My understanding of what your mission was was to give us a five, six, seven, ten-year road map, to deal with our death spiral of loss of jobs and residents, not to sit here and worry about the pension fund contribution. That's our problem. Not to worry about what services are being cut or not cut. That's our problem. We're supposed to deal with that. You've become not only Commissioner, 501 Whole - 5/12/04 - Operating Budget but a super Council member that's going to tell us what's fiscally responsible for us to do. That's our job to do, fiscal responsibility. It's your job to give us the road map to get the hell out of this mess.
Which I think you did originally, and then you changed your mind.
Councilman, as I said in my testimony -- and I was very precise for this reason: I was here testifying on behalf of the Institute for the Study of Civic Values and the Tax Reform Commission. I did not decide, in taking that assignment which ended in January, that this was going to define what I said about politics, government, public policy or public spending, in fact for the rest of my life. The irony of this is that my original notion of what I was not talking about during the Commission, in fact, was 502 Whole - 5/12/04 - Operating Budget the need to significantly reduce the cost of crime by producing [sic] the number of people committing crime. I made no comments about --
That's even going further than the budget. Now we're talking about criminal philosophy.
I am not here -- My permanent title in life, Councilman, is not chairman or even former chairman of the Tax Reform Commission.
But don't you realize with this very delicate document, that what you did two days ago was throw so much concern and suspicion over what the implications of it are going to be, is that you may have killed it? Do you understand you may have had a role in killing it?
Well, I see the question of whether it's killed or not as a matter of the persistent effort to make the conditions possible, that this agenda will be implemented in a way that doesn't hurt the City. 503 Whole - 5/12/04 - Operating Budget
But that's not -- I'm sorry. I'm going to go back. I'm going to relieve myself of this point of information because I think that what was clear was you're not supposed to be concerned about the budget, we are. You're supposed to be concerned about the tax reform that's needed to get this City out of its slump.
And you're taking it a step further than you should have. You're taking it five steps further than what your mandate was as a Commissioner and Chairman.
And I did not come here as simply a chair testifying on behalf of the Commission or as Chairman, because if that's what I was going to do, I would not have said a word about it. You're absolutely right. I would have simply come in, as members have, and said, this is what -- as I've done here -- this is what the Commission supported. But 504 Whole - 5/12/04 - Operating Budget I did not --
Did any other members of this Commission that you led know what your testimony was going to be about?
I did let members of the Commission know that I was -- I could not support a premise of a schedule that would be mandated by law for the entire life, that this would be enclosed in -- I made that -- When that premise -- Initially the discussions did not involve pursuing the legislation. The initial efforts were focused -- discussions were focused around what was the Mayor going to do in his inaugural address, what was the Mayor going to do in his program. And so, during that --
I'm going to end the point of information. The Mayor's 505 Whole - 5/12/04 - Operating Budget inaugural address, and crime fighting, and anything else is not germane. Councilman Nutter, I apologize for interfering in your time.
Mr. Schwartz, let me ask you this question: The Tax Reform Commission, Committee of the Whole, 21st Century Review Forum, Philadelphia Forward press conference. How did you think the ten-year plan was going to get implemented, in your mind?
In my mind, year after year you would look at what, in fact, the challenge was for the succeeding year and try to meet it. Obviously, you would have --
So is that a ten-year plan or is that a one-year plan --
No. It was actually sort of a five-year plan. 506 Whole - 5/12/04 - Operating Budget
Well, if you thought it should be a five-year plan, then why didn't the Commission recommend a five-year plan?
No, no. I'm just saying, how did I think this -- Well, if you thought how it was going to happen in the...
Thousands of hours, hundreds of thousands of dollars. How did you think this was going to get implemented?
I think that year after year people who were concerned about 507 Whole - 5/12/04 - Operating Budget this would take a look at it as the benchmark against which to measure what else was going on.
And so while we're sitting around fiddling while the joint is burning, annually trying to figure some of this stuff out, is this how business people make their decisions about to stay or to locate or relocate, that --
-- when they look at the City government they want to see, you know, what's our commitment to either tax reform or tax reduction, they just kind are of sitting on the edge of their seat every spring trying to see what we're going to do with ourselves? Isn't that one of the reasons why, of a few, that we even have a five-year plan? It just came into creation in the 508 Whole - 5/12/04 - Operating Budget early '90s.
That's true. We're dealing now not with an abstraction but with a real situation.
Let me just make another point. On the other side of the equation is the fact that while we are having this argument here, in Harrisburg there is a bill that the Governor is trying to get through that will bring $135 million to the City in each of the next five years and permit the reduction of the wage tax to 3.9 percent. It is a bill that the Tax Reform Commission passed -- supported unanimously early in the summer.
And it seems to me that part of my energy, if we weren't here, a lot of it would be spent in trying to get that to happen. Because the way I see it is the idea of the whole system having to move simultaneously, which I fully agree 509 Whole - 5/12/04 - Operating Budget with...
...it means that in fact we've had at least some movement on the business tax, we have had a pretty widespread acceptance over the next two years of the real estate tax recommendations. And this would be a significant breakthrough in the wage tax. And then it would also make possible in the second year a careful look at how to be even more strenuous on the business tax.
Let me ask this question. If that action happens in Harrisburg, should we just take the funds that may come to us from the state and just use those dollars as our wage tax reduction effort? Or do we take those dollars, reduce the base; and then continue to have reduction based on the new lower base as a result of revenues from the state. 510 Whole - 5/12/04 - Operating Budget
I believe that the money should be used in an effective way, either for continued wage tax -- in some combination of continued wage tax reduction and aggressive business tax reduction. And what formula you establish for that exactly --
As I best understand it, I don't think we're going to get to make that choice. I think... (Mr. Schwartz began speaking simultaneously with Councilman Nutter, not reportable.)
I think the legislation will be written in a way that it can only be used for wage tax reduction.
Yeah; and we will also mandate a certain -- that the City's current commitment continue. So it does -- That will happen. But I do think that it takes -- in terms of the tax system of the City and the tax 511 Whole - 5/12/04 - Operating Budget situation, that would set our tax -- wage tax rate below four percent. And it does take --
If we continue beyond what the state -- Just taking what the state gives us.
-- is do you just take what the state gives you and call it a day? Or do you take that and plan continued reductions after you apply the state's money, is my question.
Well, that is the schedule we accepted in the Commission. And I do agree with that.
-- in response to a couple questions -- I'm not absolutely 512 Whole - 5/12/04 - Operating Budget sure which hat is being worn at the moment, so what I want to know is, what is your personal opinion.
Oh, I think my personal opinion is that it's got -- it's got to benefit tax reform. And the logical way to do it is the wage tax reduction. I am very concerned that we have a parallel structure going on for business tax reduction.
But -- And I also think that having a huge base beyond of support for the City through the wage -- for the wage tax -- in one way or another relieves pressure on the budget, that permits the business taxes which is the other costly part of the program.
Let me ask this question: Did you testify at budget hearings for the FY '01, '02, '03 or '04 budget hearings?
Boy. Well, if you're 513 Whole - 5/12/04 - Operating Budget asking me for a choice among all four, the answer is, yes, I testified one year when the -- the last time the wage tax issue came up, I believe.
Okay. It's possible. That was in the spring of 2002. But that was on that specific bill. That wasn't related to the budget. My question was: Have you testified about the City budget...
Okay. So, your testimony, though, makes reference to the fact that City government has been living beyond its means for the past four years. Our annual operating deficits were 514 Whole - 5/12/04 - Operating Budget as follows: In '01 it was $65 million. In '02 it was $91 million. In '03 it was $48 million. In '04 it was $77 million. Those were our annual deficits. Together they add up to $281 million. You've expressed a great deal of concern about our present budget, now going into the future. Why is it that you didn't testify in any of those budget years about the fact that we were running annual operating deficits?
Because at that point I wasn't here to testify on anything, really. I had other work to do which is the work that I do do.
I understand that. But you're very concerned about these issues.
Well, but now I am as a basis for making a judgment with -- which -- about life as we move forward. Your were here. This is what happened. I have to make a judgment of the future based on the past. 515 Whole - 5/12/04 - Operating Budget The last three and a half years have been the following: First there was --
Was it inappropriate for us to pass those budgets with those operating deficits?
Well, I wasn't here, but I certainly think it was never raised, really, as a basis. It wasn't clear to me until actually the last six months.
It's in the budget -- (Mr. Schwartz began speaking simultaneously with Councilman Nutter, not reportable.)
It certainly -- It 516 Whole - 5/12/04 - Operating Budget wasn't a secret, but I can tell you as somebody who was not here and not spending my time looking at this set of questions, it certainty wasn't apparent how much the surplus was and what impact the reductions would have.
Everybody in the City knows that we had a $295 million surplus at the end of...
Maybe from here it looks like everybody in the City knows this. I can assure you that that is not the case because for the last few years I have not focused intensively as to what has been going on in this process, until the wage tax battle. And that battle then prompted me to raise a little bit of money from a foundation and spend months a year ago doing a neighborhood guide to the City budget, because I figured it was time for 517 Whole - 5/12/04 - Operating Budget me to get back and understand what was happening. Now, even in that one, I did not go back to the capital plans -- rather, the five-year plans, prior to 2003 and '4. It was in doing that this time that I suddenly realized -- it helped explain it -- I could not understand, frankly, how year after year things that looked to me like they were going to cost a lot of money did not end up in deficits. Now I understand why. And the point is -- I didn't testify then. But it becomes a basis for asking, well, what's next? We've reached a point at this moment where that happened in the last four years. So, why are we not going to take the... If we continue to operate on that basis in the next year, then we're in serious financial trouble.
Okay. So let's go back to one of the other questions. Your assumption was, notwithstanding the fact that you put out in the report, and it 518 Whole - 5/12/04 - Operating Budget is throughout the report, that there should be a ten-year plan, your assumption was that we would do it on a year-by-year basis.
Okay. Now, is that philosophy or direction written anywhere in the report?
Is there anything in any of the three volumes that says it's a ten-year plan that should be implemented on a year-by-year basis?
It doesn't say anything that I -- Well, no, it does not. But that was the assumption that I -- It's certainly the assumption I had. And it was the basis of whatever decisions or judgments I was making about how to pursue the implementation of this plan. And for the first... whatever it is. 519 Whole - 5/12/04 - Operating Budget We're now in May. So for the last three or four months before there particular phase of the battle came about, I was engaged in a pretty intensive discussion about what the Administration would do this year, and what the projection would be beyond that. And in my testimony here, I pointed out that I was very concerned, and I thought it was appropriate to be concerned, that whatever commitments were made were only this year, and it dribbles away from there. So that there's a real challenge on the spending side, perhaps on the philosophy side, to get this fulfilled beyond that.
You've made reference on a number of occasions to the Administration. Do you have regular discussions or contact with the City Administration or the Budget Office or the Finance Office about the City's finances?
The Finance -- The Finance -- The Budget Office, particularly.
I use that to just get answers to questions about the budget.
And I do have that discussion. I want to be informed on that, since I'm now pretty heavily involved on it.
Yeah. I mean, it's not a pre-scheduled regular basis. But if I have a question or two about what does this mean or what are the potentials for that, et cetera, yeah, I'll call up and get an answer.
And have those recent discussions influenced your recent views?
The facts have influence my recent views, not arguments 521 Whole - 5/12/04 - Operating Budget that anybody made about what was going on. Just simply the facts. I've tried to get a handle on what's going on. I make my own decisions on this, and nobody's arguments about this situation has persuaded me, to answer your question. I did my own analysis, my own consideration of what, in fact, I thought the pension contributions would represent. And by the way, much of that also was done not with anybody's --
Well, your earlier statement was -- I mean, your analysis is based on either information or documents given to you by the Budget Office, correct?
Well, yeah, five-year plans, right. It's not some secret group of documents I'm getting from them that are not publicly available.
Right. Do you just kind of sit over in the corner and read them on your own or do you have, like, a real meeting and a discussion and a -- 522 Whole - 5/12/04 - Operating Budget
No, I don't have meetings particularly to discuss anything. I make phone calls for specific pieces of information. I don't meet with them.
Didn't we just have a conversation last night where you told me that you had a discussion somewhere in the past day or so with the Budget Director, who reminded you about the impact of all this on the five-year plan?
No. I did ask the Budget Director myself to confirm -- It was over the phone. I had already concluded that that would be the impact. And I called to confirm whether that would be the impact. And I've also called 523 Whole - 5/12/04 - Operating Budget a couple of places outside of the Budget Office to ask the same question, to get two or three different views of it. But I reached that conclusion myself. And then I wanted to check out whether I was right or wrong. And, yeah, I called them. And I called a couple of other places. And they all agreed that that, in fact, was the case.
How do you... I guess what I'm also trying to understand, I mean there seems to be a fairly significant... call it a gulf or maybe a chasm, some distancing, if you will, between your perspective on all of this and many of your fellow Commissioners. All of you went through the same process. 14 out of 15 signed off on or agreed to the same document. Many of the Commissioners have taken a very pro Tax Reform Commission report posture. Yours is in recent times glaringly different. 524 Whole - 5/12/04 - Operating Budget
Do you think they're less informed, less concerned, less knowledgeable about the issues or just not paying attention to the same things that you are?
There were people 10 on the Commission. There were several 11 people on the Commission whose concerns 12 about the overall City budget and the 13 services that I'm raising were very much 14 paramount in their thinking about it. 15 And what I think I was able to do as Chairman, was to negotiate a process over time, that persuaded everybody that this was a worthwhile route to take. And in fact, to go back to Councilman Kenney's comments, what also made it possible for us as a group to come up with that was the premise that as a Commission we were not looking at the budget in any specific way, that we were merely asked the way people doing the 525 Whole - 5/12/04 - Operating Budget Convention Center were asked, to create the blueprint. Your characterization was exactly right. It is now May. Of the people who 6 were on this Commission, I would say that 7 there are 9 or 10 who have not been heard 8 of or seen since. 9 If we called all 15 of us together 10 and had this discussion -- I don't want to 11 put words in people's mouth -- but in fact, 12 I would say that you would get a diversity 13 of opinion from all 15 on the issue that 14 I'm talking about. And it would not be 15 overwhelming one way or another. But there would certainly not -- The people who are doing this now, I have great respect for what they do, and who they are, and where they're going. This is what they want to do. But if you're asking what the whole Commission would do if we were meeting, that's a very different question. And in fact, it was my responsibility to try to help bridge a gap 526 Whole - 5/12/04 - Operating Budget that did exist, even within my own mind, between the claims of other things in this government and tax reform. And there was also another process which we did go through, and which we do, I think all agree on, on the critical necessity of this to the life of the City. There was disagreement about that initially. I think the out of votes that 12 we got represented an agreement that this 13 was a critically important agenda for the 14 City to pursue. And the blueprint we set 15 forth was critically important to pursue. So that we agreed on. But there were certainly a number of discussions throughout the Commission about how this would affect City services. And in fact, it was said over and over again from the first day, when Bob Inman who wrote the tax reform articles that got some of this started. And he came to testify to us that if on the basis of reducing taxes we either 527 Whole - 5/12/04 - Operating Budget unbalance the City budget or undermine City services, then the economic gains that were projected for tax reform would be lost. And that came up again and again. So do I see what I'm doing as inconsistent with the discussion that we had?
No, I do [sic] not. That was central to the way in which I was able -- we were able to come together, 13 to 1. That was exactly that proposition. 14
How do you ever get the revenue gains from the plan if you don't implement it?
Early on you don't get revenue gains. So at that point the question really was, in terms of socially --
-- to people trying to make decisions -- 528 Whole - 5/12/04 - Operating Budget
Councilman, we did two or three things here. I chaired a revenue committee. It was my idea to do it. Some of the things that are in this budget now that are causing trouble, like increasing the parking tax -- I see parking lot owners now have that all over the place. The increased revenue collections that are there, some of the other fee -- the notion of charging for right-of-way fees, all of that was in our revenue committee because we understood that whatever economic benefit or you want to call it supply side effect would not happen in the first year. That's first. And then secondly, I think everyone had some notion that we didn't discuss, over where the fat was in the City budget. Some felt that the government as a 529 Whole - 5/12/04 - Operating Budget whole is really inefficient and we could always find the savings to make it. I felt that the crime was -- you know, we'd increase that budget by about $80 million. So, in our own minds, we found a way to support this as socially and fiscally responsible. I don't think that -- And so that was the basis in believing that we could implement and pursue the first two or three years. And then we did say that any of the fiscal assumptions that we are providing do not include the added benefits of economic development. And we hoped that it would. But the discussion very hard -- That was the issue. Who doesn't want to reduce taxes, particularly in the context that we're creating? I mean, you'd have to be crazy not to. But then there's this other thing called the government.
You do have to be crazy not to. 530 Whole - 5/12/04 - Operating Budget
I agree. I spent a whole year of my life on that preposition. [sic].
And it certainly was not something I initially sought. So, I mean, I paid those dues. But my life, in evaluating the rest of the government and the budget, was not handed in in perpetuity, that I had to remain --
There's a point 531 Whole - 5/12/04 - Operating Budget of order over here. There's nothing in perpetuity in any of those documents...
...I'm referring more back to Councilman Kenney's comments, of how could I be testifying; it was not my job to talk about the budget. And it wasn't during that year.
The Chair recognizes Councilman Kenney for a point of information.
This quick point of information because I have to go pick up my son at school. This is an excerpt from the 21st Century Review Forum, final report, March 11, 2004. Tell me if you agree with this statement or not. 532 Whole - 5/12/04 - Operating Budget The City should move quickly to adopt the major recommendations of the Tax Reform Commission, even if expenditures have to be reduced to cover the initial tax revenue shortfall. In bold, the Mayor's very important quality of life strategies will not have the desired impacts or be sustainable in the long run in the absence of fundamental tax reform.
But we -- Looking -- You asked -- This is about dollars and cents, real money.
It's about expenditures and revenue shortfalls, and --
Yes; and the fact is that the budget you are being asked to vote on cuts departments by as much as five, 533 Whole - 5/12/04 - Operating Budget seven, to a hundred percent, all of them but about eight or nine. One of the few increases in this budget, in fact, is $3.9 million more to the Board of Revision of Taxes, to be able to implement our real estate assessment agenda --
-- and another $10 million in lost revenue from single sales tax or apportionment.
-- the question is, how do you apply that abstract statement to a real budget?
That's what put -- 534 Whole - 5/12/04 - Operating Budget
No. It's a citizen's judgment as to what you think is being right and wrong. Citizens can make those judgments, too. We don't all have to sit back here and say, this is your job, particularly this citizen who has spend as much time on these issues as anybody in this room in any capacity, and has read as much, if not more, about all of it.
Well, then you should file for the next election and run at-large, and see if the people agree with you --
-- but until that happens, I don't think you have a right to come in here, after all this work, and submarine this effort.
Are you saying that I don't have a right as a citizen to come in 535 Whole - 5/12/04 - Operating Budget here and express my views on the City budget?
Yes, you can. But you can be called to task because you're trying to submarine this effort which I think is what's up.
I really am not. I have a different view right now of what it will take to implement this. And I regret the fact that it may be interpreted as I don't agree with it or that I'm trying to submarine it. That's other people's conditions. I made my own commitments here. It was not a discussion here, until about three or four weeks ago, about going through the total passage of the legislation as the vehicle to get all of this done. We were discussing various specific things we could do, and I was working very 536 Whole - 5/12/04 - Operating Budget hard on that, and will continue to work very hard on it. COUNCILMAN DiCICCO: Point of information.
The Chair recognizes Councilman DiCicco for a point information. COUNCILMAN DiCICCO: I have two meetings at 7 o'clock in Port Richmond, so I will be leaving. I am just really totally baffled by some of those comments that are being made today. The Tax Reform Commission was mandated built people, voted on to be put in place. The Commission was charged with looking at ways in which we can reverse the trend of job loss and the downward spiral of the City of Philadelphia. Recommendations were put forth. We're dealing with them now. It goes back to what I've said earlier, and a number of us have been saying for the last couple days. If we do 537 Whole - 5/12/04 - Operating Budget nothing, it's just the continuation of what we've been experiencing for the last decade or two decades, three decades. At some point, taking into consideration your concerns about cutting service and all, we have to do something different. If we don't, we just wasted a year of the Tax Reform Commission's time.
I'm sorry. COUNCILMAN DiCICCO: Half a million dollars of the taxpayer's' money that was spent to or whatever it cost --
$375,000. COUNCILMAN DiCICCO: $375,000, half a million. A considerable amount of money. $500,000. Let's not debate three seventy-five versus five hundred. We have a five-year budget. Based on everyone's best estimate, there's going to be deficits over the next five years. We will probably be looking at a budget next year where we will probably be faced 538 Whole - 5/12/04 - Operating Budget with cuts in services, closing rec centers, the same kind of stuff we're going through this year. That means that the recommendations of the Tax Commission will not be put forth next year or the year thereafter or the year thereafter, at least for the next five years. When do we implement meaningful tax reform to get this show under way --
Well -- COUNCILMAN DiCICCO: -- to make a difference? Because if we don't do it now, the opportunity, I think, will be lost for the next generation --
Well, let me -- COUNCILMAN DiCICCO: -- and we have to take a risk, if you will, to make the meaningful reforms that the Commission has presented for us to do today.
I understand that perspective. And as I said in my testimony, we are now faced with a choice of either pursuing the legislation or 539 Whole - 5/12/04 - Operating Budget nothing will happen. And I believe that some mechanism to hold the Administration accountable toward progress in this area or to hold the government accountable in some way would be completely appropriate. And I would fully support it, and I would participate in it.
Well, I think that -- I mean, I've been giving a lot of thought to how you do it. (Councilman Nutter began speaking, away from the microphone, not reportable.)
Well, I'm dealing, then, with the particular -- Now I will say, Councilman --
-- that this is 540 Whole - 5/12/04 - Operating Budget where --