Our feeling has been -- and I understand the experience of other municipalities, that Judge Cermele can talk about at 346 BILL 980003 great length -- our feeling is that unless there is some amount paid, people don't file that piece of paper. The fact that they have to write a check, whether it is large, small, or de minimis, increases the response. And that is what we're interested in, is accurate and current data collection, which has been a problem.
I would be glad to send mine in for free. And your testimony is that people change alarm companies at some exceedingly high rate?
Do we have data on that? JUDGE DOMINIC M. CERMELE: I am Dominic Cermele, Executive Director, Office of Administrative Review. I can give you specific data based on -- but I can't today -- based on our own records, as to the amount of turnover from company. I can tell you anecdotally that it is a frequent 347 BILL 980003 occurrence. As you know, however, we have had legislation before the Council in the past seeking to shift the burden from people who merely own alarm systems to people who abuse alarm systems.
Well, I also wonder -- and I do recall that -- what are the prospects of just requiring the alarm companies to tell us who their customers are? I mean, they seem to be the main repository of the information. And it might be a little easier for us to chase after them, rather than the individual customers. JUDGE CERMELE: We spend a great deal of time dealing with alarm companies. And once the legislation was passed, we spent a great deal of time setting us up with the alarm companies. You should know that when the legislation was passed, we were involved with, initially, the alarm industry, and so the first go-around on the legislation was very pro industry. So while we have worked very well with the alarm industry, we really have no leverage with the alarm industry. And some companies are 348 BILL 980003 more cooperative than others. Some of them routinely, when they install an alarm system, let people know that they have an obligation to register the system, and indeed provide them with a copy of our registration form. Some companies utterly refuse to cooperate with us. I myself, as do several other members of my staff, periodically call alarm companies to come to our house to give us estimates on alarm systems, so that we can determine whether they are letting people know their obligation to register their systems. Again, some companies are better than others. Some who are very popular, and have caped figures, one particularly who has a caped figure who is going to protect us, has not been so cooperative.
They have the worst ads. Okay. We can talk about that tomorrow. Lastly, Mr. Hayllar, I know you said you can get the information that I have been asking about in about 20 minutes or so. Can you at least make sure that 349 BILL 980003 whether it is yourself or Mr. Kaplan or Mr. Rost, somewhere in the course of today's hearings, that that information can be brought back and put on the record? I would greatly appreciate it.
And if you could also find out exactly who is proposed to move to the 990 location, I would like to know that, as well, and where they are coming from.
Councilman Rizzo, did you want to be recognized again?
Thank you, Madam Chair. My question is directed to Mr. Cermele. Mr. Cermele, you worked on legislation to make some changes to the way the Administration handles alarm fees, penalties. That was introduced December 5, 1996. And I am wondering, has your office ever inquired -- I know I have; it has never gotten a hearing -- have you checked on the status of the 350 BILL 980003 legislation that you requested be introduced on December 5, 1996? JUDGE CERMELE: We have no 5 information that -- we know there have been no 6 hearings. We have not been called to any hearings.
Did you ever inquire about that? JUDGE CERMELE: Not to my knowledge.
Do you think you may? JUDGE CERMELE: We may ask that it be introduced again with some changes.
There are changes to what was introduced in the -- JUDGE CERMELE: We are currently looking at the legislation that we proposed earlier, and we may have some changes that we want to make and reintroduce, have it reintroduced.
What are some of the changes that you are considering that are not in here? JUDGE CERMELE: Someone on my staff is working on it. But I will be happy to answer it to you separately later, or through the Chair. 351 BILL 980003
Thank you. Any other questions of the Finance Director? Thank you very much. The Sinking Fund Commission will be next to testify. Good afternoon. Please identify yourself for the record and proceed with your testimony.
I am Vince Jannetti, Secretary to the Sinking Fund Commission. The Commission's request for Fiscal 1999 budget is in the total amount of $340.9 million. This amount, the General Fund request, totals 146.6 million, and includes 39.5 million for capital lease payments, and 107 million for debt service and other debt-related expenditures from the General Fund. The Water Fund request totals 154.3 million. It is all Class 700 for payment of debt 352 BILL 980003 service on water/sewer revenue bonds and general obligation bonds. The Aviation Fund request totals 40.1 million, and is also to provide payment on airport revenue bond and general obligation bond debt service. This concludes the short version of my testimony. I would be happy to answer any questions Council may have.
Thank you. In your testimony you indicate that $9.9 million in debt service payment will be required for new borrowing. What is the size of the new borrowing.
What is the assumed interest rate, and when do you expect to issue the bonds?
The expectation is in September of this year. And the interest rate, I have to look it up, is approximately 7.4 percent.
Okay. Thank 353 BILL 980003 you. Why would we be paying so much interest? Why would the interest be so high?
That's a conservative estimate on the interest. We really at this point don't know what the interest is going to be. The Chair recognizes Councilman Nutter.
Mr. Jannetti, I admire you for your service to the city and the position that you hold. I had planned to ask you how much money you were hiding for the Administration in this Fiscal Year in the Sinking Fund, but I have decided to hold the question and let some other unworthy soul come up to the table and answer it. So it has been a pleasure seeing you here this morning.
Are there any questions or comments? Thank you. Thank you very much. I 354 BILL 980003 just said, I hope the money is there when we need it. Thank you. Board of Pensions and Retirement.
I am Ben Hayllar. In my capacity as Director of Finance, I serve as Chairman of the Pension Board. With me today is Joe Herkness the Fund's Executive Director, and Sandra Parker, the Fund's Chief Investment Officer. My testimony is in writing and has been given to you. I would just like to summarize some of what I believe to be some of the more important points. The city's General Fund is going to pay to the pensions over 191, actually closer to 194, million dollars this year. 4 percent of the General Fund. It is one of the largest single expenditures that we make. Like many municipal funds in Pennsylvania, our Fund is severely underfunded. For decades, past Administrations and Councils awarded pension benefits to employees without putting money 355 BILL 980003 in the Fund to pay for them. As a result, our Fund is only 52 percent funded. 7 billion. The unfunded liability makes management of the Fund difficult. Ideally, the Fund should provide for the benefits for retirees through cash spun off from investments. Because it is not large enough to support monthly pension benefits, the Chief Investment Officer, Miss Parker, and the Executive Director are constantly obtaining cash by having managers sell investments or maintaining high cash balances. The Fund's returns have been good, but they have not been as good as they could have been had we been fully funded. From the city's point of view, the unfunded liability requires us to pay into the Fund what is required for our current employees, plus additional money to pay off the unfunded liability. In '94, in 1994, the state required 356 BILL 980003 that over 34 years the city fund the unfunded liability. And we are on track to eliminate the liability, but it is increasingly difficult because the payment increases every year. In '99, the normal cost for our current employees will be only $60 million. But in addition, the unfunded liability payment is $170 million. The state does add $36 million of Act 205 money to help pay for the unfunded liability. So the city's General Fund payment for the Fund for '99 is approximately $194 million. By the Year 2010, a time we should be thinking about now, by the Year 2010, the unfunded liability payment will be 267 million, for a total Fund payment of $317 million. This will be 8 and a half percent of our General Fund budget. By the Year 2019, the year that the liability is scheduled to be eliminated, the city will be required to pay over $500 million, or 9 and a half percent, of the General Fund. If you look at the graph on , this is our current funding schedule for the pension. 357 BILL 980003 And you can see while it is difficult now to manage some percent of our General Fund 4 budget, we think it will be extremely difficult by 5 the Year 2019 to make 9 and a half percent of our 6 General Fund budget payment, a payment of almost a 7 half a billion dollars. Last year Council raised this issue, and together we decided that one way of reducing the ever-increasing General Fund payment was to amend the state law that governs the municipal pension funding to allow pension funds to change the way the unfunded liability is calculated. Once the Fund is approximately 70 percent funded, which we believe will take place somewhere around the Year 2012, the Fund can annually set a ten-year payment schedule to eliminate the remaining liability. This is called a rolling amortization. As a result, the Fund will be able to stretch out its payments beyond 2019. And as you can see by the graph on , at around the Year 2012, when we reach 70 percent funding, our scheduled payments will be reduced and that huge spike that takes place between 2012 and 2019 is 358 BILL 980003 eliminated. The state has passed the law that we presented, the Governor has signed it, and we have eliminated at least that huge spike in the out years.
The problem is, while the rating agencies find favor with this, because it shows that a major fiscal payment has been reduced in the future, it doesn't help the managers of the Pension Fund extract enough revenue for benefits, nor does it get us to the Year 2012, where we will still expect to pay an increasing amount from all our funds, particularly the General Fund. To this end, this year we will be examining with Council the possibility of floating a pension bond. These have been done in about 18 municipalities throughout Pennsylvania and the 19 country. 20 And the theory is that the debt service on a pension bond would be less than the liability that we must pay each year to the Pension Fund under the current scheduling. There are risks. We need to analyze them. But this year we need to determine whether 359 BILL 980003 this is a prudent way to go forward. Despite the difficulty the investment staff has had with the Fund, we have had a remarkably good year. 49 percent. This moved the Philadelphia Fund up from the 90th percentile, or the lowest 9 percent in the rankings, to about 46 percent when 10 compared to similarly invested funds. The Pension Board has had a policy of using minority-owned firms and local managers whenever possible. As of December 1997, fully 10 percent of the Fund's undermanagement were managed by minority-owned firms. 55 percent of the Fund's undermanagement were managed by managers located in or around Philadelphia. 3 percent of the Fund's undermanagement were held by minority firms, and only 31 percent were managed by Philadelphia area firms. Last year, the Pension Board initiated the annual employee benefit statements. And, again, in the spring of this year, the second annual statement will be presented to every active 360 BILL 980003 participant showing the value of their contributions to the Fund and what pension benefits they could expect to receive when they want to retire. Last year the Pension Board began to review and update the summary plan description, booklets for all pension plans to both uniform and non-uniform divisions. This book will be updated and distributed in July of this year. Where there has been a tremendous amount of technological advances in the Fund, all pension payroll files are in a common database and accessible in order to respond more quickly to participant inquiries. 60 percent of all retirees now receive their benefits by direct deposit. We want to see this increased to 70 percent by the year 2000. Council has moved the responsibility for the city's $175 million deferred compensation program to the Board of Pensions and Retirement. The Board has reviewed all aspects of the deferred compensation program, including the plan document, investment options, administrative fees. 361 BILL 980003 As a result, in the last year requests for proposals were issued and a new third-party administrator, Great West, was selected to manage the program. As a result, the Fund is now paying -- the Deferred Compensation Fund is now paying a lower administration fee resulting in $300,000 in savings. In addition, participants are now provided with a wide variety of quality options for investing their deferred compensation funds. The cost of the Pension Fund is borne by the Fund. And no direct appropriations are made from the General Fund. 3 million. In FY '99, we will have 59 budgeted positions for investment, clerical support, Welfare, counseling, and technical support. Mr. Herkness, Miss Parker, and I would be happy to answer any questions. )
Thank you. 362 BILL 980003 Mr. Hayllar, thank you. I think you do deserve real credit for looking ahead. Looking at these graphs, I realize that some of us here would be as old as Councilman Cohen by the Year 2020. So it is good to look ahead and think of what kinds of obligations we are putting on those coming after us. But I think you should be commended for looking ahead and considering these two options. Do you have a timetable for when you expect to be submitting some proposals to Council for a more thorough discussion?
Well, I don't think we will be submitting, unless we all agree to go forward. But this is something that's under discussion now. And I would think between now and perhaps July, we would decide whether we will or will not. The bond market right now is very favorable. The interest rates are very low. You wouldn't want to lose it. It is also a complicated transaction that would take a great deal of time to 363 BILL 980003 do. So if we are going to drop the flag and do it, we might as well decide to do it sooner rather than later. But it is an event for this year.
So you are expecting to make a decision July, you said?
I would hope by July. There are a lot of decision-makers involved in this. We can recommend, but Council, other elected officials, other parties in the city, they all will want to be interested in doing this, to say nothing of the participants and their unions.
And the other question, the people who manage the pension funds, you noted that you have increased the numbers of people living in the city and minority-owned firms.
In and around the city. And when you say "minority firms," 364 BILL 980003 does that include women owned? Are there any women owned, too?
Not at the moment. There have been, but not at the moment. The firms we have now are African-American. But there is not a woman-owned firm now.
Could you provide a list of these firms that do this business for the Pension Fund?
With a break-out of the amount and terms and stuff?
Thank you very much. I think we now are at the Revenue Department. I am looking at this, and we have Revenue, Tax Review Board, Board of Revision of Taxes, and the City Treasurer. Somehow it seems 365 BILL 980003 like they all ought to be up there at the same time. We will start with the Revenue Department. Good morning, Commissioner. Please identify yourself for the record. COMMISSIONER NANCY A. KAMMERDEINER: Good morning, Mr. President, members of Council. My name is Nancy Kammerdeiner, and I am the Revenue Commissioner. With me is Denise Garrett, the Chief of the Water Revenue Bureau. We are pleased to be with you today to discuss the Fiscal 1999 Operating Budget for the Department of Revenue and the Water Revenue Bureau. I will highlight some recent activities of the department and some key features of the Operating Budget request for the tax side of the operation. Denise Garrett will follow with testimony about the Water Revenue Bureau and its Fiscal '99 budget request, then we will both be available for any questions that you might have. Since 1994, the Department of Revenue 366 BILL 980003 has invested more than $9.3 million in computer systems that have dramatically improved the department's operations. Just two weeks ago we implemented the latest phase in our system integration efforts. It provides one place for the recording of taxpayer transactions of all tax types. In the coming months, Revenue will be working on system improvements for the processing of the School Income Tax and the Use and Occupancy Tax. The computer system projects implemented to date have enabled the department to significantly improve current and delinquent tax collections, and will have produced an estimated $28.7 million in additional revenue for the city by the end of this Fiscal Year. The benefits of these new systems, however, go beyond direct tax collection. They have enabled the department to support programs such as the Tax Lien Sale and have enhanced the department's capability to perform the internal and external matches that are used to discover taxpayers who should be filing and paying city taxes, but who are 367 BILL 980003 not doing so. In the next few months, Revenue will be replacing obsolete equipment used for payment processing and for the processing of returns. We will also be adding imaging technology. This new technology converts paper documents to digital electronic information that can be retrieved on a computer screen. It is expected that this will enable the department to bill taxpayers with greater speed and accuracy and will improve customer service through the prompt availability of reliable data. I would like to just comment briefly on our budget request. The Department of Revenue requests appropriations in the General Fund, the Grants Revenue Fund, and the Water Fund for Fiscal '99. The FY '99 General Fund appropriation request totals $17,213,399. These funds will continue the full range of tax-collection operations with the staff of 338 full-time positions, the same number of positions funded in Fiscal '98. The Grants Revenue Fund appropriation provides for payments to collection agencies, as 368 BILL 980003 well as school tax enforcement activities. Revenue requests an appropriation of $2,315,976 in this fund. The Water Fund appropriation requests for processing water and sewer payments totals $1,461,873. This provides funds for 40 full-time positions. Denise Garrett will now review the activities of the Water Revenue Bureau and the remainder of the Water Fund budget request. And then, as I said before, we will both be available for any questions that you might have.
Good morning, Council President Street and members of City Council. I am Denise Garrett, Assistant Finance Director and Chief of the Water Revenue Bureau. I thank you for this opportunity to provide testimony on the Water Revenue Bureau Fiscal Year 1999 budget request. I would like to, for the record, state that we have submitted a revised edition of our testimony on 2/13/98. And the two notable changes are in our chart, identifying contacts that we made with 369 BILL 980003 our delinquent customers. The number was actual contact that we made, versus our projection. And, also, our service goals are attached to this report. In Fiscal Year 1999, we are requesting an appropriation in the amount of $17,716,032, which is $183,628 more than the appropriation for Fiscal Year '98. The additional appropriation is for funding of wage increases negotiated for our union employees. The Fiscal Year '99 budget request represents $10,087,765 for Class 100, $6,877,417 Class 200, and $750,850 for Classes 300 through 500. Our Fiscal Year '99 appropriation for Class 100 will fund 277 employees, a reduction of 19 employees from Fiscal Year '98. We expect staff 20 reductions to continue as we continue making 21 operational improvements. 22 To highlight some of the changes that are taking place in the Water Revenue Bureau, as outlined in the testimony submitted, our staff training has been a key point for us. C. training with new work stations and shifting of job functions. Also, some of the internal word process changes include a shift from manual to on-line telephone payment agreements, as well as a shift from manual to on-line adjustments to accounts, customer applications, as well as a modification in our low-income application process. In the previous year, we implemented a program called Zip Phone, which is an automated program that allows the Water Revenue Bureau to receive payment directly from a customer's checking account. And we try to encourage these types of programs to foster on-time payment. One of the most notable changes in the Water Revenue Bureau is a joint project with the Water Department and a vendor by the name of ITRON, the larger AMR vendor in the country. We have contracted with the vendor to install over 400,000 meters. And, to date, that vendor has installed over 90,000 meters. We are reading approximately 50,000 of those meters on a 371 BILL 980003 monthly basis. All of these operations foster, again, timely bill payment, reduce operational costs, as well as customer inquiries and disputes. Notable for the Water Revenue Bureau is an improvement in our revenue collection indicators. percent. As of to date, Fiscal Year '98, we are at 87 percent. percent. Also notable, and a contributor to this factor, is early notification to our customers. In Fiscal Year 1996, we contacted approximately 112,913 customers. In Fiscal Year '97 that number was up to 258,173 customers. As noted in my testimony, the actual number of contacts to date is 68,982 customers. But we anticipate by the end of the moratorium period, that we will have contacted 313,000 customers. One of the things that we did in this Fiscal Year, which I think was a major departure for 372 BILL 980003 the Bureau, was to modify our enforcement parameters. There was a change in our payment agreement system to limit the number of payment agreements to two in a cycle of delinquency. We also expanded that system to allow for changes in customer circumstances, for renegotiations, and extensions. We also made major modifications to our notification of delinquency. Previously we would notify a customer after about 120 days that they had delinquent billing. We have shifted that to 40 days, and we have incorporated telephone conversations into that. Also, we have reduced the time period it takes to notify a customer of shut-off. That previously was over 215 days, and the delinquency amount had to exceed 150.
In April of '97, we reduced that to 75 days notification, with the delinquency amount of $75. In doing so, we have taken into account the customer assistance programs that are necessary for customers to maintain water service. 373 BILL 980003 We have increased our customer service activity to these customers by, one, changing the process by which these customers apply to us, so they are no longer waiting in long lines. We also are anticipating increasing the number of customers who participate in this program. As of Fiscal Year 1997, a total number of low-income customers served exceeded 16,000. Approximately 65 percent of those customers are retained as we go to an annual determination program. In year to date, we have approximately 5,000 new customers participating in this program. The Bureau began a collection agency program in Fiscal Year 1993. I would like to highlight some of the activity that we have received from these various programs. Fiscal Year '96, we received in excess of $17 million. 5 million, and projected for Fiscal Year '98 is 17 million, projected for '99, $18 million. These programs are significant and an integral part of the collections process of Water Revenue. They are also programs where fees are not 374 BILL 980003 paid unless we actually realize income. C. network, as you mentioned earlier, as well as a modification and change in our computer billing operation. We anticipate bringing on-line a new customer data information system projected for Fiscal Year 2,000. That system will give us full-scale capabilities not only for billing collections and supporting AMR, as well as billing which is slated for Year 2000, but it will also contain information that customer service representatives can use in speaking to our customers, so that we continue to foster consistent information to customers so that they are able to do business with us effectively. Some of the constraints and challenges that we are facing in the Bureau are being able to respond to customers quickly. And we are in the process now of consolidating our call centers with the Water Department. Presently we have two points of contact for our customers, and we are seeking out a 375 BILL 980003 single point of contact. That consolidation is underway. Cross-training has taken place. Systems analysis have begun, as well as the acquisition of essential system that we will be utilizing. At present, we are looking at abandonment rates that far exceed what we anticipate. However, once these new systems come on-line, and once this consolidation takes place, we hope that we will be able to reduce those numbers significantly. I am available for your questions. Thank you.
Thank you very much. A constant source of frustration and confusion among our ratepayers is who to call and who is responsible. And you have heard this since, probably, your first second in the Water Department. And it is refreshing to hear of the single point of contact. I will tell you, if it is one thing that has frustrated people more than anything else, it is not exactly knowing whether the Water 376 BILL 980003 Department, the Revenue Department, how do you fight your way through this bureaucracy in order to be able to just make arrangements. I mean, most of the time when people are calling, it is because they need to make arrangements. It isn't because they have paid; they need to make arrangements. Tell me what your bottom line is. Where are you trying to be? Tell me. Do you know what I mean? That's what people will want to know. Where are we trying to be? At the end, if everything you do works, is implemented and works well, where will they be? Where will a water ratepayer be when it comes to negotiating your system?
Where we would like to be, Council President, is a customer can call one number and reach us within a short range of time, and I would say within a minute. That's number one. Number two, we would like our abandonment rates to be well below 5 percent, which is our industry standard. Number three -- 377 BILL 980003
An abandonment rate is the rate by which a customer contacts your agency, and they are not able to get through. Either the lines are busy, the queues are full, and they are not able to get their call through. So, subsequently, the customer will abandon that call and make an attempt at a later time. So our abandonment rates at this point have ranged in the area of 15, and I have seen some as high as 40 percent, depending on what activities may be going on at the Bureau at that time. The consolidation of the call center will permit us to shift calls to other areas, when we have those peak periods, so that we maintain a steady level of abandonment rate, as I stated earlier, below the industry norm of about 5 percent.
Now, it is my understanding we are doing monthly billing.
There were long debates, for many, many years, about monthly billing. How has it worked out? Some of us have taken the position that if you send me a bill when it is small enough for me to be able to imagine paying it, then I will pay it. But once it gets beyond a certain point, you might as well go to the fast food store, because you can't do anything with it anyway. We have always been told -- and I remember as a member of the Gas Commission saying -- you have to stop estimating bills, you have to start reading on a monthly basis. People have to get a bill that makes some sense to them in a context of their income. What has been the experience?
The experience has been very good. As I testified earlier on the collections rate, the current collections rate, that is really a measure of how effective monthly billing has been, and we have seen steady increases. The other change that we need to make are operational changes, to support monthly 379 BILL 980003 billing. Because if you have a problem in one month, you will need to turn that problem around before the next bill goes out. The third initiative that we are utilizing to support monthly billing is automatic meter reading. Because customers previously were receiving bills, we are estimating, on average, I 9 would say about 11 of the 12 bills because of our 10 read rate percentage. We couldn't get into the 11 property to get an actual reading. 12 So, in theory, what you are stating is absolutely correct. Monthly billing has been a benefit to us. However, operations need to continue to support that effort.
The implementation is coming fantastic. We are way ahead of schedule. Complaints have started to decline. We still are in a period where we call backlog period, where we have to resolve old complaints as a result of the old meter. But we have put in place a program to precede AMR called a Chronic No Response, where we 380 BILL 980003 are attempting to get that final reading before the vendor comes to install the new meter so that we can resolve that difficulty before the new meter goes in, and we have two sets of data to work with.
Thank you, Mr. President. Miss Kammerdeiner, could you tell us, you talked also about the call waiting time, or the waiting time that someone has to wait when they phone in to Revenue. COMMISSIONER KAMMERDEINER: Yes.
And I am wondering, can people call in after work, like evenings or Saturdays? COMMISSIONER KAMMERDEINER: Right now, in terms of reaching a live body, that answer is no. 21 We are hopeful to be able to extend hours and be able to deal with some of the interest that people will have in reaching us at nonbusiness hours. We have had a pilot program for 381 BILL 980003 something called an Interactive Voice Response Unit, where people could call and get the balance on their real estate account by using the telephone and accessing the computer to get their balance. That worked very well and was successful in supporting us during the period of the Tax Lien Sale. But, unfortunately, because of the lien sale, we had to change the messages, and we haven't been able to put that back into full force. We are working with the productivity bank to develop some increased IVR applications. So that there will be more ways that people can use their telephone, access the computer information, and not have to deal with a person who is on duty during that time to get the core information that they need. If someone just wants to get forms from us, we do have a way of getting to -- it is called a voice box, to get voice messages. And they can leave their address and information for the forms that they want to get. So we have a few things that are underway, but we want to do a lot more in that area 382 BILL 980003 so that people can reach us in nontraditional business hours.
That's what I was saying. People are probably annoyed, upset, angry when they have to deal with Revenue anyway, because you are asking them for money. COMMISSIONER KAMMERDEINER: Quite often, that's the case.
Quite often they don't have to call, if you are sending them a refund. So they are usually calling with a problem; right? COMMISSIONER KAMMERDEINER: Yes, most of them are. One other thing that we are doing, that I didn't mention, we have information on the city's web site on the various forms and taxes. And as people become increasingly able to access information by computer, through the libraries and other locations, they will be able to get a significant amount of information and get their basic questions answered through that route, as well as the more traditional routes. 383 BILL 980003
I would suggest you continue to look for ways to make, you know, city departments more customer-friendly. And if you are angry in the first place because you have gotten a bill you either don't understand or feel is unfair and you are calling, or just calling for information, and you have to wait close to three minutes, and let's say someone is on the job -- because if you are only open traditional work hours, someone has to squeeze it in on a break or lunchtime -- and that's why I ask about evening hours or Saturday hours, where maybe some of your staff wouldn't mind working a little later, for child care reasons or family responsibility, they might like a staggered work shift. COMMISSIONER KAMMERDEINER: We are looking at that. One of the other things we are doing, you mentioned a problem with their bill. We are working diligently to try and improve the quality of information that's on a bill, so that it is more self-explanatory and also more accurate, so that there will be fewer and fewer questions coming up 384 BILL 980003 about the information that's on a bill. And the recipient of that bill will be able to tell from what they get exactly what the status of their account is. That should help to relieve some of the frustration and it also would relieve some of the need to make a contact with us for explanation. Certainly they will still want to reach us in terms of any payment arrangements that they might have, or if there is some other problem regarding their account. But we are working to diminish the need for that kind of contact by presenting a more accurate and timely bill that has more plain English explanations about what it is.
Well, again, this decrease in just a couple of minutes, I would hope you would be aiming for under a minute, where people would wait. COMMISSIONER KAMMERDEINER: Yes, that is an ultimate goal, but we need to do it in incremental steps.
And, Miss Garrett, you mentioned you have had some training 385 BILL 980003 for your staff on customer service. And who did you have doing that?
Blue Cross and Blue Shield; they are renowned in this area. And this is the second-phase training. They trained the customer service representatives at the Water Department, field service representatives, and they have just completed training with our customer-facing representatives.
Do they do that pro bono, or is that under contract?
We wish it was pro bono. I did try to negotiate that; however, I had to pay. I was able to get a reduction in the fee because they had done previous water groups.
It is my sense that there is a lot of different departments in the city that do deal directly with the public 386 BILL 980003 that could use some improvement, to say it mildly, in terms of customer service. And I would think that if we are paying Blue Cross/Blue Shield, I would like to suggest maybe some of that be competitively bid, not only in your department, but other places. Because there are a lot of people that do customer service training. And I think it is a major next step, a major need in city government, as we try to improve our image as a city and mainly trying to deliver services more effectively.
We do have additional customer service training with our groups that work at the telephone systems, which was a small bid purchase, where we are using a minority contractor. They are actually working with us in looking at some of the statistics that we use to measure performance in the system, as well as sensitizing those customers to dealing directly with the public over the telephone. So we have not just used Blue Cross and Blue Shield; we have actually attempted to use other firms. 387 BILL 980003 And I would also like to mention that we are very sensitive to customer needs. Hopefully by the end of March, we will have extended our customer service contact hours from 8:00 to 5:30, to 7:00 to 7:00 p.m.
Thank you very much. The Chair recognizes Councilman Rizzo.
Thank you, Mr. President. My question is to Commissioner Kammerdeiner. Do you think that we could ever look forward to seeing a position in government called a customer service representative, that when a citizen calls, that they don't necessarily need to speak with Water Revenue, if they have a Streets Department problem, that one person could deal -- because in utility companies that have both gas and 388 BILL 980003 electric, one representative is versed in electric and gas. I would hope that some day, that a person could handle a problem, trash that hadn't been picked up or a problem with their water bill. And today with telecommunications, you know, calls can go to the person that's best versed in a particular subject, if their first choice is they have a problem with the water bill. Why can't we -- and, again, I know this is something long-term -- look for an organization within government that can be a person that does lots of tasks? COMMISSIONER KAMMERDEINER: I think we are starting to do that on the tax side and, as Denise Garrett testified, on the water side. We are experimenting with that. As technology improves, and particularly telephone technology improves, there will be more opportunities for doing that. I think we need to work a little more with that technology and understand it better. It is something that is new to us in city government. It might be used in some other areas. 389 BILL 980003 But I think your examples help to point out where that will be a little more difficult in city government, than when you are dealing with a utility that has one set of problems and issues to deal with. Tax bills, water bills may have some similarities, but there is a lot of supporting information that someone needs to know in order to fully service the customer who has a problem in those areas. And someone dealing with those issues and well versed in them might not be able to deal with a trash collection problem, a pothole problem. Basically, our switchboard today serves as a clearinghouse to direct people to the right department. Perhaps part of what we need to look at is a better way of forwarding people to the right location quickly, after they go through the main switchboard. We are working with Public Property on the way we handle the telephone technology, and are considering and would like to add something that's called call blending. So that people who take incoming 390 BILL 980003 calls can also have on their computer screens information to do outgoing calls. I know in the Water Revenue area, they do a lot of collection calls. We do a lot of collection calls. If there is an overload of calls coming in, right now we can't easily and quickly have those people who are doing outgoing calls take the overload of incoming calls, even in our own areas, much less for other departmental areas. With call blending, if there is an overload of calls coming in, they can make that quick switch and help relieve the pressure on the incoming calls. So as technology improves, as our experience with it improves, I can see us expanding this. And I can see on the operations side that they may be trying to consolidate things perhaps across departmental lines. But we are not quite there yet.
Does anyone else 391 BILL 980003 have any questions of the Commissioner? Commissioner, thank you very much. At this time we will hear from the Tax Review Board. JUDGE DOMINIC M. CERMELE: I am Dominic Cermele, the Executive Director of the Tax Review Board. And sitting next to me is Cynthia Douglas, who is the Administrator of the Tax Review Board. I thought that since you have my testimony before you, and you know that we handle parking tickets and you know that we handle burglary alarm violations, as well as sweep violations, that I would just touch upon some of the lesser-known things that we do. For instance, last year we added hearings and enforcement, CVN enforcement, for violations of the city's tobacco ordinance. Enforcement of this ordinance has achieved a 75 percent payment rate in its first year, and has resulted in a 55 percent decrease in the number of stores who failed to ask for age identification from buyers. Secondly, another function that we 392 BILL 980003 handle that you may not know about is that the fire department, who bills for emergency and medical services, and collected more than $12 million in last calendar year, the bulk of that is collected from Medicare, Medicaid, or other third-party payers. But the city is required by those third-party payers to bill all individuals who received a service in order to comply with federal and other regulations. The Office of Administrative Review handles all of the disputes, our requests for indigency relief. And last year we handled 512 such disputes, which resulted in $110,157 in write-offs. Last year we also began doing settlement conferences for the Revenue Department, in the area of Use and Occupancy Tax. That program which targeted non-filers who had delinquencies of at least $4,000, resulted in more than $250,000 of outstanding business taxes being brought in. This year we will be expanding that program. The Office of Administrative Review also acts as the ombudsman for the Real Estate Tax 393 BILL 980003 Lien Sale. And we have handled well over 500 telephone calls from individual taxpayers who needed our assistance or needed information or needed to facilitate their communication with those collection agencies that are servicing the liens. And we also handle the appeals from the denial of reserved on-street parking spaces for individuals with disabilities. Last year we handled more than 250 such cases, 240 such cases, and we are able to provide hearings within 30 days of receipt of a review request. We are now working with the Streets Department on handling bill disputes for oversized or improper street ditches by private plumbers. And we are working with the Department of Licenses & Inspections on projects similar to that which we did with the Use and Occupancy Tax project. These primarily will deal with L & I bills for various nuisance abatement categories. And, finally, looking in our own shop, we, as you know, for all CVN's, for the sweep program, and for burglar alarm charges, we bring all 394 BILL 980003 of those cases to Municipal Court and take default judgments, where necessary. We have determined that we now have over $3 million in outstanding judgments resulting from those code enforcement complaints in Municipal Court. And we will now assign our Tax Review Board to handle settlement conferences to settle those $3 million in outstanding judgments. Those are for fines that start out at $25. But when we take them to Municipal Court, we take default judgment for the full amount of $300. Our budget request for this year for the General Fund is $1,620,769, and an additional $56,082 from Grants Revenue. This is $13,000 less than last year's estimated obligations. Ms. Douglas and I would be happy to answer any questions that you have.
Thank you, Mr. President. Just one question. Again, your office does great work, very efficiently. On you talk about reserved on-street parking for the disabled, that you heard 395 BILL 980003 240 cases, you had hearings. You know, I know for people who clearly are disabled, having those parking spots are very, very important, but we also know some people have been getting over. What was the outcome of those 240 cases? JUDGE CERMELE: If I could just back up a little bit. At the request of the Mayor, I have put together a little task force about two years ago to look at the entire problem with on-street reserved parking. Because as you are probably aware, it is quite an abused item in the city. And we discovered that, in the past, handicapped parking spaces were granted on the basis of medical diagnosis. Based on that, I am entitled to a handicapped spot in front of my home, because I have had cardiac bypass surgery and I am a diabetic. So under the old system, I could qualify for a spot. I hope that I look well enough that you would say, no, Judge Cermele, you are not 396 BILL 980003 entitled to a spot.
You look well enough. JUDGE CERMELE: Thank you. I was fishing for that.
You walked all the way over here. JUDGE CERMELE: I did walk over here. What we did was, we changed it so that the criteria now is mobility impairment, rather than diagnosis. And in implementing this, we require that handicapped or disabled persons not have the ability to ambulate 200 feet. And we test this by, first of all, we bifurcated the application system. So that an individual no longer takes his application to the doctor and says, "Fill this out for me," because we felt that that put too much pressure on the medical practitioner. So now you fill out your application yourself, you give the Parking Authority the names of your physicians, and then on behalf of the Health 397 BILL 980003 Department, the Parking Authority sends a different application form to your physicians, and that is returned to a Post Office Box that's being taken for the Health Department. Finally, all of the medical information and applications are reviewed by a group of physiatrists who work for Moss Rehabilitation Hospital. And by the way, until I met a physiatrist, I had no idea that there was such a medical specialty.
It sounds like a podiatrist plus. JUDGE CERMELE: And a physiatrist is someone who works with the mobility impaired. I would tell you that the particular physiatrists that I have met and that we eventually engaged, when I met him, I put out my hand to shake his hand, and he did not have a hand. So I felt confident that we had found the right person to deal sympathetically, yet properly, with the mobility impaired individuals. So applications now are reviewed that way. And then if the space is denied, then 398 BILL 980003 the person has the right to have an appeal. And those appeals are handled at the Tax Review Board. We use one of our Masters at the Tax Review Board to Chair a panel which would consist of the Master, a representative from the Mayor's Commission for Persons with Disabilities, and a representative of the Health Department. The results, I believe I have in my testimony.
I didn't see it. You said you did 240 hearings. JUDGE CERMELE: Since I probably do not have it here, I will -, 240. I will provide it to you. Because I do have the details; I just don't have it with me. But I will provide you with the details. But, eventually, in about half of those cases we overturned the decision of the Parking Authority.
And then could you also, do you have the data on how many applications or requests were turned down by the Parking Authority? JUDGE CERMELE: I can provide that, 399 BILL 980003 also. I have that in my office.
Because, again, I heard it is big issue, but I don't have any sense of it. JUDGE CERMELE: There are 10,000 spots that we have identified around the city. They assure me that there are no blocks where there are more than five spots on any block. But there are 10,000 around the city. It is, indeed, a big problem. We are relicensing all of those spots, and are doing it about a third each year. They did a third last year, and they will be doing a third this year.
A handicapped space, a person who does not drive, is that person entitled to a handicapped space? For instance, take the example of the gentleman you named, the physiatrist. JUDGE CERMELE: Physiatrist. It took me a while. 400 BILL 980003
Say it again, sir. Physiatrist? JUDGE CERMELE: Physiatrist, yes. It is almost like a psychiatrist, but I was very familiar with what they do.
Okay. This specialist, would he be entitled to a handicapped space? He does not drive, because he does not have arms. JUDGE CERMELE: Well, he did have one arm. The criteria that we use in the City of Philadelphia is that you must have a handicapped plate on your car, not a placard. And the differentiation is that a handicapped plate is given to those individuals who drive, who are disabled; whereas, an HP placard is given to those individuals who may have someone else drive for them.
In their families, yes. JUDGE CERMELE: Yes. So you would only be entitled to the space if you were the driver, as well as the disabled person. 401 BILL 980003 The theory being, that a driver can drive up, let you off in front of your house, and then go park the car. So, therefore, they are not entitled to that spot.
I think that probably needs a little bit of publicity, because I don't think it is generally understood to mean that it is limited to a handicapped driver, and not a handicapped person who uses the car that is parked in this privileged way. What method are you taking? JUDGE CERMELE: Handicapped parking is a very, very abused problem not only in this city, but around the country. I frequently attend conferences concerning parking and public parking, and my colleagues around the country all experience the same problems with abuse as we experience here in Philadelphia. I had an individual in my office just the other day screaming and yelling at me that he wasn't being treated fairly. Because he lives in Wayne, and his mother has a handicapped parking placard, she lives in North Jersey, and he is 402 BILL 980003 getting parking tickets parked in front of his office in Center City Philadelphia. And he tried to tell me that, you know, he would drive his mother to work, and then he would park his car and use the handicapped parking placard. Even if I believed that he drove all the way from St. Davids, Pennsylvania, to North Jersey, picked up his mother, and then drove her into Center City each day, that would --
You didn't have any trouble with that explanation, did you, Judge? JUDGE CERMELE: No. I thought it was great, and I believed every word. But even so, once he let his mother off, he was not entitled to use that handicapped parking placard throughout the day. We have asked -- again, this is legislation that we have asked Council to look at. Because in Philadelphia, unlike most other jurisdictions, we have been rather liberal concerning the use of our public spaces. A full percent of our Center City 25 spaces are taken up on a daily basis by individuals 403 BILL 980003 who either have a governmental privilege or have handicapped parking placards or plates. That is far too many spaces for the core business district to absorb. And, therefore, you don't get a good turnover of spaces each day, which would be helpful to the merchants. The reason that is, is because the State of Pennsylvania allows holders of those handicapped placards, or plates, to have an additional hour over and above any metered space timing that they would put money in. But a number of years ago Council extended that to provide that those individuals with that type of licensure on their cars may park for free in time spaces all day long, without limit, unless it becomes a no stopping. And that, indeed, has led to the increased abuse here in Philadelphia.
Just to follow up, I think I grew a little suspicious of handicapped plates or disabled plates when I was at the tennis court parking lot, and saw someone drive up with their handicapped plates, and they bounced out of the car to go play tennis. And I couldn't 404 BILL 980003 quite -- JUDGE CERMELE: It was therapy.
Yes. JUDGE CERMELE: They were seeing the psychiatrist, not the physiatrist.
But I thought the plate was supposed to be for the car where the person is disabled was they are driving. JUDGE CERMELE: That's correct. And you are only supposed to use it when you are actually engaged in transporting a handicapped person. And then, for instance, if you take such a person to the doctor's office, then you are entitled to park in an HP spot while that person is at the doctor's office. It doesn't entitle you, in the case of the individual I was talking about earlier, to drive to your office and park there all day and then later on pick up mom.
I am just glad you are cracking down on it. 405 BILL 980003 COUNCILMAN DiCICCO: I have a specific case that I want to use as an example. There is a person who lives in South Philadelphia, in my district, that has a handicapped plate on her car. And she I know is not handicapped at all. I believe that she made application for the handicapped zone in front of her house because she claims that her mother can't walk a certain amount of distance. On the plate, the insignia, the little wheelchair insignia, whatever, is on the driver's side. Isn't there a distinction or something I was told that if it is on the passenger's side, it means that the plate was issued because a member of the household is disabled, and not necessarily the driver? JUDGE CERMELE: I don't believe that's true, but I will check that for you. COUNCILMAN DiCICCO: If that's the case, this individual who lives on the 900 block of Reed Street, R-E-E-D, 900 block -- I'm not sure of the exact address, but I think it is the only 406 BILL 980003 handicapped. JUDGE CERMELE: I can check the block. COUNCILMAN DiCICCO: All right. The driver of the car, apparently, again, I think, made application for the handicapped zone because of her mother. Just last week when I was doing a walk through on East Passyunk Avenue, her and her mother were taking a stroll, and they were going shopping. And they were about five blocks from their house, they didn't move the car, and they walked every day. What do we do about something like that? I'm sure I already did what I was supposed to do. JUDGE CERMELE: Yes, you did. And we will certainly look at that. And, by the way, we get that type of information all the time, and the Parking Authority gets it all the time, particularly when a person with disabilities is deceased. Generally before they are buried, a neighbor calls to ask to have the signs removed. And I think that's appropriate. You have to remember that in 407 BILL 980003 Pennsylvania, it is very easy to get a handicapped parking placard and a handicapped parking plate. You don't even have to have a doctor certify that you are disabled. It is enough in Pennsylvania that a police officer would certify that you are disabled. And I think the theory was that in -- I suppose the theory was that in rural areas, where there is not a lot of medical practitioners, a police officer would be apt to be able to recognize a person with only one leg and certify that the person is disabled. However, we believe that there are some abuses by police officers, although not necessarily in the City of Philadelphia. COUNCILMAN DiCICCO: I think this may have come up last year, where the state is much more lenient than the city is, and more liberal. JUDGE CERMELE: Yes. COUNCILMAN DiCICCO: Is there any dialogue between the city and the state? How do we tighten this whole thing up? JUDGE CERMELE: We have tightened up the issuance of handicapped zones. 408 BILL 980003 I think Council needs to re-examine the idea that persons with disabilities should park with impunity all day. I think that the state needs to deal with the issue of how handicapped plates are issued. I have spoken with individuals at the Department of Transportation. They are not particularly receptive to our ideas of issuing more stringent regulations and having the General Assembly pass more stringent regulations. However, we are working with other jurisdictions, with the Pennsylvania League of Cities and with the Pennsylvania Parking Association, to gather support with other municipalities, so that we can generate the ability to get that change. COUNCILMAN DiCICCO: Thank you. No 19 further questions. Thank you.
Any other questions? Thank you very much. Board of Revision of Taxes.
Good 409 BILL 980003 afternoon, Mr. President and members of City Council. My name is David Glancey. I am the Chairman of the Board of Revision of Taxes. And with me this afternoon is the secretary of the Board, Mr. Robert Nix, and a member of the Board, Ms. Charlesre Meade. Normally Mr. Foglia, Enrico Foglia, attends this meeting. His wife is undergoing surgery today, so he begs your indulgence and wants to take care of that personal matter. In our submitted budget, I am just going to hit on very few highlights. The appropriation in 1997 for our department was $7,255,980, and we are requesting an increase of $207,367, which were the negotiated salary increases for our employees. A few of the other highlights I would like to touch on, on you will note that the total taxable assessed value went from 9.218 billion in 1998, and our projection is 9.2 million in 1999. It is a potential reduction in real estate tax revenue of about $1.4 million. Even though that is a slight 410 BILL 980003 decrease, we still believe that the market is somewhat stable, and I think that's reflected in our taxable assessed values. On , again, we just kind of highlight the equalization program. If you recall, on November 19, 1997, before the Committee on Finance and the Committee on Commerce and Economic Development, we had some extensive hearings with Councilwoman Verna and Councilman Nutter, explaining pretty much a process, and that's what the equalization process was, why we do it, how we do it. But if there are specific questions about that that are still outstanding, I would be happy to answer those. If you turn to , it shows our service levels, our service level impact statement. And this year we are very happy to report that the average time between a written inquiry to our office, or even a telephone inquiry to our office, has been reduced to an actual 12-day turn-around time. Even though we are being somewhat conservative for next year by putting in a 15-day 411 BILL 980003 turn-around time, we didn't want to put down anything less than 12, because we may not reach 12. So we do believe that, you know, that kind of service to the public, as Councilwoman Fernandez was talking about, is extremely important. And we also note that our appeals dissatisfaction rate, the turn-down rate, is about 3.12 percent for last year. And really what that kind of shows us is, what we think, is that our values are much more correct than they are incorrect.
Appeals to us. Our appeals to the court are much better. We have a much better ratio there. Again, if you turn to , we put in our annual market overview report of how we see the various segments in the market. And I know there are basically highlights in that message. The hotels -- if you don't mind, I will skip over some of the things that we have said last year. 412 BILL 980003 But a couple of things that we do want to highlight specifically is that the hotel segment, you know, as I guess it is pretty obvious, is about the hottest segment that we have seen, certainly in my lifetime, on the Board. It is the hottest segment in the market that I have seen in many, many years. We list on and -- I suppose 10 everybody has a list -- and we think this is about as comprehensive as we can get of the construction that is underway as we know it, showing an addition of about 2838 rooms, and in some planned construction, where at least it has gone beyond the talk stage, where folks have actually tried to get some documents together and maybe have even stated something publicly about what they are going to do, and that subtotal of rooms is 2311. " I don't think any of the staff, and probably very few members of the Board, have had conversations with office buildings, but I can't say that for sure. Again, I will highlight. On , 413 BILL 980003 the Personal Property Tax, as you are well aware, has been repealed. And what we are planning to do is to utilize the folks who have been working in Personal Property to be kind of an audit department for us. In speaking with the Budget Department, they have not cut any of those jobs. And we're very grateful for that, and we are very grateful for City Council in supporting that position. And we are now in the process of defining what that audit would be. And it is really an appraisal audit group. There is some lag in training that we're going to have. But, nonetheless, we think that will be a very important part of the future of our department. On to abatements and exemptions. The one thing I might -- I am sorry. Before I get to that, I think the residential market does deserve a mention. Probably the most significant or salient part of this document would be on , which shows citywide residential sales by property 414 BILL 980003 type. We believe that the 1997 numbers are probably a ten-month number. We have gotten the most current information we could get from the Department of Records, and we have also tried to cross-check some of that information with some of the information that is put out by the trade groups. And we believe that there might be some more activity that we haven't picked up in 1997. But, for the most part, we believe that that's about a ten-month number. And you can see there are little down ticks in each of these residential subsections. The rows were down-ticked about $600 on the -- in the median. We do use the median sale price, because we think that is probably a more indicative indication of what values really are. The twins are down about $1900. And, of course, the single detached residential numbers are down about $750. But, again, I think because those down-ticks are so minimal, we believe that there is 415 BILL 980003 some stability in that section of the market, also. Finally, onto the abatement and exemption portion of our testimony. In November '97, the legislature passed and the Governor signed House Bill 55, which is currently called Act 55 of 1997, which codified the Supreme Court's decision in the HUP case, in that what we believe it has kind of broadened, we think, the standards in order for a nonprofit charitable organization to receive a real estate tax exemption in the State of Pennsylvania. But in the process of broadening the five parts of the HUP test, what the city was able to do in negotiations when that bill was being drafted, was to get some incentives placed in that legislation to encourage what are called financially secure nonprofits.
And I think examples of that would be hospitals, universities. Financially secured nonprofits, to -- they are encouraged to join voluntary contribution programs in the municipalities in which they are located. 5 million in cash in voluntary contributions from 416 BILL 980003 those kinds of entities. It is not a major number, but it is certainly an important number. We also get some significant amount of services that are supplied by those institutions in lieu of cash payments. In negotiations for this particular piece of legislation, we fully -- we did get a guarantee from those institutions that are currently participating in our program, a guarantee that we would be held harmless. 5 million. Our agreements run out December 31, 1999. We suspect that the next round of agreements will also be at least five years, and maybe more. 5 million. Hopefully, I can't say, but hopefully there is more, but we don't know that. But at least we don't want to be losing any of the money that we are currently getting in that situation. And, finally, the abatements that we list -- and I guess the best thing to do is maybe just to turn to the tables on of the table, which shows the summary of all the properties that 417 BILL 980003 are abated. The total number of properties certified for Tax Year '98 are 470 abated properties, with the single largest total abated assessed value falling into the second category, which is 1130/982, the three-year commercial and industrial abatement. 6 million. 034 million. 7 million. And we do collect about a million dollars, almost a million one, on those properties that do have the partial abatement. We thank City Council for their support in the past, and we are here to answer any questions that you may have of us.
Good afternoon. My name is Thomas Queenan, and I am Treasurer for the City of Philadelphia. I am here to testify on behalf of the Fiscal Year 1999 budget for my department. To my right is Stephen Sliwinski, my Budget Officer for the City Treasurer's Office, as well. Good afternoon, City Council President Street, as well as other members of Council. I have submitted to you a copy of my testimony. And for purposes of time, what I will do is, I will just quickly summarize some of the achievements of this department over the last 12 months, since the last time we were before you. As you know, we are responsible for all the debt management, investment policy management, development of the debt policy for the city, all the accounts receivable and accounts payable functions for the City of Philadelphia, including all disbursements of checks to employees, pensioners, and vendors to the City of Philadelphia. Just a couple of highlights. One 419 BILL 980003 thing that we are very, very proud of is that, as you know, in 1995, the City of Philadelphia returned back to investment grade rating in terms of our long-term debt. I just want you to know that we have continued in our efforts to increase the long-term debt rating of the City of Philadelphia. Last May and March of '97, the city was upgraded from a Triple B minus to a Triple B. We are very happy about that. And that allows the city to, again, issue debt in the capital markets at a very, very competitive rate, compared to what we were able to do prior to the upgrades of the city's long-term debt. Similarly, on the short-term side, the city was returned to the highest ratings possible in a short-term side as it relates specifically to the city's note financings, which we do every year, for approximately $300 million. We have the highest category by Moody's and the highest categories by Standard & Poor's. Again, this is the first time that we have been back in the highest category for quite some time, so we are also quite proud of that. 420 BILL 980003 This past year the city has undertaken a number of financings. Most of you are familiar with them. One of which was the tax lien, the other was an airport financing that was done last July. We recently completed a Water Department new money bond financing for their capital needs going forward, as well as a financing for the acquisition of automatic meter readers and for vehicles and software for PGW, as well. This past year we revised the debt policy for the City of Philadelphia for 1997. This, again, as mentioned earlier in previous testimonies, is a document that we use in order to develop our strategy going forward for the issuance of long-term debt for the City of Philadelphia, particularly debt as it relates to the percentage of the General Fund and making sure that we stay within the proper framework that the rating agencies use to evaluate cities like Philadelphia, as well as making sure that we do not exceed our debt capacity for the City of Philadelphia, as well. Most recently we re-bid the money management contracts. 5 billion. We have been able to do it in such a way that allows each of the managers to have light funds, so that they can maximize the returns on the monies that they are managing on behalf of the City of Philadelphia. Before you we have submitted our budget for Fiscal Year '99, which is for the amount of $935,847, which is approximately and a half 13 thousand dollars more than our budget for last 14 Fiscal Year. 15 What accounts for this increase, 16 primarily, is for Class 100 expenditures, which is 17 specifically the adjustments for increase to 18 employees wages. 19 As it relates to Class 200, Class 20 300, and Class 400, these amounts are the same as 21 they were for Fiscal Year '98. 22 That concludes the summary of my written testimony submitted before you. If you have any questions, I am here and more than willing to answer them. 422 BILL 980003
One question, Mr. Queenan. The matter that raised issue about said bonds made out to a known bearer gets displaced, lost by the purchaser, has anything been resolved on that score?
Yes. We have done our own internal review of that particular matter. And for the purpose of everyone, this is the discussion of a lost bond to a bond holder or purchaser of a city bond some years ago, and the process for replacing that bond. In regards to that particular item, it has been forwarded to the City Solicitor's Office. But just to give you a summary, I did speak to your Chief of Staff about this particular item. The bond, apparently, has been lost. In order for the bond to be replaced by the trustee bank, this bond -- bonds are typically replaced by the trustee bank, not the city itself. 423 BILL 980003 The person who has lost a bond has to provide a surety insurance or an indemnification insurance that has a particular price. I believe the price runs anywhere from $750 to approximately $1500. They have to provide this to the trustee before they are allowed to have their bond replaced.
You know, over the years, I have had occasion to criticize City Solicitor --
Councilman Cohen, we are going to ask you to please speak right into the microphone. We're having difficulty hearing you. Now Councilwoman Clark wants me to speak further away from the microphone, she is having too much success hearing me.
I would like to hear a little bit about a rationale for what I must say seems to me the epitome of stupid decisions by government. A person or a family unit, a husband and wife, buy a City of Philadelphia bond, something 424 BILL 980003 I thought we were interested in encouraging -- I have obviously been mistaken -- a bond is issued to Mr. and Mrs. Michael Nutter, say, for example. Mr. Nutter or Mrs. Nutter loses the bond. Nobody else can cash the bond; it is made out to specific people. And yet the City of Philadelphia requires that people pay 750 to 1500 dollars through this trustee arrangement that they have, or bank with whom the city must have some relations, or it would not have been chosen as trustee. I can't think of a more arbitrary kind of stupid decision by the city government, which has got to be more interested in selling its bonds than to put a bondholder to that additional expense. And so, Mr. Queenan, I ask why?
Well, essentially I think it is probably a very good policy. It is a policy that, quite frankly, is put in place to protect the bondholder. If Mr. or Mrs. Nutter were to purchase a bond, let's say, in the amount of $25,000 and were to lose it, what is to keep anyone else 425 BILL 980003 from coming to the City of Philadelphia or to the trustee bank saying that they in fact are the owners of that bond, and they lost it, and they want that bond to be replaced?
How can they do that, when the bond is made out to Mr. and Mrs. Michael Nutter, and the Nutters have not endorsed the transfer of the bond?
I have no money, zero. I can't afford to pay the trustee because I can't afford the bonds.
We are going to be issuing some bonds in September, so we will make sure they are in denominations that are within your range.
First of all, I don't want it to be too complicated, but I don't want to say it is too simplistic. But there are some bonds that are actually issued, and the owner of the bond is not listed in terms of the same, it is a que zip number, which is a registration number. So in the event that a bond is lost, there really is no way for me personally to know in 426 BILL 980003 fact that the bond was lost or was owned by a particular person. Bonds are sold after a person buys them. They have the right and the opportunity, if they buy a 25-year bond, and after 5 years, to sell the bond. So a particular bond, after the initial offering, can be sold to a number of people during the course of the full maturity of that particular security. So that unless the person is willing to indemnify the trustee bank, really, the trustee bank, not the City of Philadelphia, that if I come to you -- and, again, if we are talking about $25,000 face value bond that pays 5 percent a year for 25 years, one could also say that $750 is a small amount of money to pay in order to have the security and the comfort to know that they will not be at risk, the city or the trustee will not be at risk, for giving the bond to the wrong person, or that person is at risk of having someone claim to have their bond.
You know, when the Finance Director was here, I had occasion to say 427 BILL 980003 that the relationship between the banks and the City of Philadelphia is such a cozy relationship, in which the city goes far out of its way in order to ensure that the banks kind of legally have a right to rob people. And I think that this is such a case. When a bond is made payable to, let's say, Mr. and Mrs. David Cohen, since Michael Nutter refuses the $25,000, we're the only people that can sign it. And it makes no sense whatever to require a bond, just as if it was a bearer bond that was issued. All you are doing is enabling the banks, in their guise as a trustee, to collect a large sum of money for absolutely no reason at all, except to curry favor with the banks and to say, you have our permission to rob, steal from people blindly, and we'll give you city government approval.
Because there is no way in the world that anybody else can take that bond without a signature from either David Cohen or from his wife, if the bond were issued.
There is no way for the trustee of the bonds, who is in place to protect the buyers of the bonds, to know for certain that they are replacing a bond to the proper --
They can get Affidavits from the City of Philadelphia. They have done it in the past.
As I said to you earlier, once a person buys a bond from the City of Philadelphia or any other municipality, they are free to sell that bond to whomever they wish to sell it to.
Yes, but whoever cashes it has to show that it has been signed over to them. And you mean the City of Philadelphia or the bank that it entrusts its business to has no 23 way of checking? You mean somebody else can take one of my bonds?
Over the years, all 429 BILL 980003 kinds of bonds have been issued. There are still bearer bonds in the market.
I am just using the scenario that you put forth. I haven't been given any proof that it was or was not a bearer bond in the particular instance that you are describing. But, in general, when it comes to bonds, some bonds are still outstanding, some are bearer bonds, some are registered by people, some are registered by que zip number. Anyway, after you issue a bond to anybody, they can sell the bond 5, 15, 25, 30 times after the original date. In order to protect the bondholder, we need an indemnification that has to be put in place. So that in the event, for example, that we do give the bond or replace the bond to the wrong person, there is an insurance policy, by virtue of this indemnification, which in some cases is $750, that will cure the mistake, that will permit the trustee bank to replace the bond to the 430 BILL 980003 original --
I am going to urge everybody I know never to buy a bond from the City of Philadelphia, that the city government seems to be in cahoots with the banking industry to charge unfair charges, and the city is going to stand up for them. I think it is absolutely outrageous to say that there is no way of a bank that is acting as trustee for the City of Philadelphia to determine whether or not a bond issued to named people, not bearer bonds -- I don't want to hear about what happens with bearer. I would support that notion with bearer bonds, but not if bonds are issued to specific people. And the answer you gave, Mr. Queenan, respectfully, makes no sense whatsoever. There is no way to justify to purchasers of nonbearer bearer bonds, bonds issued to specific people, that the banking institution, the City of Philadelphia, has no way to protect itself from fraud. And why do you put the cost of protection from fraud on the named purchasers? 431 BILL 980003 Mr. President, I am going to be asking for some emergency legislation in this session, and during the budgetary period, to take care of this. I just think it is outrageous that the City of Philadelphia feels itself so beholden to the banking industry, that it participates in giving support to absolutely senseless charges made by banks.
Some of us are not quite familiar and up to the details of this problem. Can we get some full and complete explanation as to what the issue is? What is the issue? A, I would like to know a little bit about the numbers of times, you know, people run into this. I guess it could be anybody who buys a city bond; is that correct?
It can be anybody. 432 BILL 980003 I would like to know a little bit about the frequency of the problem. And can you tell us, what is the relationship, the contractual relationship, that exists between the City of Philadelphia and any financial institution that's involved in this that would give us a right to dictate or to at least influence the amount of charges that are levied for these, to replace these bonds? And I would also like for you to find out what is the basis for these charges?
The charges that Councilman Cohen is saying that people have to pay to the financial institutions in order to get a replacement bond.
When the bond is in their name. So that hypothetically I come in and say, look, I can't find this thing, I moved three times, I thought it was in the safe, it is not in the safe, and they say X, this is what it is going 433 BILL 980003 to cost you. Right? Well, they need to justify to us why it is they charge X. You know what I mean? Why it is they charge what they charge. And I guess this wouldn't be a matter that would concern us as much if we didn't see in the financial community some thoroughly outrageous, arbitrary charges that these institutions can make and do make for services that you otherwise would think would be no problem. And I think it is a very legitimate question. What I would like to have is a little bit of a paper that shows us, gives us the kind of -- am I going in the right direction, Councilman?
I want to see the nexus between us and the lending institution. Because if we are going to do something about it, we have to know what it is about our contractual relationship that allows us to influence this transaction. 434 BILL 980003
That's where we differ. I think if the city made a phone call and said, this doesn't really make sense and we are to, next time we are going to insert clauses in agreements before we let a company act as trustee, that in these circumstances they will not make a charge.
Councilman Cohen, respectfully, you might be right. I want to know, this Council member wishes to know, what is the basis for the charges. I can't know whether or not to recommend to the Mayor, the Treasurer, the Finance Director, or anybody else to pick up the phone and make the phone call and say the charges are outrageous, if we don't have some basis for what it is. It is almost like our fees as a government. We charge fees to do all kinds of different things. Those fees should bear some rational relationship to the service that is provided. And, presumably, there needs to be some rational relationship. 435 BILL 980003 Now, in this computer world, you know, they are going to have a burden to overcome. I have seen charges -- for example, a bounced check, $30 charge, sometimes more. And you ask yourself why that kind of charge for that kind of service, when it just seems really like a paper transaction? I think if we are going to do something, we ought to give these institutions an opportunity to say, this is what the charge is, this is how that charge is computed, and it isn't a back door way of making a whole lot of money. I think we should get all the information.
Some of my impatience results from the fact that for at least three years, I have been raising this issue with the Treasurer, with his predecessor, who I think now is at the School Board, with the current City Solicitor, in an area that makes no sense.
What is the charge? Does anybody know what the charge is?
Well, first of all, if I could clarify the record here -- and I am not a 436 BILL 980003 lawyer, but I will do my best -- first of all, this is not a bank charge.
First of all, this has really nothing to do with the bank per se. Bonds that are sold by the City of Philadelphia, we are basically borrowing money from all the people who buy our bonds. Okay? Bondholders. And the trustee bank, which is, you know, we select a trustee, a third party, who is basically there to represent the bond holders, is there to protect the solvency, the security of the bonds. And in this case, we have a bond that is lost. And in order for the trustee to replace the bond to the particular applicant, there is a requirement in the legal documents that requires the applicant who is claiming a lost bond to have indemnification assurance for the City of Philadelphia and the trustee of the bond holder who is there to preserve and protect the rights of the bondholders. 437 BILL 980003 And so what happens is that the applicant needs to purchase this indemnification from insurance companies, not from banks. The money does not go to the bank.
Well, explain what it is about our contractual relationship with whoever this trustee is that would put us in a position to make the phone call that Councilman Cohen is insisting that somebody should be able to make in order to be able to contest these charges.
Well, certainly I can write a summary to describe the issue for everyone here on Council and explain it. But I believe -- and, again, I am not a lawyer -- that the only way that the fee can be waived is by the City Solicitor. It is not a matter of calling a bank and asking --
Is the City Solicitor here? I thought I saw her. She is here. We need you. We need you now.
But it is not a matter, 438 BILL 980003 again, of making a phone call to a bank.
Stephanie Franklin-Suber, can you come and just clear this up for us? Maybe we can get it cleared up right now. Councilwoman Clark.
It seems to me that it is a transaction fee, it is a transaction fee. Is there any relationship between the size of the loss and the size of the bond? Would you pay the same $750 for a $250,000 bond loss, as you would for a 25,000 bond? If it is a transaction fee, how are we different from the federal government? If you lose a federal bond --
I don't know about federal bonds. And I can actually verify and find out if there is actually some kind of a prorated or percentage basis, or paying for the indemnification as it relates to the amount of money related to the bond. I can check that for you.
In a federal bond, you need only to assert that you owned it, and 439 BILL 980003 then they will check to see if it has ever been sold or cashed in. And if it has not, you will be issued a replacement bond. I think that's what Mr. Cohen is asking for. I think we need to explore options to paying the fee to have it replaced.
Yes, I will certainly, again, provide a summary memo of this particular issue. I don't know much about federal bonds. But I will say that I have been with the city since August of 1993, and I don't recall any other problem with a lost bond. So it is not a common occurrence, albeit is certainly a major occurrence to anyone who loses a bond. But I also want you to know that this is very, very, very rare for anyone to lose a bond. And, again, in the five and a half years I have been here, I have never dealt with a situation where someone has lost a bond.
For the record, this is Stephanie Franklin-Suber, City Solicitor. I only heard the tail end of the testimony.
Councilman Cohen has a concern about the charges that are levied when somebody loses a bond, a city bond, and goes for a replacement. Not a bearer bond. And is told, you have to pay this outrageous fee, kind of like the fees that we sometimes encounter in the financial world today, that sometimes shock you. And he has, you know, over a period of years, questioned this fee, and believes that because there is some kind of contractual relationship between us and the person charging these fees, that we ought to be able to do something about it because it is unfair, it is exorbitant, and beyond reason in the sense that the amount of work that people have to do to replace these bonds doesn't seem to bear any rational relationship to 441 BILL 980003 the costs involved. And can you help us understand what we might be able to do about that?
Mr. President, Councilman Cohen, I may not be able to answer today this specific question. As I communicated to Councilman Cohen on Friday, I am generally familiar with the particular circumstance. It is a matter that he raised with my predecessor and also the former Treasurer. At this point, there is an attorney in the Law Department that was assigned to review this and work with the Treasurer's Office. They have prepared a briefing memorandum. And as the Treasurer indicated, we are exploring other options that may warrant a relaxation of the Law Department's policy in this area. But I have not reached a final determination. I had hoped to be in a position to communicate that to you today, but, unfortunately, I am not. And I would be happy to provide any 442 BILL 980003 additional information to Council generally. But I believe the Treasurer is correct in pointing out the fact that this is a very rare occurrence, and it is, frankly, the only one that I am familiar with. But we are in the process of reviewing it. It may very well be that I decide to ultimately waive this particular requirement because we can approach it from an alternative perspective. I apologize for not being able to respond more specifically, but we are in the process of working on it.
Then I would waive any further questions with respect to that.
Thank you very much, Councilman. I appreciate it. Are there any other questions? The Chair recognizes Councilman Nutter.
Just, the Solicitor's answer was certainly more than adequate. When we were in the discussion, I had also wondered and would ask either the Treasurer or the Solicitor to look at the matter of whether or 443 BILL 980003 not this issue as raised as a part of any of the covenants that are a part of the bonds as issued, whether or not there are SEC, NASD or MSRB rules or regulations that cover this particular issue, as well.
That's correct. Again, as I mentioned earlier, this is not a requirement of the bank. But part of the laws and requirements that govern the issuance of tax exempt municipal debt, it is very, very common for there to be language as it relates to lost bonds, stolen bonds, or destroyed bonds. So that the policy that the city has, as it relates to the replacement of a lost bond or an alleged lost bond, is very common to all issuance of tax exempt debt in the U.S.
I also would be interested to know what, if any, differences there are on this indemnification issue between municipal debt and private debt, or private corporate sector debt, and whether the same provisions exist, and whether it is, again, quite possibly something within the rules of the various regulating bodies that call for this kind of provision, in which case 444 BILL 980003 it may or may not be something that even with an all-powerful City Solicitor, we may not necessarily be able to waive, because all of those securities are issued subject to regulations by regulatory bodies.
Well, again, as I mentioned earlier, one of the things that we would have to be careful about is that there is a finite amount of money available to repay these bondholders. And if there is a possibility that a bondholder is given a replacement bond, and, in fact, that bond is found at a later date, or if any other bondholder came forward and was under the impression that the city is willing or able or capable of waiving that requirement, we can be at a situation where the bucket of money that's been set aside to repay the bondholders is short some monies, and then that will be a bad thing.
As long as we can have an exhaustive search of wherever we need to search, we can hopefully get an answer to the question and not be faced with it this time next year. 445 BILL 980003
Councilman Nutter, I can assure you that there is absolutely nothing in any of the federal or state laws that say that common sense must not be exercised in the discharge of our duties as trustees for any bond issue. I assure you, there is nothing that prevents common sense from applying. And this is the most nonsensical feature I have ever heard about. Because the person that is involved is a person that has bought bonds, shown confidence in the city, in the worst days. And I just --
Councilman, I have no doubt that there are any city, state, or federal regulations that prohibit the use of common sense. Although based on both of our experiences, we know that that has never prevented us from doing things in the past.
A city official recently remarked to me, never underestimate the extent to which stupidity can guide the city's actions. I am not going to identify the 446 BILL 980003 department or the city official, but I think this has fit that kind of a situation.
Thank you very much. I do not join in your last comment, however. That might be a little strong, Councilman. It might be a little strong.
Councilman Cohen, let me tell you what happened to me. And this is not intended to be an indictment of anybody anywhere. I go to a bank and I make a deposit of my paycheck, and they take that amount of money out of my account. Do you hear me? Now, this is not the Revenue Department or the city Treasurer's Office; this is a bank in the City of Philadelphia, a big, gray, old big bank, I mean, with billions of dollars worth of 447 BILL 980003 assets. I make a deposit. So instead of putting the money in my account, they take an amount of money equal to my paycheck out of my account and send me a notice and say they are going to charge me $30 for taking the amount of money that I put in out of my account. I see the notice and I say, "There must be some mistake. This is an amount of money identical to what I put into my account." I go to the bank. I see my favorite customer service representative -- because I have favorite customer service representatives, just like people have favorite people they go to in your office, have somebody you talk to in the bank -- and the lady says, "Oh, we can straighten this right out." Three weeks later, Councilman Cohen, three weeks later, trying to figure out a way to straighten this all out. Because I subsequently got a couple of additional notices. I mean, this stuff happens everywhere, it really does. And I don't like to act as if our people are the only ones who make these 448 BILL 980003 mistakes and who have difficulty figuring it out. The average city worker, however, will take a terrible, terrible blow when something like that happens. And I know that the people in the bank didn't intend to do that. I mean, it was a mistake. It was an honest mistake. But this stuff happens everywhere, in both the public and the private sectors. And I think that we have to be very careful when impugning or saying things that could be used against people who in the main go to work every day and work hard and try to do a decent job, which is what I believe about most city employees. They really try to do a decent job, and they are trying to help people. But they have a very difficult job, very difficult job. Because everybody who comes into a city office looks at city employees as if somehow you work for me. Just like they tell us in the neighborhoods, we pay your salary. And sometimes we don't like it. They do the same thing to city employees. And this is not to excuse any city 449 BILL 980003 employee from any bad thing that a city employee has ever done. But these mistakes are made, problems are had everywhere. And I just feel real bad. Because when we speak, other people hear it. And I don't like, you know, we make these statements, the next thing you know they are getting picked up all over the place, these hearings get recorded, and sometimes they get shown back, and then, you know -- and I don't even know whether cameras are running in here today. But these people have a very difficult job, including the ones who are in the room. And they make mistakes, and we get on them about it. But I think in the main they do a good job. And I hope we can work this out. Because we don't want to give anybody the impression that we don't care about fees and all that they pay. Because money is very difficult to come by. I have said enough.
Well, I appreciate your comments, Council President. And as I said earlier, that since I have been involved with the city for 450 BILL 980003 more than five years, we have never had a situation of a lost bond, that I am aware of. That the city currently has more than a billion dollars of outstanding bonds in denominations of 5, 10, 25, 100 thousand dollars. And that the rules that have been defined by the SEC, the NSAD, and others, in terms of how we typically issue tax-exempt bonds, are being followed. And we will, again, provide Council with a summary, explanation of how we typically handle lost bonds, and we will be able to give you some kind of a resolution, as noted by the City Solicitor, in a few days. Are there any other questions for me?
Thank you. Procurement. Good morning, Commissioner. Would you please identify yourself for the record. COMMISSIONER LOUIS APPLEBAUM: Good afternoon, Mr. President, members of City Council. 451 BILL 980003 I am Louis Applebaum, Commissioner of the Procurement Department. With me today are Deputy Commissioners Marla Neeson, Joseph Resta, the Administrative Services Director Deborah Beatrice, our MIS Director Jan Brundin. Also here today with me today is Mr. Jim Roundtree, the Director of the Minority Business Enterprise Council, who will provide separate testimony on the city's efforts to create equal access to business opportunities with the city. You have our formal testimony. I will briefly summarize the highlights of that testimony. The Procurement Department is requesting an appropriation level for all funds of $5 million in Fiscal '99. 5 million is a decrease of $90,000 from the '98 estimated obligations. 9 million for Class 100 payroll provides for an authorized position level of 77 employees, and includes funding for increments, 452 BILL 980003 longevities promotions, and a percent salary 3 increase effective December 15 of 1998. 2 million for citywide advertising expenses. The mission of the Procurement Department is to obtain quality, cost-effective goods, services, and construction in a timely and professional manner, through a competitive, fair, and socially responsible process in accordance with the law. The Fiscal '99 General Fund budget request will provide the resources necessary to accomplish this mission. Our major accomplishments for this past year have included increased automation. We have worked with the Finance Department to successfully modify, add picks to accommodate the electronics payable processing. The Procurement Department revised its training programs for city purchasers and operating departments to consolidate and update course material. The Public Works Division implemented the new Special Procurement Evaluation and 453 BILL 980003 Enhancement Database, otherwise known as SPEED. With SPEED, the Public Works, the department has the ability to track bids, contracts, and amendments electronically, record specific bid milestones and processes, generate correspondence, bid tabulations, purchase orders, and contract summaries, and generate reports in the operational status of bids and contracts for departmental usage. By the end of Fiscal '98, the final module in SPEED will be deployed. This will place that information on the city's Intranet for reference by the various departments that manage construction projects for the city. The city provides a master bid and performance security program for vendors bidding on service, equipment, and supply contracts valued under $250,000. Previously, the city purchased insurance for the vendors. But now the city is going to handle this as a self-insured entity. The change to self-insurance saves the city $200,000 annually in insurance premiums. The Procurement Department 454 BILL 980003 established a program to recapture from the Commonwealth of Pennsylvania the Sales and Use Taxes erroneously paid by Public Works vendors doing business with the city. Through a professional services contract, we petitioned the state for a refund of those taxes from which the city is exempt. So far in Fiscal '98, the department has received $580,000. 5 million in gross revenue. Our current objectives include the SPEED applications, which has been implemented in the Public Works Division, and will be implemented for service, supply, and equipment bids by the end of Fiscal Year '98. Procurement is involved in developing an automated Class 400 personal property database, which will improve the tracking of all items and provide better capabilities when the database is completed. City departments will have inquiry and reporting capabilities and will be able to electronically record the transfer of items between 455 BILL 980003 locations.
In partnership with the Minority Business Enterprise Council, Procurement works diligently to review bids and set participation ranges. At prebid meetings, vendors are encouraged to seek minority participation and are introduced to minority businesses. Procurement assists MBEC in training programs designed to educate minority vendors about the bidding process and of business opportunities with the city. Mr. President, this concludes my testimony. I will now turn the floor over to Mr. Roundtree, Director of MBEC. We will then be glad to answer any questions you or other members of City Council may have regarding our testimony.
Thank you, Mr. President. Mr. Applebaum, can you describe for me what the Procurement Department has in place, even if it isn't a function of the Procurement 456 BILL 980003 Department, what type of materials management process is in effect? The Water Department has ordered 600 widgets. I understand that there is a problem. When departments run out of things, Procurement is not aware of an inventory reorder point. Is that, apparently, a problem with some of the operating departments?
At the current time the operating departments maintain physical inventory records of the inventory that is under their control. The responsibility to determine reorder points and to enter requisitions in the Procurement Department remains with the operating departments. The Procurement Department has an overall responsibility to maintain these inventory records for consumables. You are talking consumables, and not fixed assets. We have the overall responsibility, and we receive reports from departments. But the reordering, the order levels, economic order quantities, first in, first out, all of the 457 BILL 980003 inventory mechanics, reside with the operating departments. And they should not run out of their products. They should maintain their inventory records that they have. And when they get near the reorder points, they should send in their requisitions, and we will then reorder the products.
It is not. It depends upon the system that each operating department has. The Water Department has a very good inventory control system for their consumable items, at least I have been told that. Some departments do not have good ones. We are hopeful that in the future, through add picks, we will be able to develop an overall centralized inventory management program for all departments. It still remains for the operating departments to keep their inventory secure, to make sure the entries are recorded when materials are 458 BILL 980003 withdrawn from inventory, to make sure that when materials are received, they check them in, they enter them into the system that they have been received, and they -- the responsibility of managing the physical management of their inventories must remain with the operating departments.
So if the Water Department runs out of rubber boots, it is on them? If the Streets Department doesn't have blinker lights or barricades to identify obstructions and hazardous conditions, it is on them?
Not exactly. If the Procurement Department has been informed on a timely basis that the material that they need has to be ordered, and we order it on time, and if it comes in, the system works right. If the Water Department does not inform Procurement that they are running out of boots, we, at the present time, do not know that they are running out of boots. So if they run out of boots, it is the Water Department's responsibility to not allow that to happen.
When the police cars 459 BILL 980003 are riding on the street, and if they need gas, they take the police cars and they go into the gas station and they get gas. We don't tell them. So when they are running out, it is their responsibility at the current time to notify us.