So it's for all retirees. It's based on calculation of how much our earnings exceed our assumed rate. The exact method of the distribution is determined by the Pension Board, and that determination hasn't been made yet. It'll probably be made at our next board meeting. And after that, I can give you all the details that you just asked about.
You're at the board meeting so, yes, I'll take that for now. But you don't have even a little estimate on how many because --
-- there's numbers going around. I heard somewhere around 2000 a retiree or something like that.
I don't want to give a number because we were given a few different options we have to look through and make sure. I want to make sure we get you an accurate number when we get there. And you won't have to wait long because the board meeting is tomorrow.
Yeah. You know me, it's all about the employees, our retirees. Especially the newer pension plan people, I don't know how they're doing it. All right. Another discussion for another day and you'll get back to me with the other information.
Thank you very much. Councilmember Quetcy Lozada. Then Councilmember Driscoll. Then Councilmember Young.
Thank you, Council President. According to the proposed plan, there's roughly a $39 million decrease in contributions to other government agencies and nonprofits. This category often supports social services, community-based organizations and specialized programs that have a direct impact on my district. Can you clarify which types of services, like behavioral health programs, substance use services, violence prevention and workforce development will be most impacted by this reduction? Additionally, what criteria were used to determine which contributions were reduced or eliminated? Was this based on program performance, duplication of funding or broader fiscal constraints? And how will these reductions affect communities like those in my district that have historically experienced this investment?
Yes. So the contributions are listed in our detail, so you can go in -- the contributions are listed in our detail, so you can go in and see which ones are continuing, which ones aren't. For the most part, the ones that are not continuing are ones where there was a one-time agreement and they were put in the budget based on a one-time agreement so they don't continue after that year.
Can you give us a list of which ones were one time? Can you submit that to the Chair so that I can actually see --
Yeah. And I actually see that maybe the biggest single reduction is around 2026 events. So there was some money for some 2026 grants. So to give you an example of one where funding -- there was Philadelphia Freedom Schools. There's 150,000 in '26. That was a one-time thing so it didn't continue. There was funding for Calder(ph), that was also one time, not continuing. So it's literally dozens of them. But it's in here on Pages and in 9 our detail and happy to have a 10 conversation with you. 11
12 I'll look at that. Thank you. The 13 roughly $98 million year-over-year 14 increase is driven primarily by 15 pensions and health care, which are 16 structural and recurring costs. 17 What is the city's long-term 18 strategy to manage this growth? 19 And to what extent can these costs be slowed or contained over the next five years?
So pension costs, we talked about a little and the strategy we have for getting 200% funded. When we get there, those costs will go down dramatically. For health care costs, when Office of Human Resources come, they are prepared to talk about it. We've talked to them and they will give you more detail on what our strategy is for containing health care costs.
Okay. And then my final question, often times folks ask departments like yours how can we increase revenue, right --
How do we increase revenue for the City of Philadelphia? Are you ever asked how do we save, right? Across departments, are departments ever asked how do we save money so that we are not putting the pressure on the residents of our city?
Yeah. So during our budget process, every year we ask departments to give us cut scenarios. So this year we asked them for scenarios of 1% and 2%. We then examine all of their proposals and we have taken a number of those proposals, and we kind of walked through those yesterday. I think that they are over $100 million over the life of our plan. So our first step was to see where we could save money.
Does anyone keep track of that? Can we see what departments were asked to save or how much they were asked to save and what they came back with?
Thank you, Member Lozada. Member Young, Member Driscoll and then Member Squilla. And then we will officially end our second round before we break.
Thank you, Mr. President. I just have a couple questions for the Board of Pensions. I saw for I guess the 15th consecutive year the Board has voted to reduce the projected return rate. Can you tell us why do we keep doing this every year when last year, I believe, it was over 12% return?
So you reduce the assumed rate of return so that we can take less risky investments. So the lower we're assuming for our return, different investments we can make, and that reduces the risk for our members over the long term that there'll be years where we have negative returns. And our assumed rate of return is still higher than most peer funds. When we started our reduction program if you looked at a chart of where assumed rate of returns were, we basically were off the chart because we were so high. Now, we're above the median, but kind of within the range of others. And we wanted to make sure that in terms of our risk profile, that we were not out of range of other funds.
So it seems like we are just trying to gain confidence with I guess the pensioners or whatever, right, by having this lower rate projected. But do we need to have a 7.2% on the books to know that we're going to get -- to make safe investments? It seems like we have to shoot for a low number in order to make us take safe investments, when we can look at safe investments, understanding where we are and still aim a little bit higher for those members of the Pension Fund?
We do aim higher. And as you just described last year, we exceeded our assumed rate of return. And that's always our goal, to exceed that assumed rate of return.
Yeah, I mean that's the goal. Thank you. I'll leave that there. We see that's the goal, but I think that we have to be realistic when we see for 15 years in a row we've lowered it. It has to be other ways to show confidence. And if we are invested in safe assets or safe investments, then we shouldn't have to artificially set a floor or a cap or something on the way we decide to invest.
Yeah. And it's not artificial. It's based on consultation with our actuary, our investment staff, our outside advisors. So there's a real methodology that goes into all of the assumptions we use.
Thank you. We see you guys are asking for a $590,000 increase, and that says it's due to fully funding your staff, essentially. But last year we fully funded the staff and you still have some open positions. So if it was budgeted last year to fully fund the staff, why is this increase necessary?
Yeah. We're actually proposing to add staff in a couple of areas, which is what's behind the increase. We are adding staff to our payroll unit to help us process term-of-leave payments more quickly.
So here it says in FY26 budgeted 73. Filled as of November, 61. Proposed FY27, 73.
Sorry. We thought you were talking about Office of Director of Finance. We'll call up Francis Bielli.
Francis Bielli, Board of Pensions. Councilman, that is not an increase in positions. It's the same positions we were budgeted for last year. There is just a 14% vacancy rate. We anticipate filling a number of those through increase of our pension counselors. So it's not an increase in the number of positions. It's an increase in the money to pay for the number of positions, due to increase in wages, due to the collective bargaining agreements and increase in the fringe benefits or health care costs.
Thank you. It also says that the Board's Class 200 budget is large relative to its size because it relies heavily on outside professional support. And when I'm looking through the testimony and we were looking at the contracts for professional services, we see there's a projected amount of 4 million for FY27, but the data is 5 not available for I guess the 6 small, local business enterprises 7 and things like that. But have a 8 projected spend, you have 9 historical data so you've made some 10 type of projection. What did you 11 rely on to make the projection of 12 25 million? And can you tell us 13 what that projection would be for 14 the small, local business 15 enterprises? 16
So the 17 amount that we pay out on contracts 18 is mostly $0 contracts because 19 they're based on investment money, 20 and that's a percentage of 21 investments. Our investment fees 22 are well below the national 23 average. Our investment ratio fees 24 are 0.24%. The national average is 0.73%. Since we've tweaked the fees that we pay for investments since FY2016, we've saved over $140 million. The percentage of local is roughly 12%. The percentage of diverse managers, assets under management is over 50%, so the Pension Fund is efficient, well-run and saves the taxpayers a large amount of money in the investment fees that they pay.
Thank you and I appreciate that. I mentioned that because for FY23, '24, '25 the amount to small, local businesses have decreased, but now our projection for FY27 has increased. So I just want to see if that trend is still going to happen, right. If we're going to increase the total of our contracts but decrease the number we're giving to small, local business enterprises?
Yeah. The small, local business is always something that we of course keep front and center. We have a couple of investment managers that are local, that are based in Philadelphia. But given the nature of the investment world, most of the companies are located on Wall Street in New York and other places in the country, but we are always open to local and small businesses and welcome proposals from any of those for our consideration.
Thank you, Member Young. Member Driscoll and Member Squilla, and then we'll be going into our break.
Thank you, Mr. President. And thank you, Mr. Bielli, for all your efforts on the Pension Fund. Finance Director Dubow and Commissioner McColgan, thank you too for your shared interest in working with us on these small businesses. As you know, small businesses are the backbone of our neighborhoods. And I think we're not there yet, but I know it's a process. Commissioner, I'd like to walk through the eligibility framework for the BIRT exemption for the individual class to make sure we're aligned. Under this policy, eligibility is limited to natural persons of single member LLCs, wholly-owned by that individual and treated as disregarded entities for tax purposes. The individual retains full control. There are no outside equity investors or profit-sharing arrangements. All commonly-owned entities are aggregated and treated as single businesses. Taken together, this framework is designed to apply only to a single economic actor, not multi-party or equity capital- backed enterprises. Importantly, individuals would still remain fully subject to net profits tax. So this proposal removes only the BIRT layer, not taxation altogether. So in the interest of time, I have a dozen or so questions. Instead of engaging that today, if it's okay with you, Commissioner, if I could just submit them to you for further discussion? COMMISSIONER McCOLGAN: I'd be happy to talk with your office, yeah. I'm happy to continue ongoing conversations. You understand that it is our position that it has unintended consequences because there are sole proprietors and single member LLCs that earn significant income, so then you'll be providing relief to those individuals. For example, a consultant who earns $1 million a year would fall into that class. So we do have some concerns, but we're very happy to continue those conversations with you.
Well, thank you. And thank you for your cooperation so far on that. COMMISSIONER McCOLGAN: Of course.
Very much appreciate it. And, Commissioner, as you know we've discussed this issue in previous budget cycles. What is the status of the refunding of the state sales tax to the city as the enduser of material purchases? COMMISSIONER McCOLGAN: Yeah, I do recall when you raised this issue and I appreciate you bringing it to our attention, because of course we want to pursue any potential revenue that's due to the city. I had conversations with the Chief Administrative Office and Procurement. And it's my understanding that they're analyzing whether there is an issue with refunds that could be due to the city and they can speak to the current status of that. I do understand though that it's a manual process that's taking them some time to go through. There's not a database with that information that they can just go to. So I just need to defer to them to provide you with the current status.
Okay. That's a little disappointing. We've been talking about this for a couple different budget cycles. I really think there's a lot of money there that we're laying on the table, a lot of money, not only to the Administration, but language in the school district. With all the construction in the capital budget that we talked about yesterday, if we're leaving this money on the table, it's a problem. So I appreciate your attention to that. COMMISSIONER McCOLGAN: I understand. And like I said, it's my understanding that research is ongoing.
Thank you very much. And before we break, Councilmember Mark Squilla.
Thank you, Mr. President. And thank you. I want to follow up on Councilmember Driscoll's questions. As we look at the legislation that was introduced, then we see the challenges associated with the small businesses who no longer have the $100,000 exemption. Is there a way to -- obviously, nothing will be perfect. But looking at this legislation, do you believe that it would be able to bypass or meet any challenge that would be brought from the uniformity clause? COMMISSIONER McCOLGAN: Law could speak to that. My understanding is from conversations with Law is that it's legally defensible, but there's the concerns that -- it still would be subject to challenge of course. But the concerns that we have, like I said, are that there's unintended consequences and the revenue impact of providing relief to large businesses that would benefit from it.
I would just confirm -- this is Francis Beckley, again Revenue chief council. I would confirm that the bill as written does satisfy the uniformity clause. However, any attempt to limit it to small business will make it immediately invalid. And I wanted to take -- I neglected this when I was up before. I wanted to thank this body for taking the very hard but necessary choice of repealing the exclusion. Particularly, thank the Council President for his leadership on that. I know it was a very difficult decision, and it wasn't anything that the Law Department wanted to do either.
Yes, we're not blaming the Law Department for being sued. But legally challenged, we get challenged and we have unintended consequences on just about everything that we do. And it's hard to come up with something, right. And if you try to limit it too much, like you said, you then fall into the area of possibly being challenged on uniformity. So even though some other individuals or some corporations or somebody may be able to take advantage of it, we need to be able to understand the dollar amounts of what that is and how we as a body would be able to then I guess determine whether to move forward or not. If there's a couple other people to take advantage of it that maybe weren't intended to but the majority of the people have the $100,000 exemption, that's something maybe we would have to live with.
Well, you need to remember also that whatever the revenue projections are today, that people are not stupid. And if you show them that this form of corporate organization is going to be tax-free, amazingly there's going to be twice as many people in that form of organization next year. So the revenue estimates you get today are a floor, not a ceiling.
Understanding, but we know the challenges that are hitting our small businesses. And so, I think we have to look at every possible angle of how we address that concern because -- we could give you a list of additional questions, I think, for the sake of time. I know everybody's breaking for lunch.
And most of this discussion is more appropriate offline as legal advice. But I would note for the record that when the small business exclusion was passed, the law was different than it is today. And if we pass something today when the law has been made clear, we're much less likely to get a sympathetic hearing from the court.
All right. Thank you. And I do want to thank Revenue and your whole team for always being responsive to our needs and requests. We really appreciate your efforts. And the Pension Board also, thank you for all that you do. Thank you, Council President. COMMISSIONER McCOLGAN: Appreciate that. Thank you.
Thank you very much. Also, shout-out -- where's Sabrina? Thank you also, Sabrina, for your hard work and dedication. We will stand in recess until 1:00 p.m. (Lunch recess.)
The Committee of the Whole on the Administration's FY27 budget. We are now officially in our second round. Chair recognizes Councilmember Katherine Gilmore Richardson.
Thank you. Thank you so much, Mr. President. I have a question for Finance. I wanted to go back to our previous discussion yesterday regarding the budget stabilization reserve. And I had asked you yesterday if the GFOA's reserve recommendation was specific to unrestricted funds. And you stated, of course their recommendation is non-specific. So you know I had to go back and look it up. But GFOA recommends at a minimum that general purpose governments, regardless of size, maintain unrestricted budgetary fund balance in their General Fund of no less than two months' of regular General Fund operating revenues or regular General Fund operating expenditures. So I just want to get this on the record. Across the Five Year Plan, does the city at any point meet that particular recommendation? And then what is our overall strategy to reduce expenditures to stop spending down the fund balance?
Yep. So we hit that overall goal in '25, but then in no other year in the plan. On the expenditure side, we've talked a little bit about the cuts that we've asked departments to make and that we look at that --
I'm sorry, Rob. You all said yesterday it was 1% to 2%, right?
And I remember, and maybe this is just history coming back, but I remember years ago at times of economic uncertainty, COVID, 2008, we would ask or the city would ask departments for 5% and 10% cut scenarios.
So we've asked for cuts that big when we were facing imminent negative fund balances. So it's in times where the distress is already there that we've asked for that.
The other thing, I mean we look at our biggest areas of growth. There are things like our health care benefits, as I said to Councilmember Lozada, when OHR comes, they're going to talk about what we're trying to do to control those costs. There are other areas that are large and we're reinstating the labor reserve so that winds up over time taking up -- and we need to do that to make sure we have funds for our employees. The SEPTA subsidy is a big area of growth over the life of our plan. So in terms of our operating departments, that's not where most of the growth is. So it's kind of looking at these other areas and seeing whether there are opportunities. But the operating departments are relatively flat over the life of the plan.
Okay. And even with -- and I know we'll probably discuss this when we get to OHR around the vacancy rate and looking for additional opportunity there.
Yes. And you will see as you get the detail in this year's plan that the vacancy allowances are larger than they have been in the past.
Okay. And then I just wanted to ask an additional question relative to our debt management. You know that the city targets tax-supported debt service, and I'm excluding the pension obligation bonds, is 6% of General Fund expenditures. And for FY23 to '25, we saw the actual percent around 4.8. But in FY26, the estimate is up to 5.25% with a proposed increase to 6.18% in FY27. And so, tax-supported debt service with other fixed payments is also nearing its threshold in FY27, with a proposed 6.57% and a goal of 7%. And so, for the record the city's General Fund debt service has grown significantly as you know from FY19 to FY27. We have taken on $80 million in debt service over the last eight years. And I don't have to go through all the numbers with you, Rob, because you know. But FY19 actual is 159.7 million; FY20 actual is 159.2 million; FY21 actual is 178.5 million; FY22 actual is 188.7 million; FY23 actual is 190.4 million; FY24 actual is 189 million; FY25 actual 195 million; FY26 estimated is 222.4 million; and FY27 proposed is 241 million. Additionally, and I have concern here as well, the Water Fund has higher debt service than the General Fund with $290 million budgeted for FY27. And you know that I remain concerned about that amount of debt that we're taking on, particularly during a time of economic uncertainty. And I know that we will receive a significant reduction in the General Fund debt service after the balloon payment in FY29. But if we're in a position where we continue to take on additional debt, we will continue to struggle with higher fixed costs. And so, again thinking about economic uncertainty around the world really, not just in the nation but around the world, and Philadelphia being a city that has a high-need population, many residents who are working class and living in poverty, can you speak to the city's overall debt management strategy and the decision to continue to increase our fixed costs during this time? And can you just also notate for the record when is the last time the city exceeded one of those thresholds?
I have to get back to you on the last part, the exceeding threshold. But we always have this trade-off between our immense needs and where we want to be with our fixed costs, with our operating costs, so we're always looking at that. I think two of the things that framed our thinking as we looked at this plan was, one, you talked about was the pension obligation bond.
So we focused on that balloon payment. But even before that year we're looking at $120 million year in debt service, and then that shrinks in FY30 and '31 to single digits. So if you look at overall debt service plus pension obligation bonds, it's relatively even from the beginning of the plan to the end. So -
Yeah. And then the other thing, longer term is getting to FY33 at 100% funded and then our fixed costs go down dramatically.
I completely understand. I just was telling you what our thinking is, but I get it.
Which is why I asked the question earlier this morning, but we will certainly submit the additional questions for written response and follow up, because I do think there's opportunity there for us to decrease some of these fixed costs over the life of this Five Year Plan. I know that doesn't get us out to '33, but most certainly --
We're getting close and obviously we're getting close to the balloon payment as well, but I do think there's additional opportunity for us.
Yep. And I will say a lot of our plan and some of our debt service structuring is built around that balloon payment.
Received. Received. Thank you, Mr. President.
Thank you very much. Chair recognizes Councilmember Jamie Gauthier.
Thank you, Council President. My questions are about the BIRT tax and specifically getting rid of the exemption and the impact on businesses. So I'll get several questions out and then let you answer. My office has been receiving calls from small businesses that are struggling to pay the BIRT tax. For example, one business owner says that she makes $40,000 a year and now has to pay $5,000 for last year's tax bill and the one coming. She simply cannot afford it and is considering moving out of the city. I have some questions about how the city is working to support entrepreneurs who are struggling in this moment. The maximum increases in BIRT range from $1,400 assuming $0 in net income, to $7,100 assuming that all 100,000 is net income for the business. Meanwhile, median rent is around $1,950. How will family-owned businesses and independent contractors deal with this extra payment? And what provisions has the city put in place to support them? Many independent contractors and small businesses were not aware of the changes to the BIRT exemption until after the 2025 year tax began. Many are just finding out as they pay their taxes this year. What efforts are being undertaken to outreach to businesses about support programs, particularly for minority-owned businesses and those with limited English proficiency? And then lastly, the BIRT tax applies not only to registered businesses, but to sole proprietors or independent contractors, including gig workers like rideshare and delivery drivers who also pay the NPT tax. What steps are being taken to reach out to these individuals and provide relief for independent contractors?
So I'm going to ask the Revenue Commissioner to answer kind of what kind of outreach we've done, what we're trying to do to make payments easier. But I always feel compelled when we talk about this just to emphasize we didn't want this to happen. So I just want to say that again.
I know. Nobody did. I guess I'm just trying to find ways that we can lessen the impact. COMMISSIONER McCOLGAN: Thank you for your question. Regarding our outreach, Revenue has collaborated with the Department of Commerce to host and attend over 35 workshops, webinars and presentations for businesses and tax professionals regarding the exclusion removal, reaching a total audience of 1100. We also leveraged community partnerships to reach thousands of tax professionals across the region, as we do every year. We conducted large-scale direct mail outreach, including postcards that were sent to over 119,000 businesses across the five- county area. And we also issued an official notice to businesses, approximately 80,000 businesses, with gross receipts less than $100,000, and a copy of that notice is available online and translated into eight different languages. Also, if I have another moment, I just want to mention that we had a policy clarification for new businesses and informed businesses and practitioners that any business that didn't have a liability in the last three years is treated as a new business. So that means that they don't have to pay the estimate in the first year that they file. When they filed this year, they only pay the tax that was due on their activity from last year so they do not have to pay an estimate towards next year. When they file in the second year, they have the option to pay that estimate in quarterly installments. And then the third year, they would be paying the estimate. And we also would like to remind businesses and practitioners that they have the ability to go back and amend prior year returns to take advantage of a lost carryforward against their profits in future years. Because they did not have a filing requirement in the last few years, they can go back and amend them to recognize those losses to offset some of the tax in future years.
Okay. I mean, those all sound like really good efforts. But have you thought about how we might be able to expand outreach even further, particularly for folks who don't have English as their first language? Have we thought about texting? Have we thought about other ways to sort of reach people directly? We know that folks might not even notice a first notice that's sent to them lots of times. People need to see and hear things several times before they're able to absorb the information. COMMISSIONER McCOLGAN: Yeah. No, I appreciate that because we're always trying to find new avenues to get information out to taxpayers, residents, customers, and we have a really incredible outreach team. We also have an internal assistance program, access and impact working group, that involves folks in our data and research team, those who administer our outreach programs for tax and water. And we get together biweekly and talk about different outreach that we can conduct. We also utilize social media to get the word out there. But we do realize that it's an ongoing effort. And that is part of our mission every day, is to make sure that we are making all taxpayers aware of their liabilities and helping them comply.
Okay. Thank you. I would encourage you as you go forward with that committee to talk directly if there is a group of business owners that we could talk to about the best ways to get information to, particularly smaller entrepreneurs, immigrant businesses so that we're basing our strategies on how people actually receive information. And then the other -- are you going to speak to the other questions I had?
Yeah. How will family-owned businesses and independent contractors deal with the extra tax payment that they're going to have to pay, particularly as lots of our folks are having to pay high amounts of rent? And have we thought about what more we can do? I know that Councilman Driscoll has a bill that he's talking to you all about, and I know you have concerns about how we can implement it. But if it's not Councilman Driscoll's bill, what can we do to help sole proprietors and independent contractors to deal with this increased level of burden? I don't think we can just say this one strategy doesn't work and we give up, right. I think we have to peer a little more deeply into how we can assist folks.
And I don't think we said that. And we are working with Councilmember Driscoll's office. So in addition to the steps that the Commissioner talked about making payment easier, making sure people know changing what the (inaudible) statement would look like, we do have the $38.5 million program with Commerce that includes grants to small businesses and technical assistance. So it's that combination of things that we have in place now.
Yes. And I know that we're doing that. A lot of those funds go into existing programs that are not necessarily designed to relieve a tax burden, like Storefront Improvement or the Disaster Relief funding that will only kick in if a business is facing a disaster. Have we thought more specifically about easier or low-barrier entry ways to help independent contractors and sole proprietors specifically?
Yeah. And I do think that there are among -- there are some new grants, but mostly it was expanding old grants because that we thought was easier to get off the ground. But I do think some of them are less complicated and are easy to apply for, but we can get you the details on those grants.
Okay. As we move forward, I would like -- I mean, if you all determine that we can't do Councilman Driscoll's current bill 13 because it might allow for too much assistance to relatively high- earning businesses, I think that there has to be some other things put on the table, right. And so, I'd like to see if we can't do what's being discussed, what does the Admin want to put on the table in order to help folks that are dealing with just a significant burden that they never had to deal with before?
Thank you very much. The Chair recognizes Councilwoman Dr. Nina Ahmad.
Thank you, Council President. This might be a question for the Treasurer. I'm not exactly sure who would answer this. This is about prompt payment of vendors, and I know that has been an ongoing issue. I know someone currently, a vendor currently, who has an outstanding contract that hasn't been paid down and is entering into a new contract. And I just wonder how we are streamlining this. I know the CAO has said that this is a priority. I just want to know how far we've come with this, because very small vendors can't sustain themselves and bridge their expenses while the city takes forever to pay out?
Hi. Yeah, so we don't ever want to be in that position. Our goal I think citywide is to pay our vendors --
We don't want to be in that position. Our goal citywide is to pay our vendors promptly, but there are issues that we encounter. I think Camille can talk more about this at her hearing. But when they looked at some of the main root causes of slowdown in payments, it actually ties back to our contract conformance. So she and her team have done a lot in partnership with Finance on getting departments to conform contracts more timely in order to pay on time. But the details, I'll leave her to kind of walk you through what her team did in that space.
Yesterday in response to questions from Councilwoman Lozada, we said we would get you information on conformance rates and how they compare to prior years.
In addition to that, Finance is the last stop in our vendor payment process. So we also have been doing various different training and outreach and development with departments to make sure that they understand sort of common pitfalls that can lead us to reject a voucher payment which we don't want that to happen, right. That's the last step or the second-to-last step in our process. So we really would like to make sure everything comes in correctly so we can just pay it out and pay it out timely.
Thank you for that. I'm glad you guys are working on that. Is there also a place where a vendor can go to get answers and clarification and perhaps even a little bit of training how to manage this space? It seems that there's this opaque block box and they hear from nobody and nothing. So communication is key.
Yeah. Finance is also partnering with the Procurement Department to stand up -- right now we're calling it a vendor management unit. Ron Hovey, the Procurement Commissioner, can also provide some more details on this, but it is the goal of this Administration to set up that front door for our vendors to address that issue so they have a place to go, and then we can triage and hopefully also resolve issues to get them paid.
So is there a timeline for all of this to happen? We're already two years into this Administration. I just want to know what we go back and tell our small businesses and other vendors that, yes, they're on top of it, these are the steps they're taking. Again, communication is key. If they knew, they wouldn't be calling us to ask us for this.
Well, I mean the unit is now staffed, so somebody will be -- the head of the unit will be starting I think within two weeks. Also, as was mentioned in yesterday's testimony, some of the recent graduates from the Commun -- C --
Yep. They are now four staffed or there's four people coming from that program to staff the unit. So we have the boots on the ground, which is the hardest thing sometimes. As to the timing of the communication and engagement out to the vendor community so they understand that that is there and available to them, we're going to have to follow up with you.
Yes, please do. because then we can give a definitive answer, they're on top of it. This is Step through 5. They're on Step and this is what you should expect and this is when and please don't call us -- no, please call us all the time. But thank you so much. I look forward to that communication. Thank you, Council President.
Thank you. Chair recognizes Councilmember Quetcy Lozada.
Thank you, Council President. In Fiscal Year '27, the Department of Revenue, along with the Law Department and OTIS, will begin vendor selection and begin a system design and development to replace the Legacy water billing system. Can you speak more to the replacement of the water billing system? What are some of the improvements to the system that residents can look forward to seeing and how will the new billing system positively impact the services provided by the Department of Revenue? COMMISSIONER McCOLGAN: Yes. Thank you for the question. Just give me one second please. Okay. So we kicked off our initiative to replace the water billing system some time ago and the intent is to streamline the workflow processes and optimize our reporting functionality. We have some limitations that exist today, and we believe that we can improve our collection and our service to customers with a modernized system. The system is approximately years old, and our 14 tax billing system that we just 15 replaced over the last few years, 16 that had gotten to be 35 years old, 17 and it was very difficult to get 18 support for it. So we're trying to 19 make sure that we don't get in the 20 same position with the water billing system, and we're working very closely with PWD on this project as stakeholders. So we intend to implement that system in FY29 to increase revenue collection, improve our operational efficiencies and as I said, improve the user experience. So FY25 is when we completed the requirements gathering to post the RFP, which happened in August of '25. In FY26, we are going through the vendor selection process and also we will be working to onboard dedicated staff to that project. And then FY27 to '28, we're going to have all of the staff on board, design, develop and implement the new water billing system. And then in FY29 is when we will conduct training and go live.
Okay. The proposed funding request for FY27 reflects a 1.125 increase over FY26 due to higher postage costs, outreach for real estate tax assessments as well as additional funding for wage increases. Can you speak to what that outreach for real estate tax assessment entails? What is the purpose of the outreach team? How would it increase funding? How would the increased funding improve outreach? And does the outreach inform residents of tax relief programs? COMMISSIONER McCOLGAN: It does. That is exactly what it's dedicated to. During the last property tax revaluation, we had a similar comprehensive outreach program in place to reach as many residents as possible and it was very successful. We were able to increase our enrollment. Because we had success there, we requested the additional funding this year because there's also a revaluation this year. Our goal is to enroll as many eligible customers into assistance programs as possible.
And so, how are you going to ensure that folks in districts like mine, right, who don't trust government -- we still have folks that haven't taken advantage of programs like Homestead, something as simple as Homestead. How will this outreach team or what is the work that they're going to do different than what we've done in the past to ensure that residents actually are taking advantage of this? COMMISSIONER McCOLGAN: Okay. So first, to our existing --
What are you doing different? COMMISSIONER McCOLGAN: -- ongoing process, we find that it's most valuable to partner with Council offices to meet with their constituents and in some cases, we can enroll them in Homestead right on the spot because there's that partnership and trust that's there. So that's a really valuable partnership that we have. We also have a partnership with the Mayor's CEO office and we work with them to provide data based on census tract information, where we believe that there's eligible homeowners who are not enrolled in programs. So they actually go door-to-door. They leave flyers at the door. They build a trust with the property owners in the community. And so, some of this funding is dedicated to that door-to-door, the print materials that will go out there. And also, during the last revaluation we found that it was successful to have ads with mass transit. So we have ads on the El and buses and, you know, try to get out the information to residents through mass marketing. So that's part of the funding that we've requested for this year.
Thank you for that. With the new BIRT exemption now gone, coupled with the proposal to increase the commercial trash fee and the rising property taxes, what outreach has been done to conduct or conducted to inform business owners about the recent changes and support options available to them? Is there money in the budget to expand real estate tax assistance programs? And can you submit the current participation rates from all departments for the assistant programs broken down by district? COMMISSIONER McCOLGAN: Yes, we do have that and can provide that to you. Off the top of my head, I know we have over 270,000 properties that are enrolled in Homestead and LOOP combined. So it's 249,000, I believe, for Homestead. But we have it broken down by every single program. We can provide that to you. Regarding outreach, I talked a little earlier about our BIRT outreach to businesses to make sure that they understood that the exemption was going away. We worked in close partnership with the Department of Commerce so that we were, one, informing them of their liability, but also Commerce was informing them at the same time of the programs that were available to them, such as the tax-free -- I mean, I'm sorry, the free tax preparation, along with all of the notices that we sent out, almost about 200,000 notices that we sent out to businesses. So we're doing all of that. And regarding the commercial trash fee increase, that will be effective, if passed, for the 2027 period. So that notice would go out to customers November 1st actually of this year, to let them know that the fee has been increased and that they have the option to pay in two installments, if they'd like. They can pay the entire thing by the end of the year, December 31st, or they can pay half by December 31st and the other half by June 30th of next year.
And that's without penalties? COMMISSIONER McCOLGAN: I'm sorry.
And that would be without penalty if they split the -COMMISSIONER McCOLGAN: Yes, that's right. No penalties.
Thank you very much. Chair recognizes Councilmember Dr. Anthony Phillips and then Councilmember Jim Harrity.
Thank you, Council President. So for city payments to contractors, we've heard consistently from contractors and small businesses that there are delays and payments from the city that create real challenges. So for many small businesses, delayed payments can disrupt operations, limit their ability to take on new work and discourage them from doing business with the City of Philadelphia. What is your current average timeline for contractor payments and what steps are being taken to ensure that the City of Philadelphia is no longer known as disruptive to operations, limiting and discouraging small businesses from doing work with the city?
So long- term -- not long-term, but less of the near term, shall I say, the way to really address this for us is through Opal. Because part of the reason we have challenges in paying timely when we do -- most times we are paying timely and we'll have to follow up and get you that information on the record. But most times we are paying timely. In the instances where we're not, it is often a product of us having a very fragmented system right now. So an invoice can come into a department through email or mail and it doesn't actually get logged into our central payment system until the very end basically of that process. So there's all that approval and validation that has to happen upfront with an invoice that is not visible to us, but that is what Opal and modern- day technology can provide for us, right. So long-term, you know, technology can't solve everything, but we really are trying to work with the 1990s technology when we would do much better if we had more modern-day technology.
Okay. So are you saying that once Opal goes live, there will be pretty much 100% efficiency rate when it comes to these contracts?
I wouldn't say 100%. But I mean, would it be like -- how do I say --
It would be much more efficient. It would be much more predictable and reliable. 100% probably not because there are steps along the way, including the vendors where things can go wrong. But it will be much more reliable, much more predictable and hopefully vendors will be much more satisfied with it.
What's taking so long? What's the process for things to go?
The scope of it is quite broad and quite large, so it is replacing the financial and purchasing systems throughout the city. So not only do we have to configure it to be accurate and correct to produce our financial reports accurately, we also have to ensure that all 54-plus departments citywide know in the new system how to do contracts and how to do payments. Because if we can't train and train them appropriately and get them ready for this change, it's going to have negative, unintended consequences, somebody mentioned that today, unintended consequences of actually maybe slowing us down. So we have to make sure the departments are ready to use the new technology so we can gain those efficiencies.
And when you roll out a system like this, you want to make sure that the rollout goes as smoothly as possible. Because if it doesn't, people then become resistant to using it and instead of getting the benefit for the long term, you might even have a setback in terms of doing these processes.
Yeah. No, it just seems like a fairly long time for training. I do know training takes a long time, but that's pretty much a year and a half from now.
There is some further testing and configuration that is happening as well. But it's not that we're not doing anything until July 2027. That was sort of some of what I was talking about earlier, is that Finance and the CAO's office has partnered to make big strides in trying to increase the conformance rate of our contracts, which is one of the biggest pain points for timely payments, right. We're also working to stand up that vendor management unit that we hope can help sort of centralize and triage issues that our vendors are experiencing so when they do hit a payment issue, maybe we can get to it quicker and fix it quicker. So we are doing things in the interim as well. But I mean, it's going to be a challenge to get that big win until we have a more modern-day system.
We will get you information on improvements in conformance times and resulting payments, so we'll get that comprehensive information over.
And just lastly, I want to clarify the auditing of Office of Property Assessment. Who is formally conducting this audit and is it being led by the City Controller's Office or through an internal administrative review? And how is independence being ensured throughout this entire process?
Yeah. So that will -- the reason that it's being run out of Finance instead of OPA is for that independence from the office. We will do an RFP to select a firm that has expertise in the area and that will be charged with giving us meaningful recommendations.
Okay. A lot of our residents are very curious about the rising costs in property assessments. So I just want to know do you have a timeline for the execution of the audit and the results or how long it's going to take?
Right. So in the '27 budget, right, so we can start the process but can't execute a contract until the budget's approved. So our hope is to get someone on, I guess, during the summer or early fall and to have them report just probably within the next six months after that.
Thank you very much. Just a follow-up briefly on that line of questioning. So we're bringing in someone to do an assessment, correct? That's what we're contracting?
So wouldn't it be more prudent to hold off on us doing an OPA assessment this year until after the actual outside contractor come in and do the assessment?
So the contractor is going to base it on what OPA is doing now. Unless OPA does their evaluation, they don't have anything to assess.
But they can't go off the information that we've done prior to this year? Because what if --
So OPA has changed its processes since the last assessment, so they would be basing their evaluation of OPA on dated information.
It just seems like -- and we know assessment is assessment, but our constituents called an increase in property taxes, right. So that's how they perceive it, which is how we have to respond. And it just seems like we will want to have whatever data that the outside organization is going to evaluate actually would improve our process before we actually go and tax the people. But what you're saying is because that data is old and we have a new process, they're going to take what we're doing to actually raise the taxes now to come out with some new recommendations for the next time around, correct?
And I will say there has been -- every time OPA does a revaluation, there have been reviews of what they've done and recommendations and those recommendations have been put in place. So it's really kind of a continuous improvement process. It's not that they haven't learned from the last assessment and made changes. They are always doing that.
So the company that we're bringing in, have we hired them before in the past?
We haven't picked a company yet because we're going to do an RFP to hire someone.
Let me change the wording. We're going to pick a company after our RFP goes out, after this budget is passed, to come and evaluate our current property assessment process. Did we use this company before in the past? Yes or no. And if we didn't, what companies have we used in the past because you just said we're constantly reviewing every time we do it and those recommendations are what we use the next time around when there's an assessment?
So we've used the IAAO, which is the kind of industry standard. And so, they've given us recommendations. Council hired an outside firm. They gave us recommendations. So it's been a number of different entities over time and --
Gotchu. All right. And I'm just asking, as opposed to using -- what is IT called, the IEO?
And so, why aren't we using them this time as opposed to bringing out another outside firm?
We don't know who we're using this time. We're doing an RFP process. So it will be an outside firm. They will probably respond again. So it could be them. It could be someone else.
And so, the firm you just mentioned, we've always used them through the RFP process. They've gotten picked. Okay. I got you.
We've used them in the past because they are kind of acknowledged as the experts, but that doesn't --
-- mean they'll be picked this time. There could be someone else --
Yeah, I'm not really worried about who gets picked. I'm just really walking my mind frame through the process that we're bringing somebody else in to evaluate our system, but we're going to go ahead and raise -- we're going to do the assessment, not raise the taxes. We're going to go ahead and still do the assessment first, and it just will seem like hopefully we got some good recommendations on our process that will go into our assessment process to hopefully either save some money, pick out some flaws, look at disparities, look at equity --
You get where I'm going with this, just to make sure -- I'm trying to make sure I got this right. That's all.
And that happens every time. So every time we look back at what happened, we make improvements.
But it's just a continuation of that process that we normally do.
All right. Chair recognizes Councilman Jim Harrity.
Thank you, Council President. Good afternoon, everybody. Now, I'm going to ask my questions and then you can have at it. Can you explain how the retail delivery tax will be collected? How will the city determine what packages include exempt items? Will this be up to the retailer to report and differentiate? And what about orders that include both exempt and nonexempt items? And then lastly, the retail delivery tax is supposed to fund the road and pothole repairs, but we all know the bad actor contractors are the problem, not the amount of money available to fill the pothole repairs. What led to the conclusion to do the pothole repairs? Because I actually had a bill in there that will allow you -- it's law -- to go after the bad actor contractors, not only to fine them, but to also suspend their license until they rectify all these holes they got all over our streets. The bottom line is as a highway worker, I know that most of these things that people call a pothole are not potholes. They're construction holes that were done by bad actors without pulling a permit. And the way we know it wasn't done without a permit is because we come to fill the hole in after they do the work inside because we want it done right. So for me, I'd like to know why this decision was made. And then if you could answer my questions about the other parts.
Yeah, let me do the last part first. First thing, it's more than just potholes which are important. As you said, they can be plumbers' ditches, a whole range of things that they are. But it's about road conditions in general and making sure that we have more money to help upkeep of our roads --
That's actually what I was trying to do with my pothole bill. And for some reason, I've been told that they cannot enforce it because they don't have enough people to enforce it. But yet we're going to hire more people to fill in the potholes instead of making these contractors repair their own mistakes.
Member Harrity, could you speak into the microphone please, sir.
I'm sorry. So that these contractors can repair their own holes that don't cost the city money is what I'm trying to do. I'm trying to save the city money also. And I can tell you right now that if you hit one of these contractors and suspend their license until they fix the 10, 15 holes they got going on, I can guarantee you it'll stop overnight. Everybody will be pulling a permit.
She's coming back. She needed a glass of water for that one. COMMISSIONER McCOLGAN: I felt a coughing fit coming on. The retail delivery tax is going to be $0.25 cents per order on deliveries of taxable retail goods in Philadelphia. What will be excluded is food, grocery and prepared foods. Drugs and medical devices, baby products and wholesale goods will be excluded. The retailer will be responsible for paying and filing the tax.
Can I get a point of information, Member Harrity, if you don't mind. So when you say the retailer, right, and the items you just mentioned are exempt, so I do a lot of ordering from Instacart, right. Food, right, that would be exempt under this particular retailer tax? COMMISSIONER McCOLGAN: Yes. Food is exempt, yes.
What about -- so Instacart items. What about Grubhub, DoorDash? COMMISSIONER McCOLGAN: That would be exempt as well.
Okay. COMMISSIONER McCOLGAN: Yeah. But I'm sorry, I realized that I didn't answer your question, Councilmember Harrity, which was if it's mixed products. So if there's a delivery --
But I didn't finish my line of questioning with you first. You just zhoop, like, you know. COMMISSIONER McCOLGAN: I apologize.
It's okay. All right. The Chair recognizes Member Harrity.
I just want to get some clarity for that one on the record. Could you follow up so there can be a specific response to your question.
Yeah. I mean, what I'm worried about is us relying again on business people who are in the thing to make money and them being the one that has to differentiate. I mean, I think there needs to be some checks and balances there. Because if they can find a way to get over by throwing that fee on there, even though it's exempt, you know, some of these bad actors will throw the fee. COMMISSIONER McCOLGAN: Yeah. I think that that would be something that we would look at if we received complaints. I mean, that applies to really all taxable goods, so through audit processes and inspections that is something that could be addressed on a case- by-case basis. If passed, we would work very closely with the retailers, the industry, to talk with them before promulgating regulations so that we have really productive conversations to ensure that all of the mechanics are in place to make sure that only those that are taxable are being taxed.
Okay. I get it. That's all I have. Thank you, Council President.