COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING BEFORE THE COMMITTEE ON FISCAL STABILITY & INTERGOVERNMENTAL COOPERATION - - - Room 400, City Hall Philadelphia, Pennsylvania Monday, February 8, 1999 9:30 a.m. - - - RESOLUTION NO. 990038 - A resolution providing for the approval by the Council of the City of Philadelphia of a revised Five-Year Financial Plan for the City of Philadelphia covering fiscal years 2000 through 2004, and incorporating proposed changes with respect to Fiscal Year 1999, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority ("The Authority") pursuant to the Intergovernmental Cooperation Agreement, authorized by an ordinance of this Council approved by the Mayor on January 3, 1992 (Bill No. 1563-A), by and between the City and the Authority. PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN AUGUSTA A. CLARK COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN MICHAEL A. NUTTER COUNCILWOMAN MARIAN B. TASCO COUNCILMAN RICHARD T. MARIANO COUNCILMAN W. THACHER LONGSTRETH CHARLES MCPHERSON, Chief Financial Officer - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 2/8/99 FISAL STABILITY - Res. 990038 I N D E X Gregory S. Rost, Chief of Staff . . . . . . . to Mayor Edward G. Rendell Dean Kaplan, Budget Director. . . . . . . . . 6 City of Philadelphia 7 Rob Dubow, Deputy Budget Director . . . . . . 24 City of Philadelphia 8 Nancy Kammerdeiner, Revenue Commissioner. . . 49 9 City of Philadelphia. 10 Commissioner Michael DiBerardinis . . . . . . 54 Philadelphia Recreation Department 11 Emily Bittenbender, Capital Director. . . . . 91 12 City of Philadelphia Joe Resta, First Deputy . . . . . . . . . . . 102 Capital Program Office Brian Anderson, Chief Information Officer . . 142 Mayor's Office of Information Services 3 2/8/99 FISAL STABILITY - Res. 990038 P R O C E E D I N G S
Good morning, everyone. This is the public hearing on the Committee of Fiscal Stability and Intergovernmental Cooperation. I would ask Mr. McPherson to please read the title of Resolution 8 No. 990038.
Resolution 990038, providing for the approval of the Council of the City of Philadelphia of a revised Five-Year Financial Plan for the City of Philadelphia covering Fiscal Years 2000 through 2004, and incorporating proposed changes with respect to Fiscal Year 1999, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority ("The Authority") pursuant to the Intergovernmental Cooperation Agreement, authorized by an ordinance of this Council, approved by the Mayor on January 3, 1992 (Bill No. 21 1563-A), by and between the City and the Authority.
Thank you. Good morning. Please identify yourself for the record and proceed with your testimony. 4 2/8/99 FISAL STABILITY - Res. 990038
Thank you. Good morning, Council President Verna and members of City Council. My name is Gregory S. Rost, and I'm Chief of Staff to Mayor Edward G. Rendell. I'm pleased to be here this morning with Dean Kaplan, the City's Budget Director, and Rob Dubow, the City's Deputy Budget Director to present the Administration's testimony concerning the proposed Fiscal Year 2000 through Fiscal Year 2004 Five-Year Financial Plan. As we have done in prior years, what we would like to do this morning is to provide a brief overview of the Plan and then throw the floor open to questions from members of Council. Our cabinet members and commissioners are in the audience today to address specific concerns that Councilmembers may have with respect to the individual departments and the Plan. Obviously, the cabinet and commissioners will return to City Council for their regularly scheduled testimony concerning the FY 2000 Budget. At that time, they will be prepared to address any specific questions that members of Council may have with regard to the 5 2/8/99 FISAL STABILITY - Res. 990038 departmental chapters of the Plan or the proposed Fiscal Year 2000 Budget. As I indicated, my chief responsibility this morning is to provide a brief overview of the Plan. I remind members of Council that this is the eighth five-year financial plan that the Administration has submitted to Council since the passage of the Pennsylvania Intergovernmental Cooperation Act of 1991. It also happens to represent the last plan that the Rendell Administration will submit to Council. Under the provisions of that act, the City is required to prepare a financial plan so long as the city is, quote, an assisted city, end quote, as defined under the act. An assisted city, for our purposes, is one that has used PICA borrowing power and has not yet repaid that debt or refinanced it out of existence. As you know, the five-year financial plans are subject to the approval of PICA. The process we follow for the Five-Year Plan is the process that is set forth in the Intergovernmental Cooperation Agreement that was approved by this Council in January of 1992. 6 2/8/99 FISAL STABILITY - Res. 990038 Under that agreement, it is the Mayor's responsibilities to propose a five-year financial plan, which is then presented to City Council by resolution along with the operating and capital budgets. Council then considers, and hopefully approves, the Plan typically at the same time as the budget ordinance. And the Plan approved by Council is then submitted to PICA for its approval. The format of this year's proposed Five-Year Plan is identical to last year's plan. We start with an introduction, which is really a thematic overview of the Plan. Since many people find it difficult to read all 600 pages of the Five-Year Plan, the introduction serves as a suitable overview; and at 36 pages, it is a little bit easier to digest. In the past, the Administration has made copies of the introduction available to members of Council for their constituents. We would again like to extend that offer to Council again this year. The introduction is then followed by several additional introductory chapters. The 7 2/8/99 FISAL STABILITY - Res. 990038 General Fund Revenues chapter provides the basis for our revenue estimates and forecasts for Fiscal Year 2000 and throughout the five years covered by the Five-Year Plan. It includes our local tax revenues, revenues from other governments, locally-generated non-tax revenues, and revenues from other funds. General Fund revenues is followed by a fairly lengthy chapter detailing the City's economic development efforts. This chapter 12 describes in some detail the City's effort to spur economic growth and create jobs in the City of Philadelphia.
The economic development chapter tracks the City's Economic Stimulus Program and our efforts to create economic opportunities in four critical areas: neighborhood economic development, business retention and attraction, defense conversion, and hospitality and tourism. After economic development, there's a chapter on management and productivity which highlights the numerous management productivity initiatives and accomplishments that the Administration and City Council have pursued over 8 2/8/99 FISAL STABILITY - Res. 990038 these past seven years. The last of the introductory chapters concerns the City's workforce. This chapter 5 provides an overview of the status of our collective bargaining agreements with our four major municipal unions -- DC 33, DC 47, DIAFF, and the FOP, which are now concluded through the end of the Administration with the FOP arbitration award this past summer. All four of the City's collective bargaining agreements now in effect will expire on June 30th of the year 2000. Beyond the introductory chapters, the balance of the Plan is divided into two major sections. " These are the operating departments that have the most direct impact on the services that our citizens and businesses receive, and include police and fire departments, the Recreation Department, the Free Library, the Health Department, DHS, Fairmount Park, Licenses and Inspections, the Streets Department, and Records. As in the past, each of these 9 2/8/99 FISAL STABILITY - Res. 990038 departmental chapters begins with a mission statement, followed by a summary of major accomplishments, objectives, and constraints. Each chapter closes with a five-year summary of obligations as well as a listing of selected service-level measurements so that we can track the quality and the quantity of the services provided by City government. " There are chapters on the various departments in the government that do not necessarily provide services directly to citizens, but rather provide support to the rest of the government. Included among the internal support departments are: Finance, Law, Personnel, Public Property, Fleet Management, the Mayor's Office of Information Services, and the Municipal Energy Office. Again, these chapters are generally formatted in the same fashion as our citizen service departments. The Plan concludes with a brief chapter 24 on the Capital Program, which will be the subject of separate hearings in City Council commencing 10 2/8/99 FISAL STABILITY - Res. 990038 tomorrow. At the very back of the Plan, there are a series of appendices that largely contain materials that are required under the PICA statute. I call your attention to two appendices in particular: Appendix I, which covers the City's enterprise funds; and Appendix III, which contains a summary of operations for the five years covered by the Five-Year Financial Plan. In summation, the new Five-Year Financial Plan that we are submitting today tracks with the philosophy that the Administration and City Council first adopted seven years ago, and that philosophy is as follows: Number one, to maintain a balanced budget; Number two, to continue to improve and, where possible, enhance the quality of the services that the City government provides; Number three, to continue to lower the cost of living and working in Philadelphia through responsible tax reduction; Number four, to stimulate the economy to provide economic opportunities for every 11 2/8/99 FISAL STABILITY - Res. 990038 Philadelphian. Our new plan reflects the government's continuing commitment to these four principles, which have enabled us to achieve so much. 2 million positive year-end fund balance. We have continued to improve the services we provide to our citizens. For example, with the support of this City Council, we have added 753 new Crime Bill police officers to our police force to push the force to nearly 7,000 officers -- the highest level since 1984.
With the leadership of this Council, we have cut taxes for four consecutive years, including the first historic cuts in the City's wage tax in five decades. And perhaps most important of all, we will again show positive job growth in 1998. Preliminary Bureau of Labor statistics numbers indicate that the City may have gained as much as 5100 jobs in 1998 on top of the 3,000 jobs that we 12 2/8/99 FISAL STABILITY - Res. 990038 gained in 1997. This is a far cry from the devastating loss of 2700 jobs that the City experienced on a monthly basis in 1991. However, as the members of this body know all too well, there are still many challenges ahead. Welfare reform and a possible downturn in the national economy are but two threats to our long-term prosperity. If we are to weather these challenges, we must not break from the fiscal discipline that has rewarded us so greatly thus far. With that, let me turn the microphone over to Dean Kaplan, the City's Budget Director, who will discuss the revenues side of the Plan; and to Rob Dubow, who will discuss the expenditures sides of the plan. Thank you very much.
Thank you. I'm Dean Kaplan, the City's Budget Director. The FY 2000-2004 Five-Year Plan continues to be a finely balanced document. As 13 2/8/99 FISAL STABILITY - Res. 990038 Chief of Staff Rost mentioned, we've had six years of positive fund balances in the budget; and the Five-Year Plan, as required by the PICA statute, projects a balanced plan at the end of five years as well as individual balance within each of the five fiscal years that make up the Plan. Obviously, this is a great testament to the leadership that the Mayor and this Council have shown and also to the hard work that the department heads who are here today and the many, many staff who work for them have -- the effort they have put forth over the last eight years. Although we generally have had a lot of good news -- and much of it just summarized by Greg Rost, including recent job gains and revenue growth -- we still face a number of major challenges. 2 percent of projected expenditures. This balance itself is threatened with 14 2/8/99 FISAL STABILITY - Res. 990038 several major items. First and most importantly, as alluded to by the Chief of Staff, there is no 4 funding for new labor contracts after the current ones expire in less than 17 months. And this Plan absorbs $102 million in new costs related to the recent police arbitration award. So we've taken a lot of the savings and other efficiencies achieved with the number of initiatives in the last year and used those to fund the existing series of labor agreements. In addition, future target budget reductions are increased in this proposal, from $50 million to $60 million, thereby raising the bar a bit further for future administrations in terms of finding future efficiencies in government to make this Plan work. 4-million-per-year payment from the General Fund. Those were part of the savings that were coming from the pension bond sale; another large piece of those savings were used to fund the police contract. 15 2/8/99 FISAL STABILITY - Res. 4 million a year are in this plan however. However, the difference between that amount and whatever final pension COLA legislation is accepted by the Council is not in the Plan at this time, and we will have to find additional reductions in order to make up that difference. Most recently, the most recent pension actuary number that I have seen would indicate that we would have an obligation of about $39 million over the life of the Plan. The money that we put in based in the original proposal was about $22 million, so we're looking for about -- we'd be looking for about $17 million over the life of the Plan. Most important, as the Mayor's Chief of Staff suggested, the Five-Year Financial Plan this year is predicated on continued modest economic growth, no recession in the local, regional, or national economy, and a minimal impact from State and federal welfare cuts. And those are pretty big if's going out further. Let me summarize some of the revenue issues briefly and then come back to some of these 16 2/8/99 FISAL STABILITY - Res. 990038 larger questions. 5 percent over actual FY '98 revenues. And those track pretty closely to the sorts of future growth we're expecting on the revenue side of our budget. 6135 percent for in-City residents and a similar reduction for commuters, which would be a 7 percent reduction overall, since the Council and the Mayor began the wage tax reductions on January 1, 1996. 65 percent. 46 6 percent reduction in that portion of the tax since January 1, 1996, and overall, a 10 percent reduction in the complete (unintelligible) on the effect of all the modifications to the 17 2/8/99 FISAL STABILITY - Res. 990038 business privilege tax are factored in.
The result of this is that the cumulative impact of the tax reduction for FY '96 through FY 2000 will be $315 million -- that's $223 million in wage tax cuts and $92 million in business privilege tax cuts, so that the total equals $315 million, without any calculation for the personal property tax. As you will recall, we stopped collecting in 1997. When you count the personal property tax elimination, our total tax reduction for FY '96 through FY 2000 is $382 million. The annual savings just from the reductions in FY 2000, which are the ones that will occur each year going out, are $108 million, which is made up of $83 million in wage reductions and $25 million in BPT reductions. And then the total savings from FY '96 to 2004, the end of the plan -- assuming that all the tax cuts proposed in this Plan are adopted -- would be $905 million. And when you combine that with $143 million in the personal property tax, which will not be collected over that period, the total package, the total reduction in revenues 18 2/8/99 FISAL STABILITY - Res. 990038 from FY '96 to 2004 is $1,048,000,000. For a wage-earner making $30,000 -- which is kind of the standard we've used in the last several years -- the wage tax cut of $22 in FY 2000 means that they will be paying $104 less in wage tax net year than they were paying when the tax cuts began about three years ago. The cumulative savings for this wage-earner since that time is $288. 5 million, the BPT cuts just for this year will mean an additional $1,875 in savings. But overall, the business is paying $9,000 less next year than it did in FY '96, and it saved a cumulative total of $30,000. When you add in the effect of the double-weighting change we made several years ago and how the net income portion of the tax is calculated, the cumulative total of savings next year will be $52,815. And the nine-year program, from FY '96 to 2004, will save that business about $177,942, which would higher approximately six of those $30,000-a-year wage-earners. 19 2/8/99 FISAL STABILITY - Res. 990038 The overall strength in our local economy has provided sufficient income to allow us to afford these tax cuts. And that revenue combined with the modest annual savings from the pension bond issuance last month, as I mentioned, helped to sort of absorb a variety of increased costs: the $103 million net five-year cost of the FOP award last year; as I mentioned, a large portion of the pension COLA, which we anticipate Council will adopt in some form; and increases in the funding for libraries, recreation, and homeless services that will be discussed in one moment by Rob Dubow. There are, however, several areas that we have significant concerns about going forward in the Plan. First, even with the moderate growth we're anticipating, our revenues are expected to only slightly outpace inflation over the planned period. Despite the public attention over the real estate taxes and their levels and the reassessment totals over the last several years, the overall tax base for real estate has been essentially flat over the last several years and 20 2/8/99 FISAL STABILITY - Res. 990038 is expected to grow in a very minimal way going forward. The wage tax and the business privilege tax, our first- and third-largest taxes, are particularly vulnerable to an economic downturn, and those have been the engines that have really driven our revenue success over the last several years. And then finally, the substantial growth in the transfer tax, which is our fifth largest tax, has been driven in part by the one-time catchup in the recording backlog, which has now reached zero. And the recent escalation of sales of downtown office towers, which do occur periodically, usually on a 10- or 20-year cycle, and which we expect to be a transient phenomenon -- I don't think you'll continue to see the large office buildings get sold each year, generating large amounts of transfer tax.
So although we have done quite well in certain taxes over the last several years, that has masked the fact that many of these are one-time phenomena and the fact that some of the 21 2/8/99 FISAL STABILITY - Res. 990038 taxes have been not growing at an astounding rate. And we should not expect them to suddenly pick up either, I think, going forward. At the same time, as I noted earlier, the next mayor and the next Council will have to find funds to pay for new labor contracts for all four City unions for the last four of the five years in the Plan. By way of comparison, the net cost of the '97 to 2000 labor contracts for the four major unions was $232 million. So you're looking at, obviously, a fairly -- whatever those negotiations end up with, it will be a large figure to make up in future plans. Next, as the Council is well aware, next month, the first Philadelphians will lose their welfare benefits as the TANF law takes full effect. And while we don't expect a catastrophic change on March 3rd, we have already seen the effect of TANF increasing the number of visits by uninsured to our health centers, raising the population at our homeless shelters, and we know that there will inevitably be additional pressures on our budget as the law affects more and more families. 22 2/8/99 FISAL STABILITY - Res. 990038 And finally, as I've mentioned several times, all of this is contingent on modest growth in the local, regional, and national economies. Nationally, we're now in the eighth year of economic expansion, which is pretty much a record unparalleled since the second world war. In Philadelphia, however, we've only really seen the results of this growth in the last three years. So you can make a fairly strong argument that our growth, compared to the national economy, is lagging by five years. And that when the inevitable downturn occurs -- whenever it occurs -- we're assumed to be one of the economies that will be affected first. One of the good pieces of information out there is that over the last several months, when the downturn in Asia -- particularly in Brazil -- has had a very strong negative effect on regional economies around the country that are very dependent on exports, it has not had such a negative effect here because of our non-export-driven economy. So sometimes some of our weaknesses are our strengths. However, overall, you know, despite the 23 2/8/99 FISAL STABILITY - Res. 990038 fact that I think all of us are very pleased at the fact that the job losses have turned to job gains, and we've definitely seen growth both in revenues and in employment numbers the last several years, we can't assume that those trends will continue in any substantial way beyond the very modest expectations we have in this Plan. Before turning this over to Rob, I do want to note that both the Five-Year Plan and the Budget Detail, which you will receive either tomorrow or the next day, and all of the testimony that will be made before Council the next several weeks are the product of a tremendous amount of hard work by a group of people throughout the Administration who have spent days, nights, weekends, and many, many hours meeting, discussing, and putting together the documents which you have before you. This is a good time to thank all of the department heads and their staff, all of the central agency heads -- particularly from the Budget Office, the Office of Management and Productivity, the Policy and Planning Office, and others -- who have spent a lot of their time 24 2/8/99 FISAL STABILITY - Res. 990038 putting these together so that they're coherent and rational and provide some information for you, and I just wanted to make it clear how much we appreciate their hard work. At this point in time, Rob Dubow's going to discuss some of the expenditure enhancements in this year's budgeting plan.
I'm Rob Dubow. I'm Deputy Budget Director, and I'm going to be walking through some of the --
I'm sorry, you're going to have to speak closer into the microphone.
I'm going to walk you through some of the requested funding increases in the FY 2000 Budget and in the Plan. The first area's in the Recreation Department, which is $2.9 million in increased funding, which is a total of about $15 million over the life of the Plan. It includes $2 million for 52 new full-time custodians for B Centers and 32 new full-time equivalent staff at C Centers, 8 additional trade workers for the Maintenance Division, and 17 additional -- 25 2/8/99 FISAL STABILITY - Res. 990038
Mr. Dubow, if you'll move a little close to the mike. And are you referring to specific sections of the Plan?
I'm talking about the Recreation Department now, which would be in the Recreation Department chapter.
Okay. The Recreation Department increased funding, which will total about $15 million over the life of the Plan, includes $2 million for 52 new full-time custodians for B Centers, 32 new full-time equivalent staff at C Centers, the 8 additional trades workers for the, 8 additional trade workers for the Maintenance Division, and 17 additional recreation leaders to expand programming. The additional staffing will allow the Recreation Department to provide full-time custodial coverage at all of its B facilities and 2/8/99 FISAL STABILITY - Res. 990038 part-time shared maintenance at all C facilities. As you're aware, all the A facilities already have full-time coverage. The new funding will also enable the Department to follow maintenance standards that will establish certain levels of routine custodial and grounds maintenance work. The additional recreation leaders 9 will help the Department expand programming at 10 selective recreation centers for five days to six 11 days per week. 12 The Recreation Department will also 13 receive about $265,000 to go for raises from 14 between 10 and 16 percent for lifeguards 15 (unintelligible) and security personnel. The pay 16 increases are important because the Department has 17 had trouble in attracting and retaining lifeguards. The next area I'm going to talk about is the Library. 5 million to the library. 1 million is for additional employees and supplies to enable the Library's staff branches to reopen after extensive renovations. By the end of FY 2000, all the branches will have undergone renovations that 27 2/8/99 FISAL STABILITY - Res. 990038 will have provided updated computer access, new carpeting and furniture, overhead lighting, and improved handicap accessibility. The additional funding will provide for the equivalent of 68 and a half full-time employees, and is in addition to the almost $700,000 in increased funding of the Library received in FY '99. Over the course of the Five-Year Plan, the City will have provided the Library almost $9 million in funding beyond that included in the FY '98 budget. The FY 2000 budget also includes a little over $95,000 to permit the Library to open and staff a branch in east Philadelphia as well as $850,000 in capital funding to repair and open the new location. The operating funding included in the FY 2000 budget will provide six months of funding for 7 employees to staff a branch that would open in the middle of FY 2000. The Library projects the branch will get about 60,000 visits and circulate about 60,000 books in its first six months. The Plan includes about $200,000 annually to operate the branches beginning in FY 2000. 28 2/8/99 FISAL STABILITY - Res. 990038 The budget also includes a little over $275,000 to expand LEAP, an after-school program that focuses on homework assistance, computer literacy, and cultural enrichment. The Library will use the funding to provide these five days a week at nine branches throughout the City and to increase the number of children served by LEAP from 52,000 to 64,000. In the Police Department, we will also receive substantial increases in funding. 5 million to pay for the cost of police officers formerly by the Crime Bill. 6 million. 5 million. 8 million. Over the life of the Plan, the City 29 2/8/99 FISAL STABILITY - Res. 6 million, and the FY 2000 Police Department budget will reach $388 million, an increase of over $90 million since FY '94. In the Streets Department, the budget for 2000 includes $810,000 for two pilots. The first pilot will test ways to improve the City's street-cleaning program. And the $390,000 pilot is expected to last about eight months. During the pilot, the Department will combine increased enforcement and education with more mechanical cleaning, and the (unintelligible) street-cleaning schedule time to try to improve the neighborhood street-cleaning program.
The Department also plans to launch an eight-month $420,000 pilot program to test the impact on participation rates of the net costs of switching from biweekly to weekly collections of curbside recycling. We will also test collecting recycling on the same day as trash is collected, as opposed to collecting it the day before it is currently done. The pilot programs will target those neighborhoods with high- and low-level 30 2/8/99 FISAL STABILITY - Res. 990038 participation. Higher levels of participation would reduce the City's cost and help the City be creative in compliance with State environmental laws. The 2000 Budget also increases funding for the Atwood Kent Museum. Last year's Five-Year Plan called for a reduction in Atwater Kent's funding to $100,000 in FY 2000. Instead of implementing that reduction, at the request of the Museum and many members of this Council, this Plan increases the Museum's funding to $219,716. The budget also includes extra support for both the Mural Arts Program and the Graffiti Abatement Teams in FY 2000. The nationally- recognized mural program will receive an extra $66,000 for salary increases, paint, and other supplies. The Graffiti Abatement Teams will receive an additional $61,000 for paint and supplies. The added money will allow the Mural Program to increase the number of murals it paints from the projected 147 in FY '99 to an estimated 155 in FY 2000. The funds will also help the Graffiti Abatement Teams increase the number of properties they clean, from an estimated 32,750 in 31 2/8/99 FISAL STABILITY - Res. 990038 FY 989 to over 34,000 in FY 2000. As recently as FY '96, the City has included fewer than 4,000 properties a year. And the last area to discuss is OESS. 8 million for OESS to increase per-diems for shelter providers by almost percent -- from $12 to $14. The adjustment 9 follows a $1 cost-of-living increase in FY '98 and 10 will bring the reimbursement rates more into line 11 with those for other residential services. With 12 $12 per day, the City was having trouble 13 attracting contractors willing to provide 14 services. The rate increase will cost $9 million 15 over the life of the Five-Year Plan. 16 That concludes my testimony. 17
Thank you. Mr. Dubow, did I understand you to say that the Recreation Department would be receiving an additional $15 million?
If you turn to Appendix III, of the Five-Year Plan, it certainly would not appear that there is a 32 2/8/99 FISAL STABILITY - Res. 990038 $15 million increase.
Its funding goes from -- if look at the budget FY '99, it shows $29.7 million. And (unintelligible) a projected 2000, it shows 32.6, which is roughly the $2.9 million increase. And then when you multiply that times the 5 years to the Plan, it comes to about $15 million.
Are we simply 13 filling vacancies? I notice, in the Mayor's 14 Operating Budget in Brief, it would appear that 15 we're simply filling vacancies.
The funding available in the FY 2000 proposal will, in fact, cover the cost of the additional -- I believe it's 52 workers for the D and C Centers. While the Recreation Department does obviously, like all departments, carry a certain number of vacancies during the year, and they did take a portion of their FY 2000 target budget reduction in Class 100, that was less than -- approximately in the end, I think their target 33 2/8/99 FISAL STABILITY - Res. 990038 reduction is about between 100 and $140,000. And the increases in the Plan in Class 100 are -- the majority, I believe, of the 2.9 million are in personnel.
(Addressing Mr. Dubow here.) I'm looking at your numbers going forward here. I'm not completely clear on why the number -- your point is well taken. The chart in the back of the Budget in Brief does not reflect the position number.
Gentlemen, I'm sorry, you're just going to have to speak closer into the mike, please.
The Class 100 (unintelligible) the staffing position in the Budget in Brief doesn't show the increase in positions. The Class 100 increase is shown in the table on in the Plan.
. It shows that 34 2/8/99 FISAL STABILITY - Res. 990038 the bulk of the increase is in Class 100, so it will enable the Department to hire the extra employees.
Madame President, I believe your point is well taken, and my suspicion is that the chart is in error, but we'll have to get back to you on that. 'Cause, obviously, it doesn't reflect any real -- any substantial increase from the 99 at the top of the budget to future years; yet, the budget numbers reflect an increase of over $2 million in Class 100. So unless we're going to give a 10 percent raise to everyone in the Department -- obviously, it's not going to happen -- the table in the Budget in Brief must be in error. So we'll look into that and get back to you.
If I can just add one more point of clarification, excuse me. The additional approximately $2 million in Class 100 will pay for 52 new full-time custodians for the B Centers, the 32 new full-time equivalent at the C Centers, the 8 additional trades workers for the Maintenance Division, and the 17 additional assistant recreational leaders 35 2/8/99 FISAL STABILITY - Res. 990038 to expand programming. That's what the increase -- the approximately $2 million increase in Class 100 buys you.
However, looking at the chart, I would think that there were a number of vacancies that are simply being filled where we are getting additional people, are we not?
We are getting additional people. I think what the Budget Director tried to explain was, when we allowed the Recreation Department to identify where they would like to make their target budget cut, they chose to take their target budget cut from their Class 100. And that was about -- you said it was approximately $140,000. So above that $2 million is the additional bodies for the maintenance employees in the B Centers and the C Centers. So there is a net gain, I assure you there is a net gain. I assure you that these are additional bodies above and beyond what they would be hiring anyway.
Okay, I'll take your word for it. 36 2/8/99 FISAL STABILITY - Res. 990038 Would you identify for us what you think are the risks and concerns that can negatively impact the Plan, the Five-Year Plan?
Yes. I think there are a number of significant concerns which are of -- which can have a major negative potential impact on the Plan going forward. As I mentioned earlier, the single largest threat to the Plan is the fact that, as in other years, in order to enter the collective bargaining process without setting a floor or any other type of standard for negotiations, there is no funding for new labor contracts after the current contracts expire in about 17 months from now. That's a traditional position this Administration has taken. And, as you know, in past years what we have done is try to negotiate in good faith and then come back to this Council and make changes in the budget to fund those contracts. And, as you know, for example, the transfer ordinance before you that you will hear -- that the Appropriations 37 2/8/99 FISAL STABILITY - Res. 990038 Committee will hear on Wednesday has funding for deputy sheriffs and Register of Wills contract, which was not funded in the base FY'99 budget until the negotiation -- until actually, in that case, the arbitration was concluded. Again, as I mentioned earlier, the single --
Well, while you're on that, can you tell us what every 1 percent would cost over the increase?
Basically, a 1 percent increase at this point in the Plan is about $10 million across the. . . I'm sorry here. If you look at the summary of operations, in FY 2000, the personnel services total is about $1 billion, and the benefits figure's about $500 million, or about 50 percent of that. So if you take a 10 percent on the payroll, or about $10 million, that's for percent for one year across all of the employees, there's usually a benefit impact of approximately 30 percent on that, so that would be about $13 million. And then you have to carry 38 2/8/99 FISAL STABILITY - Res. 990038 that out for the whole five years of the Plan. So that would be times 13, or $65 million. 4 So each 1 percent increment that was 5 awarded in the labor contract would affect the Plan by -- I'm sorry, it's actually four years in this Plan, so it would be about $52 million.
The other key concerns in the Plan are, first, that the -- we have again included future target budget reductions in the Plan, and we think this is a responsible way of both making the plan balanced, challenging ourselves and future administrations to find efficiencies but recognizing that we don't want to make the level of reductions in current services to assume that there will not be any efficiencies in the future. Nonetheless, having that figure there means that departments will have to work harder in order to make the Plan balance in the out-years. And then finally --
Excuse me, are you referring to the productivity? 39 2/8/99 FISAL STABILITY - Res. 990038
In part, yes. But in part, as the Council's aware, over the last several years, we each year have asked departments to operate on a target budget which is slightly less than their appropriated level in order to provide funding for contingencies. We have also -- and in many cases, we have allowed departments to go above that. In some cases, we have frequently made that the base for their following year appropriations. That's one method of achieving future target budget reductions. A second one, as you mentioned, is through productivity bank initiatives whereby departments have borrowed money from the productivity bank -- in most cases, with the approval of this Council -- to achieve efficiencies in savings which then accrue to the budget in that year and in future years, after their paybacks to the productivity bank are made. And then in addition to both of those sources, there are generic improvements and efficiencies throughout government, ranging from our ability to negotiate more favorable terms on 40 2/8/99 FISAL STABILITY - Res. 990038 different contracts -- for example, the EMS contract the last years, our trash disposal contracts, and other places where government has increased efficiency. So it's a variety of issues like that. The last two points in response to your to your question are that, obviously, this budget is predicated on continued modest economic growth. You know, some would say that's an optimistic assumption; some would say it's a reasonable assumption. We are comfortable with the level of growth of about 2.5 percent, which is pretty close to the projection of inflation over the next five years. However, it is important to note that any significant economic downturn nationally or regionally or locally will make it much, much harder to make this Plan balance in the out-years. And then, finally, as I've noted a couple of times, the spending impact of welfare reform is accounted for in this Plan -- but not generously. This Administration continues to believe that it's not solely the City's responsibility to pay for the cost of welfare 41 2/8/99 FISAL STABILITY - Res. 990038 reform and of poverty in general. And we've been, as you know, reasonably successful in working with you to convince the State and federal government to help pay their fair share of that burden. This budget assumes that they'll continue to do so, and that the impact of welfare reform will not be catastrophic. If it does turn out to be much more significant than we've assumed in the Plan, then there will be a need for additional spending -- particularly in Health & Human Services and in homeless.
What are the expenditure growth assumptions contained in the City's Five-Year Plan?
There are a variety of expenditure growth assumptions. The most basic assumption is that in the -- well, there are two. In Class 100, as I mentioned, there is no 20 assumption of growth beyond -- in cost for labor beyond the negotiated wage increases already negotiated between the City and the unions. That's a 3 percent pay increase which just took effect December 15th for the non-uniformed unions, and September 15th for the uniformed employees, 42 2/8/99 FISAL STABILITY - Res. 990038 and then a percent increase, which takes effect September 15th for the uniformed classes this year, and March 15, 2000 for the non-uniformed classes. In the other classes, we have prepared the Five-Year Plan as we normally do, which is to say that aside from the specific kinds of increases that Rob Dubow went over in his presentation and have been detailed elsewhere in the Plan in FY 2000, in the out-years, we have generally assumed that Classes 2, 3, 400 will increase at a rate of 1.5 percent beginning in FY 2001. So that's essentially our assumption for inflation and costs for goods and services and contracts in the out-years. Obviously, to the extent departments are able to make efficiencies beyond that, they would have funds available for programmatic increases and other changes. Or to the extent that cost grew faster, they would have to find a way to absorb those. That's been our standard practice the past several years, and it seems to track pretty well once you get out two or three years in terms 43 2/8/99 FISAL STABILITY - Res. 990038 of what the actual growth in departmental costs are.
I think you touched slightly on the next question. While the goal of eliminating waste from the operation of City government remains paramount at some point, the City will no longer be able to rung out sufficient resources from productivity gains. Do you feel we are at that point now? And if not, what are the areas that the City can reduce its costs through productivity gains? And can you tell us what magnitude of savings that you feel can be achieved?
Yes. I think that it is clear that there are additional savings to be found in the City's budget. We've worked closely with a number of the departments who are represented here today to make their operations more efficient. And, frankly, they've done a tremendous job since 1992 in really turning around some departments which, I know we were all told, could never be reined in on the spending side. At the same time, we expect -- there are kind of two different ways to go at this. One 44 2/8/99 FISAL STABILITY - Res. 990038 is that, as we just discussed, there are $60 million in future target budget cuts in the Plan, which reflect really two kinds of reductions. One are the ones that you're specifically asking about, which are future savings that the government can point to in specific areas. And in the past, we have obviously renegotiated our trash contracts, worked with many of our providers in different areas to have more reasonable rates, found ways to use in-house existing employees to not necessarily have to carry contracts. And in the future, our assumption is that there are several areas for a very large change. Number one is, it's quite evident that the energy picture is going to continue to be in a bit of turmoil. Clearly, the four-year agreement we've negotiated with PECO Energy to reduce our electric rates, which expires in a year or two, you know, will be something that we'll have to look and the next administration will have to look very hard at to determine whether they want to continue that -- as you'll recall, there are a 45 2/8/99 FISAL STABILITY - Res. 990038 couple of option years, where whether the market will have opened up such that there will be room 4 for additional savings. Another area, for example, is the nature of the City's relationship with SEPTA, which, as you're aware, is tied into a number of agreements which expire in the early years in the next century. And, again, the next administration will have to look at how we may restructure those agreements so that the City gets perhaps a different funding arrangement than it has now. In addition to those -- of which there are many -- we have been extremely successful in having each department each year prepare a target budget which is a bit below the appropriated level and live within that budget. A substantial portion of the savings which have allowed the City to fund new programs over the last several years have come from the target budget savings across the entire budget that we've achieved each year. And while that isn't the only way to make those kinds of savings, we strongly recommend to Council and to the future administrations that some similar process be put into play so that 46 2/8/99 FISAL STABILITY - Res. 990038 departments are constantly challenged to make the kind of day-to-day small efficiencies which add up to some ability to really continue to make important programmatic initiatives, fund important programmatic initiatives elsewhere in the budget.
I'd also like to add that on of your Plan, in the Management and Productivity section of the Plan, there's a summary table at the very top which identifies the impact of Rendell initiatives on the General Fund. And these are all of the management productivity initiatives that the Administration, working with Council in many instances, has pursued. And as you can see, cumulatively from Fiscal Year 1993 through Fiscal Year 2000, in the bottom right-hand corner, you'll see the cumulative impact -- and this includes both revenue enhancement initiatives and expenditure- cutting initiatives -- has been about $3.3 billion. And was is, in large measure, how we've been able to achieve structural balance in our plan, solve our fiscal crisis. And we believe that moving forward, the government can continue 47 2/8/99 FISAL STABILITY - Res. 990038 to identify sufficient savings in the government to achieve greater savings.
You indicate that the School District could be facing a deficit of $150 million for the school year 1999-2000. What are your assumptions in the Plan in the FY 2000 budget concerning the City's schools and how the City's budget will be affected?
Well, the one thing, as you know, we've asked the Mayor, and his budget address several weeks ago has asked this Council to again approve a $15 million grant to the School District. This would be the fourth consecutive year that we've requested such a grant. You funded the three prior years for a total of $45 million above and beyond the local contribution in terms of the City's real estate taxes and other taxes that go to fund the School District. In addition, as Council knows, the City provides approximately $70 million in additional services to the School District, including the 48 2/8/99 FISAL STABILITY - Res. 990038 provision of nearly 1,000 school crossing guards that have cost in excess of $12 million, water and sewer discounts, etc. So this city and this Council already provides a significant amount of assistance to the School District. Again, we're asking for an additional $15 million because it's incredibly important to the School District. As you've noted, at this time, they do face a $150 million deficit. I expect that, over the course of the next several months, that number will come down. I know that the School District has been evaluating some of the recommendations of the various audits that have been done in Harrisburg of the School District, and that they've had a subcommittee of the Business Private Sector Task Force that was headed up by Dick Smoot (ph) and Emma Chappelle looking at those audit recommendations to determine whether there was additional opportunities for savings. Exclusive of the audit findings, the School District has saved about $29 million a year thus far in terms of the management and productivity initiatives that were identified 49 2/8/99 FISAL STABILITY - Res. 990038 three year ago.
Okay. Can you tell us what the improvements in the sheriff's sale process and the changes in the way the City collects delinquent taxes on rental properties? It's mentioned on of the Plan.
Madame Chair, with your forbearance, I'd like to ask the Revenue Commissioner to come and answer this question.
Good morning. I'm Nancy Kammerdeiner, the Revenue Commissioner for the City of Philadelphia.
Good morning. My name is Nancy Kammerdeiner, Revenue Commissioner. You mentioned something on , and I wanted to get the exact site before I attempted to answer.
Sure. It's in the first -- I'm sorry, the second paragraph. 50 2/8/99 FISAL STABILITY - Res. 990038 It talks about improvements in the sheriff's sale process and the changes and the way that the City collects delinquent taxes on rental properties.
Okay. This is a reference to a Law Department program known as "rent sequestration." Under that program, a property that has rental space and there is rental income to the landlord can be placed under a sequestrator appointed by the court. And the rental income goes through that sequestrator to come back to the City and pay the real estate taxes until those taxes are satisfied. The Law Department has found that to be a successful enforcement tool to supplement the other enforcement activities we have underway for the collection of real estate taxes.
And how about the improvements in the sheriff's sale process?
Would you elaborate on the improvements in the sheriff's sale process, please.
Basically, we have been targeting properties for sheriff's sale that 51 2/8/99 FISAL STABILITY - Res. 990038 have a higher potential for sale at the time of the sale and also have a higher potential for the owners to come forward and pay the delinquent taxes before we actually get to the sale. In some previous years, a large number of the properties that were put through the sheriff's sale process had a very low value and very little interest in the acquisition at the time of the sale. And as you probably know, the sheriff's sale process does entail some very expensive processes along the way. We have to do a title search, there are advertisements that must be placed in various newspapers, and there are some other costs that are incurred in bringing a property to sale. So you really want to ensure that those properties that go through the sheriff's sale process have a fairly high possibility of sale and bring in the highest dollars.
I'm sure you don't have the figure on the top of your head, but can you give us an estimate as to how many properties are put up for sheriff's sale on an annual basis in the last year? 52 2/8/99 FISAL STABILITY - Res. 990038
I would have to check on that to get a figure for you, but we do bring a number of properties into the process that never really make it to the actual sale. And so what we would have to look at are really two figures: the number that are certified for sheriff's sale and then the number that actually come to sale. And, really, there is great deal of activity in terms of settlement on the taxes in that intervening period. And as you probably know, that process takes about a year. At one point, it was taking as much as three years. And the efficiencies both Law and Revenue have worked on in order to improve that process have brought it down to closer to a year.
Thank you. Are there any questions of the commissioner? (No questions.)
I have other 53 2/8/99 FISAL STABILITY - Res. 990038 questions, but I don't want to dominate the hearings. So at this point in time, I would like to ask my colleagues if any of them have questions. The Chair recognizes Councilman Nutter.
Thank you, Madame Chair. I want to go back to the recreation issue for a second. Mr. Rost, can you get us a more detailed and separate explanation based on what you and the Budget Director discussed in response to Councilwoman Verna's question about the $2.9 million for the Recreation Department, the details on whatever classes are being increased, the actual number of bodies involved, and resolve the issue of -- is it the filling of vacant positions? Are these net new employees?
Okay. Now, Mr. Dubow, in your testimony, you talked about the 54 2/8/99 FISAL STABILITY - Res. 990038 Recreation Department. Was your testimony written? Were you reading from a document?
So that we can go back over some of those details. What I recall in your Recreation Department testimony was that as a part, I guess, of the $2.9 million, that there were going to be a number of full-time or full-time equivalent positions for the B and C Centers; is that correct?
Yes. It's 52 full-time positions for B Centers and 32 full-time equivalent staff at C Centers.
32 full-time -- 55 2/8/99 FISAL STABILITY - Res. 990038
Okay. For the record, can you explain what the difference is.
The 32 includes some part-time, and when you total up the additions in hours, it's the equivalent of 32 full-time positions.
While he's doing that, I might mention that the Administration's intent in funding this is to substantially fund the Recreation Department's proposal which was generated as a result of hearings Council held, I believe, in November or December.
Right. The Recreation Department put together a set of proposals for 56 2/8/99 FISAL STABILITY - Res. 990038 funding additional recreation and maintenance and programming at levels of an additional $1 million, $1.5 and $2 million per year, and also set a group of standards for what those maintenance levels would mean at each of the different levels of centers. And --
Yes. We will send you a copy as part of our response of what the Recreation Department put together for that. But that's the intent of our funding increases to fund the maximum level requested by the Recreation Department.
After consulting with the Recreation Commissioner, he informs me that we're talking about 46 full-time custodians. 46 new full-time custodians, 8 skilled trades -- 57 2/8/99 FISAL STABILITY - Res. 990038
Okay. We're talking about 46 custodians, skilled trades, and then the 32 6 full-time equivalents is made up of part-time 7 employees and seasonal employees. Obviously, the 8 Recreation Department, the activity in the summer in certain areas is greater than it is at other times of the year. So it's 46 custodians, 8 skilled trades; that gives you the 54 full-time. And then the balance of the equivalents are seasonal and part-time employees. But we'll be happy to put this in writing and submit this to the Chair.
If you could add to that, what I'd like to better understand, I guess, for the seasonals and part-time people is, what would their actual hours of work be? And do I understand you to say that the 54 full-time people, that means that there are 54 actual people who will be working an 8-hour day at B Centers?
Yes. That is my 58 2/8/99 FISAL STABILITY - Res. 990038 understanding.
Okay, all right. Now, the increase for the Recreation Department, is it a flat 2 million, or is it 2.9?
It's 2.9 million. The 2 million is for the maintenance -- scheduled maintenance program.
And there's $500,000 in increased maintenance costs for the Vet.
Now, the raises for the lifeguards, is that going to help us to keep them longer; is that what that's for?
Let's have Mike DiBerardinis respond. (Recreation Commissioner Michael DiBerardinis comes forward.) 59 2/8/99 FISAL STABILITY - Res. 990038 COMMISSIONER DIBERARDINIS: Yeah, it's not necessarily to keep them longer. I mean, it may, but the primary goal is to ensure that we recruit enough guards. There's competition in the marketplace -- both within the lifeguard field, the lifeguard work in the summer as well as other seasonal employment that's available to young people and college students in the summer.
Right. COMMISSIONER DIBERARDINIS: We surveyed equivalent cities -- Pittsburgh, Baltimore, Chicago -- who have a big pool system.
Okay, all right. COMMISSIONER DIBERARDINIS: And looked at it, so we're under the market in a lot of areas.
Okay, well, we can return to this when you have your full opportunity to sit at the table. COMMISSIONER DIBERARDINIS: Okay.
What I would like, Commissioner, if you could for when you do return to us, if you could give us a more detailed explanation of the full use of the increased 60 2/8/99 FISAL STABILITY - Res. 990038 dollars for the Recreation Department. And I understand from Mr. Dubow's testimony that 66,000 of it is going to the Mural Arts Program. We've had some discussions about that program, and I guess I'd like to better understand either what the request was for that program and what the $66,000 get us out of a total of a $2.9 million increase for the Department.
Just one point of clarification. The 66,000 is separate from the 2.9 million.
All right, okay, I understand. Mr. Rost or Mr. Kaplan, the City sales tax or the sales tax that's paid in Philadelphia as compared to everywhere else in the Commonwealth of Pennsylvania is 7 percent. That was imposed either concurrent with or right around the time of the creation of PICA. Is that my recollection, is that correct?
You're correct. Just to clarify, the additional percent increment that is unique to the city of the first class, or the City of Philadelphia, is the PICA, the so-called 61 2/8/99 FISAL STABILITY - Res. 990038 PICA sales tax.
Excuse me? It was my understanding that it was a part of the PICA Intergovernmental Cooperation Act.
Does it go to fund any PICA debt, or does all the money come back to Philadelphia?
The 1 percent increase in the sales tax is not specifically tied to the -- it's not deposited in a separate fund or segregated. However, it's our understanding that the sales tax was initiated at roughly the same time as the PICA deficit reduction debt was issued in order to provide the City with some means to pay for the PICA deficit reduction bonds.
So the percent sales tax was instituted actually to make up for the portion of the wage tax that is devoted to 62 2/8/99 FISAL STABILITY - Res. 990038 paying off the PICA bonds; is that correct?
I don't believe that's the only reason it was implemented; I believe that was one of the reasons it was implemented. I believe it was --
Well, what are the other reasons that it was implemented?
I think to recognize the City's difficult financial condition and the problems that the City was having more generically.
Okay. And what's the state of the City's finances eight years later?
Well, the City still has approximately four more years of payments on the deficit reduction bonds, as obviously, as I've discussed with the Council President.
All right, but the tax wasn't instituted as a part of the deficit reduction bonds based on your previous testimony, 63 2/8/99 FISAL STABILITY - Res. 990038 right?
No. I said -- well, I think what I said was that was one of the reasons for implementing the tax. Part of it was general financial conditions, part of it was dealing with the deficit reduction bonds, and part of it was --
None of the tax goes to pay any of the deficit reduction bonds; is that correct?
It does not specifically go to that, but it does allow the City enough revenue to pay that amount.
But I guess the reason that it's not tied specifically is because there was no sunset on the tax, it was not assumed to go away. It was assumed -- I believe it was assumed to be a general broadening of the City's tax base, creation of a new source of revenue, and offset to the fact that the City would not have all of the wage tax and net profits tax revenue available to it because of the PICA bond payments that go to PICA as well as the deficit. So there's a number of things that were 64 2/8/99 FISAL STABILITY - Res. 990038 happening at the same time.
Well, how much longer do you think the 1 percent additional sales tax only paid in Philadelphia will continue to exist?
The Five-Year Plan assumes that the 1 percent sales tax will continue to exist into the future. The reason I'm flipping here is I had actually done a kind of a model of the effect of the tax compared to the tax cuts. As you know, the sales tax now brings in close to $100 million a year, and that's in the Plan. Certainly, the sales tax is -- the 1 percent sales tax is one of the several taxes that could be reviewed as part of the Administration's suggestion that there be a select committee on tax relief to look at the broad variety of taxes and which ones might be changed as we go into the future. There are two caveats to that. One is, I think we need to examine whether -- and we're not actually going to -- we did take a look at this in response to recent news reports, but we are not completely sure whether there is any 65 2/8/99 FISAL STABILITY - Res. 990038 obligation to maintain the sales tax as long as any part of the PICA bonds are outstanding. That's one piece of research, which is simple but needs to be completed. The second is whether reducing that tax, which, obviously, would have a negative impact of $500 million roughly on the Five-Year Plan. A, it could be made up in some other way; and, B, it would more sense than reducing some other tax.
Well, but for the purposes of this record, if we could -- I know that the Administration often likes to talk about numbers and then automatically multiply them by 5. The real number is about 96 million a year, correct?
Not the 500 million number that you'd like to leave on the record.
The average over the five 66 2/8/99 FISAL STABILITY - Res. 990038 years, in fact, is more than 500 million. I mean, the total for the five years.
All right, okay. You were starting to answer, though, the question a little while ago, what was the state of the City's finances presently eight years after the imposition of the tax? Have things improved, stayed the same, or gotten worse?
I think things have clearly improved. And I think that the budget and Five-Year Plan we proposed reflect some assumptions about what the impact of the previous tax reductions have been and what taxes should be reduced going forward. I don't think we have a monopoly on wisdom on that, but I think there is some reasonable evidence to support our position. At the same time, I think that, you know, obviously, as we've said, we'd be very open to discussing, you know, which taxes should be reduced and in what amount going forward.
Okay. Lastly on this issue, do you think, given our much-discussed resurgence and revitalization, do you think the City, at this point in time, is in an any less 67 2/8/99 FISAL STABILITY - Res. 990038 competitive position with everyone around us, with the highest sales tax in the Commonwealth?
I think that the impact of the sales tax is -- increases -- the higher sales tax here is probably relatively minimal. There are a couple of reasons for that. One is that most necessities are not -- that people pay for are not subject to the sales tax most -- notably here of clothing, food, and shelter. The second thing is that certain large purchases travel with the -- most notably automobiles -- travel with the purchaser. So if you purchase an automobile as a Philadelphia resident outside of the City, you still pay the City level of tax, and that's probably somewhere in the range of 10 percent of the total amount collected but is among the single largest items. And the second issue is -- our preliminary understanding is that most of the purchases that make up the sales tax numbers are for smaller -- high-volume smaller items. And that while there may be some traveling beyond our borders to make a sales tax savings on certain 68 2/8/99 FISAL STABILITY - Res. 990038 larger items, that that number probably has decreased over the last several years as Internet sales and mail-order sales have increased. And, in fact, people aren't traveling to Delaware County to make a purchase; they're going to buy something over the Internet, whether they live here or in Delaware County. Our sense is that the noncompetitive nature of that tax is probably much less than some others in the City.
Okay. Talk to us a little bit about the future of PICA, going forward. What does it presently do other than send us reports on a periodic basis? What's its primary function at this point in time? And when will they go away?
PICA serves a number of functions for us. Most importantly, as Council is well aware, there are still a substantial amount of outstanding PICA capital dollars which work for a variety of projects, which we work with PICA staff to ensure that they're properly spent and --
What's the total outstanding amount of PICA debt at this point? 69 2/8/99 FISAL STABILITY - Res. 990038
The total outstanding amount? I don't know it off the top of my head; I can find that out for you.
Councilman, there was a refinancing, I believe, two years ago. I just happened to look today. We have PICA debt outstanding until, I think, Fiscal Year 2023. I can get the exact dollar amount for you.
The second role which they play is that in addition to specifically approving the plan and reviewing the plan, PICA does meet both annually on the plan and periodically with City departments and agencies and agency heads, both in terms of their general performance, asking in fact many of the questions similar to those that you ask, but in a role in which they're, you know, seeking to gain information for approval of the plan. And they also -- they will also follow up on very specific project which they've been interested in over time. For example, they have spent a fair amount of time going over a lot of 70 2/8/99 FISAL STABILITY - Res. 990038 economic assumptions we've made. They've done made in some detail of what you have just suggested in terms of taxes and our choice of what taxes to reduce and have focused on our ability to perform particularly in areas that they have funded -- most notably in capital. Obviously, I think that PICA's role is going to vary over time, depending on the City's financial condition. You know, the stronger our performance, I think the more comfortable that they are. I think it would be fair to say that they have never exhibited great comfort with the City's overall long-term position. Each year, their staff report on the Five-Year Plan has raised some fairly significant concerns about where we may be going in the long run, and also has raised, perhaps in more detail, some of the concerns that we've had. We tend to take a look at the overall economic situation and the City's financial position and have taken, you know, although a modestly optimistic, an optimistic view. I think PICA has taken the role of what if? and has been careful to make sure that, 71 2/8/99 FISAL STABILITY - Res. 990038 particularly on the revenue side but also on the expenditure side, that the City remains within a frame work where a significant change in the economy or other conditions will not put the City back where it was eight years.
Councilman, I have the answer to your question. On of the Plan, there's a table, City Long-Term Debt Service Fiscal Year '98 through Fiscal Year 2027. And just eyeballing -- I'll get you the specific number, but if you look at Fiscal Year 2000, it looks to be approximately a little over $100 million in outstanding debt PICA --
If you look at Fiscal Year 2000, it appears to be -- I don't know -- 110, $115 million. I'll get you the precise number.
All right. And then in 2023, it looks like it's about 20 or so?
Okay, all right, so it will be around for a long time. 72 2/8/99 FISAL STABILITY - Res. 990038 Mr. Kaplan, you made reference to a number of the tax cuts that have been made, whether it's a wage tax or a business privilege tax. Can you get us a separate report showing this decrease in the cost of living in Philadelphia, comparing this hypothetical taxpayer with $30,000 earnings and show on the annual and then the cumulative basis what the reduction in that person's tax bill has been?
Okay. I see we're back to the First Judicial District game. On of the Plan, we talk about 170 million in 15 FY 2000, as the City ends funding for the First 16 Judicial District, and as a result, will no longer 17 receive revenues for court costs, fees, and 18 charges. 19 Does that mean that this Plan 20 anticipates that we're not going to fund the First Judicial District past FY 2000, is that the current strategy?
Yes. The Plan makes an assumption similar to what we've made the last several years. And as we've discussed a couple 73 2/8/99 FISAL STABILITY - Res. 990038 times at transfer hearings, although our leverage is limited, we continue to try to use it however we may. The significant change, I think, this year, compared to last year is that, as you know, last May, after the State and the City both passed their budgets without funding for the courts, the City was sued by the First Judicial District. The matter was sent to the Supreme Court immediately, and they remanded it to the President Judge of Commonwealth Court, who held a hearing in June, and ruled -- actually, "ruled" is not correct. He made an advisory opinion back to the Supreme Court in which he added his voice to the chorus of people suggesting that the State step up to the plate. He directed that -- suggested that the City fund the courts for Fiscal Year '99, and that beginning July 1, 1999, the beginning of FY 2000, that the State take over that funding. So the budget this year reflects that recommendation to the Supreme Court. And, as you know, the Supreme Court has not acted on that, and they have not acted to enforce either their 1985, 74 2/8/99 FISAL STABILITY - Res. 990038 1996 --
1987, 1996 rulings to that effect. However, I don't think that the City should be in a position of not maintaining the belief that the courts, A, are properly funded by the State, and that to the extent that there are valid Supreme Court rulings and an advisory opinion to the Supreme Court as recently as last year saying that we should end funding to the court, that we should not continue to provide whatever push in that direction we can.
All right. So tell me how you anticipate this playing out. You're going to fund the courts through June 30, 2000. The next mayor -- whoever that lucky person is -- they get to come and put forward in January of 2000 a budget for FY '01. What happens between now and June 30, 2000 as it relates to the courts?
I might not have been clear. The budget does not include funding in the First Judicial line for the courts this July, in July '99 for the beginning of 2000. 75 2/8/99 FISAL STABILITY - Res. 990038
It does not. We have, as in previous years, we have taken that funding and put it in two places -- in Commerce and Finance. And as you've heard the Mayor say, he would assume that should the --
Should the State step to the plate, we would use this funding predominantly for -- propose to use it predominantly for education.
I'm sorry, can you -- maybe I misunderstood the statement on 20. You're talking about collections. You're saying that in the FY 2000, there is no 18 money for the courts?
, General Fund Revenues in the Five-Year Plan, up at the top.
Yeah. I think that text is supposed to say there's no revenue in 2000. What 76 2/8/99 FISAL STABILITY - Res. 990038 it's trying to say is that collections go down from 186 to 170 in 2000 because we end funding for the First Judicial District and will no longer receive revenues for cost fees and charges.
It's not the clearest language to leave with you that.
Excuse me, Councilman, I think on that line of questioning, Councilwoman Clark would like to be recognized.