COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE Room 400, City Hall Philadelphia, Pennsylvania Wednesday, March 27, 2024 10:00 a.m. PRESENT: COUNCIL PRESIDENT KENYATTA JOHNSON COUNCILWOMAN NINA AHMAD COUNCILWOMAN CINDY BASS COUNCILWOMAN KENDRA BROOKS COUNCILMAN MICHAEL DRISCOLL COUNCILWOMAN JAMIE GAUTHIER COUNCILWOMAN KATHERINE GILMORE RICHARDSON COUNCILMAN JIM HARRITY COUNCILMAN CURTIS J. JONES, JR. COUNCILWOMAN RUE LANDAU COUNCILWOMAN QUETCY M. LOZADA COUNCILMAN NICOLAS O'ROURKE COUNCILMAN ANTHONY PHILLIPS COUNCILMAN MARK F. SQUILLA COUNCILMAN ISAIAH THOMAS COUNCILMAN JEFFREY YOUNG, JR. BILLS: 240179, 240180, 240181, 240182 RESOLUTION: 240193 - - -
Y'all know I'm Baptist. Good morning, everyone. (Good morning.)
This is the public hearing and public meeting of the Committee of the Whole regarding Bill Nos. 240179, 240180, 240181, 240182 and Resolution No. 240193. Ms. Loughead, will you please call the roll to take attendance.
Present. Thank you. A quorum of the Committee is present and this hearing is now called to order. Ms. Loughead, will you please read the titles of the resolutions.
Bill No. 9 240179, an ordinance to adopt the Operating Budget for Fiscal Year 2025. Bill No. 240180, an ordinance amending Chapter 19-1800 of The Philadelphia Code, entitled "School Tax Authorization," to provide for an increase in the tax that the Board of Education of the School District of Philadelphia is authorized to impose on real estate; and amending Chapter 21 19-1300, entitled "Real Estate Taxes," to establish an equivalent reduction in the tax rate for the City real estate tax; and making technical changes; all under certain terms and conditions. Bill No. 240181, an ordinance to adopt a Fiscal 2025 Capital Budget. Bill No. 240182, an ordinance to adopt a Capital Program for the six Fiscal Years 2025-2030 inclusive. Resolution No. 240193, providing for the approval by the Council of the City of Philadelphia of a Revised Five Year Financial Plan for the City of Philadelphia covering Fiscal Years 2025 through 2029, and incorporating revisions with respect to Fiscal Year 2024, which is to be submitted by the Mayor to the Pennsylvania Intergovernmental Cooperation Authority pursuant to an Intergovernmental Cooperation Agreement by and between the City and the Authority.
Today we will continue the public hearing of the Committee of the Whole to consider the bills read by the Clerk, that constitute proposed operating and capital spending measures for Fiscal Year 2025, a Capital Program and a Forward- looking Capital Plan for Fiscal Year 2025 through Fiscal Year 2030. Today we will hear from the Administration regarding the Administration's finances. This morning we will hear testimony from the Department of Finance and the Department of Revenue. This afternoon we were originally scheduled to hear testimony from the Sinking Fund, the Board of Pensions and the Treasurer. Given the overlap of these departments' duties, these departments are available for questioning this morning. This afternoon we will continue with questions from Members on these departments. And at 3:00 p.m., we will hold our first of three public testimony sessions. For the record, I want to note the presence of Councilmember Katherine Gilmore Richardson, Councilmember Mark Squilla, and Councilmember Jamie Gauthier and also Councilmember Cindy Bass, and Councilmember Nicolas O'Rourke. Ms. Loughead, will you please call the first witness to testify from the Administration.
The first person to testify is Rob Dubow, Finance Director. (Witnesses approached Witness table.)
Welcome back, Rob. Just state your name and title officially for the record and then you can begin your testimony.
Good morning, Council President and members of the Committee. My name is Rob Dubow. I'm the Finance Director. I'm joined at the table by First Deputy Cat Lamb. With us today are Deputies from around Finance and as you said the City Treasurer, Revenue Commissioner, Executor of the Pension Board are all here too. Before I go into my testimony, I just want to take a moment to thank all the people who work in Finance. All the stuff we talk about today couldn't happen without them. So you have my written testimony so I won't go through that. We're all available to answer questions. I also had testimony on the tax bill. Should I do that now too?
Okay. Good morning. Providing testimony on Bill No. 240180. The bill proposes a shift in the Division of Real Estate Tax between the School District and the City, increasing the portion that goes to the District and establishing an equivalent reduction in the portion that goes to the City. The change would increase the School District's portion from 55 percent to 66 percent. That would result in approximately $22 million in new funding for the District in FY25 and 129 million over the course of a Five Year Plan. That would allow the District to benefit from any growth in real estate value in the City. The millage shift supports the Mayor's goal of providing world class education for Philadelphia students of all ages in socioeconomic backgrounds and supports future planning for the multi-year roll-out of the Mayor's full-day year-round school initiative, enabling students to receive educational enrichment they need throughout the year. And thank you for the opportunity to testify. We are all here to answer your questions you may have.
Thank you, Rob. So before we get started, I just had a couple of questions just based upon, one, the American Rescue Plan funding that goes away in 2024. A couple of my colleagues and I had discussions around when this funding goes away. Some say it's going to be a fiscal cliff. What are we doing to make sure that we're fiscally stable as we look forward as those funds go away? And we know that those funds also were used for a variety of different programs such as our rental assistance diversion program as well as the Free Transit program we provided, free transportation to SEPTA. Those types of initiatives that were shored up by the American Rescue Fund, how are we going to look at from a fiscal stability standpoint stabilizing our budget and those type of programs moving forward?
Yeah. So one of the things that differentiates Philadelphia from other jurisdictions is we have to do a five year plan and we have to show that that plan is balanced in each of its five years. So we show in our Five Year Plan the ARP money going away at the end of -- well, in the middle of FY25, the end of this calendar year. And then we show a balanced plan throughout. So by having to plan for five years, that's how kind of we show that stability after the ARP money is gone.
Thank you, Rob. As you previously testified, the City uses an outside economic metric firm to provide growth projections for our City's revenues. These are then used to determine how much revenue the City is projected to have in the coming years. In a response provided to my office, you stated that the economists provided a range of growth scenarios. Can you first please share an overview of those growth projections? And then talk to us about how you determined what projections to use.
Yeah. So they had -- and we've talked about this yesterday. They think that because of kind of the rapid job growth we've seen, that job growth will slow down. They showed us a range of anywhere from basically no job growth to half a percent a year where we wound up -- and this is in the middle of the year. We wound up at about a quarter percent a year so kind of in the middle of the range that we discussed with them. They also think that inflation will come down as it's already started to do, and then that will have an effect on wages. So both of those things had an impact on our projections.
What's the name of the company that we're using?
Okay. All right. The City has its highest combinations of credit ratings of more than four decades, which as you stated in your written testimony is an important factor in determining the interest rate that the City pays on its borrowing costs for infrastructure investments. How much money has the improved credit rating saved the City on borrowing? And just state for the record our current credit rating as a city.
Yeah. So we are in the A category with all three rating agencies, which is something that hasn't happened in decades. We can get back to you on the savings because it varies by where the market is, so we'll get you something based on the current market.
Okay. Thank you very much. Over the years the critical piece of the finance goals and key budget investments have been for the OPAL project, which will replace the City's existing accounting, contracting and procurement systems. Can you recap for us when this project started and when it will be fully implemented? What is the cost to date and how much is budgeted for future cost?
Hi. Cat Lamb, First Deputy Finance Director. So OPAL is the project to replace our core financials and purchasing systems. So for those of you who may be familiar with those systems, its FAMIS, ADPICS, ACIS and PHLContracts. It's replacing it with Workday which is a modern day ERP solution, so it's going to be more connective between all of the data in those four systems. The project initially kicked off in 2019 when we started resourcing for the project director and other people to lead the project. It was delayed due to the pandemic, but we kicked off with our service, our system implementer Accenture this past November. So that's when things really, really started picking up. We are closing, finishing out the initial design session which is the continuation of the design over the summer. The projected start date of the system right now is June or July of 2026, but I will say that we are re-evaluating that based off of learning we've done with Accenture and as we go through the design, right. So the more we learn about exactly what we're going to do, the more we have to re-evaluate when we want to do it.
It's very complex. It's a very large project. So the capital in the six year program right now for it is $107 million, so it is not a small endeavor. It is replacing all of our core financial and purchasing business processes. These legacy systems have been in operation, some for 40 years so almost as old as, you know. So there's a lot to have to re-evaluate and to manage the risk of this, right. Doing these large system implementations because it touches everything in government, when they're working, they're working smoothly behind the scenes and you don't even know that they're there, paying our vendors, getting contracts in place, right, creating our budget documentation, documents and all that stuff. When things go wrong, they can really, really go wrong. So part of also the planning effort that takes place in the design work is to really manage the risk of the complexity and the change that it's going to introduce.
Thank you. The City received 163 million in Community Development Block Grant Disaster Recovery funds to support Philadelphia's recovery from Hurricane Ida. The City was required to complete a needs assessment and submit an action plan which was approved by HUD and is now embarked on planning and implementing this program. Based on the unmet needs assessment, how much does the 163 million cover and what portion of the needs assessment cannot be met by these funds? And what is the plan from the City to address these unmet needs in communities most at risk of flooding? And this is an issue near and dear to me, particularly as it relates to the neighborhood of Eastwick, Southwest Philadelphia who we see continually flooding year after year.
Yeah. I'm going to ask Deputy Finance Director Sabrina Maynard to come up or should I call up Pat? Patrick Clark, he can come up and answer that. (Witness approached Witness table.)
My name is Pat Clark. I'm the CDBG DR Project Director for Finance. And I think the question was about the unmet needs assessment for the CDBG DR program. It's Community Development Block Grant Disaster Recovery Program. $163 million is allocated by HUD to the City of Philadelphia. Two allocations, and that equals our total of $163 million. Last year we did an unmet needs assessment where we combined and compiled data about the relief that was provided to Philadelphia and also the needs that were identified through various data sources like FEMA individual assistance, FEMA public assistance, small business administration support as well as the local sources from departments. We identified over $1 billion in unmet needs tied to Hurricane Ida that obviously far surpasses the total allocation, so we've programmed our budget proportional to that need. The biggest need was in housing. The second biggest need was in infrastructure. There's also a need in economic revitalization, and that is applied to the City as a whole. So we're currently going through the process through signing our current budget to target areas more specifically. For Eastwick we're doing close collaboration with Sustainability, OEM. There are a lot of ongoing community engagement initiatives occurring, so we're using their support to help guide our mitigation funding for the CDBG grant program.
The portion where you talked about restructuring the budget, particularly to focus on some of the housing unmet needs, could you provide that to the Chair just so we can also look at how does that play a role in the Administration meeting the 30,000 units of housing in the City of Philadelphia?
Yeah. I just want to make sure I'm understanding your question correctly. You'd like more information about our programming, the housing?
That will be definitely helpful. Just to make sure we're aligning the targeted goals to reach the 30,000 units. That would be helpful so we're on the same and also how we can be supportive as well.
Yes. It's a citywide program, so we're working with neighborhoods across the City, including Manayunk, East Falls, any area that was impacted by Hurricane Ida.
Awesome. Also, in terms of tax revenue, Mr. Dubow, in 2022 I introduced the Save Our Homes Tax Relief Plan. The City expanded the Senior Citizens Tax Freeze program and a Longtime Owner-Occupants Program known as LOOP as well as expanding the Homestead Exemption from 45,000 to 80,000 to provide much needed property tax relief to vulnerable homeowners, and I know we're going to see a property assessment at some point in time in the future and we'll get a chance to see what neighborhoods are impacted the most. And also, as we look at the issue of gentrification as we still see the rapid development taking place throughout the City of Philadelphia, we want to make sure as many long-term residents have an opportunity to stay inside their home. Of the eligible homeowners, what percentage are receiving relief from 2024 and how does that compare to prior years? And do we have a plan for enrollment in relief plans as we move forward? I think someone talked about maybe streamlining all of our tax relief programs under one particular vehicle, so to speak. So an individual can go online and add one particular portal to apply for all of the -- actually, no, Kendra Brooks introduced legislation or Nicolas O'Rourke to figure out how do we streamline that process. But could you give us an update on where we're at?
So Deputy -- I mean Commissioner Rebecca Lopez- Kriss will talk about the percentage of folks who are enrolled. And I think we will have to get back to you on the program you're talking about.
Good morning, everyone. I'm Rebecca Lopez Kriss, Deputy Commissioner for Policy and Outreach. To answer to your question, Council President, currently we estimate 75 percent of eligible households are receiving some sort of assistance that's either, Homestead, LOOP or the Senior Freeze. It doesn't count people who maybe have an OOPA.
And do you have this data broken down, this is LOOP, this is Homestead, this is Senior Citizens Tax Freeze?
Okay. Can you provide that to the Chair as well?
And also, Rob, I don't know if you can provide this to me now or maybe later. Just wanted to see based upon the total amount of funds that were available, right, that we allocated for Senior Citizens Tax Freeze, Homestead and LOOP, based upon that 75 percent that was used, the remaining dollars, that number, because that stays inside the General Fund, correct, because it's not being used?
Yes, but also what we should do when we get back to you is tell you what we assume for percentage participation because we don't assume 100 percent participation.
Could you bring the microphone a little closer? Go ahead.
Also, when we get back to you, we'll also tell you what percent participation we assume because we don't assume 100 percent participation.
Okay. All right. Thank you very much. Mr. Dubow, your testimony cites launching an outreach index mapping in FY25 to help Revenue, City Council and other stakeholders focus outreach efforts in the areas of the City that are most needed for tax relief. Can you tell us more about this effort and what is the budget for outreach for tax relief programs?
As part of the Department of Revenue's DEI initiative, we took a look at ways that the Department of Revenue can address needs more in a more focused way. And one of the projects that we completed is a mapping project that we will be able to make public to you and to the City Council that overlays estimated owner-occupied properties. The percentage of folks who are enrolled in our program, demographic information, it's almost like you can see exactly where the gaps are on a map of where we need to look, where we need to focus our efforts.
Okay. Is there a marketing and social media plan?
Absolutely. The Department of Revenue has a very robust outreach group. And as you remember, Vicki Riley was our champion and she did over 350 inperson events a year. We have a new person. That's Joy McCoy. We also do social media. We're on YouTube, LinkedIn, X and Facebook. We also do videos, how-to videos. I think the most effective thing for us to do though is to partner with City Council. No one wants to talk to us. They want to talk to their elected officials and they feel more heard or they feel some sort of efficacy and it's a better outcome when we're able to do, let's say, a pop-up neighborhood event where the letters have come from City Council. That sort of thing is --
And we've done several very successful ones in South Philadelphia as well as Southwest Philadelphia. Has your team been proactive in reaching out and touching base with District Councilmembers regarding planning these type of events as you move forward, knowing we're going to be assessing properties and then we're going to have First Level Review, some people are going to appeal? How is your team preparing for this upcoming re-assessment of properties as we move forward to make sure we're in front of the issue as opposed to behind?
One of the things that we did this year was provide City Council with an assistance program cheat sheet, something that staff could just have next to the phone. We've also been sending regular updates via email to City Council, including staff to kind of inform them of what's happening, word changes to the rules, like Councilmember Lozada extended the date for LOOP last year. And also, there were some changes to how we interpreted properties in that program. So we've been trying to make sure that City Council is up-to-date with what it is that we're doing as well as reach out individually to say Joy McCoy is our new person, she's our new outreach coordinator and she's the person that we can work with to schedule events with you.
All right. Thank you, Rebecca. And last question for yourself: Are there any special programs to help seniors around the First Level of Review, walking them through that process when it comes or appealing their property taxes? Because a lot times during constituent services I've seen individuals get the stickler shock of their tax going up, doubling and tripling. And then also, there's a disconnect between our local banking industry in the appeals process where the banks get the notice that the property tax goes up and then you'll see your mortgage double and triple. And then you'll go into the appeal but they're already charging you, kind of eat up your escrow at the same time while you're going through that process. And then once your appeal goes through, if your appeal becomes successful, then there's a whole process that the average person really don't know about to help you get your refund from the bank. Have we done anything to try to make the connection between the banking industry and when we're dealing with First Level of Review in the appeal process to help individuals who's stuck in that type of situation?
Let me defer to Revenue Commissioner Kathy McColgan. (Witness approached Witness Table.) COMMISSIONER McCOLGAN: Good morning, Council President and members of City Council. My name is Kathleen McColgan. I'm Revenue Commissioner. So your question is have we done anything to partner with banking institutions to help ease some of the challenges that customers face when they have had an appeal, their property value has been recertified and to make sure we bridge the gap there; is that correct?
Absolutely correct. COMMISSIONER McCOLGAN: Okay. I'm happy to say that we have. With the implementation of the Philadelphia Tax Center, we've partnered very closely with lending institutions to improve our data communication with them so they now have a secure log-in that they can utilize in the Philadelphia Tax Center to log in and to basically at any time look at the amounts that are due for their parcels. So if a recert has been processed, they go run that report and receive the most up-to-date information on the taxes due.
Okay. Thank you very much. And last, how do we work with seniors who may not know how to navigate this process? I don't know if this is for Rebecca as well. But when it comes to First Level Review, going beyond First Level Review when you want to basically go to court to challenge your property assessment?
I think that our outreach efforts in the community is the best way that we can reach seniors. I know that our outreach and communications team, they go to senior centers and make sure that they're reaching out to communities where they're most likely to be able to provide assistance to seniors. And I think that we really offer assistance to any program for which they may be eligible and guide them through the processes. So again, I think it's a little bit of making sure that we get the word out and that we're reaching out to those who are eligible which is why we appreciate the partnership with City Council offices.
Awesome. And what banks have y'all partnered with in terms of do you have specific banks that we have partnered with to work with us -- COMMISSONER McCOLGAN: For real estate tax?
Mm-hmm. COMMISSIONER McCOLGAN: We have several different ones. They're not all I don't think well- known as banking institutions. One of the largest one is called CoreLogic, so they actually escrow and remit on behalf of many different lending institutions. I think there's a list of probably about 8 to 10 different institutions that we partner with.
Okay. All right. Thank you very much. COMMISSIONER McCOLGAN: Thank you.
Mr. Dubow, in accordance to the passage of Bill No. 220485 in 2002, Revenue will complete regulations for market-based sources and pursue state-authorizing legislation. If enacted, this change aligns Philadelphia business tax rules with other jurisdictions and better reflects business activity in Philadelphia. This is a recommendation that's come from prior tax reform efforts. As we reconvene the Tax Reform Commission, what are the areas that should be focused on by the Tax Reform Commission as it relates to the tax structure and regulatory environment to make our City more competitive and business- friendly from your expertise of being around here for some time?
Yeah. I sort of want to talk about some of the things that have happened since the other Tax Reform Commissions have come in play. There's been really significant changes, particularly in the BIRT. So the number of businesses that are subject to BIRT has decreased by about two-thirds. And then within the last couple of years have to file. So that has become much simpler. But you mean for smaller businesses and then businesses that hire, I think it's at least six people don't have to pay for their first two years.
Right, three in the first year, three in the second. So a lot of structural changes to the BIRT have already happened. I think on the market- based sourcing has not passed the state yet. Anything else on the business tax that we can make simpler?
I think just implementing the Philadelphia Tax Center has made it a lot easier for people to be in compliance, and we've gotten a lot of good feedback. I think making businesses responsible and rights very clear is something that I think we've done a better job of in the last eight years or so. It's structurally --
All right. Thank you very much. The Chair recognizes Councilmember Curtis Jones.
I guess I'll pull that away a little bit. Based on Member Isaiah Thomas's questions that I heard in here in chambers but also in other briefings, what is the plan for the drop in real estate value in Center City and the fact that many investors based on interest rate bumps are simply just walking away? And what is the conversion rate from commercial to residential and how does that impact our dollars?
So in terms of how we've handled the protected losses in the Five Year Plan, we've assumed that appeal losses will equal about $1 billion this year. So when we look at our projections, we assume those losses and then we assume after that loss that commercial values will be flat this year and then go through inflation going forward.
The difference in square footage commercial, the difference in square footage taxable residential, what's the --
So for most, we're different from other jurisdictions in that we much more residential than commercial. I think that the office sector is about percent of our property tax, so it's relatively small because sometimes it's some big losses, but it's relatively small.
My next 7 question is several years ago we cited that tax delinquent property owners who did not live in the City were using these properties as investments, weren't paying, ignoring all of our efforts to collect. We then said it might be good if we attach their properties in the counties in which they live. How has that made a difference? Have we implemented that aspect of it and has it positively impacted collections?
I'll ask our Revenue Commissioner to -- or Frances Beckley. They're deciding who to come up. Frances Beckley will answer that. (Witness approached Witness Table.)
Good morning. Frances Beckley, Chief Counsel of the Revenue Department. Unfortunately, the Act 93 project which attaches liens to properties, basically we've focused on the outlying suburbs, has not proved effective as we had hoped. One of the major challenges there is typically investors will have their primary residence out there. It'll be very valuable, but it will be jointly owned. And their City real estate will be in either their individual name or entity name. So in the last fiscal year we only realized 113,000 in collections from that program.
How do we get around that loophole so that people, investors from different parts of Pennsylvania and even beyond get to leave all properties tax delinquent and keep their residences safe from our collection efforts? How do we reconcile that?
Unfortunately, I'm not aware of any legal strategy that will allow you to move liability from something that's owned by an individual to something that's owned by a different entity or individual. What we have focused on in terms of investors, delinquent real estate taxes, is filing what we call consolidated actions. We used to file individual actions for water or real estate or L&I demolition liens against properties individually, and we have now with our better data started filing suits where we take a landlord who's basically been using us as their bank. Every time they want to sell a property or refinance it, they'll bring it current. But the rest of the time they'll just let their City liabilities hang out there. And instead we sue them in their personal capacity for all the various municipal means they owe on all of their properties. I mean, some of these actions have 50 different properties put in there. And when they get the judgment in that action, that judgment attaches to every one of those properties. So the landlord cannot refinance or sell any of those properties without coming and getting in compliance with us with all of his or her liabilities.
Let me say this for the record: Nonresidential, nonoccupied properties, Member Brooks, O'Rourke and Rue Landau right behind me, not talking about any of them, but what does New York do that we don't to make sure that people pay and how do we compare to them? If you mess around with New York, they will come after you, take that property. What do they do that we don't?
I would have to get back to you on that. I'm not aware of New York's tactics. So we'll say in the state of Pennsylvania we have the best sheriff's sale process. It's significantly better than what the other counties have. They have to do two rounds of sales to our one. And that's been a tremendous tool for us, particularly now that we have Owner-Occupied Payment Agreements so that we feel comfortable that we are not sheriff selling owner-occupied residences. We've been able to be more aggressive with sheriff's sale and it's very effective both in collecting revenue and also in getting nuisance and underutilized properties back into the hands of somebody who cares about them and will develop them.
Can you provide to the President's office an analysis comparing Philadelphia to places like New York, Washington and maybe even Baltimore, see how they are approaching this? As our properties have become more valuable and our revenues stated by you are going down, we might need to tighten that up a little bit. Thank you, Mr. President.
You're welcome. The Chair recognizes Nicolas O'Rourke.
Thank you, Council President. And thank you to the Department of Finance and the Department of Revenue for joining us today and working with us to understand your budgets and priorities. Looking forward to working together, our office, certainly to ensure our City tax and finance systems are both keeping the City and working people financially stable. For the last three or four years, the Budget Office's Education, Engagement and Impact Unit has been holding citywide community engagement sessions, as I understand it, to educate the public about the budget process and to incorporate community voices into the budgetary goals of the Administration. Just this past fall the Budget Office engaged with nearly 800 Philadelphians to collect feedback on the budget. I want to pause and recognize the critical importance of that mission and to thank the Budget Office and all the community partners that contribute to this work. Philadelphians who don't have the time to make it to City Hall for a hearing or might be tuning in now while on the clock, they need to have different venues and arenas by which to participate in this process. I think it will be better for all, if that's possible. However, we've recently been informed by community partners that the FY25 spring engagement sessions have been put on hold indefinitely by the Administration. So that the budgeting process can be informed directly by the people of Philadelphia, will this program continue?
Yes. We're just trying to figure out kind of the best way to do it going forward.
Any idea so far in terms of specifically about what the new Administration wants that engagement to look like, especially for the remainder of this budget cycle, and any ideas that are kind of already coming up as you're thinking about it?
Yeah. I think we're kind of in the early stages of figuring that out, but we'll get back to you with more detail.
Okay. I'd like to turn now to discussing taxes and revenue. I want to acknowledge and applaud the work that has already been done to create and expand existing tax refund and exemption programs, including the Low Income Wage Tax refund, Homestead Exemption, LOOP, OOPA, Senior Tax Freeze and the Water Department's TAP program, all of these which are absolutely essential for stabilizing most vulnerable Philadelphians, and thanks to the President of this body for asking similar questions earlier. As far as I understand, the Water Department has been working closely with the Office of Integrated Data for Evidence and Action to automatically enroll eligible Philadelphians in the TAP Program by taking advantage of data-sharing and cross-enrollment. This is a huge development and really exciting step forward in cutting through the red tape to automatically enroll Philadelphians in the programs that they need, something that we really, really want to do in our office to make these sorts of things easier to be able to access by folks. That said as far as I understand, for one of our most important tax exemption programs for homeowners, the Homestead Exemption, it's estimated that a fifth of eligible homeowners are not enrolled in this program. That's a huge misopportunity to actually help more people stay even in their homes, even though the number may be small. What's the plan to use data-sharing and cross-enrollment efforts to try to auto-enroll 100 percent of eligible homeowners in the Homestead Exemption?
I think there are some state law issues that complicate that, but I'll ask Revenue to come up and explain. (Witness approached Witness Table.) COMMISSIONER McCOLGAN: Good morning, Councilmember.
Good morning. COMMISSIONER McCOLGAN: Thank you for the question. I appreciate that we share the same goal of expanding assistance programs for all that are eligible. We certainly have made great strides in doing that over the years. And as you mentioned, we recently, very recently, auto- enrolled many customers into Water assistance programs. In terms of Homestead, there's challenges in utilizing data and matching it accurately for all programs, but there's I think additional limitations and further complexity on the tax side in doing that. So for Homestead specifically, we do not have data that accurately reflects properties that are owner-occupied, which is why we do all that we can in reaching out to property owners to let them know about the program to assist them in enrolling in it. The application is very simple and I think easy for homeowners to fill out. And like I said, we offer support in doing that as well. So there really is no one source of data that we have been able to identify to expand Homestead. Now, I'll also just say on the tax side in terms of other tax relief programs we are bound by laws of confidentiality that also really limit what we can do with that data. So we look forward to continuing to work with City Councilmembers and the Administration to identify new ways to do that, but it's certainly a challenge and not something that we can easily implement.
It's a legal thing. Okay. I don't know if this is for them. I'm going to move on. Another absolutely crucial component of stabilizing the most vulnerable Philadelphians is holding predatory landlords accountable and enforcing the rental code that keeps Philadelphian renters safe in their homes. Half of Philadelphians are renters, something that we should always keep at the front of our minds. And almost half of Philadelphians' rental properties are in states of disrepair that can actually jeopardize the residents' safety. For instance, doors with secure or insecure locks, homes with lead, mold and animal infestation, leaking and caving roofs. Meanwhile only 7 percent of Philadelphia's rental units are inspected each year and often code violations are not enforced on landlords. The Department of Revenue's budget testimony states that Revenue has a plan to utilize tools available in the Philadelphia Tax Center to improve tax and water data-matching to identify landlords with multiple property delinquencies for sequestration and consolidated actions. I hope I said that correctly. That's a quote. Can you speak to what this plan entails? COMMISSIONER McCOLGAN: Sure, absolutely. Thank you for the question. Sequestration is a very important tool for us in collection and it also provides protections for tenants because we are appointed a court-ordered sequester to take over the rents that are paid so that they can pay off the delinquency of property, and that protects tenants from water service disconnections and sheriff's sales and strong enforcement action like that. And so, in terms of what we report in our testimony for the improvement in data use, the Philadelphia Tax Center has a data warehouse that allows us to better analyze and aggregate data from all of our systems so that we can identify those landlords and also pursue them in a more efficient way.
Thank you, Mr. O'Rourke. The Chair now recognizes Councilmember Jim Harrity.
Thank you, Council President and colleagues, Rob. My questions have to do with the real estate also. And I'm just going to give you all three questions. That way you can just answer them, if you have to get back to us with information, that'll be fine. Real estate tax, how many properties owe back taxes here right now that we know of? What is the average amount owed in back taxes on a per-property basis? And when these properties are put up for sheriff's sale, what is the percentage of back taxes that the City collects? COMMISSIONER McCOLGAN: Thank you for the question, Councilman. I think I'm going to need to get back to you on at least two of them. I'm just going to look real quick and see if I have the answer to your first question. In response to your first question, the number of properties that have delinquency, there's just over 67,000 properties that have delinquency.
All right. And then Councilman Jones had asked my fourth question, but just a follow-up to that. So how can we expand the outreach to determine the number of owner- occupied properties? COMMISSIONER McCOLGAN: I do not believe that we have data that allows us to accurately determine which properties are owner-occupied. But what we've done recently, and we're just finalizing, is a mapping of the City of Philadelphia that creates a scoring that allows us to understand which parts of the City need outreach the most. And that scoring includes median income levels. It's by Census tract, median income levels, the number of children in that area that are enrolled in assistance programs, the number of properties that are tax delinquent and the number of properties that are delinquent with water so that we can focus outreach in that area. And once this mapping is complete, our plan is to reach out to Councilmembers in those Districts to see how we can best partner with you and other agencies in the Mayor's Administration to conduct outreach in that area.
Okay. And then just one more question: The policies for tax clearance, when the property doesn't owe taxes but owes commercial fees or something similar to that? COMMISSIONER McCLOGAN: I'm sorry. What the process is your question?
Yes. What's the policies? COMMISSIONER McCLOGAN: Okay. So for tax clearance, anybody who is seeking to essentially do business with the City, they're seeking to get a license or permit from L&I. They want to open a business account, they are applying for a refund or a vendor who's doing business with the City, they have to be tax-compliant. So we have an interface with Licenses & Inspections that does not reveal any confidential information but simply indicates whether somebody is compliant or not. And if they are not, then they need to respond to -- I'm sorry, they need to come to Revenue so that we can help them come into compliance. That process has been significantly improved with the Philadelphia Tax Center. Customers can go online and print a tax clearance certificate themselves. They can do that prior to the Philadelphia Tax Center, but the difference now is that they can log into their account and actually see why they're not compliant and work to resolve it there.
Okay. Are we advertising that this system exists now because this is the first I've heard of it here? COMMISSIONER McCLOGAN: The Philadelphia Tax Center?
Yes. COMMISSIONER McCLOGAN: Yes, absolutely. We went live with the first phase of that in the fall of '21 which was most of our business taxes. We went live with the second phase in the fall of '22, and then we went live with a third phase which replaced our cashiering system in the fall of last year. And throughout that entire process, our communications team did a really excellent job of creating videos, tutorials, directing and explaining what to expect during each of those processes, so that's all on our website. And I think that those videos have been very helpful to people who are adjusting to new processes with the system.
Thank you. Appreciate it. COMMISSIONER McCLOGAN: Thank you.
The Chair recognizes Councilmember Isaiah Thomas.
Thank you, Council President. Good morning, colleagues. Good morning, Administration. Thank you for the testimony yesterday. A couple of questions: So first, I'm a big fan and a huge supporter of the Administration's recommendation around moving from 55 percent to 56 percent of real estate taxes going to the School District. I'm wondering what is the Administration's overall vision as it relates to real estate taxes going specifically to the School District? Does the Administration anticipate coming back before this body and asking us to look at those numbers again in the near future?
Not this fiscal year. Obviously something in each year as we do our plans and budget, we will look at and decide whether there are changes that we want to propose.
But do you think that this is something that you'll have an appetite for in the future or do you anticipate it being a one-time ask?
I can't commit either way at this point. It is something that we're going to evaluate every year.
Okay. I think that will be important for us to know so we can understand what we want to do as it relates to the percentage of real estate taxes that goes to the schools. Earlier in your testimony you said 7 percent of real estate taxes, the revenue from real estate taxes come from commercial businesses, correct?
Okay. So that means that based on your numbers, 85 percent of the --
-- real estate tax comes from residents, right. So when you talk about an 8 percent increase in the income that we expect on real estate tax and combine that with the fact that you anticipate losing over $1 billion from commercial businesses, you're basically anticipating the bulk of that money being paid off of the backs of middle-class folks which is the same demographic of people who's choosing to leave our city; is that correct?
Just one clarification. What we're assuming is 8 percent increase on the residential side and then that appeal loss and 0 percent increase on the commercial side. So the overall, we talked about this yesterday, is in the 4.5 to percent range. That 8 percent is just on residential.
So what I'm asking is the same demographic that you're expecting to see this increase from is the same demographic of people who are choosing to leave the City of Philadelphia; is that correct? When we look at our population issues, a lot of the people who are choosing to leave the City of Philadelphia are working middle- class people, correct?
So the tax rate is on everybody who owns a property, not just middle-class people and the Homestead at 80,000 gives more relief to a home that has lower value because it's a bigger percent of that value.
-- this is what I'm saying, I'm saying when we're looking at the population change in the City of Philadelphia, the same demographic that is choosing to leave the City of Philadelphia is the same demographic of people that we're relying on as it relates to real estate taxes and who we anticipate the new revenue coming from, correct?
I don't think so. I'm trying to say I don't think so. Because of the various relief measures we have, property --
Okay. So we can agree to disagree on that one again, right? Because Homestead and LOOP are phenomenal programs, but we talked about yesterday how a large percentage of our city who actually need to take advantage of these programs don't necessarily get the information in time. So with that being said, out of our top employers in the 5 City of Philadelphia, how many of 6 those folks pay real estate taxes? 7
10 Employers, the 10 folks who provide the most jobs to people in the City of Philadelphia, how many of those folks pay real estate taxes?
So I don't have that in front of me, but I know that there are a number of those that are nonprofits that do not pay real estate taxes on all of their properties. Even nonprofits pay some real estate. So if they have commercial activity, they'll pay on that. But for a --
So, for example, if you're Penn and you have commercial property that you own, you'd be paying property tax on that.
So how much do you think we get from Penn per year on property taxes?
Okay. So based on what I see the majority of our employers in the City of Philadelphia are government agencies like the City of Philadelphia, SEPTA and things of that capacity, hospitals and nonprofit organizations such as Temple and UPenn. Based on our analysis, out of the top 10 employers in the City of Philadelphia the only one who pays real estate taxes is Comcast, and we know that they have franchise agreements and other subsidies from the City of Philadelphia as it relates to real estate taxes. So based on your testimony, the percent of our real estate 5 revenue comes from nonresidential 6 spaces. What is the 7 Administration's plan, similar to 8 Councilmember Jones' question, what 9 is the Administration's plan to 10 move that number from 15 percent to 11 a higher space? 12
Yeah. So that 13 number becomes higher the more that 14 we have people in relief programs, 15 the more programs that we offer. That means residential properties are paying less tax, more of the tax would come on the commercial side.
So to the extent that we have relief programs and they're on the residential side, it means we're getting less revenue on the residential side and more on the commercial side.
Okay. So just to paraphrase, your vision is to offer more incentives and programs to residents so that a larger percentage of the real estate taxes come from businesses instead of residents?
We've been doing over time, right, by offering more relief programs. That's the impact of that.
Why not do things to try to attract more businesses so we have more --
So what's your vision around that? How do we attract more business that will pay real estate taxes?
As we talked about yesterday, we want to make the City to be a safer, cleaner and more attractive place for people to come to.
Philadelphia is one of the poorest big cities in the entire country. percent of our city lives in 8 poverty. From a tax perspective, 9 what incentives are we offering to 10 encourage business growth and 11 better jobs here in the City of 12 Philadelphia? 13
I'm 16 sorry. I'm talking about new 17 things, like in this year's 18 budget -- I know what we do in the 19 past. I'm saying what do we want 20 to -- clearly that's not working. 21 We've been the poorest big city for a long time. So what innovative approaches are you all recommending to address some of the poverty issues that we have from a tax-base perspective?
So we're not -- in this budget and plan we're not attacking that from a tax basis. We're attacking it from an investment basis. We're attacking the things we've been talking about, about increasing what we spend on public safety, increasing what we put into workforce development. It's a different approach.
Thank you, Council President. I know my time is up. We definitely recognize that it's a different approach. And I think all of us who travel across the City of Philadelphia will agree that the City needs to be cleaner and we need to do a lot about public safety, but I do think that we can do both at the same time. I think that we can ensure this City is cleaner. We can do things around public safety. But we also really have to take a critical look of this issue around poverty, growth, business growth and especially Black and Brown businesses. The City of Philadelphia is one of the worst cities in the entire country as it relates to giving Black and Brown businesses the opportunity to grow, expand and remain here. If a business -- we recently seen an article where a business chose to go to Conshohocken instead of Philadelphia. The Philadelphia suburbs is one of the most economically thriving suburbs for any major city in the entire country, and we have to at some point have the hard conversation about why people choose to go to Conshohocken and Plymouth Meeting and all these other places instead of Philadelphia. And I can assure you that safety and clean and green is not the only reason. If I'm going to have to 6 20 percent more profit in my bottom 7 line by going outside of the County 8 and can still enjoy all the great 9 things that we fight for, at some 10 point we have to have that tough 11 conversation about why businesses 12 choose to do that. 13 Thank you, Council 14 President. 15
You're welcome. The Chair recognizes Councilmember Kendra Brooks.
Good afternoon, everyone. And thank you for your overview on the Administration's priorities. I want to focus my questions this morning on revenue. This upcoming fiscal cycle will have most of our federal dollars from COVID pandemic relief coming to a close. Because of that, I want to make sure that we are not just looking at this proposed budget but what this budget signals maybe coming out -- well, coming in the outlying years of the five-year strategic plan. So according to that plan, the Administration identifies one of the challenges we face is major sources of revenue drying up and the tax bases that faces challenges. Much of the Administration's plan around this is pushed into the next budget cycle to take into consideration recommendations from the Tax Reform Commission. The Inquirer had stated the lineup appears favorable towards business interest. So I'm interested to see what is the criteria the Administration has for this Commission, like how are people being picked on the Commission and will community organizations or members of the public be able to make recommendations to the Mayor?
So the Commission was actually set up by a Council resolution. It has members, four appointees from the Administration, four from Council, four from the Chamber and one from the Controller. And I think those slots are in the process of being figured out right now.
So one of the things when we looked it up, we saw six seats for the Chamber on this Commission. And I want to know what is the Administration's plan to ensure diversity of opinion? So will there be spaces for those who hold a view that more revenue is needed for good City services?
When we look at who we will be appointing, yes, that will be one of the things that we consider.
So what is the expected timeline for the completion of the Tax Reform Commission's work?
I mean, it's not our Commission so I don't want to be presumptuous. You might defer to the Council President on that question.
Sure. We're in the process now of aligning up the appointees to get the process started. We expect recommendations that come out of the Commission for this upcoming budget process as well as a long- term strategy on how we evaluate our tax structure system as a whole. And so, I'm looking forward to once I get the appointees from the Administration hopefully as early as next week to start the process. We have our appointees. We're just waiting in giving the Administration some time to give us theirs. But obviously, the goal was to kick this thing off next week. That's the timeline that we have. Thank you.
Thank you, Council President. So given the pending 2025 fiscal cliff that PICA referenced and especially with the ARPA money running out at the end of this year, how is the Administration thinking about solutions that won't negatively affect working Philadelphians and communities?
Yeah. We showed that through our Five Year Plan. So the plan has the ARPA money going away. It has the big pension obligation bond agreement in '29 and it still stays positive in each of its years with the investments that we've been talking about over the last couple of days.
So knowing that the cuts to the Wage tax and BIRT tax directly impact communities as it cuts into our revenue for public services such as parks and libraries, if such tax cuts are proposed, where would the Administration consider cutting budgets to pay for these tax cuts?
So we don't look at it in that trade-off. We do look at tax cuts as an investment that are designed to help grow the budget over long- term. And I think the disagreement that we're having now is what's the best investment to grow the economy, not whether these are all legitimate investments.
So the City is currently in negotiation -- I'm on to my question -- with the public sector unions for new contracts. In the budget there is a bucket of money set aside to pay for wage and benefit increases. If this amount turns out to be insufficient, how might the City increase revenue in order to close that budget gap?
So what we do, every time we have a collective bargaining agreement is look at how it relates to whatever we set aside and then we do kind of a holistic approach to figure out how we balance our budget and how we can do that without having an impact on services, so that's a process we'll go through when we see where they come out.