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
|