Well, I understand that. Just so we're in the same situation, we can't change the revenue estimates?
Right. You can't 331 04/07/04 - FISCAL STABILITY - RES. 040276 change the revenue estimates except to the extent that you change the underlying tax structure. If you change the underlying tax structure, then the Finance Director would calculate new revenue estimates based on the new tax structure.
Well, I think if the Administration wanted to enhance the tax structure or the revenues generated by the taxes, they'd have probably sent over a budget with a bunch of tax increases in it. I don't think that's the one they got introduced a couple of weeks ago.
The Administration, after great effort and thought, submitted a budget with certain revenue expectations and certain expenses. Your recommendation is, since we can't do anything to adjust the revenues other than 332 04/07/04 - FISCAL STABILITY - RES. 040276 provide more tax revenues and adjust rates, that the only thing that's left is to cut expenditures?
It is likely that our analysis of the Five-Year Plan would show that the revenue estimates were not reasonable pursuant to the statute and cooperation agreement, and we would then send back to the Administration and to Council our report indicating that the Five-Year Plan should be adjusted accordingly.
If you send it back, what does that mean? What is that considered?
The word would be we would not approve the Five-Year Plan as submitted.
When you were responding to Councilman O'Neill, you did talk about some of the time lines; but based on the 333 04/07/04 - FISCAL STABILITY - RES. 040276 question that he asked, you didn't want to go into that particular area. Could you lay out for us in the context of your response to Councilman O'Neill and in response to the question that I laid out to you, let's for discussion purposes assume that since we have to pass at least a budget by May 31st -- and I don't remember what day of the week May 31st is, but I think it's a Thursday.
I don't have the Calendar memorized. Let's assume for the moment that there is a session on -- what does that get us, 28th, 27th? Let's assume there is a Council Session on May 27th and that we approve the budget on that date. Lay out for us from a timeline standpoint PICA's review 334 04/07/04 - FISCAL STABILITY - RES. 040276 period. If you, in your words, do not approve the plan, which is in essence a rejection of the plan, and send it back to Council and the Administration, lay out for us what happens over the course of, in essence, the next month before the end of the fiscal year?
Again, what I was saying to Councilman O'Neill was there's a 30-day period for which we have to consider the plan after it's passed by City Council and transmitted to us. Let us assume in the best of all worlds it is signed, it is transmitted on the 27th. We have 30 days, roughly the 28th of June, to make a decision on the plan. As I said to Councilman O'Neill, if the plan is approved, everyone has a nice summer and goes about their business. If the plan is not approved, it gets sent back to the Administration and City Council with our reasons for its disapproval and you have -- the Administration and City Council have 20 days to make those corrections. We then have a further 20 days in which to look to see if the corrections you 335 04/07/04 - FISCAL STABILITY - RES. 040276 have made fit our criteria for plan approval.
How do these timelines fit in with the, at that point, looming end of the fiscal year?
The fiscal year is over. It's done with. That's the area that, again, I don't want to explore because I have not --
Let's just say we approve it on the 27th and you take until June 15th; You don't take your whole 30 days. You send it back to us on June 15th. I think what you laid out was we then have another 15 days to do something? 16
Which clearly 18 goes through June if we took the entire 20 19 days. 20
Let's say that for discussion purposes we don't complete the task by June 30th.
Here's where we're really getting into a very foggy area. 336 04/07/04 - FISCAL STABILITY - RES. 040276 Because while the Five-Year Plan -- the first year of the plan is the budget. Pursuant to the Philadelphia Home Charter, you have passed a budget. So the argument is, do you have spending authority? And I think Mr. McPherson would agree with me that you do have spending authority, But that doesn't mean everything is okay. It still then may begin to trigger these, for want of a better word, punitive steps until you bring that budget in conformance to an approved Five-Year Plan. And if it's not done in a reasonable fashion after this repeated give-and-take, then I'm obligated by the PICA statute to begin the process of shutting down on the cash flows of state monies, the first one beginning with the PICA monies that flow to the City. And that creates all sorts of problems.
Okay. I just want to understand the full ramifications --
What I was trying to answer with Councilman O'Neill, was like putting a ten-day, a five-day, a three-day here. It's something that none of us want to 337 04/07/04 - FISCAL STABILITY - RES. 040276 contemplate, but the time frames we're going to have to deal with will not make for a pleasant summer, especially since labor contracts are up at that point.
I understand that. I guess my last question in this area is, let's say we're in July and we start to wrap all this up, but for whatever reason adjustments have to be made to the, at that point, then current FY '05 budget to make it all conform to the Five-Year Plan. How would we do that if we're already in the budget year?
Thank you. Are there any other questions or comments to Mr. Vignola? (No response.)
Thank you so much for coming in. We appreciate your appearance. 338 04/07/04 - FISCAL STABILITY - RES. 040276
As I said in my letter, Madam President, we are available to meet with any Member of Council and their staffs or Council's technical staff to try to get through this Five-Year Plan cycle.
We appreciate that. Thank you so much. Councilman Nutter, do you still have questions of the Administration?
Ms. Davis, Ms. Wilkerson, you were responding while Mr. Vignola was up to some questions by Councilman Rizzo. We went back into PGW world. There was some discussion -- there have been millions of discussions about the state of PGW over the years. But I just have maybe two items to refresh my recollection. One, the reason that PGW presently operates with PFMC in charge is because we have a contract with PFMC; and if we did not have such a contract, PGW would actually be under the Department of Public Property, is that correct?
And if that were to happen, because you've probably looked at this a few times before, I guess one of the challenges there is how -- if we took PGW back into the City, someone's idea was that that would make things more efficient or do some other things because now it's just like the Water Department, totally under the City Administration. Is one of the many challenges about how do you bring that workforce into the City of Philadelphia?
Yes. We would have to figure that out. Currently, PGW employees are not Civil Service employees. They're represented by different unions. They have different benefits. There would be issues you would have to look at.
I think gas procurement was the other situation that would be more challenging in the City environment.
We don't have folks in the City government who are experts in the variations of the natural gas market?
No. That would be our 340 04/07/04 - FISCAL STABILITY - RES. 040276 other challenge.
Not just the lack of expertise, but the company buys on the spot market. There's a lot of different kinds of arrangements that would present a challenge.
I understand. Are there opportunities, though, in terms of consolidation or cooperation? I mean, both companies -- and I talk about both water and gas -- they have pretty much -- people talk about kind of penetration rates, but both I think have extensively covered the City with AMRs, for instance. I'm assuming that they're different pieces of equipment. Each has its own personnel that literally drive down the same streets, same day, different day, whatever, doing AMR readings out of the same house.
They've taken a look at coordinating the AMR readings, and I can get you the feedback on that.
May I assume out of that, if you only had one person in one truck that was going down the street once 341 04/07/04 - FISCAL STABILITY - RES. 040276 getting all of that same information -- or maybe they would have to do it at different times because they don't want the gas meter AMR running at the same time that the water AMR is running, but there's got to be some --
We've asked about that and I'll have them write up -- I don't remember the details of the response. I think water may contract that out. It's done in-house. And at the end of the day the dollar figure was the magnitude that Ms. Davis was talking about when we were talking efficiencies. I can get that written up for you.
Two questions on surcharge. What is the Administration's position on -- the official name I guess is this Cash Receipts Reconciliation Clause, often referred to as a surcharge. What is the City Administration's position on the surcharge?
The Administration supports the tracker. We're going to work to try to assure that it doesn't end up in vote. 342 04/07/04 - FISCAL STABILITY - RES. 040276 It is a mechanism that only kicks in if it's needed. We are working with the company trying to hit the collection figures that we need so that we don't end up having to resort to the tracker clause, but we can't be in a position that we don't have any fail-safe in position, and so support the tracker.
Last question on that. If in the worst case scenario -- you refer to it as the tracker -- the surcharge comes into play and the revenues are generated as a result of the paying customers paying whatever that additional charge is, how does that impact the City's request demand for the $18 million payment from PGW? Will we find ourselves in a situation where under the worst of circumstances the surcharge comes into play, the company generates whatever it generates as a result of either better collections/surcharge, and are we then going to be demanding the $18 million as a part of that?
Let me take a look at 343 04/07/04 - FISCAL STABILITY - RES. 040276 that. I'm not certain and I don't want to just give you an off-the-cuff answer.
Thank you, Madam Chair. Madam Chief of Staff, I believe when you came on the 31st when you addressed the issue of the Administration's intent on going into self-insurance, my colleague Marian Tasco was concerned that approving the Five-Year Plan would be a stamp of approval on the undefined self-insurance plan. You indicated that you would go to Council and draft a clarification regarding what legislation would be needed to approve a self-insurance plan. How far are we along?
Because there's also a question that I was asking Madam President and Charlie about, whether in fact 344 04/07/04 - FISCAL STABILITY - RES. 040276 we needed legislation to approve self-insurance. Can you enlighten me?
Their letter will address it. What it talks about is the need to have the contracts with the party that administers. If it's a long-term contract, a contract in excess of a year, that would have to come back to City Council. But I'll get you the letter by the end of the week so that you have a precise answer.
I believe it was you who indicated -- correct me if I'm wrong -- but someone, either you or Rob, indicated that there was talks, ongoing talks with the municipal unions. How are those talks going on this business of self-insurance? I know, being a union member, it is a very big concern with union members and its leaders. Can you tell us where we stand with that?
We're talking. The arbitration -- the City gave us an Act arbitration --
You're talking to 345 04/07/04 - FISCAL STABILITY - RES. 040276 what unions?
The process has started with both AFSCME unions and the FOP. The arbitration proceedings, which are Act 1-11 arbitrations, begin later on this month, and there have been positions exchanged between the AFSCME unions and the City and there are informal conversations going on.
I just heard a person I have a lot of respect for and I will continue, the Chief of Staff of this Administration, but I see Tom Cronin back there from District Council 47 -- there is ongoing talks with you and District Council 47?
We have a team of people that are involved. That process began with the exchange of positions --
As you well know, Madam Chief of Staff, that this is so crucial that we engage fully our municipal unions on this matter that will change, according to your plans, how City employees are covered for medical costs. 346 04/07/04 - FISCAL STABILITY - RES. 040276
We understand that this is something that the City has to bargain with all the unions. We only have unilateral control with respect to exempt employees. This is a huge issue. As you heard when Mr. Vignola testified, the City has enormous challenges and that we are going to have to begin doing business differently. And when you look at the areas in our budget that are growing in a way that we can't afford, the whole benefits area is one of those areas. And so we're going to be working with the unions, talking with them, but at the end of the day we believe that there are going to have to be substantial changes.
You also stated on the 31st that the pension system will be moved from defined benefits to defined contributions for new employees only. We're trying to curb the rising cost of pension contributions. What is your thinking with the existing City employees, union employees in particular? 347 04/07/04 - FISCAL STABILITY - RES. 040276
We cannot unilaterally change the benefit that people have earned and are already vested in. Our attempt is to protect the City going forward from the impact of that same type of pension structure for new hires. We have no intention at all of changing the benefit for those employees. We cannot, in fact, change their benefits.
You will not be asking our municipal unions to restructure their pension system?
No, sir, not for current employees. We're only looking prospectively.
You mentioned a detail here. You referred to something the other day of a productivity bank. Who was that? Was that you, Rob? Can you tell me what it is and where is it?
The productivity bank was established with funds borrowed by PICA, and it's money that's supposed to be used to fund ideas or initiatives that would either produce revenues or reduce cost. For example, 348 04/07/04 - FISCAL STABILITY - RES. 040276 one of the things that it was used for was to automate the Revenue Department, which has allowed them to increase collections while reducing staff.
The only restriction is that it can't be used for personnel costs.
Yes. And it has to be paid back. It's a loan. It's a bank. So when we make loans from the bank, they have to be paid back over five years.
Thank you for letting me know what it is and where it's at. Has the Administration at any time, Madam Chief of Staff, considered taking over the management of PGW? And if so, can you share? 349 04/07/04 - FISCAL STABILITY - RES. 040276
We have talked generally about things like consolidating the call centers and the billing centers. PGW has a state-of-the-art call center with -- the City doesn't. They're all doing call center operations, although it would involve a lot of retraining. PGW has a very different set of rules under which it operates than the water company does, and so it would involve extensive cross-training. And it would involve a lot of labor issues, so we have identified it as an area of potential opportunity, but haven't put together a plan for even analyzing it carefully. But it's at that level that we talked about the City becoming more directly involved in the operations of the gas company. We are not talking about trying to fold it back in so that it becomes another City department.
We've talked about it generally, but don't have an active plan for bringing it back into the City.
Given the 350 04/07/04 - FISCAL STABILITY - RES. 040276 testimony that we've heard here, and I assume your talks with them over the years and as of recent because of their budget problems, are you inclined now to further explore the possibility of taking over something that actually belongs to us?
As Ms. Davis indicated, I think there are areas we might be able to collaborate with them. There are certain other lines of business that the company has that would make it very, very difficult -- for example, their whole gas purchasing unit. PGW is one of the best in the region at purchasing gas. They don't do your traditional, you know, go to the Procurement Department, RFP, buy gas. They have some aspects of their operation that don't readily get incorporated into the City. And it's mostly the overlapping functions where we would derive an efficiency. We're going to probably try to get at those without bringing the company directly back into the City. It's not clear what the benefits of that would be. 351 04/07/04 - FISCAL STABILITY - RES. 040276
As you probably know, what we have heard from PGW has basically been that they really don't know what to do with this hole that they're in. And someone is going to have to come to the rescue. So we're going to have to get our collective minds here together and see what we're going to do about this problem. They have very articulately stated in hearings that they do not know really what to do except to raise the rates and put it on the taxpayers and the gas users. So that's a pretty tough situation to be in for us to just stand on the sidelines.
The City is not on the sidelines. Ms. Davis serves on the board. I serve on the board. The City Solicitor is at the meetings. We probably have four or five people who are on at least a monthly basis wrestling with PGW challenges. And the Administration has been intimately involved in the operations of the company since the very beginning. I think that when the Mayor first 352 04/07/04 - FISCAL STABILITY - RES. 040276 took office, we all began to understand that the arms-length relationship didn't work, that PGW had in a lot of ways spun out of control and understood even then that because of the relationship between the company and the City, it could end up on the City's door step, all the PGW problems. And I think what we're living through now are what have been decades of lack of attention. And just because we have not proposed moving it into the City, I don't think is any indication of a lack of direct involvement by the Administration.
This is my last question, Madam President. Concerning PICA's statement here this morning quite emphatically through Director Vignola that they're saying to the Administration, cut expenditures, are you looking at cutting expenditures some more? It seems as though PICA is not inclined at this time to approve your Five-Year Plan.
Some of what PICA chooses to characterize as speculative expenditures are revenues that we identify as 353 04/07/04 - FISCAL STABILITY - RES. 040276 coming from other governments. For example, the Administration is proposing that reimbursement for social workers go to 100 percent. There are a number of those kinds of initiatives. We are putting together a list of cuts that will happen if it appears that those additional revenue measures aren't going to happen. And so we will and are formulating cuts in the social service realm that will be implemented if, in fact, we are unable to get the additional revenue we need. Currently, if you look at what happens out of DHS, that's discretionary. It's in the area of preventative measures. We would be taking a new look at some of those initiatives that we feel very strongly about, but might end up proposed for cuts. None of the things that the Administration has put on the table, not the cuts to the Art Museum, not the cuts in the Recreation Department, the changes in health benefits -- I mean, all of these measures were arrived at after very careful deliberations. We have a sense of how 354 04/07/04 - FISCAL STABILITY - RES. 040276 painful they're going to be, both for the City and for the workforce. Since 2001, I guess, when we imposed the hiring freeze, we've been aware that the City is going to be in a precarious situation. The Administration had proposed moving very slowly on tax reductions because we knew that we were going to end up where we are today, with a very, very difficult financial situation. We think that we have a defensible Five-Year Plan. We're putting in place now contingencies in the event that the revenues don't materialize. But over the course of the next several weeks we will be in close conversation with PICA. We meet with PICA almost weekly and will be trying to develop a level of comfort between PICA and the City in our contingency plan in the event that some of these revenues don't materialize. When we come to Council and talk about the cuts, you know, to the Art Museum and some of the others, it's with an understanding that we really do have a very dire situation. It's bad this year. Next 355 04/07/04 - FISCAL STABILITY - RES. 040276 year is not going to be any easier on the City. There will probably be more even difficult measures proposed in the coming years.
Thank you. The Chair recognizes Councilman Rizzo.
Thank you, Madam Chair. I have a few questions for the Finance Director and the Administration. To the Finance Director, Ms. Davis, many months ago I brought to your attention the fact that there was a problem with the police overtime issue where officers work off-duty, the City pays the officer, and it appears that we have serious problems with the process where we're assured that the vendors, the contractors, the businesses that hire these police officers are paying their debt. I'm disappointed to hear that there's been a 356 04/07/04 - FISCAL STABILITY - RES. 040276 breakdown in bringing that entire process under control, where the Revenue Department was supposed to take control of the billing. And I understand that that is not happened, that has been delayed because of some reasons. My questions are, could you give us a brief report for the record where we are? Do you believe that we have this under control, even without all of the pieces in place? I'd like to know what you're doing about the outstanding debt, the monies that has not been collected that are owed the City.
The Managing Director and the Police Department have been working on policies and procedures governing that whole operation, and they've been looking at those arrears and how to handle those. We had difficulty when the new TIPS system came up, which is our consolidated tax system. There were some problems in bringing real estate into the system that delayed our ability to bring miscellaneous receivables into that system. It's still anticipated that that will happen sometime during May, in which 357 04/07/04 - FISCAL STABILITY - RES. 040276 time we'll have other receivables coming on as well as the police overtime. And once that's done, it becomes a function of the Revenue Department, with it being remotely input by police but being monitored through our system. So my anticipation is that by summer we'll be fully up and running, unless we have some other problem.
There's hundreds of thousands of dollars, if not more, that have not been collected. Can you tell me what you're doing to collect it?
I'd have to defer to the MDO's Office because they've been working on that. I can get you the information.
I don't believe -- Phil Goldsmith is the one who's been honchoing that one, so I'd have to get the information from him.
I'd have to defer to Mr. Goldsmith as well for exactly where they 358 04/07/04 - FISCAL STABILITY - RES. 040276 are with collections.
Okay. My last question today. If someone has the need for fire rescue to come to their home, we have a process in place, I believe, where if they have insurance or if they don't have insurance we send a bill for that service, am I correct?
If a vehicle accident occurs at an intersection, one car, two car, multiple vehicle, do we have a process in place where if fire rescue responds to that vehicle accident and those vehicles have insurance, are we recovering any of those expenses associated with that response?
I'll have to get that answer. I'm assuming that if some person is involved, we would seek reimbursement. But just to water down the street or wash down the street or whatever, is that the question?
No. I'm talking about if a medic unit comes, transports the person to the hospital, I'd like to know are we utilizing the same process when they 359 04/07/04 - FISCAL STABILITY - RES. 040276 respond to a home to recover the costs, which I understand are very, very expensive? And if these folks have insurance, you would think that we would have some process to recover that. Again, it's a stretch on this part of it. Are we making any effort to collect for the accident investigation costs associated with that? I know there's some basic police services that we are required, but based on the budget that we have in front of us, I think you should be looking for recovery every place you can. So my question is, do we know if we look for those reimbursements that I just described?
I believe whenever we transport, we seek reimbursement. But I'll get the other information for you.
Thank you. And I would appreciate having an update on where we are with this process, because I have been 360 04/07/04 - FISCAL STABILITY - RES. 040276 sent some policies from the Managing Director's Office that are very vague on how this program where police officers work off time, the liability of the City still has not been issued if they're injured off duty. I understand we inherit that injury, that the City is responsible to cover that employee. So I think that this program is still loose. I've been patient for a long time now. And these are the obvious problems that we're facing on having money, hundreds of thousands of dollars, that haven't been collected, continuing to have a program that is possibly adding to that uncollected. So I think it's a reasonable request to fix this.
Yes, sir. Part of our work so far with it, when we had Risk Management looking at it also, was to assign a cost that would recover all of the cost, not just the cost for the labor, but also provide some level of recovery for vehicles and also some recognition of the risks that the City assumes when it does this kind of work. So that was all part of the study. I'll get that 361 04/07/04 - FISCAL STABILITY - RES. 040276 information for you.
So it's still safe to say -- and I believe there was some speculation when we met -- that if a police officer working off-duty was injured, that that became an on-duty issue?
You're welcome. The Chair recognizes Councilman DiCicco.
Thank you, Madam Chair. Good afternoon. I think it was Ms. Wilkerson who made mention of -- something in your statement said about the concern that the Administration has had concerning continuing 362 04/07/04 - FISCAL STABILITY - RES. 040276 tax reductions. Could you be a little more specific about that?
I think that the Administration embraces tax reduction. As I said before, it's part of our economic development strategy, but that it makes the budget that much more challenging. And I believe Mr. Vignola was talking about the numbers that we've returned to Philadelphia residents and businesses as a result of the tax program. But it does make the budget very, very challenging, and that it means we have to operate in a more efficient way than before. So we need to proceed carefully and slowly or be very strategic in our tax reduction program. That was the only --
I understand that. But if there's anyone taking into consideration but for those cuts -- when we talk about imposing cuts in order to stimulate the economy and grow the economy -- and I guess it's kind of an unknown -- but had we not continued with those cuts, would the revenues be even less today as a result of 363 04/07/04 - FISCAL STABILITY - RES. 040276 companies not coming or not staying?
I think that point is well taken, and that's why the Administration has supported cuts, came to this budget with additional cuts being proposed. But they do create a challenge, but we believe they are essential. We also believe that it's essential that we have the opportunity to make other kinds of investments to grow the economy. Because if we continue on a course of without righting the problems with the tax system, if we continue to have assets around the City like the naval yard and the North Delaware and don't ever come up with strategies for making them part of our economic engine, the City is not going to see the kind of recovery that all of us want to have. But the flip side of that is it creates pressure on the budget. It makes necessary cuts, some of which we probably ought to be doing anyway; others, we might prefer not to do, but on balance believe that the tax reform and the tax reductions are 364 04/07/04 - FISCAL STABILITY - RES. 040276 sufficiently important. We believe the ability to invest in the assets are sufficiently important, that we ought to go on and bear the pain of the cuts that are being proposed.
During the last maybe, say, three years, from 2001 to the current time, what were collections, revenue collections, compared to expenditures? In the simplest way that could be explained, how are we doing?
Our expenditures have exceeded our revenues for the last few years. In '03, the last year for which we have in actual, there was a $67 million gap between our collections and our expenditures.
'03. Where were we in '02, do you know, '02 and '01, ballpark figure?
Well, I think it was the end of '01 -- I think -- I'm trying to 365 04/07/04 - FISCAL STABILITY - RES. 040276 remember. I think we were $230 million at the end of '01.
Yes. And then I think -- I'll get back to you with the right numbers. I think we went down about $100 million in '02.
I can give you the difference by year. Okay. We were at 230 at the end of '01. We went down to 139 at the end of '02. So that was roughly a $90 million decrease.
Well, we're minus 67 when you look at revenues versus obligations. 366 04/07/04 - FISCAL STABILITY - RES. 040276 There are some below the line adjustments that affect the number. So our fund balance will wind up going down to 91, so it went down about $50 million.
Yes. And then we're projecting at the end of '04, it will $14.6 million, so you'll go down another $77 million.
From $91 million to $14 million? When we started in 2000, this Administration, what was the surplus in the City at that time?
That's an accurate number? Because when you talk to the Controller, he said it was closer to $500 million. And then that was the number we were working from, 295? 367 04/07/04 - FISCAL STABILITY - RES. 040276
295 was the number that was in our audited financial statement that's audited by the Controller's Office. So they signed off on that number.
So really the major impact, negative impact, has been between '03 and '04, based on what we started out at the bank at $295 million?
Let me do the sequence. We went from 295 in 2000 to 230 at the end of 2001. Most of that was because of accounting change. And then we went to 139, so that was actually the biggest decrease, from '01 to '02. And then we went to 91.3 in 2003. And then we're projecting 14 million at the end of '04. But the biggest decrease was in '02.
And most of that is as a result of the expenditures as opposed to the collections? There are collections apparently -- I know there's a schedule here, but I don't think they reviewed that quickly enough.
Revenues grew more slowly in those years than they had in the 368 04/07/04 - FISCAL STABILITY - RES. 040276 late '90s as the economy slowed down. And in some years they were actually up from what we had budgeted. But there was a slow-down, and expenditures didn't slow down correspondingly. There were many things that happened that drove those costs, a lot of which was beyond our control. But that's what happened, expenditures have grown.
Yeah. They were things like the School District funding. That's been an extra $45 million a year. That's a big part of this. That's over $200 million to the School District. And the accounting change was another $70 million. So just between those two things you have $270 million.
The pension costs over the course of the same time period, the change in our pension expenditure. We acknowledge that there's a problem with overtime, and I believe an 369 04/07/04 - FISCAL STABILITY - RES. 040276 overtime report is being generated that shows where in government it is. Some of the overtime is avoidable, but not all of it is. I believe out of the last hearing there was a request made for overtime, and we will provide that.
We actually, in one of the briefings that we did for you, we had a graph that showed the swings in fund balance, and it listed the six major contributors, when was the accounting change, when was the School District funding. And then there were pension costs, health benefit costs, police costs and prison costs. Those were the major drivers in the swing in our fund balance.
When you do your calculations, although it's three years out, the tax exemption bill that we passed in 1997 for building conversions where the real estate tax stayed at the same level, regardless of what the improvements are, that's actually coming due in three years. Is there any calculation being done? Because that's going to be additional revenues. 370 04/07/04 - FISCAL STABILITY - RES. 040276 Although it's three years out, I was just curious if any of that's being taken into consideration, because there's a significant number of buildings that went on-line with the exemption bill in '97.
Part of the calculation we do and are getting to you are property tax estimates, including abatements that expired. So we do include that in our projections.
I believe Councilman Nutter will be back very shortly. I think he has a number of questions he would like to ask. However, before he returns, I know we spoke about the switch from a defined pension plan to a defined pension contribution. Has an actuary prepared the analysis of this proposal? And what are the benefits that the City would accrue?
We've not factored in any savings from this in the current plan. The benefit that the City would accrue would 371 04/07/04 - FISCAL STABILITY - RES. 040276 be that the City would no longer bear the risk of non-performance in the market, such as we saw over the past three years where the City lost approximately a billion dollars in value. Those types of risks will not be borne by the City. So you wouldn't see an escalation in your pension cost to cover the non-performance of the market.
We've not had an actuarial report done, because at this point this is just a plan and there is no savings projected for the future years. It's just something that the Administration will start to investigate as a way to shield the City from further cost escalations.
Thank you. I believe that we're waiting for Councilman Nutter. The stenographer would like a break. We will stand in recess for 10 minutes. (Brief recess.)
The 372 04/07/04 - FISCAL STABILITY - RES. 040276 Committee is now in session. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. I apologize. Let me start this round -- and I mean it when I say I'll really try to be quick. If there were things that were raised at the last hearing, if you would just tell me. I know you had a lot discussion about the Economic Development Fund last week and the proceeds coming out of -- technically what's the place?
It goes from the debt service reserve fund into the residual fund.
Have the details been, I guess, kind of developed as to how is this all going to work? I guess what I mean by that is, we have to approve something to move the money from one place to the other. And then where does the money go and who's in charge of it? 373 04/07/04 - FISCAL STABILITY - RES. 040276
You approve the substitution of the surety policy for the actual funds.
It would be an ordinance to allow for the substitution. And that surety is a guarantee that if something were to happen, we can go against the bond to make up for the revenues?
It serves exactly the same purpose as the debt service reserve fund. And in fact, the ordinance supporting the last bond issue anticipates that instead of using cash proceeds, the City would use a surety.
And what, if any, restrictions or limitations are there? Was that yesterday?
What we were going to do is get something from bond counsel so that it's real clear, so you have something in writing. 374 04/07/04 - FISCAL STABILITY - RES. 040276
If the surety bond ordinance is passed, if you could walk me through the mechanics of where the dollars are today and where they would end up after -- I mean, if we do all we're supposed to do -- I'll read the memo when you get it together -- what happens then?
The money would flow the way we anticipate. It would flow from the debt service reserve fund to the residual fund. And then that's where it's dispersed from.
Within Water. And then how do you access the dollars and who would actually access them?
There's $125 million appropriation in that residual fund. The specific mechanics of who gets it out, how it's accessed, we haven't developed.
Would that be put together prior to the approval? 375 04/07/04 - FISCAL STABILITY - RES. 040276
Yes. We anticipate having a program in place prior to coming to City Council for authorization to swap out the surety bond for the sinking fund.
When you say a program, are you talking about where the dollars are going or what the process is?
Both. Some of what we want to come out of the economic summit is really a refinement of how the whole half-billion dollar fund will be used. But we will not come to City Council for authorization to swap the surety bond without having developed a proposed program.
And the balance of the $500 million Economic Development Fund, the 375, the source of funds for that presently is?
We talked about those are proposed to be borrowed funds. The debt service is not in this Five-Year Financial Plan. We haven't developed that fully yet, so it's not in the Five-Year Plan.
One last 376 04/07/04 - FISCAL STABILITY - RES. 040276 question for the moment. I'm sure we'll have more extensive hearings. These funds have been in the residual fund for some time?
They've been in the debt service reserve fund for some time, yes.
What's the rationale for utilizing these dollars for economic development purposes as compared to doing anything with them that is directly related to the Water Department customers or the ratepayers?
They would be used for Water capital-type items, and that's what we anticipate using them for in this process. It's a policy decision, whether you call it economic development and use it there or call it something more specifically, you know, broader sewer pipes or whatever. It was just a policy decision.
But I think it's a real critical decision for the City. As we talked about with Councilman DiCicco just previously, we've got to do something to grow the economy of the City and to grow the City. 377 04/07/04 - FISCAL STABILITY - RES. 040276 We really do have wonderful assets that we've got to figure out strategies for taking advantage of them. And as the Administration tried to identify revenue that it could use to help support the build-out of infrastructure in these areas that were previously industrial, it appeared to be an appropriate and strategic use of these reserve funds. We are still going to be doing infrastructure. They will still be water related. But at the same time it helps open up areas for development that have been dormant for decades in this City.
And the thought here -- I mean, is there a belief or a view that the lack of infrastructure has been a barrier to development -- yesterday's discussion, and I'm sure last week's -- it's the Delaware River, it's the navy yard. And was there a third?
And Schuylkill and select NTI communities. We've seen it in particular with NTI when you go into these areas that were previously industrial, 378 04/07/04 - FISCAL STABILITY - RES. 040276 frequently you'll have old buildings. You frequently have environmental issues. You don't have the water sewer. You don't have the roads that you need. And those are the kinds of things that thwart development. When the Commerce Department comes, the PIDC folk will be here with the Commerce people. They can talk to you in more detail about the but-for issue of what it is that's blocking the growth of these areas.
Can you give a sense at the moment -- and I know this is all still being developed. We're at early April. I'm assuming that as a part of the budget process you want all of these things done by the May 31st date, although some of this stuff may not have that kind of time pressure on them. We've asked for a whole lot of things and you're working on trying to get a whole lot of things back to us. Do you have any sense of when some of that will start coming back?
In terms of the economic development, I would see that in the 379 04/07/04 - FISCAL STABILITY - RES. 040276 fall. The summit will happen sometime, hopefully, in June. There will be additional work dome after the summit to actually finalize the blueprint. Out of that will be in more detail the plan for spending the fund.
But I thought you wanted the approval on the first part of the 125 now.
We're not seeking approval for the surety bond. We haven't transmitted legislation in support of that. That would probably come in the fall.
Okay. Maybe it was a misunderstanding on my part, I thought, I was left with the impression that somewhere within the budget and all of its complexities that approval of the budget there's a -- I don't want to call it a trigger -- but some mechanism, some provision in the budget that once it's approved moves the money. Is that incorrect?
That's not completely correct. There's appropriation power in the budget. But if we don't use the surety bond 380 04/07/04 - FISCAL STABILITY - RES. 040276 and we don't move the money over, there's no 3 revenue to go with that appropriation. So there's no actual cash to spend.
All right. Okay. Thanks for clearing that up. Thank you.
Any other questions from Members of the Committee? (No response.)
Seeing none, this Committee will stand in recess until Tuesday at 9:30.
We're going to be here anyway. We're just rolling them so that we will be able to report all of the bills out at one time.