Well, I mean, is it fair to say that if Philadelphia has about -- I 472 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY mean, do we have about half of the charter schools, or are half of the charter schools in the State in Philadelphia?
I don't know about the number of schools, but I think the enrollment, we have about two-thirds of the enrollment in the State.
Do you know, or is it fair to say, then, that the possible solution to that particular problem is a -- I mean, is that a 150, is it a $200 million solution by the Commonwealth to get everyone out of the charter school dilemma?
You know, it really depends on exactly how they approach it. Our original concept had been about having the State fund net costs of the charter schools. There are, you know, full costs, so I'm not sure I actually know right now, but it's, you know, I guess, at least within that range.
Okay. Well, let me ask this question: Has anyone attempted to quantify the charter school financial problem either for the Philadelphia or for the Commonwealth? 473 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
We have certainly quantified it for members of the legislature and for the Governor and for ourselves, for Philadelphia. And I know that I've heard numbers -- I just can't quote them for you right now -- about what it would be on a statewide basis
Councilman, let me add to that that every plan that we've put together going back now well over a year for how we propose to get ourselves out of this deficit position that the School District has proposed a specific resolution, an amount of money that was necessary that we thought to solve the charter school problem in the City of Philadelphia, it is one of, I think, differences of opinion that remain between us and the State at the end of those discussions and their belief that they could get at the charter school issue differently through the plan that they propose. But I think the School Reform Commission has said, whether -- and our numbers may be different than their numbers; I don't want to speak for this them with respect to the amount, but I think that they have said publicly that there is an 474 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY issue with trying to get at the issue of how do you solve the charter school funding problem. And it is one that is not fully resolved in anything that is before us at the moment.
Well, your last comment -- the beginning of your last comment sparked a question, which I had written down earlier and I hadn't planned to get to, but why don't I take that on now. What is the City's plan for financial stability short-, medium-, and long-term for the School District?
I -- I -- our plan is the one that is, in part, before this Council today. We believe that the way to get at the problem is to provide the School District with the one-time $45 million that we have previously requested, that the City be empowered both to transfer the necessary millage and make future grants to the District that would equal $45 million, that we'd be able to go forward and borrow the $300 million in deficit financing that the State would make available, and that we would ask that that be considered by this Council and hopefully reported out of this committee by the Council so that the 475 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY State can enact the legislation that is before you that would put us on track to borrow the money in a timely fashion, so that the District will not run out of cash before the end of this school year, and that we would provide those similar resources going forward year over year, and that that would get us to the point. And that is the short-term and the midterm solution to the problem. As I said this morning, and I think we've said consistently, the long-term solution to the funding problem of public education requires statewide tax reform.
Well, I understand that, and we may have a slight difference of opinion about whether it's -- whether the plan in front of us is a medium-term plan. I mean, I think in the context of -- and I'll throw the compliment back. You also have financial experience as well. And generally, I mean, short-term is usually about three years; medium term is three to five, maybe three to seven; and anything beyond that is usually considered longer-term. The plan I seen in front of us, I think, 476 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY at best really is a short-term plan, and by your own acknowledgment, is certainly not a long-term plan. We don't have to have much disagreement about the medium-term. But I guess I'm asking you to take the question to the next level, which is, we can at least agree that this is a short-term plan. My question was, does the City, for itself, have a long-term fiscal stability plan? This is before we even get to educational excellence. Does the City have its own plan that it's in a position to propose or encourage debate around with regard to long-term stability of the finances of the School District of Philadelphia?
And I would -- and I'm not trying to be smart by repeating myself, but I'm going to repeat myself. If we go back to where this process started and our discussions with Governor Ridge in, I guess, the spring and summer of 2001, after the Governor provided an additional roughly $68 million, some of that in empowerment funding, for the School District, we put forward a plan that we thought would create long-term financial 477 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY stability for the School District. That plan dealt with a projected deficit of one-plus billion dollars over a five-year period, and we put forward a plan that included deficit borrowing and deficit spending. It put forward new revenues from the City, and it put forward new revenues from the State.
It's going back to 2001, and I do believe that that plan, partly at your request, Councilman, was brief with respect to the elements of that plan. That plan is part of what was the central focus of the discussions with the Governor and the Governor's staff in the meeting that took place in Harrisburg in the summer of 2001, and part of what we got from the Governor in terms of the plan that ultimately was presented by Governor Schweiker was their response to our proposal, our long-term plan, which they thought they would be 478 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY unable to sell completely in Harrisburg.
Well, your memory will be better than mine, I'm sure, on this. I mean, what was the response from the Governor or the legislature to the City's plan at that time?
The response from the Governor, and I think it was -- we did not have a response at that time from the legislature, but the response from the Governor, and this was first from Governor Ridge and, I think, supported by Governor Schweiker when he became governor, that the plan that we proposed was too rich for the State to be willing or able to absorb, and they proposed their plan in response to that. And we have made a calculated judgment that working with the State, working with the School Reform Commission and working with the General Assembly and working with City Council, that we would be able collectively to move forward in a fashion that we believe that the plan in front of us can create a three- to five-year bridge in terms of dealing with the problems of the School District, and that within that timeframe, we can together fashion a long-term plan that can receive 479 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY the public policy support and the political support that's necessary to go forward.
All right. Lastly in that area, I mean, out of all of this discussion, is it fair to say at the moment that there is no long-term plan that exists, and at best, we have a short-term plan, trying to get to a long-term plan?
I think it is -- the lawyer in me always makes it difficult for me to agree with anybody else' precise phrasing
All right, I understand. Why don't you send something back and we'll see if I can deal with your thing. (Laughter.)
And you wonder why we don't have an agreement with the State.
It is, in fact, fair to say that what is in place is a bridge that allows us to solve the immediate crisis before us in the current school year -- 480 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
-- that without being able to borrow funds, that the School District would run out of money this year, and that that funding package and plan, assuming that this Council continues to appropriate $45 million a year going forward and the General Assembly continues to appropriate $75 million a year going forward, we believe would give us the ability in managing parts of deficit that are out there in the future to get through a three- to five-year period, and that in that time frame, that we would have to do something else, we would have to do something else to be able to permanently fix the funding crisis at the School District. I think the one thing -- and I know you said to defer this, but one of the things that I think everyone has consistently talked about and a condition for Governor Ridge and a condition for Governor Schweiker was that we not simply fix the fiscal problem and not address the educational problem, so that the challenge is to try to do both concurrently.
Now, you know your 481 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY response was about three times as long as the question.
3 to 1, okay. What is the current financial need of the School District today to finish this school year?
I would defer that question to Mr. Doosey, who is in the room. I think that that would be better answered by the School Reform Commission than by the Administration.
Okay. With regard to the proposed borrowing, let's stay in that area for a second. Well, let me ask this other question before I get to that. Chairman Nevels yesterday indicated that there was a letter of commitment from the Budget Office -- he was talking about the State Budget Office -- with regard to the State's extending its commitment, which, apparently, by their own budget, does not extend the $75 million commitment, I believe, beyond Fiscal Year '06. 482 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY Chairman Nevels yesterday indicated that there was a letter about this. Secretary Kahn, do you have a copy of that letter, or Secretary Burrell?
I do not have the letter. I know that Mr. Doosey has had discussions with Secretary Bittenbender, State Secretary Bittenbender, about that. I also know that at the House Appropriations Committee hearings, when the Department of Education was on and Secretary Zogby testified, he was asked whether those funds were intended to continue, and his answer was yes.
Now, let me try to understand this, just because I don't know much about the State budgeting process. How does the Governor, in that circumstance, make that level of commitment and have it stick? I mean, again, given the realities that this will certainly be the last budget for Governor Schweiker, how do you make that stick going forward into '06, '07, '08, possibly in perpetuity? How does that happen?
Well, I think there are 483 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY two things, number one, and I think it was reinforced this morning that the legislature that, in fact, will have to vote on that appropriation. There is not much expectation that it would change going forward over the next several budget years, so there will be some institutional memory. There is some historical precedent that money put into the budget for school districts tends to find its way to stay in there over a period of time. But the reality is that there will be a new governor in office next year, and we will have to, just as we will have to with this Council, on a year-to-year basis before the legislative body make the case for the needs for those funds.
Now, the one interesting component of the, quote/unquote, new governor strategy or concept is -- I mean, I'm a Democrat, so I'll make slightly partisan remarks, and hopefully Councilman Rizzo will not hold it against me. There are some, certainly, who would like there to be a Democrat Governor.
(Inaudible, off-mic.) 484 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
And there are some who would like to see a Republican Governor, as Councilman Rizzo reminds me. But in that first scenario, I mean, why is it believed that with a Democratic governor, Secretary Burrell, you testified earlier, you don't necessarily see significant change in either house of the legislature? How does the Democratic governor get the Republican legislature to do what the Republican governor was not able to get them to do? How does that work?
Oh, I don't agree necessarily with that conclusion. I don't know that by the time we've gone through the complete appropriations hearing process in Harrisburg that although there will be an appropriation only for the current or for the next fiscal year --
I'm sorry, I'm not talking about the $75 million. The notion about the new governor has been a part of the larger strategy of reform of educational funding, statewide educational funding reform, statewide tax reform. My question was specifically about if 485 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY this change were to takes place in terms of who's in the Governor's Office, a Democrat versus a Republican, how does the new potentially Democratic governor get the Republican-controlled House and Senate to do what the previous seven-and-a-half or close to seven-year Republican governor was not able to get them to do?
I believe that it will not be incumbent simply on the next governor to respond to the question of Statewide tax reform to deal with the question of funding public education. As I think I mentioned earlier this morning, Secretary kahn testified ten days or two weeks ago at a hearing held by the Education Committee from the General Assembly from the House that was looking precisely at the question of statewide tax reform for public education. So I believe that this, in the not too distant future, Councilman, will become a bipartisan issue, because the questions of funding education are, as I said earlier today both, in the cities, in the suburbs, and in the rural areas of both the Democratic majorities and with the Republican majorities. And already in the General 486 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY Assembly, in the Republican-controlled General Assembly, there's at least one piece of legislation that speaks to the issue of statewide reform. So I think this issue is before elected officials statewide, not just because there's going to be a new governor.
Okay, let's talk about the deficit financing. Again -- and I think we were at this point when we broke. The question back then was $300 million 30 years, $25 million a year in payment. And you talked about earlier that you kind of backed into it. I'm assuming that it was somewhat of a chicken-and-egg decision-making process. You either decided: One, X-amount of dollars, how much does that allow you to borrow; or, two, we need X-amount of dollars, what would it take from a debt service standpoint to be able to fund that? How was the $300 million figure arrived at?
I'm going to defer to Secretary Kahn on this, but in some respects, it was looked at as, what is the deficit, what are the cash needs to get through the current school year? 487 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
And what perhaps are some of the cash needs to go through the beginning of and parts of the next school year? And I think that calculation -- and as I said, I'll defer to Secretary Kahn -- is part of how we got to the point of figuring out what the number would be that we were borrowing.
Right. All right. Well, then let's go to the financial discussion. I don't know if you want to have Mr. Doosey up or Secretary Kahn would like to add on.
I mean, what does the District currently need to at least finish out the fiscal year?
I would be more comfortable not speaking for the School Reform Commission than the District.
Okay. And before Mr. Doosey speaks -- and I understand if you have discomfort speaking on their behalf, but under this construct, under the way this is arranged, and I'm 488 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY not saying that you don't have the interest 'cause I know that you do have the interest, it seems to me that in terms of this transaction, I mean, the City is the party that has -- I mean, the District obviously needs the money to open and operate, but the actual transaction also has a significant meaning, it seems to me, for the City of Philadelphia. And that in that context, the City must have a significant interest in what the actual needs or debts or obligations of the School District or the SRC are in order for us to structure a transaction that helps them, doesn't harm us, we give them what they need, but not more.
And it's great to have a secretary of education to defer the specifics to
You deferred a fair amount to her. I think she's actually doing more than you are.
But I think part of this, it's fair to say, is what I said this morning. We have confidence -- we have built up confidence over 489 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY the last several months with respect to some entities and over the last couple of years with respect to the Governor's Office in that there is an effective partnership that is going to work going forward in making decisions. We obviously have the concerns that you just described, but we also are very comfortable with Sandra McArthur and with Glenn and with Michael Masch, who are the Mayor's appointees to the School Reform Commission. They have been working very cooperatively with Mr. Nevels and Mr. Gallagher and Mr. Whelan. They've been working very cooperatively with the staff. And we are comfortable that it is their objective to work in consensus, and not to keep the City in the dark and to take into fair consideration the perspective the City would have on all financial transactions and all financial dealings at the School District. We have a clear and present and recurring financial investment in public education, and the future of our city is tied to the success of many of those children.
Okay. 490 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
Well, I was just going to pick up on that point as well. You know, the District's preliminary budget was really just prepared and released really in this chamber yesterday, and we will be, over the course of certainty the next days and weeks to come, working through our members on the School Reform Commission. And I think it brings us back to why it was so important for us to have this partnership in the first instance, because the City does, and will continue to, have a very significant investment and concern in the operations of the School District.
Okay. Mr. Doosey, I have your document from the briefing the other day. I gave you a copy yesterday of a document that Secretary Kahn had transmitted to us from a meeting back in January, January 23rd. This document was a part of -- and I asked you, I think, yesterday, were you in a position to basically replicate that particular document? It was a one-page piece that I gave you 491 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY yesterday. Have you been able to do that?
I'm sorry. Has it been completed yet? No. Staff is in the process of completing it. I do have the cash flows you requested.
Yes. The document that we received from Secretary Kahn is dated 12/21/01 and lays out the transaction in front of us: A one-time grant from the City, $45 million in FY '02, the use of the $300 million deficit financing. Going forward: $45 million from the City split into two parts and $75 million in new State funding from the Commonwealth. That projection at the time showed the City -- the School District ending FY '02 with, if I'm reading this correctly, a $161 million surplus, ending FY '03 with a $107 million surplus, and ending '04 with an $18.7 million deficit. Now, some of the discussion we had yesterday was -- I don't know whether it was on the record or shortly after the hearing broke, but you seemed to indicate to me that within some range, those figures were generally correct, although there had been some adjustments in recent times. 492 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY Can you bring us up to date and also tell us about FY '04 and FY '05 and FY '06 if you have any information about those.
Okay. To start off with, those discussions were on the record, and that was, I believe -- and I haven't reviewed the testimony -- when we discussed verbally what the projections would be for the out-years. The current projections that we have for five years show that at the end of Fiscal Year '04, subsequent to the borrowing of the $300 million --
I'm sorry, why don't you do me a favor, 'cause yesterday was a long time ago. Why don't you take us --
Well, to finish the school year, I would need, in round numbers, $70 million. I need $45 million, which is the one-time grant from the City, and that would take me through approximately June 10th, and then the balance of the funds would take me through June 30th. There is a subsequent cash flow problem 493 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY in the following year, where most of the revenue that comes into the School District comes in on even-numbered months, middle of the month. So there is approximately a $200 million gap between July 1st and August the 15th, and historically, the School District completes a tran or a anticipation note funding for that short-term cash flow.
Right. Are you not anticipating doing that this summer?
I was not anticipating doing it this summer because I wasn't anticipating having the proceeds from the deficit financing to carry me through for that period, for a one-year period only.
I understand. Is it my recollection that you did not do a trans. last summer either?
That is correct, the School District did not do a tran this last summer.
I truthfully do not know 494 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY why.
So to finish this school year, you need $70 million, you've got a $200 million gap during the summer, which could either be solved by doing a trans. but you probably don't want to do that. You could get the payments from the Commonwealth advanced, and naturally, that would mean asking for another favor. Or your third position, which was the position you expected to be in, was to get the $300 million deficit financing.
Let me ask this question. If the Commonwealth did advance the payments to get you through the summer, which, I guess, takes you into the fall, what is your cash need at the end of '03?
I would be in the same situation at the end of '03 that I am in at the moment. I haven't done the exact calculations for the period, but my suspicion is that we would end up approximately a month short as well. 495 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
We would end -- we would end up in the same position we are now, where the cash flows for the year would be insufficient, which would be my guess, for a few weeks, three to four weeks at the end of '03.
So about that same $70 million, is that what you mean?
So let me make sure I understand this. If you receive $70 million now, you finish the school year, and if you got an advance payment of the Commonwealth's obligations to get you through the summer, I guess, into the fall, then at the end of '03, this time next year, you'd have another $70 million problem.
If you're assuming that I'm just getting an advance, or that I'm getting -- I would have a cash flow problem of $70 million, but since the 200 million for the summer and fall was an advance, my liabilities will have increased.
Right, because you would have spent it. 496 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY Well, then let me ask this question: The present definite is --
No, the present deficit is $65 million from last year's loss, and the current forecast net of the $45 million grant from the City would be 41 -- or it would be 61, an additional 61.
Okay. And from your perspective, does it make any difference whether the $300 million in deficit financing is over a 30-year period of time, a 15-year period of time, or a 10-year period of time?
Am I making the assumption that the source of funds to pay this is coming from a third party?
Yeah. I mean, it's the deal we're talking about, it's $300 million done relatively soon, which is the timetable that you're operating under. Millage, transfer shift. You go out, and I'm assuming you're planning to go out on the market sometime in late April or early May.
Mm-hmm. 497 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
Right. Does it matter to you one way or the other whether it's a 30-year financing or a 10-year financing?
Okay, do you have a sense of what the difference is in either the debt service payment or the total cost of that offering?
I haven't priced it recently, no. I'd have to take a look at the yield curve.
Okay. And that's something that could you do in a relatively short period of time?
And to get through the next couple of years, do you need $300 million?
I would need $300 million 498 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY with the current programs that the School District is running to cover my costs for the next two to two and a half years or so, yes.
And you're working on a schedule that would show all of your financials?
When do you think you might have any numbers on the $300 million offering and the costs and timetable and debt services on a 30-, a 20-, a 15-, and a 10-year schedule? How long would that take?
I would have to make a few phone calls. It's whatever it today's rates would be.
I understand. I mean, is it an hour, is it five days? How long does it take?
It could be during the time of this hearing. The City can do it just as easily as me.
Okay, well, since you're going to be getting the money, they would probably rather you do it. 499 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
Councilman, with Mr. Doosey still here, I would like to clarify something he did and to give him a chance to respond to my clarification if that's okay, on your question of the borrowing and the length of time. And I believe what Mr. Doosey said is the assumption that, quote, someone else is paying the debt service. But you asked that question within the parameters of the current deal, which means that the City would be providing $45 million no matter what, and not whatever it would take to pay that debt service. So I think that if, in fact, the time period of that borrowing were to be shortened, the amount of the debt service would be increased, which would mean that Mr. Doosey -- I mean, the District would need to pay that increased debt services from resources that the District only has. So it would, in fact, be taking money for some other function. I just want to make that clear.
No. Or if the millage transfer was increased. The assumption here is that the District 500 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY is held harmless. The present proposal is $300 million, 30 years, $25 million a year in debt service coming from the change in the millage transfer. I clearly understand that if you shorten the length of the borrowing, the debt service number is going to go up, in which case the millage rates would have to change with a higher millage rate than is before us today for the School District and a lower rate for the City to account for the increase in the debt service, right? Is that what you're trying to share with me?
Right, but when you had asked the question, I thought I heard you to say "within the confines of the current deal," which is a total of $45 million from the City to the School District, divide a portion of that and --
Yeah, I understand. It would not be $45 million anymore. It would be 20 plus whatever that new number is to accommodate a shortened financing period.
Right. If the -- I 501 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY mean, if the numbers mentioned earlier are correct, if you do a $300 million offering and at least one number has been put out, if you do a $300 million offering at $42 million in debt service, then obviously, the $25 million millage-rate figure would have to change to 42, and you'd have 42 plus the 20.
Right, which substantially increases the City's support for the School District, and that is not what's reflected certainly in the ordinances under consideration.
Right, we all know that that is not before us now, but it reduces the City's cost over the 30-year period of time because, apparently, you save about $330 million.
Councilman, let me add very quickly that not only the Administration does not support more than current $45 million that has been negotiated as a part of the current deal, so that if we were going to change the millage to some $40+ million, that that increase in the millage, as 502 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY we would look at the deal, would come out of the $20 million grant that we would provide to the School District and, thereby, the School District would, in fact, suffer 'cause then they would be internally financing that increase. It is not -- and we struggled very hard to get the $45 million and to get to 62 or 63, and I don't want to suggest that the Administration would support a proposal that increased our $45 million contribution.
I understand, and I think you know that I was trying to be straight up in the question. There was nothing in that question that -- just because I asked Mr. Doosey to try to figure out what the numbers were, there was nothing in that question to suggest that the City is interested in supporting that. We are on a little bit of a quest for information and trying to understanded how the deal was put together, what its various components are. Are there any alternatives that, in the long term, actually help to save the City some money, while at we're, at the same time, trying to help the School District with a current need. 503 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY I mean, part of the philosophical discussion here is, how can we help the District at their time of need, while not either significantly or unnecessarily increasing the City's overall debt, whether it's in the short or the long term?
And I agree with that, but what I wanted to be clear about -- and I appreciate the opportunity to have the exchange -- was that the Administration and the Financial Director or the Finance Office would speak to this more effectively than I could, but our -- we completely agree with the objective that you just stated, with the caveat that we would also need to protect the Five-Year Plan and the fiscal security of the City itself. And a discussion of going beyond the $45 million is one that, as I said, could only be had with the Finance Director and the Mayor, because we believe that that would be an onerous challenge to our Five-Year Plan and the fiscal stability of the City. - - - 504 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY (Proceedings now being stenographically recorded by Brian Rasco.)
I mean, I understand the position that you're in and the position that you have to take. But, I mean, at the same time you're certainly not suggesting at the table that the City of Philadelphia -- I mean, this is a hypothetical discussion for the moment. But I'm sure that you don't certainly mean to suggest that for $17 million the City of Philadelphia is going to go into the fiscal abyss or collapse in an effort to not only help schools but save potentially $330 million over an extended 20-year period of time while we're in the process of building the bridge to salvation.
Councilman, Rob Dubow is here and he can speak to that. That $17 million over the five-year plan adds up to $80 million. We believe that we are challenged to get to the $45 million that we're currently committed to, and we do think that it presents some potential for fiscal chaos.
Well, I understand that. But at the moment, with every respect, I'm 505 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY really not interested in the Rob Dubow discussion. What I will say, though, is -- I mean, look, let's be honest. The other reason that you might not want to particularly move on the number is because you negotiated that number, and if that number changes, that creates a whole other set of issues. I mean, in the parlance, I mean, that's your story and you're sticking to it.
Well, whoever. That's what we negotiated. That's where we want to be. We don't think we can do anything else. And if that's the position that you either want to take, need to take, have to take, whether it's a financial position or a political position, I understand that. But at the same time I don't want that to negate or cut off the ability to have a discussion about it while here we're in a hearing about this issue. And again, not meaning to suggest that you should accept it or you have to take it. 506 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
I fully respect and am fully interested in and willing to participate in that discussion. But not because I'm in an awkward position or a difficult position or a compromised position. I happen to fundamentally believe if we try to find another $17 million a year out of the coffers of the City that it will create fiscal chaos. We are going to manage through a very difficult process with the $45 million, and do not believe, absolutely do not believe that if we went up to 62 or 63 million dollars that that is just a simple arithmetic adjustment or that we're in any political posture. That's the reality and the numbers speak for themselves.
I understand. But you would also agree that in the whole scheme of things, we have a plan in front of us that does not get us to anyone's notion of a clear, final and rational solution. And at the same time, we're asked to support a proposal that, if you take it all the way out where it's proposed to go, you have to at least have a discussion about any idea that takes you from $750 million in costs on a $300 million 507 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY debt offering, to at least ask the question could we do it cheaper, make sure the district still gets what it wants and lower our costs. I mean, there's nothing wrong with having that discussion.
Councilman, I think I've said each time that you've said that, fully agreed that there's nothing wrong with having that discussion. It is fully appropriate for a public hearing discussion. But I don't want to give any suggestion in that discussion that the administration believes there's some flexibility in that regard.
All right. I appreciate that. Let's talk about the 45 million in the current fiscal year. Now, since we've been talking, obviously the Law Department has been busy. And we've received a memo from the City Solicitor with regard to the 45 million and concerns about Act 46 triggers, trapdoors and other pitfalls that may potentially come along. I'd like to talk specifically about Bill 020033, Section 2, and have some discussion on the record about the two points, either of which, if they happen, cause other actions 508 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY or cause other things to not happen. Now, my recollection is when we did the $45 million before, Council supported the $45 million appropriation, we approved it. I think it passed 17-0. It sat over the summer. The bill came back. It was vetoed, a couple other bills. I think there were four of them altogether. My recollection back at the time was that there was also a letter from the Mayor indicating his desire to have Council vote on the bill. There was concerns about Act 46 at the time. He was trying to get the same relief I believe then as is being sought today. We have the new legislation. I've not had a chance to read it because I just got it. Has such a letter been provided in this particular case?
No, there is no letter. But our position, as I indicated in my testimony, is the same. In order to address the concerns that had been expressed previously, and really consistent with the Mayor's previous statements, that's why we've said that we need to have the same type of protection against the Act 46 maintenance of effort 509 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY provision.
And that's what you're referring to as the provisions in Section 2 of Bill 33?
No. I'm going to let Richie Feder -- let me just, as a backdrop, say that as we considered in what is, on the one hand, a similar situation with regard to the original $45 million, but on the other hand, a slightly different situation because of the negotiation of this agreement and potential new obligations. As we considered what to do to address that very same concern, there were, as we analyzed it, a number of ways to go to try to reach the same end and different types of relief that could be sought. So I'm going to let, with that backdrop, Richie Feder explain the variety of legislative ways and what this represents. (Witness came forward.)
Mr. Feder, why don't we talk about -- why don't you identify yourself for the record and then we can have that discussion.
Yes. Good afternoon, Councilman. Richie Feder, Chief Deputy City 510 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY Solicitor for Appeals and Legislation.
In Section 2 of Bill 4 020033, you're trying to accomplish in the bill what I think the Mayor tried to give us comfort last year by way of a letter?
Councilman, this is actually a different Act 46 issue. There are really two separate Act 46 issues.
The comfort that you were talking about and the City Solicitor opinion that you just received relates to the one-time $45 million payment that the Mayor has committed to make for the current fiscal year. That is a substantive Act 46 problem in that if the Mayor were to make that payment this year, the City would be on the hook for that payment in perpetuity throughout the life of the take-over. And what we are seeking from the General Assembly is relief so that the Mayor can make a one-time payment this year and not incur any recurring obligations.
Now, suppose you don't receive that relief. What happens? 511 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
The Mayor has indicated he would not make the one-time $45 million commitment without the protection from Act 46. That would produce a timing issue, Councilman, because going forward our commitment is in fact $45 million. So there would be a subsequent window. But the one-time $45 million --
I understand. But that's a different $45 million; right?
Now, you said the Mayor has indicated that. Where has the Mayor indicated that?
The Mayor has indicated in a series of public discussions, I'm sure, that in the letter that we sent back vetoing the first $45 million, one of the reasons given for that was that we did not -- we couldn't make that grant to the school district and protect it from Act 46. And so I don't know that there's anything anywhere specifically in writing, Councilman. But in all of our public discussions and in all of our negotiations with the Governor and the Governor's staff, we've been very clear that 512 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY that one-time $45 million would not be given without protection from the capture provisions of Act 46.
Let me ask this question. And I may actually be talking about the wrong bill. Bill 33 is actually -- I think I'm now realizing Bill 33 is actually not about that $45 million; is that correct?
I'm sorry. It's not a part of this. Is the Mayor prepared to issue such a letter in an updated fashion about the current bill, which I'm believing is Bill 40?
I never want to speak for the Mayor without talking to him. But that is our position. And I'm sure that the Mayor would communicate that in writing to the Councilman and to the Council.
Yes, sir. 513 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
The question is regarding Bill 020040. This is the $45 million which was an old obligation or promise which is expected to be given to the school district in fiscal year '02. My request is that the Mayor would basically update the provisions of his either the earlier letter or the veto message specifically with regard to Bill 40 laying out his position on what happens if in fact relief is not granted from Act 46 and what will his actions be with regard to the scenario where the bill could possibly be passed, which grants an authorization. But I think the most recent letter from the solicitor's office is just because you have an appropriation doesn't mean that the funds have actually been given. The turning point seems to be that they are paid. That's the highlighted section 20 of the letter, and that the Mayor will take the necessary actions to prevent the payment so as to not be captured by Act 46. Is it possible to get a letter like that?
As I say, Councilman, we 514 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY will take that request. But I don't imagine that we would have difficulty with providing you with a written response to that.
Now, let's talk about Bill 33. This is the millage transfer bill; right?
Mr. Feder, talk to us about small letter I in Section 2 and what it says and small letter double I in Section 2 and what it says.
Councilman, Section 2 is designed to deal with a very different and much more technical Act 46 problem, unlike the first one that we just discussed which actually asks for -- where we're asking the General Assembly for substantive relief from the capture provisions. This is simply to allow the technical shift of the $25 million cash payment to become $25 million in millage. Absent relief from Act 46, if the City were to make $45 million in cash payment to the school district this year and then shift $25 million in millage to the school district next year, under the technical provisions of Act 46 we would be on 515 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY the hook for both the full $45 million in cash on an ongoing basis and the --
Correct. (continuing) -- and the $25 million from the increase in millage going forward, which would add up to $60 million, which is clearly not the intent of the administration. So what Section 2 does is it says that this millage shift only goes into effect if and when the General Assembly relieves us from that technical what we call double counting problem. It's the same million whether it's 16 cash or millage. And the intent of Act 46 clearly 17 was not, in our belief, to require us to double 18 count that. And all we're asking for here is the 19 General Assembly to clarify that for us so that we 20 can go ahead with the millage shift. 21
Right. Then this 22 issue was dealt with at a previous hearing, which 23 then generated a February 14th letter from the 24 Solicitor. 25 The turning point on this is the 516 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY certification by the Solicitor to the Chief Clerk of the Council that such relief, either under small letter I or small letter double I, has in fact been granted?
I don't recall the February 14th letter, but your statement just now is correct. The City Solicitor would certify that Act 46 has been amended or that the General Assembly has given us the relief that you just described.
Let me just ask you this question. Under small double I two, what does the phrase "otherwise granting relief from double counting the City's contribution or tax authorization," what does that mean?
What it means is when Bill 17 No. 33 was drafted, we did not know exactly the precise language that the General Assembly would enact. In fact, we still do not know the precise language because the General Assembly hasn't enacted it. That was designed to capture the intent of the discussion we just had, that the City Solicitor would certify that we have gotten the protection we need in order to avoid double counting 517 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY the $25 million both in terms of cash and in terms of millage.
And the final question on that issue is, the other issue that was raised was if none of this basically works out or if the Solicitor doesn't provide a certification letter to the chief clerk, the millage rates don't change, we've passed a budget that has certain revenue and expenses in that budget and the estimates that go with it, and then that budget would, in fact, be somewhat out of balance on June 29th. The question that was raised at that time is or was what happens then? What action would be necessary by this Council or what action needs to be taken by the administration to deal with the fact that you would then have a budget out of balance?
I don't think any action would be needed, Councilman. I'm not sure I'd agree with your characterization that the budget would be out of balance. What there would be would be $25 million in unappropriated funds. There would be, in essence, a surplus.
Right. But we're required to pass a balanced budget. 518 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
You're required to pass a budget that does not have a deficit. I would not characterize that as an imbalanced budget.
I asked the SRC chairman this question yesterday, and I'd like to ask the two secretaries the same question. This has generally been characterized as a partnership agreement, and that this partnership agreement is better than the, quote/unquote, hostile take-over. Could either of you describe for us what the difference would be between the apparent partnership and your working on nailing down the actual terms of that agreement versus a hostile take-over as it relates to either the finances, the education, safety and operations of the school district? What would be the difference between those two?
I think that obviously we know the situation we're in. So we can't say entirely what all the differences would be. But here are some that certainly come to mind for me. 519 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
I think that, first of all, there's a whole question of what the environment would be. From the community standpoint, we know that the community has and continues to be extremely interested and concerned in what will happen in our schools. They have long been active and vocal about changes that they'd like to see. And certainly there was a level of intensity that occurred last fall that I don't think we had seen for a while. I will be very interested in the public hering that follows this to hear the nature of those comments. But I do think that there has been -- while there clearly continues to be considerable anxiety and concern and interest and all those things, I have to --
Hold on for a second. Wasn't most of that concern being expressed as opposition to a State take-over?
It was. And also to Edison Schools and the prospect of managing and all of 520 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY that.
Well, we didn't avoid the State take-over. The Edison thing remains -- I mean, what we got was the State did take over and Edison's role remains to be seen. I mean, that was the result.
That's right. But I think that we have to look at and consider what the Governor's plan was, for example, on October 31st and where we are now and where we may end up. And I think it is a fair assumption that if in fact we had not been able to come to this partnership agreement, that what we would have is pretty much exactly what's written on the however many pages there were in the Governor's plan presented on October 31st. And that would extend to the extent of the involvement, for example, by Edison Schools, the extent of the involvement in partnership schools and the other educational provisions. There also is the financial aspect of that. 521 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY
Hold on for a second. Your comments -- I'm left with the impression that your perspective is driven by or makes a very serious assumption that the State, somehow on their own, had this enormous interest in taking over the School District of Philadelphia. Is that your fundamental position and belief?
I don't know that they had an enormous interest. I do know that the Governor signed on to a memorandum of understanding that said if we couldn't come to an agreement --
Councilman, let me take you back, though. Let me take you back.
My recollection is that the Mayor wanted a memorandum of understanding and that was a component of the memorandum of understanding; isn't that correct?
Let me take you back. To the extent that you articulate that, that is correct. But in the year 2000, in the year 2000 when we went to Harrisburg with the situation where 522 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY the school district was about to run out of money and we were going to close the schools, we were going to have to close the schools in April, I guess it was, it was the position of then Governor Ridge that I will not allow the schools to close. If you find yourself in a position where the schools are going to close, that we will take it over. The State will come in and will take it over. It was that series of discussions, in that series of discussions, I remind you, that we had our first effort at saying the State was going to advance some funds, was going to help us get through the school year, was going to help us open the schools in the following year, and we were going to work in partnership to try to find a solution to the school's crisis between 2000 and 2001.
Right. (Unintelligible. Parties talking over one another.)
But I want to be clear, sir, for the record that the August discussion that led to the memorandum of understanding was not set in a vacuum. It was precipitated by events that took place before that. And the position the Mayor 523 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY took is that I am unwilling to vault from year to year with the uncertainty of whether we can keep the schools open or open them in September and we would rather have the State here to run it themselves. That's what precipitated that discussion. It wasn't done in a vacuum.
I understand that. But there were also some -- I think in the law you guys call them -- there were also some predicate factors.
I think there were also predicate issues before that, which were the conscious decisions that were made as to whether or not, as you balance every budget, whether revenues were going to be increased or expenses were going to be cut. There was a conscious decision made at a prior point in time that the district was going to be run in a certain way with a certain level of programs and it would run until it either ran out of money or the City or the State or both came up with more funds. And there were some cuts that were made 524 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY during that period of time. But it was a very conscious decision to not do or not take certain actions to get it to that point because there was a belief that the only way you'd ever get the attention of some people in Harrisburg was to pursue that particular strategy; isn't that correct?
The strategy of the administration was that we were always prepared to engage in discussions to negotiate the future of the school district. We were always prepared to make reasonable and responsible cuts. And I think a credit -- I heard this name bandied about a lot yesterday. But one of the good things that we did was to put Phil Goldsmith in charge of the school district. And much of what I've heard about the cuts and the direction that the district was heading in under Phil's Goldsmith's leadership was the right way. You can argue about the speed of it and the pace of it. But what we said we were unwilling to do, Councilman, starting two years ago is that we were unwilling to be responsible for making the wholesale cuts in extracurricular activities and 525 3/20/02 - CONTINUING FY '03 SCHOOL BUDGET TESTIMONY sports programs, in educational programs and many of the things that would have had to have been cut if we, the City, under our own jurisdiction and power, were going to try to balance the budget of the school district without help from the State. We said to the State, If someone is going to be responsible for making those cuts and raping the school district in that fashion, it was not going to be us and you ought to come down here and you ought to do it.
Okay. And then we got to the point where we started running out of money. And then those discussions started with the Governor's office, the result of which was the memorandum of understanding. And as they say, the rest is history.