Council Minutes

July 20, 2004 Meeting Minutes

BETHLEHEM CITY COUNCIL MEETING
Bethlehem, Pennsylvania
Tuesday, July 20, 2004 – 7:30 PM – Town Hall

1. INVOCATION
2. PLEDGE TO THE FLAG
3. ROLL CALL

President J. Michael Schweder called the meeting to order. Reverend Doctor Donald Esslinger, St. Thomas United Church of Christ, offered the invocation which was followed by the pledge to the flag. Present were Ismael Arcelay, Jean Belinski, Magdalena F. Szabo, and J. Michael Schweder, 4. Robert J. Donchez, Joseph F. Leeson, Jr., and Gordon B. Mowrer were absent, 3.

Citation – Honoring Walter S. Diefenderfer

President Schweder read a Citation honoring Walt Diefenderfer on the occasion of his retirement from the Police Department after 35 years of service to the City. The assembly applauded Mr. Diefenderfer and wished him well in his retirement.

Citations - Honoring David Brown, Barbara Chanitz, and Michael Dartouzos

President Schweder advised that Citations honoring David Brown who retired from the Police Department after 23 years of service, Barbara Chanitz who retired from the Financial Services Bureau after 24 years of service, and Michael Dartouzos who retired from the Water and Sewer Resources Bureau after 41 years of service, will be forwarded to them since they were unable to be present this evening.

Public Hearing - Zoning Text Amendment - Appendix A-2 - Side Yard Setbacks

Prior to the consideration of the regular Agenda items, President Schweder called to order a Public Hearing to consider an Amendment to the Zoning Ordinance in Appendix A-2, Table of Area, Yard and Building Regulations, to modify side yard setbacks in specific cases for single family attached dwellings.

A. Director of Planning and Zoning - Zoning Text Amendment - Appendix A-2 - Side Yard Setbacks

The Clerk read a memorandum dated May 17, 2004 from Darlene Heller, Director of Planning and Zoning, in which it was stated that at its May 13, 2004 meeting, the Planning Commission voted 4 to 0 to recommend approval of an Amendment to the Zoning Ordinance in Appendix A-2, Table of Area, Yard and Building Regulations, to modify side yard setbacks in specific cases for single family attached dwellings.

B. Lehigh Valley Planning Commission – Zoning Text Amendment – Appendix A-2 - Side Yard Setbacks

The Clerk read a letter dated June 25, 2004 from the Lehigh Valley Planning Commission in which it was stated that at its June 24, 2004 meeting, the Commission reviewed the amendment, considers the proposed amendment to be a matter of local concern, and voted to offer no comments.

Planning and Zoning Bureau Comments

Tracy Samuelson, Assistant Director of Planning and Zoning, explained that the proposed Amendment makes two changes to two different sections of Appendix A-2 of the Zoning Ordinance, the Table of Area, Yard, and Building Regulations, in the RT Residential District and the RM Residential District for Single Family Attached Dwelling and Side Yard Setback Requirement. Ms. Samuelson explained that, currently, the side yard setback is 25 feet in the RT zoning district, and 20 feet in the RM zoning district. It is proposed to change the side yard setback for single family attached dwellings or town homes to 10 feet each. Ms. Samuelson continued on to explain it is felt this is necessary and important to limit the number of attached town houses in a row. The Zoning Ordinance now allows a maximum of eight attached town houses in a row. Because the side yard setback requirements are currently 25 feet on one side and 25 feet on the other side, or a total of 50 feet, developers request the maximum number of eight town houses in a row. Ms. Samuelson, advising that the Bureau feels this is excessive, said the Bureau would like to encourage people to put less town houses in a row for many reasons. She pointed out that limiting the side yard setback has many advantages. It increases the amount of green space in a development, increases the amount of on-street parking that is very important in town house developments, and increases market value because there will be more end dwelling units. Ms. Samuelson further explained that many developers who have requested to build six or eight town houses in a row have been encouraged to come up with a different plan. Ms. Samuelson informed the assembly it is felt that the proposed amendment will encourage lesser density, more green space, more off-street parking, and more amenities for new development.

Council Comments

No comments were made by Members of Council.

Public Comments

William Scheirer, 1890 Eaton Avenue, stated if one assumes 20 feet per dwelling, in the RM Zoning District if there were a row of eight town houses it would be a width of 160 feet, and the present Zoning Ordinance would require 20 feet at each end for a total of 200 feet. If the change were made and there were two rows of four, it is again 160 feet for the dwellings, but the 40 feet would be redistributed, and there would be 10 at each end and 20 in the middle. Mr. Scheirer said it would not be more green space, but it would be a redistribution of the green space from the ends to the middle to a certain degree which seems like a good idea. Mr. Scheirer inquired what development proposals have been made.

Ms. Samuelson responded that two proposals were made that started out with eight units in a row. The Central Park West town house development has now been reduced to a twin dwelling development. In addition, the Evans Street proposal, in the 700 block of Evans Street, started out with eight town houses in a row and now there has been a reworking of the plan for a number of them to be four in a row. Ms. Samuelson advised the Bureau feels it is a much more aesthetically pleasing plan and will allow for more on-street parking.

President Schweder stated the appropriate Ordinance will be placed on the August 3, 2004 City Council Agenda for First Reading.

The Public Hearing was adjourned at 7:47 p.m.

4. APPROVAL OF MINUTES

The minutes of July 6, 2004 were approved.

5. COURTESY OF THE FLOOR (for public comment on ordinances and resolutions to be voted on by Council this evening)

Bethlehem Authority 1994 Bond Issue – Refinancing

Ronald Donchez, 915 Wafford Lane, stated he is the Chairman of the Bethlehem Authority. Mr. Donchez advised he wants to recommend approval of the Bethlehem Authority 1994 Bond Issue refunding as it is presented. Mr. Donchez recapped that the net savings will be about $1,350,000. Mr. Donchez noted another item of importance is the fact that with this net savings there will not have to be a premium on the bonds which is to the Bethlehem Authority’s advantage. Mr. Donchez continued on to say, plus, the Bethlehem Authority will have the ability in the future to refund these bonds again and get some additional significant savings. Mr. Donchez, observing the Bethlehem Authority was fortunate when the market changed, and they were able to get in and get this window, noted a lot of people worked hard to get this savings as presented. As Chairman, Mr. Donchez said he recommends approval.

Mr. Donchez, commenting that the second issue about which he would like to have some time, with due respect to Mayor Callahan and Dennis Reichard, Business Administrator, and in light of what has been reported in the newspaper concerning the memorandum from Council Member Joseph Leeson and the Mayor’s response to it, stated he thinks it is important that he goes on the public record for the accounting of the transaction involving the refinancing of the 1994 Bethlehem Authority Bond Issue, particularly the time line and history of the transaction. Advising he has a significant disagreement in his point of view of what has happened, Mr. Donchez said he thinks it is, again, extremely important that he can go on the public record in this forum and go through the time line from a historical standpoint as Chairman of the Bethlehem Authority Board. Mr. Donchez, acknowledging he realizes this is going to take some time, pointed out one can see all his notes in front of him, and said he thinks it is important to go from when the matter started in June 2003 all the way up to the present day. Mr. Donchez commented that, in light of what has been reported, and how important this is, he needs the opportunity to present this on record, and he is prepared to do that tonight.

Mr. Donchez said what he would like to do before he starts going through the time line is tell a brief background of himself. Mr. Donchez said “I am and I have been a Board member of the Bethlehem Authority since roughly 1988, and in the last few years I’ve been Chairman of the Authority Board. Roughly, that is I should say a paying position. I think I get $132 a month as a volunteer. And, I’ve been in banking my whole career, actually since I got out of college in 1976, I’ve been in banking, so banking and finance has been my expertise, and currently I’m a senior vice president of National Penn Bank. Candidly, my commitment to public service and the City of Bethlehem, you know it’s always been to strive to serve the City and its residents to the best of my ability, using sound judgment with the highest regard, integrity, and honesty. What I’m prepared to do tonight is go under oath, like this would be a court of law, and pledge to tell to the best of my ability the truth and the time line of this transaction. If the bible was here, I would put my hand on it, and swear that everything I’m about to say is nothing but the truth, and I need to put that on record. I think it’s important in light of some of the things that have been put in the paper. So with that, I’m just gonna kind of go through the time line. And, there’s actually a number of phases. This actually started in June of 03, and then the first phase goes through about December, and then it kind of heated up again in February and March which is the second phase. And, then basically the third phase is the completion of the transaction…These are a lot of documents and notes that I’ve kept throughout this transaction. I offer this for public record, so anything that’s here is…available to be put in public record, including all my notes and everything that is here because this is what I’ve been using since we’ve started.

To kind of give a recap, roughly, back in early June of 03, Concord Financial, which is our public financial advisor, approached us and said that there was an opportunity to look at a refunding of our bond issue, the series 1994. Chris Gibbons who is here tonight was our direct contact. And, at that point in time, as Chairman of the Board, I said that was a great idea, why don’t you bring it to the Board meeting. We then had the transaction and discussion on June 27, and at that point in time we were looking at the potential of refunding. At the time, the net savings value was roughly around $3.2 million, and it looked like there was some real opportunity to consider going ahead with that transaction. We set a standard to try to get a three percent savings which equated roughly to about a $1.9 million savings. The market was swinging almost daily, and we were trying to get a handle on how we would try to take this. Roughly, if we move forward to July 10, the savings was already down at that point in time to about a million seven hundred fifty-five thousand. And, we had a lot of discussion at the Board level. One of the things we discussed about was the ability, the closer we went to a July timeline in doing the refunding we were going to have an opportunity to get an additional $600,000 to $700,000 without paying for a premium. So, one of the decisions we had to evaluate was do we go now, where interest rates were, or do we wait closer to when actually July of 04 was going to occur and get more of a savings. And, the Authority Board had a lot of discussion, a lot of those discussions are in the minutes of our meetings which we had every month. Ultimately, nothing got close to the threshold of what we initially were looking to try to save, and we just kind of, on a month to month basis, kept reviewing and seeing where it would go.

The time kind of went through and basically through the summer we weren’t close to it, and then somewhere around September, I have a memo here, September 18, actually, Raymond James in particular was sending us some information on trying to do a net savings. At the time, candidly, the savings was only about $1,000,000. They did present other options, a swapation, and some more complicated issues which we looked at. But, again, we had a lot of discussion at that point in time, and the Authority Board always firmly believed in to just keep it traditional, conservative, a forward bond refunding option which is sort of a plain vanilla approach. We didn’t like a lot of these other higher risk investment strategies. Chris, again, is our financial advisor and was, I think, very candid in showing us the different options, and we just kept looking at the one option as our best availability. Things kind of continued to go through, and we didn’t really have much opportunity. And then in September, around the 28th, the savings was still around a million, a million two. At the point in time, Raymond James was continuing to e-mail us a lot, and trying to show us some other options, swapations, and Bermuda, and European swapations, and candidly I couldn’t even explain them to you if I would sit here. They’re very complicated and we just didn’t have the comfort in them, and we continued to just kind of monitor and watch the market as it was presented. Around September 30th, actually, Chris Gibbons and I and the Board really were looking at some options for the traditional form refunding, and at that point in time the savings levels were going maybe around a million six to about two million dollars.

At one point in time, again, who was on my Board at the time was Joe Uliana, and Joe and I were a subcommittee really working on this most closely, trying to understand which was the best way to go and to report back to our Board. Joe and I and Chris probably had the most conversations throughout these periods, and I did get a phone call and there’s an e-mail here that right around October one, Joe thought that perhaps the Raymond James proposal had some merit and we really took a close look at that. We had some phone conversations and actually some joint phone calls, and ultimately we had a couple proposals, and the Raymond James proposal was at least somewhere between two to probably five hundred thousand dollars more higher or less in savings than some of the other proposals we had. So they clearly were not the best vehicle for savings. At that point in time, Joe did call me and he asked me, candidly, what I thought it would take for us to maybe give Raymond James the business even though they weren’t the best bid. And, then I responded that I felt they would have to be the best bid. If it was even a dollar more than that, they shouldn’t get the bid because I truly believe the best bid should always earn the business and have what’s related to the City. Now, we then reevaluated the transaction, and, to Joe’s credit, we all pulled back and decided the savings wasn’t well enough. We thought if we could wait through the next swing of interest rates and monitor the market, and if we got closer to the traditional refunding, there would be a greater opportunity to save more money. So, we cancelled, we didn’t go with any proposal at that point in time, and we really pulled back. And, then that actually went through almost to Christmas where the savings continued to be way under value. It was probably about a million dollars.

Now, the one thing, and the reason I bring that up, it’s significant as it ties into the second approach I’m going to talk about. At that point in time, candidly, there was guy named Mossie Murphy who was working at Raymond James and, if he were sitting here today, I would not know him, so I’ve never met him. But, he was involved in the transaction. I’ve learned after the fact that he is an associate of Joe Uliana and I think they went to Lehigh University together…I know that they’re friends. Obviously, I learned something that day that perhaps there’s more to understanding how these transactions happen. In my world, I always felt the best bid should always win it, and that kind of lightened me up. And, maybe in the past things have happened, and even since I’ve been on the Board I wasn’t aware of how transactions went down. But, I told myself that day, you learn and you go forward. So, I was very careful in how that was presented, and I made it clear to everybody that as far I [felt] the best bid should always win it, and that’s what’s in the best interest for the City and the Bethlehem Authority. So, that was a learning process that first go around for us, and even though we didn’t do anything, it certainly put me on notice on how to look at these transactions the second go around. So, then we kind of went through the winter, and the market really wasn’t to our advantage at all, but Chris did a great job as he did throughout this transaction of keeping me involved, and letting me know where the interest rates were. We were talking a lot. I tried to keep the Board at our monthly meetings involved. We always had discussions on when we were at this, and we just were kind of watching the market.

Now, we come to the second phase, and this is I think, again, very important in light of some of the responses that Mayor Callahan has put on. Mayor did send a memo, which probably everyone has seen,…to my attention, which I received on Saturday. And, the one thing he made reference to, and I know he did in the paper, was that they weren’t aware of what was going on in negotiations. I differ on that assessment. Dennis and I were talking throughout this period. We’ve had a lot of discussions on it, and, candidly, our February 12th meeting which was our Bethlehem Authority Board meeting where we did pass a Resolution to go ahead with the financing, Chris Gibbons came to that meeting. But, I was made aware of Chris coming to the meeting by Dennis calling me. It was either the 5th or 6th of…February which was that Thursday or Friday before our meeting. My first phone call was from Dennis and he said he just had a conversation with Concord. The market’s really opening up. There could be an opportunity for us to look at this refunding. Chris Gibbons and Concord would like to come to your Authority meeting that following Thursday. We had a pretty long conversation on it. I thought that’s good, and I’m going to call up Chris to verify that, and I hung up with Dennis which again, was either the 5th or 6th, and I could probably get that through my phone records. But, I called Chris right away and said Chris did you just talk to the [team] and he said, yeah, the market’s really looking pretty good. I’d like to come to your meeting on the 12th. There could be an opportunity for the refinancing. So, anyway, I was pretty excited about that. But, that’s probably the first thing when you look at John’s response about saying, I think in his memo, that he was not aware that this option was being considered ‘nor was my Business Administrator’. I just don’t agree with that assessment. I got the phone call from Dennis and that’s how I was made aware of the fact that Chris was coming to our meeting on the 12th. When we had the meeting on the 12th, we had some good discussions, and ultimately the Authority agreed to go ahead with trying to get this refunding in place, and we set a net threshold savings roughly of two million dollars, two twelve to be exact, which would equate to about 3.12%. Candidly, when we went into that meeting I did not know that I would be voting in favor of this, but when Chris gave the presentation looking hard at the interest rates which we were doing every day, and I was doing every day as a banker, it just seemed like the right thing to do. I thought we hit the window perfect. Actually, if I remember correctly, Richard Master was probably the first who spoke at the meeting and said ‘let’s take advantage of this. Let’s not be taking any more risks. It’s the conservative thing to do.’ And, we all voted on it in agreement that it was the right time to go ahead and try to get this done. I could actually say that after that meeting that night I had two other clients, one including was a municipal client here in the [Lehigh] Valley that was kind of weighing the market at the same time. And, I called them at that time and said we’ve got to go, the timing’s right. I had another customer calling me who locked on the rates at those times. So, in retrospect when you look at the timeline, when we made the decision to go on the 12th at the Authority, we got lucky with the interest rate swing. But, truly, it was a great time for us to go.

And, now what has happened, and this is going to be kind of critical from the timing standpoint is that, as everybody knows, on the 13th Dennis sent a letter out to Mike Setley at Concord Public Financial, and he said ‘Dear Mike, Please stop proceeding in the Water debt refinancing until the Mayor and I can complete a review.’ He faxed this over to me right around noon time, and I was just very surprised. I didn’t understand it. I called Dennis right away. He, again, candidly, in my assessment, seemed well I gotta do this. I was kind of told to do it, and never let this out. So, I said okay…what can we do to try to move forward. I was not happy with it because I felt timing was critical to try to get this transaction done. But, on the other hand, I was kind of frozen out at that point in time. I talked to Chris. Chris said yeah we got the notice. So everything was kind of put on hold.

At that point in time, I tried hard, and I actually was able to set up a meeting with John Callahan, and the first meeting that we had individually was held on February 19th, and Dennis was at that meeting as well. It was held in his office. Now, that meeting probably took about one and a half to two hours. And…from my assessment, John and I at times went head to head. He initially was very upset with our approval process. He told me he wasn’t in the loop. Why wasn’t he included. I talked to him and said Dennis was aware of these things. We’ve been working on this for the last year and a half. We have public meetings. Nevertheless, he was extremely upset with that and the whole timing issue. Candidly, I know he said in his memo that he wanted time to review the details of the transaction. In that meeting, we never reviewed one detail of the transaction at all. After we kind of went through that, he basically told me that he wanted the transaction as follows. He wanted Merrill Lynch to be the underwriter, he wanted …a guy named Sam Hopkins to be the financial advisor to replace Concord, and he wanted King Spry to be the local bond underwriter, the attorney for him. And, he basically said that’s what he wanted. I tried to talk to him about the importance to try to get the best bid from the marketplace, that it was important to do that. He went on record saying ‘Merrill Lynch is a big firm, they should be able to do this deal. I don’t see why we have to go anywhere else.’ Let me go on record, Merrill Lynch is a great firm. They’re one of the best firms in the country. I have the highest regard for Merrill Lynch as I do for a lot of the other firms that had negotiated in this, so that was never an issue. But, as I sat there I did know that Mossie Murphy now was working at Merrill Lynch. And, candidly, as Chairman of the Bethlehem Authority I felt I had a responsibility to make sure that we were going to get the best bid for the City and the Authority. And, I had concerns that that would not happen by solely giving it to him without putting it out to the marketplace. So, I expressed that to John, and I told John that I knew Mossie was there, and he acknowledged that, and he still felt strongly that that was the way to go. Sam Hopkins I never heard of at the point in time, and I questioned that as well. At one point in time, he did throw two handouts out to me. One was from Sam Hopkins. The other one was from Merrill Lynch which, again, we did not review. But he had proposals from both of them. The Merrill Lynch one was dated February 18th. And, that was the first I had a chance to see those. Afterwards, I looked at them, and if you look through these proposals, I think Mr. Leeson has one of them in there, they’re pretty complicated. And, Merrill Lynch, again, was showing a lot of swapations, and a lot of these more non-traditional financings that we never really talked about. But, bottom line is, we kind of went through it, and I left the meeting with no agreement from Mayor Callahan. He refused to allow us to go in the bidding process. I informed him that I would go back and tell the rest of my Board his request, and he said that’s what we would do. So, that’s what I did. I called the rest of my Board members. I notified them that as Mayor of the City of Bethlehem this was his request. He wanted us to use these players. And, at that point, we had discussions. I firmly thought this was not the best way to go. I just thought the best bid from the marketplace was going to be in our best interest, and I was extremely upset about it, and very frustrated personally. But, that was the extent of our first meeting. There’s a lot more probably in it, but I think that captures it as well.

Moving forward,…through the period we had some discussions, Dennis and I. Candidly, again, in Dennis’ some comments to me he expressed reservations about Merrill Lynch, particularly Mossie Murphy, and then the next day he would call me and say no they’re really good. He once expressed reservations about Sam Hopkins to me, but then the next day he called me and said no they’re very good. Now, I respect Dennis a lot, but, candidly, I wasn’t sure where that was coming from. But, nevertheless, in the spirit of trying to work with the Mayor, we did at least set a meeting up with Sam Hopkins on March 3rd, and actually Steve [Salvesen], our Executive Director from the Authority and myself met with him in Dennis’ office. He talked about what he would do as a financial advisor. Candidly, I felt he was put off by the fact that he was even interviewing with me because at one point he just flat out said ‘I have the business, don’t I.’ I said, no, the Authority’s the one hiring you, not the City of Bethlehem. I asked him how he would handle the FA role. He basically told me it should be a one bid process. He threw out Merrill Lynch as one of the key players in the bid process. Now, [to] his credit, he tried to explain that there’s an advantage to using one player, you can negotiate a best deal. But, nevertheless, I tried to talk to him about, in this time frame, wouldn’t it be best to first get best bids in and then maybe do the negotiating afterwards. And, at one point, too, he threw in the timbering operation, and talked about leaping liens. And,…I’m not sure what leaping liens are today, but I took notes of that, and I wasn’t sure where that came from, as well, but currently he was talking to the Administration on some of the timbering revenues we were doing as well, which was fine, but he was not currently being hired by the Bethlehem Authority. Candidly, he was a one man show who has done a lot of great work in Philadelphia, he’s done a lot of refinancings down there, and I don’t want to take anything away from his history. But, obviously, if we were going to look at changing our FA, we would do a more complete due diligence. And, at that point in time, obviously, Chris Gibbons and Concord Financial was our FA. But, we did have that meeting.

We went through, and then finally on March 9th I had my second meeting with John, and Dennis was there as well. And, again, in between then we had conversations to try to get this going, and at that point we had no ability to allow us to go to market with the best bid. Sat down with John, this second meeting, one of the first things I told him was that I was going to resign effective that 11th, that Thursday. That day I actually ended up calling my Board and my brother, who’s [on] City Council to let him know, and our Solicitor, Jim Broughal, that I was very frustrated with how this transaction was going. I wasn’t comfortable with how it was proceeding, and the way it was being presented to the Authority. In my standpoint, being at the Authority for fifteen years, and working under [former Mayors] Ken Smith, and Donnie Cunningham, and even Jim Delgrosso, I never was put under these circumstances, and I was very uneasy with it. And, I’m not a guy who bluffs…so, I wasn’t bluffing. I thought it in my heart. I talked to my family, and I just felt I just couldn’t go ahead with this transaction, that I just was going to step down. And, I think, candidly, I was hoping also that that would bring this transaction to the public. John initially was real upset with that. He said how could you do this to me, short notice, I’m new in office. He just didn’t want to hear it. And, then, at one point, he even said everyone knows you’re an f-ing Boy Scout…But, we still, were negotiating it to get this out to bid. He then said, okay, you put it out to bid, but you keep it to three bids. I was glad I got the bids, but I said no John. I want to put it out to the world, and I really felt strongly about that, and we talked about that more, and then finally he said okay, do what you have to do. I said we’re going to put it out to ten or twelve people. This is the opportunity that there’s a lot of players out there who could do this deal, and who’s going to say who would step up and not make the best savings for the City. So, I just felt it was really important to get it out to as many people as we can. But, he told me to go ahead, and, candidly, I walked out of that meeting feeling pretty good. I thought…we still have an opportunity to try to get this done. I called Chris Gibbons, our financial advisor, immediately [and] told him let’s get this out to bid, and we actually got it out to bid the following day which was March 10th. In the interim, I did have a discussion with…Richard Master who when I told him I was going to resign on Thursday, he really said, Ron, you have an obligation to the public to serve the City. Sometimes that means you have to do what you have to against the Mayor, but do the right thing. He got me thinking that, as difficult as it is, I did have an obligation. And, obviously, I reconsidered, and I felt I was going to stick this thing out, and try to do it to the best of my ability all the way through. But, that was the second meeting I had with John. And, if you recap, and this is the thing that you have to really look at, from February 12th to March 10th when we finally got this out to bid, all that time was lost. If we would have traditionally been able to go out and get this thing done the way we’ve had in the past, we would have had it closed. Even with the Readings [at City Council Meetings], even with getting it out, this thing would have closed in that time frame. If you did a public audit of this transaction, in any of those dates the savings would have been in excess of three million dollars. So, we had an opportunity through that first time frame to try to close the deal by putting it out to best bid, and get a savings of three million dollars.

Now, I also should note from the beginning I told John I had no problem with Merrill Lynch being a part of that bidding process, again, they’re a great firm. I said let them earn it. They should be out there with everyone else, and if they get the best bid we would let them have it. So, it was never an issue, even though I had concerns about Mossie Murphy, as I sit here I still felt if they had the best bid and they earned it the right way in the bidding process that would help the City, and the Authority, and I was all for that. So, we never wanted to not include them, but we wanted to have the playing field open to everybody…We put the bids out, and the first bid that came back around roughly March 17th, we had eight responses that came back which was a good return. I think we initially put out…it’s either eleven or twelve, eleven I think sticks in my mind. But we got eight responses back. We looked at them. Initially, Arthurs, Lestrange was probably the strongest response, but Wachovia, A. G. Edwards all in the game. Merrill Lynch was not in the top tier. So, we had a good opportunity at that point in time to still try to go ahead and get the closing. Now, it was a month later, interest rates are starting to really change, but we’re still trying to move this as quickly as we could. We notified the City Administration that we had our bid in and we were anxious to try to go forward. We were told then to put it out for bid the second time. Now, that was not by John directly, that was by Dennis. But we were withheld from trying to get this closed the first time because they wanted us to go ahead and try to get it rebid a second time. That’s where, candidly, I was personally very disappointed in Mayor Callahan because I thought after our first go around that he truly was going to allow us to close this without interference, but apparently that was not the case, and we had to go back and try to get a third bid. From the period of the 17th through the 19th through the 24th, there were a number of phone calls and e-mails, and we actually got another bid in, and the second bid still consistently had, and actually at one point A. G. Edwards moved up and they were in first, with Wachovia closely behind, and at that point in time we were still told we weren’t sure that was the way to go. So, we were kind of told that we should get this back out a third time.

And, then, on the 30th [of March 2004] was the Finance Committee Meeting in that afternoon. That morning we got a rebid in mainly from Merrill Lynch and Wachovia, and on paper…you could try to see if Merrill Lynch had the best bid or not. We went to the Finance Committee meeting in the afternoon, which is public record, and we had a lot of discussion on that. The one thing that I want to go on record on that, I know John, again, in his comments said that the Authority at that point in time delayed a three point one million dollar, I believe, financing, and I think he’s alluding to that Merrill Lynch had the best bid at that time and we deliberately delayed that. Couple things, one we went to that Finance Committee and they approved us going ahead. They approved the First Reading. I know, I think, in…[the] paper again today [Mayor Callahan’s] comments were that the Finance Committee delayed it as well, and I think the records clearly show that they approved going ahead with the bidding, and we were pleased with that. But, what we recommended was that we would have the opportunity that night and the following day to get it out to, again, the top four bids to see which would come forward with the best deal for the City. I personally, and I will go on record, do not believe that at that day Merrill Lynch was the best bid. I think Arthurs, Lestrange was still a player which we really didn’t look at as closely as we should have. A. G. Edwards and Wachovia were a more consistent player. Merrill Lynch came in with an eleventh hour bid that day, but the discount rate was never really quoted, and their range of bond premiums went anywhere from like fifteen to thirty-eight basis points. And, when I called up Chris Gibbons that day, and I actually talked to him twice, I said is this a commitment, he clearly told me no, it is a proposal, as all of them were. So we didn’t have a commitment from Merrill Lynch, and we had a range which they weren’t really holding to. So, when you kind of compared the numbers, clearly in our eyes we weren’t sure who was the best bid. In fact, if anything, I personally still think either Arthurs, Lestrange or Wachovia had a more consistent bid than Merrill Lynch. But, nevertheless, we were pleased to go forward in that following day when we were trying to get this deal done…The net savings on a memo I had here on March 30th was really at that point down to two point four nine million dollars, not a reference of three plus that I think John goes on record saying, and this was the document that was handed out by Concord and that everybody had. The market was starting to come down, so we were really looking at a threshold savings of closer to two point five million. My comment at that point was, and this is where I would disagree with John, if Merrill Lynch truly would have stepped up that day they should have gotten that business the next day when we went out to market, but they never did, nor did anyone else because the market was then quickly going against us, and we just never had the opportunity to get it closed. But, I’ll go on record that at that point in time, and the minutes, I think speak…for themselves, we were trying our best to get the best deal for the City. It seemed to be that obviously Merrill Lynch was continuing to put it in front of us, and they candidly never were the best bid. And I had a number of meetings with Dennis and talking to him about it, I said if they’re the best they deserve it, but they just never got close. And these other players who are all very reputable, I know at one point in time John made reference that who’s Arthurs, Lestrange and what could they do. Candidly,…they’re probably the first or second largest bond refinancers in the State of Pennsylvania for school districts. They’re a very good, reputable business that I know just months ago closed like a hundred nine million dollar bond issue for the Philadelphia school district, and they did it by themselves. All eight or ten of the people we went out to are all qualified to do the business. From our standpoint, we had no favorites. We just really wanted to get the best deal for the City and for the Bethlehem Authority, and I strive to try to do that to the best of my ability…[A]fter the March 30th timeframe went through, the market really started going down, and we really never got close again. At one point, the Authority…lowered [the] threshold to savings to a million seven fifty at one of our meetings. We had discussions about should we take a million three, or a million, should we keep it at two million. We compromised at a million seven fifty…and that happened on April 8th. Through that period we just never got close again because the bond market really moved against us.

Now, we can kind of come to present day. So, we continued to watch the bond market from that time through April, May, through June. Candidly, I was charting it daily at my office, and I was having conversations at least weekly with Chris and others. A number of our Board members were very active[ly] involve[d], and Dave DiGiacinto was doing a lot of work on it, and Richard Master, and we were just trying to watch it, and we were always trying to see where the window was. At some point in time, I’m even looking here, on June 24th, the net savings presented by Merrill Lynch was three hundred thirty-six thousand, Wachovia was eight hundred seventy-three thousand. But, clearly we lost an opportunity, and the window was really moving against us, and we just kept trying to watch what was going to occur to see if we could try to get this done. Nothing more happened until the weekend before July 4th…I got a phone call initially, I think it was late Thursday that weekend before. It was right around five o’clock from Arthurs, Lestrange, and they said…we think there’s an opportunity, the market’s starting to move against us. It was right around when the Fed actually raised the discount rate by a quarter percent, and actually that raised the prime rate. But what happened was Greenspan’s language was very conservative. Instead of saying that they were going to accelerate future increases, he said they were going to continue to have a moderate approach, and that really had a positive impact on the bond market so that actually long term rates started coming back down, even though short term rates went up. They saw a window. Chris got on the phone with us right away, and probably through that early evening, I think, through seven o’clock we had discussions. We said…if you could try to get this done, great, but we want the million three threshold in savings which was a new target that we set on the Bethlehem Authority’s Board. I talked to the rest of the Board members and we were all in agreement that if we could get a million three in these circumstances it would be a great thing for the City of Bethlehem to do. They worked through that Friday morning [but] could not get it done. Initially, after nine o’clock they got Wachovia involved. We had discussions with them that night about do you need to get more players. They had a good start on it but the market just didn’t quite pull it together, and late in the day they were assured of getting the transaction completed. We had discussions with Chris and we thought about, well, let’s wait and see if we could next week…try to get it back out to market, see if things would change, and we would go from there. That Tuesday morning, the day after July 4th, they called right away and said we could get it done. The market’s come together. There was another report that came out late Friday that showed that the employment numbers were not as aggressive as initially thought, and that had a good response on it. Chris called, he said, hey, we got the deal done, these guys really stepped up. And, the good news was they were able to go out there and get us a million three five in savings, and we were really thrilled with the opportunity. I had conversations through that process that I called John to let him know that we got it done. I was excited about the fact also that we were able to accomplish this without paying a premium on the bonds, and also… with having the ability to have a future refunding in the issue which we have in place as well.

Initially, in my mind, again, candidly, I really felt since Arthurs, Lestrange and Wachovia came up and did this work right up through that holiday when no one else was presenting anything, and they consistently were calling, I think over the last month or two more than the others, and trying to make it happen, I felt they earned the business, and I was really pleased that we were able to accomplish this goal. I got a call back early that morning from Chris Gibbons who said how do you want to distribute this. Meanwhile, then, we had discussions. Should we let the other players get a chance to have some of this business, Merrill Lynch and…Raymond James who was another player over the last month or two. I kind of quickly polled some of the Board members, and we all decided that maybe we would give each one a piece of the business. So, initially we broke it out where we were going to give Arthurs, Lestrange and Wachovia, the top two, I think it was thirty-seven and a half percent, Merrill Lynch we were going to give fifteen percent, and Raymond James ten percent. Raymond James came back and said they really weren’t interested in the ten percent. We then had some more discussions. I through that period had some conversations with John, and John still expressed displeasure with Arthurs, Lestrange getting the lead on this. He asked why Merrill Lynch couldn’t do more of it. I was led to believe that we should give them more, and the feeling of pressure, candidly, throughout to give them this business. I’ll go on record now when I told my Board…the final numbers, I told the Board I didn’t think they should get anything. I really felt that Wachovia and Arthurs, Lestrange earned it and they should get the business. But, we thought let’s try to help the Administration, let’s include them in, and we kept them at the fifteen percent. So, we increased the other two up five percent each, and that’s how we closed the deal. The one reference that John makes in the paper today that, again, that I take a strong objection to is that he said that the deal couldn’t get done without Merrill Lynch coming in to buy the bonds at the end. And, I’m sure, again, if we do a public audit that was never the case. If you call Arthurs, Lestrange and Wachovia, they had this deal signed, sealed, and delivered. They…weren’t happy, I’m sure, when we called them and that they had to give up a piece of their business which they worked so hard to pull together for us…John’s comments I just totally do not agree with…I would welcome a public audit on this whole transaction because I think the record would speak well for itself. So, that’s a lot of the time line.

What I’d like to do just in the closing thoughts here, now obviously I could open it up to any and all questions [on] anything I presented here, but my final thought is it’s not easy what I had to do here today. I have to look across from a guy who I supported. Everybody probably knows that I’m a strong supporter of John, and Dennis and I work a long time, and to do what I’m doing is not an easy thing to do. But, I’ll be honest with you, I truly, I live my life with a code that I believe every day when I wake up I try to do the right thing. I look at things that are presented to me, and I make decisions on my foundation and my life. My faith is to try to do the right thing. I don’t always do it, I make mistakes, but I truly try to live that way…And, I believe what I’m doing today, telling the truth, and disclosing this transaction to the best of my ability, no matter how difficult it’s been, is personally the right choice for me…Everything I said here tonight I’m on record with, and, as I said, if this was in a court of law and I was under oath to be telling the truth I would be gladly doing that because this is to the best of my ability the time frame of this transaction. Now, there’s a lot more detail in here. There’s a lot more information I could probably present to you. As I’m sitting here thinking about it, there’s a couple of things I probably missed. I should make maybe one other reference…Between that period of February 12th and March 9th when John finally allowed us to continue, I did at one point in time get a call from Joe Uliana and he asked me to go to lunch with him. And, at that luncheon, he basically was asking how things were going. He was aware of what was occurring. I think most people know Joe’s an advisor of John, and Joe [was] a [Bethlehem Authority] Board member…for a number of years. I clearly told Joe the best bid should win, include Merrill Lynch, but the best bid’s going to win. This is what I really believe in, this is what I’m telling John. And he never asked me to do anything different, but I was hopeful that when he went back to John, I believe that was around…March 3rd, that maybe that would help the situation. But, there was a lot of pressure, I think, put on me to use Merrill Lynch where in my mind, clearly, they weren’t the best player. And, again, I struggle understanding why we would not put this out to market, and let the market help the City of Bethlehem and the Bethlehem Authority to get the best deal…Again, this is all public record, and I don’t know if anybody has any questions, I’d be glad to answer.”

Mayor Callahan stated “I will claim that I’m not nearly as prepared as [Ronald Donchez] was this evening, and I at some point will certainly sit down and go blow by blow as to what my recollection is of what took place based on my notes, and based on my understanding. Let me start off by saying that this isn’t easy for me either…I think that, ultimately, this boils down to a basic misunderstanding, and really nothing more and nothing less in terms of the two meetings that Ron and I had. And, I want you to know that I, too, have honor, and I, too, have faith, and I will go on the record and say that if I had a Bible I would swear to everything I’m about to say as if I were in a court of law as well…I will…respond in three basic points. I wasn’t necessarily prepared to go blow by blow this evening. I wasn’t aware that Ron was going to present this as he did.

First, of all, let me say that I did indeed stop the transaction. Dennis and I felt that was the appropriate thing to do. I stopped it for one basic reason, and that is that I read about it in the newspaper. This is the single largest bond refinancing in the City’s history, or if not the largest, one of the largest. I know that they had been considering a number of exotic swaptions. There were municipalities that have gone bankrupt, this is basically a derivative is what we’re talking about, and, in years past, there are municipalities that have gone bankrupt in entering into these kind of risky transactions. And, while Ron may well have known exactly what he was doing as a vice president of a bank, I had a prior conversation at lunch with Ron Donchez sometime in January, I can’t recall the exact date, but I could get my calendar out of Outlook and I could tell you subsequent[ly], I’d be happy to do that, in which we talked about a variety…Let me let you know that I did, in fact, stop it because I wanted to know, as the Mayor, what the ramifications were of that bond refinancing…In fact, the person being accused of helping to manipulate this, Dennis Reichard, was indeed the person that brought those numbers to Chris Gibbons. While he was aware of the proposal, he was not aware, and this is an important distinction, that the Authority was going to take that action that day. In fact, Ron you said yourself you didn’t know you were going to take that action that day. So…certainly if you weren’t aware of it, you can’t say that Dennis was, and you certainly can’t say that I was. And, so when I read about the largest bond refinancing in the City’s history in the paper, I take my responsibility as Mayor, my fiduciary duty to the taxpayers quite seriously, and so, I stopped it to understand it more, and to know exactly what was going on, and to know the implications. I want to point out that it is the City of Bethlehem, not the Authority, that operates the system, the filtration plant, the reservoir, the wastewater treatment plant, the distribution plant. And, it is indeed the taxpayers of the City of Bethlehem that back those bonds with the full faith and credit of the taxpayers. I’m the Mayor, and I need to know what’s going to happen, and understand those ramifications. It’s really that simple. Because, if something happens with that bond refinancing, it’s not going to be the volunteers on the Authority that are going to be held accountable for it. It’s going to be myself and my Business Administrator that are going to be held accountable for it. So, yes, I did stop it, and for that reason, and knowing that it is ultimately the City of Bethlehem that has to pay those bills.

Now, second,…just to go through the basic crux of this argument is, yes, I did indeed advocate for Merrill Lynch. They are the largest bond underwriter in the State of Pennsylvania, and indeed in the United States…I get asked by many vendors throughout the day, they present proposals to me on a daily basis that…will help provide better City services, better cost savings, etc., etc. Generally, what I do is I hand them to the Department Head and say I took this meeting with this person, let me know what you think. So, that would be what I did in that case…Merrill Lynch had contacted me. As you pointed out, Mr. Murphy’s been involved…, and he indicated that…Merrill Lynch would be able to get this transaction done. And, the extent of my involvement was to pass that information to you, and with only asking that Merrill Lynch had an opportunity to bid on the refinancing. I never suggested that they be given this contract, or be given this proposal. I only wanted them to have an opportunity to bid. Again, the largest in the United States, the largest in Pennsylvania, they have an eighty billion dollar capitalization which speaks to their ability to conduct such a transaction and to get these deals done. And, you will find out that at some point in this process an underwriter made a promise of savings and was not able to get the deal done. So, it does matter who the underwriter is. So, again, in an effort to get the best deal for the taxpayers and the ratepayers, I suggested that Merrill Lynch have an opportunity to bid, nothing more, nothing less.

Now, thirdly,…and this is basically the essence of Mr. Leeson’s accusations, and I guess essentially Mr. Donchez’s as well is that somehow I, or my Administration caused the delay, and, as a result of this delay, we had a loss in savings. Let me point out that by…Mr. Donchez’s own account, this transaction has been going on, the thought of this transaction, since June of 2003. My involvement was…from February 12th through March 10th, twenty-one days. So, a year the Authority’s been looking at this. Somehow, my involvement over a twenty-one day period resulted in lost savings. So, I think that, first of all, that is already a rather ridiculous statement…But, most important, and I want to make this very clear, and while you indicated that the record will show many things, and I think that an audit would show that on March 30th, before the City Council Finance Committee, we had an opportunity to achieve more than three million dollars of savings for the Authority. My Administration, my Business Administrator, Dennis Reichard, the FA to the Administration who is incidentally the same company Concord Finance who is the FA for the Authority, recommended locking in the savings. And, it was in fact the Authority that urged City Council’s Finance Committee not to lock in those savings but to continue negotiations. I will not dispute the fact that, and this is an important distinction, City Council’s Finance Committee recommended moving forward with the transaction, but what they did not recommend was locking in those savings at that point…[S]o subsequent to that decision, economic indicators improved, bond rates go up and bond rates go down, that’s the essence of the markets, and as a result of that failure to act at that moment on a completely viable proposal, and they are all just proposals, every single time these are brought before committee they are firm proposals, and it’s only [un]til you decide to go with it that they can lock it in. In fact, we can talk about that as well…As a result of the failure to act, the opportunity for larger savings was lost, plain and simple, and I think the minutes of the meeting will reflect that. So while it is indeed accurate that the Finance Committee decided to move forward with the transaction, they did not, they recommended against locking in those savings at that point which…wasn’t an option, and that was the recommendation of the Administration, of the BA, as well as the FA, of Concord Finance the FA of the City…

As for anything that occurred prior to February of 2004 when I read about this bond refinancing in the paper, I can’t speak to anything that happened in 2003. I was not the Mayor. I’d like to indicate that, at the time, Joe Uliana was on the Authority. He’s no longer on the Authority…And, this is just to kind of get some perspective on this issue, during the campaign for Mayor, and as Mayor, and for many years, the Authority has struggled with, over the last couple of years, with a number of issues, and illegal timbering, structural imbalances in the debt, the need to market water, unaccounted for water issues, and the need for a long term strategic plan. And, quite frankly, I’ve talked often about the need to more clearly delineate the roles and duties of the Authority. There’s been a lot of blurring of the lines of responsibility. Again, we operate the system. Essentially, there’s been missing trees and missing water for some time at the Authority. Now, I’ve talked a lot during the campaign about focusing on Authority issues, and the challenges that are facing the Authority, perhaps in a way that no other Mayor had done before. And, in fact, it was one point of my ten point plan. So, when I read about this refinancing in the paper, a bond issue of this magnitude, perhaps the largest in the City as I stated, and knowing that these bonds are backed by the full faith and credit of the taxpayers of Bethlehem, and knowing that my BA was not aware that the Authority was going to take that action, I felt it was well within my responsibility, and in fact my duty as Mayor to stop the transaction to understand fully the ramifications of what they were doing. They had been considering some rather exotic options and swaptions, and I felt it was important to get my arms, and my BA to get their arms around this transaction. Yes, I wanted Merrill Lynch to have an opportunity to bid on this refinancing. I do know the underwriter. His name is Mossie Murphy. He has local ties to the City. He indeed is a Lehigh University graduate. He was a football all-American at Lehigh University. He is also successful. He was also successful with the County bond issue in the year 2000 which, in fact, resulted in significant dollars in economic development projects in our City. And, that is about the time from which I knew him and began to work with him. He works for Merrill Lynch. Merrill Lynch is the number one firm in Pennsylvania, and in fact the whole country in terms of underwriters. They’re number one in terms of capitalization, eighty billion dollars in capitalization, again, speaks to their size and ability to sell these bonds. The number one underwriter in competitive bond issues since 1990, they have 758 registered rep[resentative]s in PA, and 30 branch offices. So, certainly, I wanted Merrill Lynch to have an opportunity to bid on this project because they had been working on it, Mossie Murphy was well aware of the issues, and I wanted to give Merrill Lynch, one of the best firms in the whole United States, an opportunity to bid in order to get the best deal for the taxpayers, nothing more, and nothing less. He presented a proposal to me. I gave it to the Authority Chair, and asked that they keep me involved, and give them the opportunity. And then, I’ve already talked about March 30th, and I’ve got the FA for the City, Darryl Peck, and he can speak to whether that was a firm proposal or not. Certainly my BA, Dennis Reichard, can speak to whether it was a firm proposal or not…

One thing I want to clear up and, again, I could go all night and to go on tit for tat, I’d prefer not to do that at this time, I wasn’t prepared to do that, but when I first talked with Ron back in January…I talked about the opportunity to switch out FA’s at lunch. We talked about a number of Authority issues at that luncheon and, again, I stress that Ron Donchez and I, he was involved with my campaign, and I appreciate his support over the years, and we talked at lunch at length about Authority issues, timbering, strategic planning, etc. And, I talked about my hope that we could bring a new FA in to the Authority, and I mentioned Mr. Hopkins because he has been the FA for the Turnpike Authority in the State of Pennsylvania, he is the FA for PICA, a redevelopment association, as well as the … Philadelphia water authority, so he has extensive experience. And, while he is a one man show, I actually saw that as a positive in the sense that we would be getting the attention from the guy who’s…managed all these other authorities, and he has tremendous experience with water authority and a great track record, and I had hoped that he would have an opportunity once again to be the FA for the Bethlehem Authority. And, Ron didn’t indicate any concern, in fact he was agreeable to that. I wanted the opportunity to have some fresh ideas, and fresh perspectives. It is relatively rare that you have one financial analyst or FA both for the City and for the Authority, and I thought it would be important to mix it up a little bit, and bring in some new ideas given all the challenges that the Authority’s faced with. We did talk briefly at that luncheon about the direction that the Authority planned on taking in relation to this bond refinancing, and Ron had indicated to me at that time, as he did to Dennis Reichard, my BA, that they were not anticipating refinancing those loans. In fact, the direction that he was in favor of taking was waiting until around this period of time, the August time frame, in which to do a more conventional bond refinancing. And, it was a very good lunch, I thought we had reached agreement on a number of issues, and we were working towards some common goals. And, again,…shortly after that lunch, a couple of weeks or so, is when I read about this bond refinancing. I did indeed bring Ron in and talked to him about the possibility of switching FA’s as we had talked about the month before. He indicated he wasn’t particularly in favor of that. And, then, I wasn’t ready to sort of give up. I was hoping to have the FA available for this transaction. But…I want to make it very clear at no point did I ever suggest that that proposal not be bid publicly to public underwriters. At no time did I suggest that. As to what process the FA was willing to employ I had no idea so I can’t speak to that.

Ultimately, the second meeting, and I think this is important, I walked into that meeting, I remember it very well because it was a stressful time for me, I walked into that meeting after staff, in fact, Ron had brought lunch in…and I walked in and I immediately told Ron that I didn’t think it was a good idea to switch FA’s, and that we needed to get this transaction done, and that we’re probably trying to force too much too quickly in terms of change, and that we should just lock the bid for the underwriters…Shortly after that…prior to any discussion of Ron’s resignation, but he indicated that he wanted to resign at that time from the Authority…, I have long admired Ron’s honesty and trustworthiness, and I admire the fact [of] the contribution he has made…at the Authority for the last fifteen years, and I indicated to Ron that I believed he had misunderstood what I was attempting to accomplish, and I was disturbed by his decision to resign because I didn’t think it was warranted, and I felt like there had been a major breakdown in communication between he and I…With all of the challenges that are facing the Authority right now, and the fact that he and I agree so much on how to tackle some of those challenges…I needed his guidance, I needed his institutional memory…and I needed his expertise in helping to foster this process. Apparently, I had not done a good job at communicating what my wishes were, what my intent was. And, I thought I had gotten through to Ron, obviously I did, he’s still with the Authority, and he decided not to resign…After that meeting, we had agreed that, and in terms of my desire to have it bid by three people or four people, and I don’t recall what I said in terms of how many, all I said to Ron was whatever normal process that the Authority follows in how they put these underwriters out to bid, these proposals out to bid, I suggested that they follow that process. If that were three, let it be three, if it were four, let it be four…I didn’t name a number, I just said just follow the same process, I’d just like Merrill to have an opportunity to bid on it. That was the extent of my conversation in terms of how the bid process should be played out. He indicated that he was going to send it out to twelve underwriters, which is probably the most that’s ever been solicited for a bond deal. And, I said, Ron, and I think the record will show, and even by his own account, …you send it out to as many underwriters as you wish, that’s your prerogative. And, at no point did I ever suggest if Merrill Lynch were not the low bidder in that process should they get the deal, at no time. I indicated that to Dennis throughout the entire process, as well. That was March 9th. I had two meetings with Ron. This was all of what Ron discussed, in essence, to me. One on…March 19th and one on March 9th. And, then, at that point, I [became] comfortable that Merrill would have an opportunity, and having assured Ron of my intentions I went on to be the Mayor of Bethlehem.

And, again, on March 30th there was an opportunity for savings, and the record will clearly state the Administration suggested that we would lock in the rate at that time. It was at the urging of the Authority [that] the Finance Committee did not accept the proposal, and it was indeed Merrill Lynch at that time that had the best offer, and Dennis can quote for you what the numbers are, and the opportunity was lost. I recognize that bond markets go up and down. I’m not going to stand here and say that I had a crystal ball, and I knew what was going to happen on March 30th, but I don’t know that Ron Donchez has a crystal ball and knows what’s going to happen with interest rates…, but I don’t think that is the issue here. The issue is… we did have an opportunity to save more and that opportunity was lost. I don’t feel responsible for that, in fact, I think it’s quite the opposite. I think the record will bear that out. I don’t feel that I exerted any undue influence. I never recommended that Merrill Lynch be given this bid, or be given this proposal. I merely indicated that they have an opportunity to bid this project, nothing more, nothing less, and I feel I did this absolutely within my power and within my responsibility, and most importantly my duty as the Mayor, to have an understanding of this bond refinancing before it went forward.

And then subsequent to that, and I think even Ron admitted at this point that, they go back and forth with proposals, and then, at some point, Arthurs, Lestrange calls…either he calls Chris Gibbons or he calls Ron Donchez and says, boy have we got a deal for you, we’ve got a chance to make the one point three million dollars or so savings. And, at that point, and I think it’s important to point out, there was no bid, there was no solicitation of underwriters at that point. Arthurs, Lestrange was given the deal, they…decided that they wanted to bring Wachovia in. So, we went from a process that I agreed to of twelve underwriters bidding on a refinancing to some compelling event taking place in which Arthurs, Lestrange becomes the underwriter without a bid process. They then go to market, this time I guess with Wachovia as a partner. The bonds are being sold. I have no idea about it. Dennis Reichard, my Business Administrator, has no idea for the second time that this was going forward. Again, we operate the Authority. We are responsible, the taxpayers are responsible, with our full faith and credit, to back those bonds. And, it’s Dennis Reichard that watches the water fund, and it’s Dennis Reichard that watches the sewer fund…There are two and a half employees for the Authority. You have a water patrolman, you have an Executive Director, and you have a part-time secretary. That is the extent of the Bethlehem Authority. We run the system. We back the bonds. We are responsible for making the payments. So, yes, I certainly wanted to have an understanding of this bond refinancing before it went forward. And, in fact, twice, twice I was not made aware of it. So, at some point, Wachovia, Arthurs, Lestrange and Company goes to market. They promise one point three million dollars of savings, and the rather unusual thing occurs which is they are unable to deliver on their proposal. It is, as you might imagine, in any service industry you don’t want to promise something and not be able to deliver it. And, so, no underwriter wants to say they can get a deal done and not do it…[T]hey said they could achieve the savings. They started selling bonds, but were unable to meet the threshold of savings that were committed to the Authority, and so the deal went down. It was unsuccessful…And, so at some point they made the decision, either the market improves, somebody decided that we’re going to go to market with all four players. That’s fine, and Merrill Lynch was determined to get fifteen percent, also fine.

But, the reality is, that at that same March 30th Finance Committee meeting, my Business Administrator, and the minutes will clearly indicate, that he felt at that time they had the best proposal, and we had the best underwriter. Again, I’ve gone through Merrill Lynch and what their credentials are, and I find it hard to believe that Merrill Lynch would not have been successful that day, because, at the end of the day, Merrill Lynch, rather than go to their customer and say they couldn’t get the deal done, they’ll buy the bonds themselves and they’ll worry about it later. That’s what was indicated to me by Merrill Lynch. So, my Business Administrator, Dennis Reichard, who…has been with us for…thirty years, he said that they ran into the same situation with the Landfill where an underwriter committed to doing the deal was unsuccessful in getting it done. And, so there was both a quantitative and qualitative aspect of this, and it does matter who the underwriter is. And,…precisely what [Mr. Reichard] indicated would happen on March 30th happened a number of weeks after that.

So, that’s my understanding of this situation. My involvement was essentially two meetings with Ron Donchez. I’ve done my best with given the time I had to recall and recount what took place. Ron, this is a sad day for me, but I think it’s perfectly reasonable that…people have miscommunications every day, and I think it’s perfectly reasonable that I have a different recollection of what took place than you do. Dennis was present at my meeting, I’d be curious to know his recollection of it, as well…I still consider you a friend, I still value you [for being] on the Authority, and appreciate your contribution over the last fifteen years. Again, I think there was a breakdown in communication, and a misunderstanding between what I wanted to happen and what you felt I was saying I wanted to happen…”

Dennis Reichard, Business Administrator, said “…in the beginning of the discussions with Chris Gibbons and Ron, we did discuss, as Ron said, sometime back in the beginning of this year that they were looking to go forward, the market seemed to be fine, they were looking to go forward with refunding of the sixty-four million dollar issue. But, as the Mayor indicated, and as Ron also indicated in his presentation, that we did not, I did not know that they were going to go ahead and approve it. I think, rightly said, in working for many Business Administrators myself, I think it’s pretty accurate to say that the Mayor and the Business Administrator should at least know what’s happening, what kind of deal is happening, whether it be the Bethlehem Authority, whether it be the Parking Authority, or whatever, since the City backs the bonds, and it ultimately falls on the taxpayers. I don’t think I need to tell anybody up at the table that that’s the situation. The other thing that disturbs me about this whole thing is let’s just get to the fact. I’m sick and tired of hearing about back and forth, this is the recollection of my notes, this is what the situation is. Here’s the facts, and these are the facts. March 25th, twelve underwriters, eight responded, three dropped out. The discount rates, Arthurs, Lestrange, Wachovia, [A. G.] Edwards, Merrill Lynch, [Citi Group], Commerce, Raucher, Janney Montgomery Scott, the spread, the price of the bonds, right here, weighted average spread, right here, willing to hold to the proposal, yes and no, right here, top four proposals. Get it straight, Wachovia two point nine million savings, A. G. Edwards two point five million savings, Commerce two million savings, Merrill Lynch three point two million dollars…It was Merrill Lynch, they were the ones that had the savings, period. That’s the proposal I took to the Finance Committee, and it’s strange at that meeting, very strange at that meeting that Mr. DiGiacinto had to be on [the tele]phone. We never had a Committee meeting where I had an Authority member on the phone, a conference call, why. My proposal here that Mr. Leeson has in his package shows, shows that we had a committed offer at that point in time, shows the cost. There were some statements there that there were no costs, what…did I present…[I]t’s my integrity, too. I presented a proposal here that shows what the costs were, what the…insurance costs were, the underwriter discount, cost of issuance. Am I stupid, I go with a proposal without costs…An underwriter submits a proposal gross, are they worth their weight in gold if they submit a proposal gross, no…Everybody knows, Mr. President, that when a proposal is submitted it’s submitted net of costs…, and what I brought to the Finance Committee that day was a firm offer, and you can still continue to negotiate afterwards. Every one of these guys call me. I know them all…They call me all the time when there’s a bond deal…They’re all going to call me, they’re all going to talk to me…You know what I tell each one of them, sharpen your pencil, get me the best deal, and I’ll take that best deal to the Finance Committee, and that’s what I did on March 30th. I took the best deal to the Finance Committee. I don’t have to apologize for what I did. I’m not going to apologize for what I did…And there was no coercion, there was no…squeeze, there was none of this stuff…as far as I know…”.

6. OLD BUSINESS

None.

7. COMMUNICATIONS

C. Director of Purchasing – PA Capital City Automotive and Equipment Contract

The Clerk read a memorandum dated July 13, 2004 from Mary Jo Reed, Director of Purchasing, in which it was requested that City Council pass a resolution to allow the City Purchasing Bureau to use the City of Harrisburg PACC Automotive and Equipment Contract. By piggybacking on this contract, the City can save 10% to 32% on the purchase of light, medium and heavy duty equipment. The City Solicitor’s Office has reviewed the contract and found it to be in order.

President Schweder stated that the appropriate Resolution will be placed on the August 3 Agenda.

D. Business Administrator – Bethlehem Authority Refunding of 1994 Water Revenue Bonds

The Clerk read a memorandum dated July 13, 2004 from Dennis W. Reichard, Business Administrator, in which it was requested that City Council approve Bill No. 10 – 2004, Bethlehem Authority Refunding 1994 Water Revenue Bonds at the City Council Meeting on July 20. The memorandum noted this will be Second Reading. The Bethlehem Authority approved authorizing the retirement of the 1994 Revenue Bonds at its July 8, 2004 meeting.

President Schweder stated that Bill No. 10 – 2004 is on the Agenda for Final Reading

E. Director of Planning and Zoning – Rural Residential Transition Zone – South Mountain

The Clerk read a memorandum dated July 13, 2004 from Darlene Heller, Director of Planning and Zoning, as follows: “At its July 8, 2004 meeting the Planning Commission reviewed our office’s proposal for the creation of a new zoning district, Rural Residential Transition Zone (RRT), and the map and text amendments that accompany it. The proposed district is located on the south side of South Mountain. The purpose of the proposal is to limit the height and types of uses in the steeply sloped areas of South Mountain. The proposal and its purpose are described in more detail in the attached transmittals to the Planning Commission. The Planning Commission voted 3 to 0 to further a recommendation to City Council that the area proposed to be rezoned should be rezoned to the existing Rural Residential (RR) zoning district rather than create a new RRT district. They concurred with the proposed boundaries of the area to be rezoned but they recommend that our amendment should be revised to RR.”

President Schweder referred the matter to the Lehigh Valley Planning Commission.

Scheduling Public Hearing

Ms. Szabo and Mrs. Belinski moved to schedule a Public Hearing on Tuesday, September 7, 2004 at 7:30 PM in Town Hall.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. The motion passed.

F. Assistant City Solicitor – Proposed Ordinance Amending Article 151 – Firemen’s Pension
Fund

The Clerk read a memorandum dated June 30, 2004 from Joseph Kelly, Assistant City Solicitor, attached to which was a proposed ordinance amending Article 151 of the Codified Ordinances entitled Firemen’s Pension Fund.

President Schweder referred the matter to the Finance Committee.

G. Assistant City Solicitor – Proposed Ordinance Amending Article 153 – Police Pension Fund

The Clerk read a memorandum dated June 30, 2004 from Joseph Kelly, Assistant City Solicitor, attached to which was a proposed ordinance Article 153 of the Codified Ordinances entitled Police Pension Fund.

President Schweder referred the matter to the Finance Committee.

8 . REPORTS

A. President of Council

1. Councilmanic Appointment – Jean Belinski – Recreation Commission

President J. Michael Schweder reappointed Jean Belinski to membership on the Recreation Commission, effective until August 2009. Ms. Szabo and Mr. Arcelay sponsored Resolution 14,413 to confirm the appointment.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. The Resolution passed.

B. Mayor

1. Administrative Order – Michael A. Keyock – Bethlehem Authority

Mayor John B. Callahan appointed Michael A. Keyock to the Bethlehem Authority, effective until January, 2009. Mr. Arcelay and Mrs. Belinski sponsored Resolution 14,414 to confirm the appointment.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. The Resolution passed.

2. Administrative Order - Jennifer M. Creamer – Sister City Commission

Mayor John B. Callahan appointed Jennifer M. Creamer to the Sister City Commission, effective until July, 2007. Ms. Szabo and Mr. Arcelay sponsored Resolution 14,415 to confirm the appointment.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. The Resolution passed.

C. Parks and Public Property Committee
Mrs. Belinski, Chairwoman of the Parks and Public Property Committee, presented an oral report of the Committee’s meeting held July 14, 2004 on the following subjects: Lease Agreement with Norfolk and Southern Railroad Company for a Greenway in South Bethlehem, and a DCNR Grant in the amount of $100,000 for acquisition of the Norfolk Southern Railway in South Bethlehem in connection with implementation of the greenway.

9. ORDINANCES FOR FINAL PASSAGE

A. Bill No. 23 – 2004 - Rezoning Arden and Ravena Streets – I – Institutional to RG –
Residential

The Clerk read Bill No. 23 - 2004, Rezoning Arden and Ravena Streets – I – Institutional to RG – Residential, on Final Reading.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. Bill No. 23 – 2004, hereafter to be known as Ordinance 4260, was declared adopted.

B. Bill No. 24 – 2004 – Amending Non-Utility Capital Budget – Illick’s Mill

The Clerk read Bill No. 24 - 2004, Amending Non-Utility Capital Budget – Illick’s Mill, on Final Reading.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. Bill No. 24 – 2004, hereafter to be known as Ordinance 4261, was declared adopted.

C. Bill No. 25 – 2004 – Amending General Fund Budget – Equitable Sharing and Recycling
Bureau – Equipment Repairs - Fleet

The Clerk read Bill No. 25 - 2004, Amending General Fund Budget – Equitable Sharing and Recycling Bureau – Equipment Repairs - Fleet, on Final Reading.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. Bill No. 25 – 2004, hereafter to be known as Ordinance 4262, was declared adopted.

D. Bill No. 26 – 2004 – Bond Issue – Purchase of Street Lights - $5,115,000

The Clerk read Bill No. 26 - 2004, Bond Issue – Purchase of Street Lights - $5,115,000, on Final Reading.

Voting AYE: Mr. Arcelay, Mrs. Belinski, Ms. Szabo, and Mr. Schweder, 4. Bill No. 26 – 2004, hereafter to be known as Ordinance 4263, was declared adopted.

E. Bill No. 10 – 2004 – 1994 Bond Issue – Bethlehem Authority – Refinancing - $66,090,000

The Clerk read Bill No. 10 - 2004, 1994 Bond Issue – Bethlehem Authority – Refinancing - $66,090,000, on Final Reading.

President Schweder read into the record a statement by Councilman Robert Donchez, who was on vacation and asked President Schweder to read the statement into the record this evening: “After reading the article in the July 20, 2004 Morning Call local edition, in statements attributed to Mayor John Callahan, as Chairman of the Finance Committee, I wish to go on record that the article is not an accurate reporting of the Finance Committee’s actions on the proposal for the refunding of the 1994 Bethlehem Authority Bond Issue. The Finance Committee met on March 30, 2004 and the minutes of the meeting reflect that at the conclusion of discussions, the Committee voted unanimously in favor of the proposal to refinance the 1994 Bethlehem Authority Bond Issue. At no time over the past year has the Finance Committee or City Council ever delayed any action on this Bond Issue proposal, and the statement to the contrary is simply not true.”

Mayor John Callahan said, “for a point of clarity, I have absolutely no disagreement with Mr. Donchez’s statement. They did not recommend not moving forward with the bond refinancing. I just want to make it clear what they did recommend was that they continue negotiations over that period of time. In this case, there was a jobs report came out and indicated that the economy was more robust than what was expected, and it was at that time because they didn’t lock in the savings at that point, which they had the opportunity to do, but because they didn’t lock in the savings at that point against the Administration’s recommendation, that the potential for a greater cost savings was lost. So, I have no disagreement whatsoever with Mr. Donchez’s communication or statement. I do want to make that point of clarification.”

President Schweder stated “so you’re saying you were misquoted,…you also said that Council was responsible for the delay in the article in this morning’s Morning Call.”

Mayor Callahan replied “right”.

President Schweder said “you were misquoted by Mr. Ayers.”

Mayor Callahan responded “…by delay I meant, and I wasn’t misquoted, the rest of it was not there…the delay in the locking in of the rate and the acceptance of that proposal, that’s the delay…not the delay in moving forward but the delay in locking in and continuing negotiations.”

President Schweder commented that he has some questions with respect to what he read in both newspapers this morning. President Schweder recalled that he and the City Council Solicitor were talking several weeks ago about Council’s ability to put people under oath at meetings, and said “we do have the authority to do that, and perhaps as we go forward with this, we will start doing that.” President Schweder further stated that, under the Optional Third Class City Code, Council also has “the power to require City officials to prepare and submit sworn statements regarding official duties, and so we may want to do that as well with respect to this investigation as we go forward.” President Schweder noted that “in both articles [the Mayor] said that [the Mayor] first learned about this bond [from] reading about in the newspaper in February of this year.”

Mayor Callahan advised that he “first learned about the decision on the part of the Authority to move forward in refinancing this bond at that time in the newspaper…, not to say that I hadn’t had prior discussions about it and wasn’t aware of the fact that they were considering moving forward. I think I’ve made that clear tonight as well. But, again, after my discussions with Mr. Donchez at lunch it was indicated that it was the decision at that point to wait until a more vanilla, so to speak, bond refinancing with less risk and more options down the road in terms of not paying a premium, in terms of being able to call the bonds again. So, when I read about the refinancing decision on the part of the Authority to move forward in the newspaper, I was taken aback. I was disturbed because it was not the direction which I had gotten from the Authority Chair, nor was it the direction that I had gotten from my BA.”

President Schweder asked “and when had you gotten that direction from them.”

Mayor Callahan replied “as I said, I could go back, and, Ron, do you recall when we had lunch…”

Ronald Donchez responded “we, I think, probably had it January, early January.”

Mayor Callahan stated “sometime in January. I really can’t tell you the last discussion that I had with Ron about the direction they were going to be taking with this refinancing.”

President Schweder said “but this was all at the time that you were Mayor, is that correct.”

Mayor Callahan replied “yes”.

President Schweder asked “you never had any discussions with the Authority prior to being sworn in as Mayor, and I