10/1/08 - COMMERCE - BILL 080573, ETC.
Mr. Longstreth, if you know the answer for the record today. If not, could you please forward the answer to the Chair. What portion or percentage of your loan portfolio consists of repeat clientele?
Wow. Once again, if we focus on the loan side, I would sort of guess it's probably 40 percent, 35, 40 percent. It's a high number.
In addition to just the percentage, please provide the actual names of the repeat clientele to the Chair.
Basically, we go through a little bit of an internal planning process in the fall. So in late October, we have a retreat in which a fairly broad group of our kind of middle and upper management get together and discuss issues that provide useful background to our business planning. And we have a second meeting a little later in the fall in which the senior management that runs the individual groups goes through their business plans for the next year. They then sit down with Jim Fluck, the gatekeeper. Jim puts together a budget. He and I approve it and we take it to our Board, which approves the budget for the next year.
So in terms of the priorities set in your budget and what you're going to do and not do, that is basically decided at the staff level? 88 10/1/08 - COMMERCE - BILL 080573, ETC.
In other words, the Board does not see what you're not recommending?
Correct. That's pretty much correct. I mean, I do think -- once again, it's a relatively small group. We meet very regularly, so I think there's a lot of communication. But, yeah, I think that's a proper characterization. I would also emphasize that input from the City is also continuous and also very much included in the process that I described; that is, the internal piece of it.
I understand. That seems to be the overriding theme of today's hearing.
It is very 89 10/1/08 - COMMERCE - BILL 080573, ETC. much the overriding theme.
Please describe and give examples for the following sources of revenue: Service fees reimbursements.
That would be basically our loan activity. Like a bank, there are transaction fees associated with our various loan programs. Some, but not all, are used for our -- go directly to our budget. Others are -- for example, in the CDBG loans are returned to program income and then reallocated based on our request to Council annually.
Okay. So how do your service fees, transaction fees, et cetera, compare to other industrial development authorities around the region and around the country?
I think they compare favorably. And we also look at 90 10/1/08 - COMMERCE - BILL 080573, ETC. the banks --
Can you take a look at a sampling of the sort of ten major markets and compare yourself to them in terms of your fees and costs versus what their industrial development authorities do?
But I think the concept that we test our fee structure in the marketplace periodically is something we do do.
Except that if you're the sole person authorized by the State to provide tax-exempt financing, et cetera, or do some other kind of activity, there's really no 22 choice, is there?
No. I mean, I understand that, but by the same token, we do talk to other authorities both in 91 10/1/08 - COMMERCE - BILL 080573, ETC. the state and outside in terms of what --
But if I may just say, Councilman, there is a choice. The tax-exempt borrower could go directly to the State. If they felt that our fees were not in line, they could go directly to PEDFA, Pennsylvania Economic Development Finance Authority. So there is an alternative.
Public-private contracts, give examples of those sources of revenues.
The public contracts; as an example, the ones that are between the City and PIDC, generally relate to the reauthorization of our revolved loans, the HUD 108, CDBG. And, 92 10/1/08 - COMMERCE - BILL 080573, ETC. again, that's -- I'm sorry. Oh, I'm sorry. Are you referring to the line item, Councilman? Oh, okay. I thought you wanted specific. Public-private contracts, the land bank administration is in that, the general services contract, the stimulus -- administration of the stimulus program. That's what's in that category primarily.
Okay. Navy Yard expenses, reimbursement, describe that source of revenue.
That's basically -- a number of the personnel that are involved in the Navy Yard on a daily basis are actually on the PIDC payroll, and this is a mechanism that we use to reimburse PIDC for those direct expenses related to the Navy Yard, and the source of funding here is the rents at the Navy Yard that are charged to the various lessees.
And who pays 93 10/1/08 - COMMERCE - BILL 080573, ETC. that money? Who are the rents paid to that then reimburses --
They're paid to Cushman & Wakefield, which is our manager down at the Navy Yard, and then Cushman in turn reimburses those expenses to us based on invoices that we provide.
And who is the owner, the beneficial owner of that rental account?
The Navy Yard is an asset owned by PAID, and this is how their normal cash flow operates. And it's basically, we collect rents, we charge a common area maintenance, are the two revenue sources. There are a whole series of operating expenses at the Navy 94 10/1/08 - COMMERCE - BILL 080573, ETC. Yard, and then there's this allocation of a cost to personnel as well. And that makes up the Navy Yard sort of cash flow statement, which annually is negative and needs to be funded.
So how many personnel are being reimbursed out of this fund that are on PIDC's payroll?
I would say it's probably a portion of -- not in full, but it's a portion of probably maybe six individuals that charge a portion of their time.
And you're saying that those expenses exceed -- the salary reimbursement for six individuals exceeds the amount going into the rental funds?
No. I'm saying that those, in combination with the operating expenses of the Navy Yard, the insurance and the snowplowing and utilities and all of the normal operating, the security operating 95 10/1/08 - COMMERCE - BILL 080573, ETC. expenses that go into a property of that size, still generate a negative cash flow at the Navy Yard. We hope it won't. We hope as the Navy Yard gets developed, it will generate a positive cash flow, but as we have discussed, part of our agreement with the Navy when we acquired the project is that we are obligated to reinvest any positive cash flow in the Navy Yard, and there's $300 million worth of infrastructure yet to be funded until, at the earliest, 2025. That's our agreement with the Navy.
Do you have documents demonstrating the infrastructure investment required at the Navy Yard?
Yeah, we do. Yeah. When you say what we've already done, which totals about 90 million, and what we anticipate going forward, which is another 300 million, we have obviously outlines of those costs, yes.
Would you 96 10/1/08 - COMMERCE - BILL 080573, ETC. please provide those to the Chair?
Councilman, I'm sorry. Can I just develop that point a little bit? Because I know it's something that's interested you in the past.
Yeah. I'm going to keep coming back to it, but feel free.
No. I guess I was going to say, when we think about the Navy Yard, which is a thousand acre property that we acquired on behalf of the City in 2000, we paid essentially a nominal amount of money to the Navy. I think it was $2 million. But in the process, acquired an asset that required $300 to $400 million in infrastructure, demolition, environmental work that basically totaled 300 or 400 million to bring it up to a market standard. So 97 10/1/08 - COMMERCE - BILL 080573, ETC. funding that 300 or 400 million is what we've been working on since we acquired it. About 90 million has been expended. That leveraged about 400 million of private investment so far, and the additional 300 million we would hope will leverage another 2 billion of private money. But funding that 300 million is an ongoing process, and it will come from cash flow, if we have some, any sale of assets and then any public funding which we can raise from the City through its annual capital budget, through the State government, through their different programs, or through the federal government.
I mean, our policy for land at the Navy Yard is 98 10/1/08 - COMMERCE - BILL 080573, ETC. basically fair market value, less any offsets that are required as it relates to the environmental remediation, demolition or infrastructure. And since a lot of the particularly eastern side of the Navy Yard has none of those, that's where the 300 million is. So that's the formula under which we sell land at the Navy Yard. Anywhere, for that matter.
I'm not aware of anything written, but there probably is.
What I'm trying to get to, have any buildings been sold at the Navy Yard for a dollar or any pieces of land, for nominal amounts?
Once again, it depends on how you calculate that. It's a nominal amount -- it can be a nominal amount once those costs have been discounted.
But the concept is, once again, fair market value, less the kind of offsets that are justifiable.
Well, put another way, when you sell land for a dollar, is there any determination of the value of that land after the improvements and remediation are completed?
I think the calculation is what is the fair market value today if it were in fair market condition, and then be prepared to offset any of the costs to get it to that condition, but obviously not go below a dollar.
Right. So do you get appraisals of what the fair market value would be?
And who is 100 10/1/08 - COMMERCE - BILL 080573, ETC. doing the work? In other words, as part of your decision to sell land for a dollar, do you not get involved in how somebody is going to finance the transaction that will do the improvements that --
Well, I think all of that is taken into account in the negotiation.
Right. So who the developer is of the project, you vet that before you sell land for a dollar to make sure you think that that can be done?
I mean, I would emphasize, we don't consider we're selling land for a dollar. We think we're selling it for fair market value, and these are costs --
However you want to characterize it, if you could just answer the question. 101 10/1/08 - COMMERCE - BILL 080573, ETC.
The question is, do you look at who the developer is, who the person who is responsible for doing some of the beautiful work that's been done out there in the Navy Yard? Do you look at who the contractor is as part of selling land for a dollar? Or do you sell land for a dollar without knowing how the person who is buying it is going to improve it?
I'm not sure I'm totally understanding the question, but I would sort of say the negotiation tries to take into account what we believe the cost of this work that justifies the offsets will be.
But you don't look at who is going to do the work, who did the design work, whether or not they're good firms that would make you believe that these people are realistically going to be able to 102 10/1/08 - COMMERCE - BILL 080573, ETC. accomplish what --
I'm not sure that we take it to that level. We could. I just don't know. I don't know. I think --
We can ask our people exactly the methodology we use to define that offset, and I'm happy to provide you with that. But the question, if I'm understanding, is, what is our methodology to calculate the offset which is an integral part of the negotiation?
And the second half of that is, do you look at the people who are going to be doing the work, the people who have done the design work, et cetera, in order to determine whether or not you believe if someone comes to you with a proposal to buy a building from you for a dollar, whether or not they can actually achieve what they're saying? 103 10/1/08 - COMMERCE - BILL 080573, ETC.