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1
TheF
reshman
15:
15Way
stoSaveO
ver$60MillionAnnu
ally
CouncilmanBillG
reen
CouncilmanCurtisJo
nes,
Jr.
Counc
ilwomanM
ariaD.
Quiones-S
nchez
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2
Summary
$100,0
00
6.BanSwag&Custo
mPrinting
$100,0
00
4.ImplementTravelFreeze
$25,000
5.UpdateMailPolicies
$250,0
00
3.UtilitySavings
$2.7
2millio
n
2.IncreaseCarSharing
$2million
13.
CellularPhoneAntennas
$2-3million
12.
SwitchtoVoIP
$8-18millio
n
11.
PaperlessGovernment
$10million
10.
TechnologyReorganization
$9.4million
9.StrategicUseofOvertime
$2.5million
8.BurglarAlarmServiceFee
$10million
7.RecoupOutstandingBail
$2million
1.ElectronicFundsT
ransfer
$5-10millio
n
15.
CloseTaxLoopholes
$2.7
8millio
n
14.
HireAdditionalA
uditStaff
AnnualSavings/Revenue
Item
TotalAnnual
Savings/Additional
Revenue
:
$57to$73m
illion
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TheFreshm
an15
TheFreshmenCoun
cilmembersproposethat
beforecuttingservicesorfreezing
plannedtax
reductions,theCity
shouldcutw
astefulspending
andinstitutecommo
nsensecost-savingmeasur
es.
Thefollowingpropo
salscouldbe
actedupon
relative
lyquickly,ei
therbyexecu
tiveorderor
legislativeaction.
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4
B
ackgrou
nd
Sources:TheMayorsOper
atingBudgetinBriefforFiscalYear20
08,p.
6;TheMayorsOperatingBudge
tSummaryforFiscalYear2009,p.7.
IncreasesinFunding
ObligationsbyCategory,
FY08toFY09
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
Fire
Police
Prisons
OtherCriminalJustice(e.g.,
ClerkofQuarterSessions,
D.A.,FirstJudicialDistrict,
HumanServices
PublicHealth/Behavioral
Health
Parks&Recreation
Streets
Sanitation
CitySEPTAsubsidy
InternalSupportAgencies
(e.g.,Finance,MOIS,Labor
Relations,Law,Personnel,
FleetPurchase/Maintenance
EmployeeBenefits
SinkingFund
Rentals&Leases
Telecommunications/Utilities
AllOther
Category/Department
Obligation(millions)
0%
2%
4%
6%
8%
10%
12%
14%
Percentchange,FY8toFY09
FY08
FY09
%C
hange
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5
B
ackgrou
nd
Sources:CityofPhiladelphiaFive-YearFinancialPlan(asapprovedbyPICAonJune17,20
08),pp.
21-31;PICAStaffReportonthe
CityofPhiladelph
iasFive-YearFinancialPlanforFiscalYear2009FiscalYear2013,pp.
19-22;CityofPhiladelphiaRevenue
DepartmentRese
archRevenueReport#20080930.prelim
,p.
1;PICAMonthlyCityofPhiladelphiaTaxRevenueUpdateThroughSeptember
2008.
Pr
ojectedvs.ActualGrow
thforSelectedLocalTaxRevenueSources
-30.0
0%
-25.0
0%
-20.0
0%
-15.0
0%
-10.0
0%
-5.0
0%
0.0
0%
5.0
0%
10.0
0%
15.0
0%
20.0
0%
25.0
0%
30.0
0%
35.0
0%
40.0
0%
Wagetax
Realtytransfer
tax
Salestax
Realestatetax
Parkingtax
Revenuesource
Revenuegrowth
FY09revenue
growthprojectedin
FiveYearPla
n
FY09revenue
growthtodate
(Q1FY08vs.
Q1FY09)
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6
B
ackgrou
nd
WageandSalesTaxesP
rojectionsvs.
Collectio
ns,
September2008
-7.00%
-6.00%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
Wagetax
Salestax
Revenuesource
Revenuegrowth
FY09revenuegrowth
projectedinFiveYear
Plan
Revenuechange,Sept.'07
vs.Sept.'08
Sources:PICAStaffReportontheCityofPhiladelphiasFive-YearFinancialPlanforFiscalYear200
9FiscalYear2013,p.1
9;CityofPhiladelphia
RevenueDepartmentResearchRevenueReport#20080930.prelim,p.1;PICAMonthlyCityofPhiladelphiaTaxRevenueUpdateThrough
September
2008.
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7
B
ackgrou
nd
*Five-YearPlanBPTrevenuegrowthprojections:0.8%inF
Y09,
1.3%inFY10,
1.5%inFY11,0.
3%inFY12,and1.0%inFY13.
**AlternativeBPTrevenuegrowthprojections:-7.9
%inFY
09(theamountbywhichBPTrevenuefellbelowprojectionsforFY08),-2.0%in
FY10,0.0
%inFY11,0.
5%inFY12,and1%inFY13.
Sources:CityofPhiladelphiaFive-YearFinancialPlan(asapprovedbyPICAonJune17,
2008),p.2
5;CityofPhiladelphiaRevenueDep
artment
ResearchRevenueReport
#20080930.prelim,p.
1;PICAMonthlyCityofPhiladelphiaTaxRevenueUp
dateThroughSeptember2008.
BPTRevenueUnderVariousGrowthP
rojections
$(600,0
00,00
0)
$(400,0
00,00
0)
$(200,0
00,00
0)
$-
$200,0
00,00
0
$400,0
00,00
0
$600,0
00,00
0
FY09
FY10
FY11
FY12
FY13
FiscalY
ear
BPTrevenuecollected
-10
-8-6-4-20246810
%changeinBPTrevenue
BPTrevenuetotalsunderFiveY
earPlangrowth
projections
BPTrevenuetotalsunderalternativegrowth
projections
CumulativedifferenceinBPTrevenues,FiveYear
Planvs.alternativerevenuegrow
thprojections
FiveYearPlanBPTrevenuegro
wthprojections*
AlternativeBPTrevenuegrowth
projections**
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1.ElectronicFundsTrans
fer
Eachyear,theCommonwealthofPenn
sylvaniasendsthe
CityofPhiladelphiamo
rethan$250m
illioninthefor
mof
paperch
ecks,delivered
viaU.S.mail.
Thefundsrangefromgrantsforfirean
drescueoperationsto
Fairmou
ntParkproject
sandDHSreim
bursements.
Asaresultofthistransmittalmethod,anestimated$1
million
dollarsislostannuallyduetoun-cashed,
lost,
and
unclaimedchecks.Furt
her,
becauseittakesuptoamonth
fortheC
itytocashchecksfromtheCommonwealth,
the
Citylosesupto$1milliondollarsayearininterestth
at
wouldh
aveaccruedifthechecksweredeposited
immedia
telyafterdisbursement.
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1.ElectronicFundsTrans
fer
TheCommonwealthsDepa
rtmentofTreasuryhasaprogramcalled
Investthatfacilitatestheelectronicmovemen
toffundstomunicipal
governme
nt.
Insteadof
mailingchecks,th
eCommonwealth
couldplacefunds
forthe
Cityinto
aninterest-bearing
Investaccount.W
hentheCityisreadyto
receivethefunds,itwouldm
erelytransferthemfromtheInvestaccount
intoitsba
nkaccount.
Investaccountsarefreetose
tupandthereare
nofeesformaintaining
them.
MovingtoanInvestaccountalsowouldelimin
atethepossibility
of
checksbeinglostinthemail.
Mostimportantly,useofan
Investaccountwo
uldensurethatthe
City
wouldear
ninterestonthese
fundscontinually
untilthemoneyis
spent.
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1.ElectronicFundsTrans
fer
Anexampleoflostr
evenuefrom
potentialaccrued
interest:
On7/
16/07,theCommonwealthissuedth
eCity$16.4millio
nin
checksforthePoliceDepartment.
Twenty-three(23)daysp
assedbetweenwhenthecheckswere
issued
andw
hentheyweredep
ositedbytheCity.
Atthattime,theinterestrateonanInvestaccountwas5.17%
.
HadthosechecksbeeninanInvestaccountduringthethree-week
period
,theCitycouldhavegenerated$54,171ininterestenoughto
payapoliceofficerssala
ry.
EstimatedSavings:$
2millionannually
EstimatedCoststoA
chieveSavin
gs:$0
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2.IncreaseCar
Sharing
In2003,theCityelim
inated330veh
iclesfromitsfleet,
approximatelyhalfof
whichwerepassengervehicles,
through
theintroduct
ionofautomatedvehicle-sha
ring
program
(AVSP)with
PhillyCarShare.
Thefive-year
costsav
ingswere$9m
illion.*
IftheC
ityeliminated
anadditional500carsfromits
nearly6
,000vehiclefleetusingcarsharing,thesavings
wouldb
e$2.7
2millio
nannually.
*CasestudyinG
overnmentFinanceReview,De
cember2006.
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3.Red
uceUtilityBills
Becauseplayingfieldshaveh
ighelectricitydem
andvs.usageratio
s,the
Cityischargedhighutilityr
atestolightthem.
Thelightsonplayingfieldsareoccasionallyleftonduringdaylight
hours,wh
entheyarenotne
eded,resultinginu
nnecessaryutility
costs.
Toaddres
sthisproblem,the
Cityshouldinstalldaylight-sensing,
automatic
lightcontrolsonplayingfieldlights.
UseofthesedevicesshouldbeexpandedtoCit
yofficebuildings,
as
appropria
te,andCityemplo
yeesshouldbeinc
entivizedtoreduceenergy
consumpt
ionatwork.
Estimated
savings:$250,000
annually
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4.ImplementTravelFree
ze
Philade
lphiashouldfollowGover
norRendells
exampl
eandbanall
non-essential,out-of-town
travelb
yCityemplo
yees.
Givenairfareandho
telcosts,itcancostover$
1,000
tosend
asingleemployeeonasev
eral-daytrip.
Estimatedsavings:$100,0
00annu
ally
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5.UpdateMailPolicies
ItiscommonpracticeforCitydepartmentstousetheU.S.
PostalServicetosend
interofficem
ail.
Theenvelop
epicturedabovewassentfromanofficeinCityHalltoCouncilman
Green,whoseofficeisalsoinCityHall.
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5.UpdateMailPolicies
Proposedc
hanges:
Allletters
,reports,andotherpublicationssent
byoneCitydepartment
toanothershouldbesentviaemail.
Theresho
uldbeanimmedia
tebanonsending
mailbytheU.S.Postal
Servicebe
tweenCityHall,t
heMunicipalServicesBuilding,and1
515
ArchStreet.
TheManagingDirectorsOfficeshouldorganizeaninterofficeCitymail
serviceusingcurrentemploy
eestodeliverdocu
mentsthat,
forlegal
reasons,m
ustbesentinhard-copyform.
Tothegreatestextentpossib
le,theCityshould
sendmailusingtheU.S.
PostalSer
vicesreducedbulk
mailrate.
Potentialsavings:
If50,0
00piecesofmailsentatthefull$.42rate
wereeitheremailedor
sentusing
thebulkrate,the
savingswouldbea
tleast$25,0
00per
year.
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6
.BanSwag&CustomPrinting
Swag:Taxpayersshouldnotpayfor
Citydepartmentstoprinttheirnames
onpens,pencils,andnotepads,o
ron
tchotchkes(likethestar-shaped
winduptoy
pictured)thathaveno
practicaluse.
Sometimesswagismore
substan
tialthanpensand
pencils
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6
.BanSwag&CustomPrinting
CustomP
rinting:Itiscomm
onforCitydepartmentstohavetheirnames
printedon
folders,irregularsizedenvelopes,reportcoverpages,etc.,an
unnecessaryexpensenotnecessarytoforwardDepartmentalmissions.
Potentialsavings:$100,0
00peryear
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7.Recou
pOutstandingBail
Accord
ingtotheDistrictAttorne
y,theCityis
owed$
1billioninb
ailforfeituresasaresultof
defendantsfailingto
appearatreq
uiredcourt
hearing
s.
Understatelaw,thesefundsarep
ayabletothe
City.
IftheC
itysuccessfullypursues1%
ofthesefun
ds
peryea
r,itwouldnet$10millionannuallyor
$50
million
overthenex
tfiveyears.
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7.Recou
pOutstandingBail
Investingrecoupedbail
moneyincrimeprevention
activities,suchasTown
WatchandSeed&Weed,cou
ld
furthersavemoneyfortheCity.
Themoneycouldbeusedtoplacemorepeopleunderhouse
arrest,th
erebysavingth
eCityevenmo
remoney.
While
housinganinmateinprisoncoststh
eCity$75/day,ho
use
arrest
costsonly$18/mo
nth.
Usingawirelesssystemforhou
se
arrest,ratherthanthecu
rrentGPSsystem,wouldreducethe
costto
only$
2/month.
Many
peopleeligiblefor
housearrestareunabletobeplacedinit
becausetheycannotaffo
rdtohaveaphone
lineinstalledinth
eir
home,whichisrequired
forhousearrest.
Recou
pedbailmoneyco
uldbeearmarkedtopaytoinstallph
one
liness
omorepeoplecan
beplacedunderhousearrest.*
*TheFreshmenCouncilmembersthankDeputyM
ayorEverettGillisonforthissuggestion.
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8
.BurglarAlarm
ServiceFee
In2007,
Philadelphiaha
d105,856registeredburglaralarm
usersand91,9
18alarmactivations.Of
thoseactivation
s,
98%werefalsealarms.
ThePhiladelphiaPolice
Departmentestimatesthatits
officersspendover52,6
90hoursperyearrespondingtofalse
alarms.
InFY07,theCityrana
$987,6
41deficitrelatedtoburglar
alarms:
itspent$4,1
36,310responding
toalarmactivations,
butcollectedonly$3,14
8,669inalarmuserregistration
sfees
andfines.
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21
8
.BurglarAlarm
ServiceFee
Theregistrationfeesandfinesforburglaralarmshavenotb
een
changedsince1992.
Theannualregistratio
nfeeisonly$35
and
thefineforsettingoffafa
lsealarmwhichdoesnotkickin
until
thefourthfalsealarmis
only$25.
A1994studydeterminedthatitcoststheC
ity$29.89torespond
toeachb
urglaralarmactivation,aninflation-adjustedcosto
fover
$43pera
larm.
TheCity
shouldmakerea
sonableadjustmentstotheregistr
ation
feeandfine,increasingthemto$50and$75,respectively,andalso
reduceth
enumberoffre
efalsealarmsfromthreetoone.
Estimatedadditionalrevenue:$2.5millio
nannually
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22
9.Strateg
icUseo
fOvertime
TheCity
isprojectedtospend$187.9milliono
novertimepayin
FY09.
Approxim
ately10-13%ofC
itypayrollcostsar
eforovertime.
Inoth
ermunicipalities,only5%ofpayroll
costsareforovert
ime,
while
intheprivatesector,only1%ofpayrollcostsareforovertime.
Touseo
vertimemores
trategically,the
Cityshould:
Analy
zedaysoftheweekandmonthshavingthehighestuse
of
overtimeandadjuststaff
ingaccordingly.
Examinetherelationshipbetweenabsentee
ismandovertimeuse.
Inform
employeesabouttheactualreturnonovertimehours.
List
overtimeseparatelyfrom
regularpayonpa
ystubssopayeescansee
thattheextrapayisrelativelysmallafterdeductionsfortaxes,
health
care,e
tc.
Determinewhenuseofovertimeactuallyisacost-saverforth
eCity.
Amodest
5%reductionino
vertimeexpenditureswouldsave$9.4
millionannually.
Bringingovertimedownto
thenationalmunicipalaveragewouldsaveover
$90millionannually.
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1
0.Techn
ologyReorganization
Currently,
everyCitydepartmenthasitsownbudgetforInformation
Technology(IT).Asaresult,d
epartmentsarenegotiatingdifferentcontracts
withthesa
mehardwareandsoftwarevendorsforid
enticalproductsand
services.
TheCityc
ouldrealizesignificantsavingsiftheDivisionofTechnology(DOT)
negotiated
additionalmasterlicensesonbehalfofallCitydepartments.
Toachieve
thesesavings,
DOT
needstoperformas
trategicsourcingau
ditof
theCitysexistingITinfrastruc
turetoidentifyduplicationandoverlapt
hatcan
beconsolid
ated.
DOTwouldthenrenegotiatem
anycontractsintosinglemasterones.
AllfutureITprocurementsho
uldbecentralizedandmanagedbyDOT
,
allowingth
eCitytosaveasmu
chaspossiblefromb
uyingsoftwareandhardware
inlargequantities.
Tofurther
minimizeduplicatio
nandoverlap,abud
getclassshouldbec
reated
forIT.
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1
0.Techn
ologyReorganization
OncetheC
itymovestocentralizedITprocurement,DOTshouldtransition
fromtraditionaldesktopcomputerstothinclientd
evices.
Costsavingsofthinclientdevices:
LowerITadministrationcosts.
Lowerh
ardwarecosts.
Lessene
rgyconsumption.
OncetheC
ityhasbeenstrategicallysourcedandbeguntomovetothinclient
devices,itcanbegintoswitcho
vertofloatinglicen
sesforsoftware.
CurrentlytheCitybuysalicensef
oraprogramlikeMicrosoftWordforeverysingleCity-owned
computer.
Because
thereisneveranoccasionwhereeveryMicrosoftWo
rdlicenseisbeingused,th
isisa
wastefulpractice.
AfloatinglicensewouldenabletheCitytopurchaseonlythe
maximumnumberlicensesthat
wouldb
eusedatanygiventime.
CentralizedITProcurementan
dStrategicSourcing
couldresultinamin
imumof
$10millionofsavingsannually
.
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11.
PaperlessGo
vernment
Philadelphiacansavem
illionsofdollarsinadministrative
coststhroughagreater
emphasisontechnologyanda
concurr
entreductioninpaperconsum
ption.
Enhanceduseoftechnologycouldeventuallysave
Philadelphia$138to$264millionannuallybyreducing
paperconsumptionand
streamliningw
ork-flowproce
ssesto
increase
theproductivityandefficiencyofgovernment.
Inaddit
iontosavingm
oney,technologicalefficiencywill
transfor
memployeesw
hopushpapers
andprocessforms
intooneswhointeract
withcitizens,w
orkingtoserve
their
needs.T
echnologywillenableCityworkerstobeinn
ovative
anduse
theirtalentsto
findcreativesolutionstoproblems.
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26
11.
PaperlessGo
vernment
Automatedprocessesca
nbeusedtoapproveroutine
applicationsforpermits
andself-service
informationkiosks
similartobankATMsc
anshrinkcusto
merlines,there
by
speeding
theprocessing
ofrequests.
Useofelectronicforms
thatstoreinfor
mationwill
dramaticallyreducethe
needforrepeatedlyenteringid
entical
data.Electronicformswillalsoeliminatethenumberof
Cityemployeesdevoted
toperforming
dataentry,thereby
allowing
theCitytorea
ssigntheseemp
loyeestotaskswhere
theydirectlyinteractwithcitizens.
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11.
PaperlessGo
vernment
Providin
gCityemployeeswhoworkinthefieldwith
hand-
heldPDAs,ratherthan
paperforms,to
collectdatacan
increase
theirproductivitybyupto30%.
Notonlyca
nthe
informationbeentered
faster,
itcanbe
instantlytransm
itted,
electronically,
backtothehomeoffice,
eliminatingthe
need
foranotherpersontoty
peitin.
Theefficiencysavings
couldbe
usedtoputmo
repeopleinthefield,suchasL
&I
inspecto
rsandpoliceofficers.
Thefort
hcoming311sy
stemcanimpro
vetheaccountability
ofCityagenciesandallowcitizensand
managerstomonitor
theprog
ressofservicer
equests.
Itwill
alsoallowtheC
ityto
haveadata-centricmanagementapproa
chtocity
governm
entsomethin
gcanonlybem
anagedifitis
measured.
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28
11.
PaperlessGo
vernment
*Source:SolidWaste
ManagementCoordinatingBo
ard,
OfficePaperReductionD
emonstrationProject,availableat:
http://www.swmcb.org/files/OfficePaperReport.pd
f.
Actionitemsthatcanbeimplement
edimmediate
ly:
a.Eliminatingpaper:$7-16millioninannualsavings
Allco
mputersconnectedt
oprinterscapableof
double-sidedprintin
gshould
beset
todosoautomatical
ly,achangethattakeslessthan30second
s.
Double-sidedprintingcouldreducepaperuseb
ynearly50%.
Every
dollarspentonpaperresultsinapproxim
ately$13-31insecondary
costs(e.g.,paperstoragean
dtransportation,pr
intingmachinery,in
k,
postag
e,labor).*
Ifdou
ble-sidedprintinganddistributingreportsasPDFsviaemailsavedthe
Citya
mere$500,0
00indirectpapercosts,thesecondarysavingswouldbe
$6.5to$15.5millionannually.
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29
11.
PaperlessGo
vernment
b.
Electron
icProcurementInitiatives:$100,0
00inannu
al
savings
TheProcurementDepartmentmailsapproximately5
,000bidannouncementsperyear
tovend
ors.
Emailingbidannouncementsorpostingthemonthewebwouldsave
$2,5
00-5,0
00annually.
Charterchangeallowingforelectronicsubmission/re
viewofcompetitive,sealedbids,
resultin
ginnumerousefficiencygains.
Electro
nicsubmissionofdepartmentalreportsonven
dorperformance,yield
ing
efficien
cygainsandeasierand
betterreviewofpastperformancedatawhen
consideringnewbids.
c.PaperlessPaychecks:over$500,0
00in
annualsavings
Theprimarycostsofpaperchecksanddepositstatem
entsstemfrompaper,printing,
postage
,labor,andtransaction
fees.
Forexample,the
transactionfeeforapapercheck
is$1.10
,comparedtoonly$0.35fordirectdeposit.
Approximately80%ofcombinedCityemployeesand
pensionersreceivetheir
paychecksandpensionsviadirectdeposit,while20%
receivepaperchecks.
IfallCityemployeesenrolled
indirectdepositandreceivedtheirdepositstatements
electronically,t
heCitycouldsave$500,0
00peryear.
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30
12.
SwitchtoV
oIPNow
TheCity
hasapproximately33,0
00phone
linesandpays$7
per
monthperline,resultinginanannualcost
of$2,7
72,0
00.
ConvertingtoVoIPwith
IPPBX(orIPCentrex)capability
wouldlik
elyreducetheC
itysperlinecostto$4permonth
,
therebysavingapproxima
tely$1millionp
eryear.
Toaccom
plishthis,theC
itywouldhavetomigrateallCity
officeson
toacommonEt
hernetNetwork,whichwouldsave
another$500,0
00peryea
r(asaresultofavoidingthecosto
f
multiple
T-1linesandadd
edCentrexando
therservicestoremote
locations
theT-1srequire).
VoIPtechnologycouldalsoenabletheCitytoeliminatecurrent
chargesforserviceslikeco
nferencecalling,voicemail,auto
attendant,etc.,therebysavinganadditiona
l$1millionper
year.
Source:Analysisprovidedbytechnologyconsultants.
Contactinformationon
file.
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12.
SwitchtoV
oIPNow
EstimatedAnnualSavings:$2to$3million
EstimatedCoststoA
chieveSavin
gs:$0*
Theses
avingsestima
tesdonotincludethe
efficien
cygainsandreducedsupportcoststhat
wouldresultfromm
ovingtoaco
mmonnetwo
rk,
whichcouldyieldtensofmillion
ofdollarsin
savings
everyyearfo
rbothcurren
tusesand
plannedprojects.
*Aservicecomp
anywouldbuildtheVoIPsyst
emfortheCityagainstacontr
acttoprovidetheservice,enab
ling
theCitytorealizeallofthepotentialsavings.
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13.
LeaseCityRo
oftopsan
d
LandforCellularPhone
Antenna
s*
City-ow
nedpropertiesandlandareamongsom
eof
themostdesiredlocationsforcell
ularphone
antennas.
Curren
tmarketleaserevenuesforantennasitespay
$1,8
00to$5,0
00per
month/persite/percarrier.
Estimatedadditionalrevenue:$2millionannu
ally**
*TheFreshmenCo
uncilmembersthankCouncilm
anGoodeforthissuggestion.
**Source:Savings
estimatefromAxisPartners,L
LC.
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14.
HireAdditio
nalAud
it
Staff
Itwouldcosts$379,611tohirefiv
eadditional
Revenu
eExaminers
andoneadditionalRevenu
e
Examin
erSupervisorintheRevenueDepartment.
ForFY09,thesen
ew
position
swouldgenerate
approximately$3,16
8,714inadditionaltaxrevenue.
Estimated
addition
al
revenue
:
$2,78
9,1
03
annually
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15.
Clo
seTaxL
oophole
s
Limitallowab
leRealEstateInvestmentTrustdeductions
RealEstate
InvestmentTrusts(REITs),
likeothertrustsandinvestmentfunds,
areallowed
todeductprofitspa
idoutasdividendstotheirshareholders,
effectively
exemptingREITsfromtheCitysnetinc
ometax.
In1999,th
eREITdeductionwasexpandedtoincludeanybusinessthatpartners
withaREI
Tonarealestateproject,nomatterhow
smalltheREITsshareinthe
project.It
isestimatedthatthisexpandeddeduction
costtheCity$10m
illionin
taxrevenueforFY07alone.
In2005,th
eLawDepartmentd
eterminedthatthise
xpansionoftheREIT
deductionwasimproper.
TheCityshouldremovetheREITdeductionfromentitiesthatonlyhav
eREIT
shareholdersandarenottruein
vestmentfunds/trus
ts.
Estimatedadditionalrevenue:$5-10millionannua
lly
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15.
Clo
seTaxL
oophole
s
Collecttaxesonthefor-profitbu
sinessactivitiesofn
ot-for-profitentitie
s
Manylargenon-profitsownandmanagerealestateorconductotherbusinessacti
vitynot
specificallyrelatedtoitsnon-profit
mission.
Revenuesfromtheseactivitiesares
ubjecttotaxation.
Currently,taxesarenotco
llectedon
thetaxablebusinessactivitiesofvar
iousnon-profitorganiz
ations.
TheCityshouldpursueallrevenue
owedfortaxableactivities,includingthebusiness
activitiesofnon-profits.
Tightenregulationsregardingpa
ymentsbetweenrelatedcompanies
Whenabusinessmakesapaymenttoawholly-ownedsubsidiaryorapartnercom
pany,the
paymentsar
etaxdeductible,justlikeanyotherbusinessexpense.
Ifthissamebusiness
receivesapa
ymentfromitssubsidiaryorpartnercompany
,thosefundsalsoaren
ot
taxable.
Asaresult,whenfundsarecirculatedbetweentworelated
companies,bothbased
in
Philadelphia
,themoneyisnottaxe
dbytheCity.
Thelawwasintendedtopreventdouble-taxation,anappropriategoal,butthecurrent
regulationseffectivelyremovefrom
thetaxrollsmillionso
fdollarsayearthatshouldbe
subjecttota
xation.
TheRevenu
eDepartmentshouldclarifyitsregulationson
thispointandcollecta
lltaxes
owed.