Okay.3 COMMISSIONER RICHARDSON:4 Amnesty has gone by, and there's5 post-amnesty. We want to continue to6 tell people we mean business that there's7 no more shopping around, this is the8 number you got to deal with, don't go9 looking for someone else to try to help10 you out.11
Mm-hmm.12 COMMISSIONER RICHARDSON: And13 pay your fair share that's owed to the14 City.15 So we believe that it will be16 more cohesive, we'll all be in unison and17 continue to move forward on doing things18 together.19
So this is20 a new infrastructure development, if you21 will?22 COMMISSIONER RICHARDSON: Yes.23
A year24 old?25 88 4.4.11 COMM. OF THE WHOLE - BILL 1101371 COMMISSIONER RICHARDSON: No.2 It won't start until July 1.3
Oh, okay,4 then. When a buyer purchases a property5 with delinquent taxes, they are often6 entitled to a tax clearance so that they7 don't have to pay tax -- pay back-taxes.8 In last year's testimony,9 Councilman Rizzo raised a question with10 Commissioner Breslin, Deputy Commissioner11 Breslin, that it indicated that a list12 would be created to expedite the process13 of identifying delinquent properties that14 receive the tax clearance.15 Has that new process started16 yet?17 COMMISSIONER RICHARDSON: It18 started January 1.19
And what20 are your preliminary findings or21 observations?22 COMMISSIONER RICHARDSON: We've23 had about 140 individuals go through the24 system to get a clearance. Things have25 89 4.4.11 COMM. OF THE WHOLE - BILL 1101371 been working pretty well. We haven't had2 any concerns or comments from the Zoning3 Board about it.4
You5 haven't had any...?6 COMMISSIONER RICHARDSON: We7 haven't had any issues or anything from8 the Zoning Board for taxpayers providing9 the clearance because they have to make10 sure they're in compliance with their11 taxes.12
Okay. I13 thought I heard someone else might want14 to comment on that.15 Since the end of amnesty, the16 Department of Revenue has continued the17 process of enhancing its collection18 efforts. In what ways have you -- what19 are your observations or findings now20 that amnesty has ended?21 COMMISSIONER RICHARDSON: I22 would say, one, as in the testimony, we23 created the website to start posting not24 just tax delinquents but also water25 90 4.4.11 COMM. OF THE WHOLE - BILL 1101371 customers.2 We are working with the3 District Attorney's Office now to start4 prosecuting trust fund taxes like the5 wage tax.6 We're continuing our efforts7 with the Licenses and Inspections, as I8 said in the testimony, going out on a9 quarterly basis with them, looking at10 various business corridors to see11 taxpayers who may not be compliant with12 us as well.13 And, again, with the new tax14 Law Tax Unit within the Department,15 again, it's telling people that we're not16 going to be cutting deals anymore as it17 was done in the past. So we're trying to18 be more proactive and progressive.19 As you know, in the testimony,20 we started in the fiscal year making21 outbound calls. We lost the outbound22 calling system that we had back in 1999.23 So if you're first to the24 phone, making that phone call, someone25 91 4.4.11 COMM. OF THE WHOLE - BILL 1101371 may pay 'cause they don't hear from the2 City right now. So we're trying to be3 more proactive in doing that.4 2010 taxes that were due for5 real estate, we started reaching out to6 those people who had not paid yet, so7 they get the phone call.8
Mm-hmm.9 COMMISSIONER RICHARDSON:10 Because January 1, they're going to get a11 lien on their property and the now12 interest and penalties is going to be13 rolled into the principal.14
Mm-hmm.15 COMMISSIONER RICHARDSON: So16 we're trying to be more proactive on17 doing things that way instead of being18 reactive.19
Oh, I see.20 Okay, thank you.21 COMMISSIONER RICHARDSON:22 You're welcome.23
Thank you,24 Madam Chair.25 92 4.4.11 COMM. OF THE WHOLE - BILL 1101371
Thank you,2 Councilwoman.3 The Chair recognizes Councilman4 Green.5
Thank you,6 Madam Chair.7 With respect to amnesty, I8 think the Administration's estimates were9 that the General Fund would receive10 something around $30 million; many on11 Council suggested it would be far more12 than that.13 Can you tell us what amnesty14 brought in last year?15 By the way, I want to commend16 you on your report on it. I'm just17 looking for the answer. For the record,18 that was an excellent report that you did19 --20 COMMISSIONER RICHARDSON: Thank21 you.22
-- on the23 amnesty program.24 COMMISSIONER RICHARDSON:25 93 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Again, as we said in the testimony, we2 did $72 million in gross collections; 48,3 49 million went to the General Fund, and4 21 million went to the School District,5 and a million for hotel tax.6
Most amnesty7 programs had a provision, which ours8 didn't have, which is -- and it was9 something that really Councilwoman10 Sanchez has been asking for since 2008,11 and that is the ability to enter into an12 agreement with respect to a balance if13 you agree to pay off the entire14 principal; whereas, our amnesty program15 did not permit people to take advantage16 of amnesty if they could not pay off the17 entire balance.18 And we have heard from19 constituents that basically say, you20 know, I had a very large liability. I21 didn't have all of it and, so, I wasn't22 able to participate in amnesty. And now,23 you know, my bill is so high that I'm24 never going to be able to pay it.25 94 4.4.11 COMM. OF THE WHOLE - BILL 1101371 And I'm just wondering how much2 you think we left on the table through3 the absence of that provision, if any,4 and if you think it would be worthwhile5 doing a limited amnesty for that purpose,6 to allow people to enter into agreements.7 COMMISSIONER RICHARDSON: I8 would say to you no, I don't think9 agreements is a good thing. Some states10 do amnesty programs for 90 days or more11 and give taxpayers a longer time for12 payment agreement.13 I think a lot of taxpayers in14 situations like that could have hardships15 and come and spoken to us about it. That16 might have been a option for them. I17 don't know if they discussed that with18 our vendor or not.19 I believe, if you're going to20 do a amnesty, it's all or nothing. It's21 a certain time frame, this your22 opportunity to take advantage of it or23 not.24 Again, if they have a situation25 95 4.4.11 COMM. OF THE WHOLE - BILL 1101371 of a large tax balance now, they need to2 come in and talk to us about working on3 the tax balance now to bring it down and4 help them out.5 DEPT. COMM. BRESLIN: Can I add6 to that also that we did speak to our7 amnesty vendor, General Revenue Corp.,8 about that early on, and they did -- for9 the record, they did the New Jersey10 program, a highly successful program.11
Which12 allowed what I'm discussing.13 DEPT. COMM. BRESLIN: Yeah.14 And their recommendation actually for us15 was, you know, not to accept the payment16 agreements, that they thought it would be17 a more productive program for us as we18 ran it.19 Now, we did allow for hardship20 agreements, meaning that if a taxpayer21 came in and could not pay all of it, they22 could get amnesty treatment for the23 portion of the liability that they wanted24 to pay and then could enter into a25 96 4.4.11 COMM. OF THE WHOLE - BILL 1101371 payment arrangement for the balance.2 They wouldn't get amnesty terms3 on the balance, but we did work with4 taxpayers to get the balance of the5 liability, you know, to some type of6 workable terms for them. And we did have7 taxpayers take advantage of that.8 So it's hard to answer the9 question of what was left on the table,10 but based on the amnesty vendor and the11 results of the program, we felt that it12 was -- you know, it was very successful,13 and we were able to accommodate many14 taxpayers in that situation.15
Okay, I16 mean, fair enough. It was a judgment we17 made, and it was obviously a very18 successful program compared to the19 Administration estimates, and we were all20 pleased to see that.21 So with respect to that, the22 thing that I think Commissioner Richards23 mentioned in the testimony previously and24 what you just alluded to, our fees and25 97 4.4.11 COMM. OF THE WHOLE - BILL 1101371 our fines are very, very high compared2 to, say, the State, other municipalities,3 et cetera. And that makes it very4 difficult, once someone gets in the hole,5 to get out of the hole, and it's hard to6 negotiate solutions.7 One of the things that I am8 personally considering is having our fees9 and fines match the State going forward10 and permitting anybody who wants to, to11 be -- to have the right to either pay off12 their outstanding obligation to the City,13 as if the State rate applied the entire14 time, or enter into an agreement, as long15 as they put up a certain percentage of16 the money, as if the State rate applied,17 and will continue to apply, to any18 outstanding balance.19 Do you have any thoughts on20 that, about whether or not it would21 likely result in increased receipts in22 the short or medium term? And I'd just23 like your general comments on that as a24 change in policy for the City.25 98 4.4.11 COMM. OF THE WHOLE - BILL 1101371 COMMISSIONER RICHARDSON: We2 hear your comments and concerns, and this3 is something we have been creating a4 working group to look at.5 Again, we would like to be at6 what the LIBOR rate is, what all the7 states are that change their rates, I8 think, quarterly or yearly, because the9 interest and penalty is very high, and10 today's rates should be much lower, 5, 611 percent.12 So we are looking at that and13 we are studying that to try to work on a14 policy by changing the regulations, I15 thin, internally to do that.16
Can you do17 that by regulation, or wouldn't that18 require legislation?19 COMMISSIONER RICHARDSON: We20 need an ordinance for that.21
You'd need22 an ordinance.23 COMMISSIONER RICHARDSON: So24 we'll be talking about that.25 99 4.4.11 COMM. OF THE WHOLE - BILL 1101371
Well, I'd2 like to work with you on that. I mean,3 it's legislation I'm working on, and it's4 something I think we -- you know, we need5 to do as the economy recovers, and we6 want our businesses to be able to come7 back with a clean slate that owed us8 money and make it easy for them to not9 have to spend a lot of time or money10 negotiating if we just say upfront: If11 you agree to sort of go back to what the12 State is, pay us off, or pay 50 percent,13 and then enter into an agreement to pay14 us off at the State level, that like it's15 automatic. It's automatic for us, it's16 automatic for them, very simple,17 straightforward, you know.18 So, you know, I'd like maybe if19 we could work on something for the fall.20 I'd like to work with you on that.21 COMMISSIONER RICHARDSON: Sure.22
You23 mentioned -- I think in a 2008 memo24 actually from Commissioner Richardson,25 100 4.4.11 COMM. OF THE WHOLE - BILL 1101371 and then, as was noted and highlighted in2 the Freshman 15, and it was mentioned by3 Councilwoman Brown, you basically said4 regulations have been written that will5 more clearly define activities that are6 deemed taxable for nonprofit entities,7 and that you anticipated implementing the8 regulations at the start of FY '11.9 Could you update us on the10 status of these regulations?11 COMMISSIONER RICHARDSON: I'll12 get back to you on that. I don't13 recollect off the top of my head.14
Okay. It's15 a June 13, 2008, memo from you to Rob16 Dubow, and it deals specifically with17 unrelated business activities of18 nonprofits and changing the regulations19 to make them more collectible.20 Have we propose such21 regulations?22 COMMISSIONER RICHARDSON: We23 proposed those regulations. We are still24 working right now with nonprofits and25 101 4.4.11 COMM. OF THE WHOLE - BILL 1101371 their counsels on that regulation.2
Okay. With3 respect to sort of -- I think I heard4 your testimony very clearly, and I'm5 sorry I forget your name, Chief Counsel.6
Frances --8 Ms. Beckley, sorry.9 I think your testimony was that10 we cannot tax a nonprofit if they're11 defined under the Constitution for --12 even if it's a business activity like,13 for example --14
No, no, no.15 That's not -- that's not true. It's --16 it's -- if there is -- if it's unrelated17 business taxable income, that's clearly18 permitted.19 And it's a question -- and I'm20 glad you gave me a chance to clarify.21 The State Constitution says that we may22 exempt nonprofits; it doesn't require23 them to do that. State law has exempted24 them.25 102 4.4.11 COMM. OF THE WHOLE - BILL 1101371 We would have to get something2 from the General Assembly to approach3 taxing them, and I don't think anybody is4 interested in taxing the core functions5 of nonprofits.6
What we already8 do, as I said, is impose CPT on the9 unrelated business.10
Well, so,11 for example, we have some for-profit12 hospitals in the City; I think Hahnemann13 may be one, St. Christopher's, et cetera.14 And we have, quote/unquote, not-for-15 profit, which are, you know, I don't16 know, 250 million, half-a-billion-dollar17 businesses for which we provide a lot of18 service and receive no revenue, because19 they're a not-for-profit with executive20 directors earning 4 million a year and,21 you know, CEOs and the whole sort of --22 you know, they just don't have23 shareholders, but a lot of people are24 making a lot of money related to these25 103 4.4.11 COMM. OF THE WHOLE - BILL 1101371 activities.2 My question really was:3 Without a change in State law, we can't4 charge a -- can we charge our gross5 receipts on their business activities on6 sort of hospital activity or on, you7 know, other activities like that --8
No, we can't12 without a change in State law. However,13 one of the five --14
One of the five19 prongs of the current State tests under20 hospital utilization projects is that21 there be no what's called "private22 inurement."23 So if you were able to show24 that somebody really was basically25 104 4.4.11 COMM. OF THE WHOLE - BILL 1101371 skimming money from a nonprofit, that2 nonprofit would not be exempt under3 Pennsylvania State law.4 So, you know, if there truly5 were a situation where people were, for6 example, contracting with their relatives7 or doing inappropriate things that you8 could show siphoned profit away from the9 enterprise, they would lose their exempt10 status.11
Well, I have12 to tell you, that applies to many13 not-for-profits in the City, probably14 hundreds, where the bulk of the money15 goes to salaries, and very little gets --16 you know, maybe -- all right, you know,17 tens, tens of not-for -- where the bulk18 of the money ends up going -- and the19 City even contributes to some of these20 not-for-profits, where the bulk of the21 money ends up going in executive director22 and other salaries, often of related23 people.24 Do we have an audit staff that25 105 4.4.11 COMM. OF THE WHOLE - BILL 1101371 specializes in not-for-profits or2 unrelated business profits? Or is that a3 --4 DEPT. COMM. BRESLIN: We do not5 have a dedicated audit staff. We do6 audits of nonprofits. And at that time,7 as I stated, we would look for8 nonbusiness income.9 We would look to see that their10 not-for-profit status has not been11 revoked. If it is revoked, then we would12 change that status in our system, and we13 would tax them accordingly.14
Okay. In15 the cashiering and settlement processing16 automation reengineering, my question17 really just is: Are we looking at the18 workflow processes that currently exist19 as a part of the implementation of that,20 or are we simply replacing legacy systems21 with new systems that require people to22 do the same sort of thing?23 COMMISSIONER RICHARDSON: We24 looked at both.25 106 4.4.11 COMM. OF THE WHOLE - BILL 1101371
We're2 looking at both.3 COMMISSIONER RICHARDSON: We4 looked at both.5
And so,6 there should be some efficiencies --7 COMMISSIONER RICHARDSON: Yes.8
-- as a9 result of this new system.10 COMMISSIONER RICHARDSON: Yes.11
And there's12 a clear audit trail within this new13 system?14 COMMISSIONER RICHARDSON: Yes.15
So nobody16 can -- we won't just know whose -- we17 won't just know which computer accessed18 it; it will know the individual that19 accessed it and made a change or a20 payment in the system?21 COMMISSIONER RICHARDSON:22 Payment processes is not making any23 changes into the payments. They're24 getting the money, they're processing the25 107 4.4.11 COMM. OF THE WHOLE - BILL 1101371 money to get to the bank faster. That's2 all they're doing.3
So the4 cashiering and settlement processing,5 there was testimony that part of the6 reason that there's been a lot of fraud7 in this area in Water Revenue and other8 places is because they could tell -- like9 somebody would come in and make cash10 payments, and it simply wouldn't get11 recorded.12 COMMISSIONER RICHARDSON: That13 was the testimony from the IG, not from14 me.15
That was16 from the IG, right.17 COMMISSIONER RICHARDSON:18 Right, not from me.19
Right. So20 you don't disagree with the Inspector21 General?22 COMMISSIONER RICHARDSON: With23 regards to -- again, that's past24 practice, before we were here.25 108 4.4.11 COMM. OF THE WHOLE - BILL 1101371 There are checks and balances2 that we do have in place. We've worked3 with her office on some things as well.4 But, again, a new system is just needed5 because we have an antiquated system6 that's twenty years old.7
So it8 doesn't -- it would not take care of9 items like that, where someone's taking10 cash and simply not putting it in the11 system.12 COMMISSIONER RICHARDSON: That13 is the cashiering system upfront. The14 cashiers' drawers are checked. They have15 checks and balances on making sure they16 review and cash -- they check their17 drawers as an audit on a daily basis so18 we know there's nobody taking a check19 from the back room, as it was in the past20 and cashing out for -- no, that's past21 practices. No.22
Okay.23 That's all I have. Thank you very much24 for your testimony.25 109 4.4.11 COMM. OF THE WHOLE - BILL 1101371 And I just want to say that2 it's been great working with you and your3 staff. You have a great team. Thank4 you.5 COMMISSIONER RICHARDSON: Thank6 you, sir.7
Thank you.10 Commissioner, I don't have11 anything other than to tell you that for12 many years, we've gone back and forth13 prior to your being the Commissioner, but14 maybe I have discussed this with you15 before.16 I sent you a message -- I hope17 you got it -- that I paid my real-estate18 tax a little bit early this year. And19 normally, that check sat and sat and sat.20 Three weeks went by, four weeks sent by,21 still not cashed.22 COMMISSIONER RICHARDSON:23 Mm-hmm.24
Well, you've25 110 4.4.11 COMM. OF THE WHOLE - BILL 1101371 done something because it got cashed in2 two days this time.3 COMMISSIONER RICHARDSON:4 Mm-hmm. Well, first of all, we know your5 check's coming in.6 (Laughter.)7 COMMISSIONER RICHARDSON:8 Secondly, again, as I said to you, when9 you do your check online banking, there's10 no coupon with it, so it goes into our11 area that has to do with a special coupon12 for you.13 We have thousands of other14 people who that do that also. Just in15 the last two months, there's been 38,00016 individuals or people who have sent17 checks in without the coupon, so we have18 to take it to our special section to look19 at that.20 So that's why we always21 encourage people: Send your coupon in22 with the check.23 But when it comes to you,24 Councilman, we're on top of it.25 111 4.4.11 COMM. OF THE WHOLE - BILL 1101371
Well, you2 know, times are changing, Commissioner.3 People are using online banking. I did4 send a coupon in this time.5 COMMISSIONER RICHARDSON: Right.6
I did not do7 it that way just for that reason.8 COMMISSIONER RICHARDSON: Right.9
But, you10 know, down the road, people -- my bank11 told me that the checks people write are12 just -- there's not many people writing13 checks anymore.14 COMMISSIONER RICHARDSON: We15 agree.16
You know,17 the older folks are writing checks, but18 the younger generation, everything's19 online. So if you haven't adapted to it,20 you got to figure out a way to do it.21 COMMISSIONER RICHARDSON:22 Mm-hmm.23
But I can24 tell you, this time, using the envelope25 112 4.4.11 COMM. OF THE WHOLE - BILL 1101371 with the stamp and the check and the2 coupon, it worked.3 COMMISSIONER RICHARDSON: Well,4 we're on time with payments that way.5 Again, as you saw from the E-Tides6 testimony, we're trying to do more things7 with the electronic world. We're trying8 to come into the 21st century.9
That's10 terrific. If not, they're going to drag11 you into it.12 Thank you, Madam Chair.13
Thank you.14 Any more questions? Any more15 questions?16 (No further questions.)17
Thank you18 very much for your testimony. We19 appreciate it.20 COMMISSIONER RICHARDSON: Thank21 you, Councilwoman Tasco. Everybody have22 a great day.23
Thank you.24 MR. McPHERSON: The next25 113 4.4.11 COMM. OF THE WHOLE - BILL 1101371 department is the Sinking Fund2 Commission.3 (Witness comes forward.)4
Good morning, Madam7 Chair and members of City Council. 11 COMM. 6 The Sinking Fund Commission is7 committed to supporting the8 Administration's goal of 25 percent9 minority-, women-, and disabled-owned10 business participation in City11 contracting. 14 The Sinking Fund Commission15 budgets for debt service for the16 following funds: General, Water, and17 Aviation, and car rental tax. 23 First, the General Fund. 11 COMM. 10 The Class 200 request enables11 lease payments for facilities such as the12 Municipal Services Building, the One13 Parkway building, and certain14 correctional facilities. 11 COMM. 11 COMM. OF THE WHOLE - BILL 1101371 early in July 2011. 15 Next, the Water Fund. 2 million, all in Class 700,19 for payments of debt service on Water and20 Sewer Bonds. million increase over the request22 for Fiscal Year 2011. 11 COMM. 2 Next, the Aviation Fund. 18 And, finally, the Car Rental19 Tax Fund. 11 COMM. OF THE WHOLE - BILL 1101371 portion of my testimony. 4
Thank you.5 These questions are from the6 Administration -- from the Council7 administration.8 What is the total outstanding9 debt of the City's General Fund?10
It's $1.2 billion11 approximately. We just calculated that.12 As of February 28th, it was13 $1,247,000,000, General Fund.14
In your15 testimony, you mentioned that you are16 requesting in an increase of $3.5 million17 for stadium-related cost increases for18 remarking and liquidity fees. Can you19 tell why these costs are going up?20
The Letters of21 Credit that these fees apply to were all22 issued in 2008, during the credit crunch,23 and they're all expiring in the next24 fifteen months or so. We expect -- and25 120 4.4.11 COMM. OF THE WHOLE - BILL 1101371 they total close to a billion dollars'2 worth of Letters of Credit. So we expect3 an increase by the issuers in order for4 them to maintain those Letters of Credit.5 So on a billion dollars' worth6 of Letters of Credit, this is, I think, a7 relatively small increase here. The8 numbers that have been bandied about by9 the investment banks or anywhere from a10 jump of 50 to 100 basis points in the11 liquidity fees.12
Thank you.13 You had something to say, Miss?14 Would you identify yourself for the15 record, please.16 TREASURER WINKLER: Hello. I'm17 Nancy Winkler, the City Treasurer.18 Just to clarify a point that19 Mr. Jones just made with respect to the20 stadium bonds, there's $289 million'21 worth of variable-rate debt, which is a22 portion of the approximate $1 billion of23 variable-rate debt, where we have the24 Letter of Credit facilities renewing, and25 121 4.4.11 COMM. OF THE WHOLE - BILL 1101371 we are anticipating a very significant2 increase in the cost of the Letters of3 Credit for the stadium bonds due to the4 fact that the Letter of Credit market has5 become far more costly in the last6 several years, with the -- really, with a7 number of Letter of Credit banks existing8 the market.9 This is also a year in which10 there's just a very large number of11 facilities that are renewing, which is12 putting upward pressure on pricing.13
Mr. Jones,14 you mentioned that the City will be15 issuing $136 million in new money. When16 do you expect to go to the market, and17 what is your interest rate assumption?18
We expect to go to19 the market tomorrow, as a matter of fact.20
And the interest22 rates are... I wrote this down a minute23 ago. They're anywhere from 2.5 percent24 on the short end, up to 6.25 percent on25 122 4.4.11 COMM. OF THE WHOLE - BILL 1101371 the long end.2
That's -- that --5 they're the market rate right now, Madam6 Chair.7
We've been working10 with a host of investment bankers, and11 they're zeroing in on that, and we'll12 know those numbers by Wednesday. We go13 to the market tomorrow.14 It's a two-day order period, so15 we'll know exactly where those bonds are16 priced after that.17
Okay.18 What are the other projects that are to19 be funded?20
I would ask my boss21 to talk about it.22 TREASURER WINKLER: Hi. We've23 due-diligenced projects that were24 authorized in three different ordinances.25 123 4.4.11 COMM. OF THE WHOLE - BILL 1101371 And forgive me if I'm not2 referring specifically to the right legal3 terms, but 2008, 2009, and 2010 projects4 are all reviewed to be included.5 And this is -- there's really a6 very broad range of projects. We can7 provide you the specific list.8
These are9 the Capital Budgets --10 TREASURER WINKLER: The Capital11 Budget.12
-- that we13 will be funding that with Capital Budgets14 we've passed --15 TREASURER WINKLER: Yes.16
-- and17 voted on in the past.18 TREASURER WINKLER: Yes.19
You're now20 funding them.21 TREASURER WINKLER: Yes.22
Okay. Why23 are you requesting, Mr. Jones,24 $1.3 million for the Philadelphia Parking25 124 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Authority Series 1990-A?2
This is an3 obligation that the City has had for the4 past twenty years. It's -- it was an5 arrangement between the Parking Authority6 and the City, and the City is obligated7 to make these payments on these bonds.8
Okay. And9 how were the proceeds of these Parking10 Authority bonds used, and what benefit11 did the City receive by their issuance?12
Ooh. I'll have to13 get back to you on that one, Madam Chair.14 TREASURER WINKLER: I don't15 know.16
You don't17 know? Okay. Thank you very much.18 The Chair recognizes Councilman19 Goode.20
Thank you,21 Madam Chair.22 Good afternoon, Mr. Jones.23
Good afternoon,24 Councilman.25 125 4.4.11 COMM. OF THE WHOLE - BILL 1101371
I'm asking2 the same series of questions to each3 department. What is the largest contract4 that you will award in Fiscal Year '12?5
We have one6 personal services contract for $4500 with7 Digital Assurance Certification; "DAC" we8 call it.9
Oh, Class 200?15 It's $93 million. Most of that is for16 lease obligations on -- for various17 correctional facilities, the lease18 obligations on the Municipal Services19 Building, and the One Parkway Building.20
Okay. Most21 of that's for -- it's those leases. Are22 there any other contracts you have within23 that $93 million that are put out to bid?24
Thank you,20 Madam Chair.21 I have a couple of questions22 related to answers that were given to23 other questions, and that is, I think24 there was just testimony that due25 127 4.4.11 COMM. OF THE WHOLE - BILL 1101371 diligence had been done regarding the2 issuance of capital bonds on what was3 going to be spent in -- for the 2008,4 2009, and 2010 authorizations.5 What do you mean by that?6 What's due diligence on capital projects?7 TREASURER WINKLER: It's just8 the disclosure to our outside tax9 counsel, bond counsel, within our bond10 counsel firm of the projects that are11 underway that will be funded so that they12 can confirm that those particular13 projects are indeed eligible for14 tax-exempt status and tax-exempt15 financing.16
Okay. So17 that's a list of every project with a18 description of what it is --19 TREASURER WINKLER: Yes.20
-- that you21 provide to outside counsel?22 TREASURER WINKLER: Right. The23 dollar-amount and the number of years of24 useful life of the expected life of the25 128 4.4.11 COMM. OF THE WHOLE - BILL 1101371 project that's getting financed.2
If you could3 please provide that information to the4 Chair since it's already prepared.5 TREASURER WINKLER: (Nods6 head.)7
I'd be very8 interested in looking at that.9 Yesterday, in the Inquirer, it10 was advertised -- and this is somewhat11 related to a question previously asked,12 but it was advertised $272,230,000 in new13 issuances. The testimony was that14 $136 million would be issued.15 Can you describe -- can you16 explain the discrepancy in the numbers?17
The discrepancy,18 Councilman, is that the difference is19 being used to refinance old bonds.20
Approximately the22 difference in bonds that were issued in23 1998 and 2001, General Obligation Bonds.24
And the25 129 4.4.11 COMM. OF THE WHOLE - BILL 1101371 bonds are due and we're -- or we're just2 refinancing existing bonds that aren't3 due?4
One is actually due9 May 15th -- oh, throughout -- yes, you're10 correct. They start in 2011, and they go11 through 2021, were the original maturity12 dates of the bonds being refinanced.13
And so,14 essentially, we chose a debt profile for15 those bonds based on I guess what we used16 the money for a long time ago. Is this17 capital money that we're renewing or18 turning over that we haven't spent19 before?20 Or did we spend the money and21 now we're refinancing and essentially22 making the useful life go out longer?23 I'm just trying to understand.24 (Rob Dubow comes forward.)25 130 4.4.11 COMM. OF THE WHOLE - BILL 1101371
No, this has --2 actually, the refunding doesn't really3 have to do with the way that cash is4 being used. It's looking at our stream5 of payments and the interest that we're6 paying on them and looking at interest7 rates now and seeing whether we can get8 savings by refunding them. We're not9 putting out a new issue at a lower rate.10 And so, we go through each one11 of the maturities and see what percentage12 reduction we would get in our debt13 service by refunding it.14
So the15 question really is, like if I have a16 thirty-year mortgage on my home and it's17 Year 27 --18
We're not extending19 useful life. I mean, that's your20 question. We're not extending the21 maturities. It's the same number of22 year; it's just at a lower rate.23
You know, we're25 131 4.4.11 COMM. OF THE WHOLE - BILL 1101371 actually shortening the useful life in2 this refunding.3
-- paying6 the bonds back sooner than we otherwise7 would have.8
Okay. And,11 obviously, there's an analysis that shows12 that this will save us money in --13
Yes. There's an14 analysis that was part of the decision to15 do the refunding.16
Great. And17 if you could forward that to the Chair18 also. I'm just curious to see it. I'm19 sure you did it correctly. Thanks.20 There have been sort of21 conflicting credit-rating reports22 regarding the City of Philadelphia. Last23 week, S&P said that it could consider an24 upgrade in its BBB rating to BBB+ or25 132 4.4.11 COMM. OF THE WHOLE - BILL 1101371 better over the next two years. And2 Moody's last year downgraded the City3 from A1 to A2, in November.4 What's the -- how does that all5 play out in our borrowing costs, Moody's6 lower, S&P saying maybe higher, et7 cetera?8
There are a couple9 of parts to that answer. And then after10 I'm done and I get some of it wrong, the11 Treasurer will correct me.12 But Moody's went through a13 process where they did kind of a mass14 upgrade of issuers because -- you know,15 for a whole lot of reasons, but they did16 a mass upgrade. They didn't really look17 specifically at the credits as they did18 that.19 For us, they took us too high20 in that process, and so, they brought us21 back down, you know, after a more -- you22 know, after a thorougher review.23 We're still higher than we were24 before on Moody's but not quite as high25 133 4.4.11 COMM. OF THE WHOLE - BILL 1101371 as they had originally taken us.2 Usually, when bonds are priced,3 they're -- kind of the lowest rating4 really drives what you wind up paying.5 S&P is the lowest rating at the BBB, so6 if we get an upgrade for Moody's, we7 should trade better.8
If we got one from14 Moody's, it would probably help but not15 as much as S&P since they're below.16
So can you17 explain to me why, like, for stadium18 bonds, why do we have Letters of Credit19 from third-party banks? Or like what do20 we need -- I'm sure the indenture says we21 have to have them, but why would we need22 a Letter of Credit?23 TREASURER WINKLER: Yes. These24 bonds are variable-rate bonds. They have25 134 4.4.11 COMM. OF THE WHOLE - BILL 1101371 a provision in that they reset the2 interest rate every seven days.3 And this particular type of4 bond is most typically purchased by money5 funds, and those money funds have to have6 enormous certainty that in the event that7 they have the right to put the bond back8 on any seven days to cash out if they9 need the money to, say, pay out a large10 outflow out of the fund.11
Right.12 TREASURER WINKLER: And so,13 they seek to have absolute certainty that14 the money will be available with very15 short notice.16 And, really, no municipal17 entities are liquid enough to make that18 guarantee of being able to produce, let's19 say, in this example, $298 million on20 what's less than a week's notice.21 So it's the standard practice22 in the industry to obtain a third-party23 guarantee in the form of a Letter of24 Credit, where you can demand payment from25 135 4.4.11 COMM. OF THE WHOLE - BILL 1101371 the bank. And that is why we need the2 Letter of Credit.3 And in exchange for that, we4 are able to obtain very low rates. The5 current rate's approximately 25 basis6 points, a quarter of a percent, on those7 bonds. Those bonds are also, as you may8 know, swapped to fix, swapped to fix9 rate.10
So what is11 it when you take into account the Letter12 of Credit cost, the cost of borrowing?13 Or is that included in the quarter of a14 percent?15 TREASURER WINKLER: No, that's16 just the floating rate that we pay. And17 then in addition, we'll pay the Letter of18 Credit fee, and we will receive back19 under the swap a rate that's equal to the20 floating rate on the bonds, and then we21 pay a fixed rate.22 And I don't happen to have the23 fixed rates of each of these, but they're24 in the 3 -- you know, mid-3s.25 136 4.4.11 COMM. OF THE WHOLE - BILL 1101371
'Cause it2 seems to me 3.6 million on 298 million is3 1.3 percent or 1.2 percent for the Letter4 of Credit fee plus a quarter of a5 percent.6 So our actual cost is not a7 quarter of a percent for short-term8 money; it's, this year anyway, 1.39 percent for seven-day money.10 TREASURER WINKLER: It will be11 higher than that, yeah.12
So does that13 make economic sense for us at this point?14 Is there a way to just go to the bank15 that's giving us a Letter of Credit and16 borrow the money from them and pay off17 the stadium bonds or other bonds like18 that?19 I mean, if they're giving us a20 Letter of Credit, it's the same thing.21 TREASURER WINKLER: We monitor22 the economics of unwinding those23 transactions, which would involve24 terminating the related swaps and factor25 137 4.4.11 COMM. OF THE WHOLE - BILL 1101371 all of that in. And where we find an2 opportunity to -- and I believe in the3 past, the City has elected to unwind some4 of those transactions.5 At the moment, the cost to pay6 off the swap is --7
It's in8 excess of 1.3 percent?9 TREASURER WINKLER: -- in10 excess of what we would be able to save11 if we were to sell fixed-rate bonds.12
And you've13 done that analysis?14 TREASURER WINKLER: Yes.15
Thanks.19 One second. Oh, the trans.20 The proposed budget includes $11 million21 in Class 703. Last year's trans --22 sorry. My understanding is that23 tran-related interest costs for FY '11 is24 11 million on 285, and for this year,25 138 4.4.11 COMM. OF THE WHOLE - BILL 1101371 it's going to be 11 million on 250. Why2 is that?3
That is correct,4 Councilman.5 We've been talking to6 investment bankers from Loop Capital7 Management. They have been estimating8 our short-term borrowing costs to be in9 the 4 to 4.5 percent range for Fiscal10 Year '12 on the $250 million.11 So the budget -- that came out12 to be around $11 million.13
And is that14 for a firm underwritten offering, or is15 that --16
That was -- that17 was an analysis that they had done based18 on comparable issues in the recent past.19
There could be, but22 as of right now, it's -- we haven't gone23 to market with that issue yet.24
So this is a25 139 4.4.11 COMM. OF THE WHOLE - BILL 1101371 conservative estimate of what it will2 actually cost?3
I think it's a6 reasonable estimate, 4 to 4.5 percent on7 $250 million. I think that's in the8 ballpark there, yes.9
And I think10 the Finance Director testified that this11 trans may be an area where we look at --12 and I'm going to forget the term --13 auction? Not auction notes, but where we14 go -- we don't want do firm underwritten15 offerings?16
Competitive18 bidding, yeah. Is that still in the19 cards?20
I would ask the21 Director.22 TREASURER WINKLER: We're23 evaluating the ability to go with a24 competitive transaction this year and25 140 4.4.11 COMM. OF THE WHOLE - BILL 1101371 also maybe next year.2 I will -- I would like to just3 make a general comment that the municipal4 bond market is in a very difficult -- in5 a difficult place right now as a market.6 And so, we're being -- we want to be7 cautious in the way we proceed at this8 time because of how difficult the market9 is.10 But probably, if we were to try11 to go competitive, the tran would be one12 of the most -- it would be the best13 candidate for starters for us. And so,14 we are going to be evaluating. A15 decision has not been taken yet with16 respect to this summer's tran.17
Okay. But18 we're talking to all the right people.19 The competitive bidding groups, and other20 people are being, you know, talked to and21 given whatever information they need? In22 other words, are we just talking to our23 underwriters who --24 TREASURER WINKLER: No,25 141 4.4.11 COMM. OF THE WHOLE - BILL 1101371 we're -- the strategy that -- well, first2 of all, I'd like to say that because3 we're selling these bonds, the GO bonds,4 this week, we've been developing a plan5 on the tran but have felt it was6 important to stay focused on the GO bond7 issue.8 And so, starting next week,9 once we get that out of the way, we'll10 move forward with the a more thorough11 review of the options for the tran.12 And the approach that we'll be13 taking there will be to speak with a14 number of institutional investors, large15 money-fund managers, about their appetite16 for taking on the City's debt on the17 tran, to bidding on the tran.18
Well, who's19 going to -- I mean, in theory, they would20 not be the people to talk to --21 TREASURER WINKLER: They don't22 bid.23
--24 because -- well, because they -- if the25 142 4.4.11 COMM. OF THE WHOLE - BILL 1101371 tran is going to save us money and2 they're going to buy our bonds anyway,3 they would rather we go with the more4 expensive solution for us 'cause they'll5 get a higher return.6 TREASURER WINKLER: Actually --7
So there are8 groups out there that sort of just do9 competitive bidding; that's what they do.10 Are we talking to them --11 TREASURER WINKLER: Actually,12 pretty much, all of the investment banks13 have two desks.14
Right.15 TREASURER WINKLER: One is16 handling the negotiated transactions. So17 it's part of one big desk, but they have18 a group that handles negotiated19 transactions. And then typically, they20 have a competitive underwriter that21 handles the long-term competitor, and22 then they have a short-term group that23 handles the short-term products.24 And so, they would be the25 143 4.4.11 COMM. OF THE WHOLE - BILL 1101371 buyers.2
Have we3 spoken to --4 TREASURER WINKLER: They would5 be the buyers.6
Right.7 TREASURER WINKLER: They need8 to know that there are investors behind9 them that are going to buy the notes if10 they were to win the bid.11
Sure.12 TREASURER WINKLER: And so, our13 goal would be to do the legwork well14 ahead of the actual sale of the bonds to15 get the ultimate investors familiar with16 and comfortable and likely to approve the17 credit so that when the notes are sold,18 you know, the Goldman Sachs or the19 Merrill Lynches of the world will know20 that they have a group of investors.21 I mean, we would like to see22 about ten money funds.23
Or hopefully24 the Janney Scotts and the PNCs and the25 144 4.4.11 COMM. OF THE WHOLE - BILL 1101371 Kildare Capitals and the other2 Philadelphia-based firms who are --3 TREASURER WINKLER: Well,4 they're all eligible to bid on this.5
Okay. And8 is there -- so, have you talked to any of9 the short-term underwriting groups at10 local or national banks yet?11 TREASURER WINKLER: We've had a12 few conversations with several of them.13
With those14 groups, not with the firm underwritten15 desk?16 TREASURER WINKLER: Yes.17
Okay, great.18 That's all I have. Thank you very much.19
Thank you.20 Any more questions?21 (No further questions.)22
There23 being none, this committee is recessed24 until 1:15.25 145 4.4.11 COMM. OF THE WHOLE - BILL 1101371 (Lunch break taken.)2 (Proceedings resume.)3 MR. McPHERSON: Our next4 department is the Board of Revision of5 Taxes, the Appeals function.6 (Witnesses come forward.)7
Good8 afternoon. Thank you for coming in.9 BRT CHAIRMAN SILBERSTEIN: Good10 afternoon, Councilwoman Tasco, Councilman11 Rizzo, Councilwoman Sanchez happy to12 present the budget, which I'll let our13 executive director present in a few14 moments.15 I just wanted to take a few16 minutes of Council's time, if I may, to17 call to your attention the article that18 the legal community. The Legal19 Intelligentsia wrote on Monday, November20 the 1st, having been very interested in21 the new process under the Appeals22 Division and how it would work,23 interviewed me, and I made certain24 promises to the legal community how it25 146 4.4.11 COMM. OF THE WHOLE - BILL 1101371 would work in the future.2 And among those promises were,3 there was to be a more adversarial4 process, which we've done; now the City5 testifies as to their value, how they6 arrive at their value, what approach they7 take to value, and things of that nature.8 And then the taxpayer presents his or her9 opinion of value and presents their10 appraiser or what have you.11 So that's been taken care of;12 that promise has been fulfilled.13 The other promise I made to the14 legal community is that there would be15 more transparency. And what I mean by16 "more transparency" is that it will open,17 that the decisions will be given in the18 public forum, which it is; that there be19 a