COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE Room 400, City Hall Philadelphia, Pennsylvania Wednesday, March 26, 2025 12:35 p.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 JONES, JR. COUNCILWOMAN RUE LANDAU COUNCILWOMAN QUETCY M. LOZADA COUNCILMAN NICOLAS O'ROURKE COUNCILMAN ANTHONY PHILLIPS COUNCILMAN ISAIAH THOMAS COUNCILMAN JEFFREY YOUNG, JR. BILLS: 250195, 250196, 250197, 250198, 250199, 250200, 250201, 250202, 250210, 250211, 250212 RESOLUTION: 250214
This is the public hearing and public meeting of the Committee of the Whole regarding Bill Nos. 250195, 250196, 250197, 250198, 250199, 250200, 250201, 250202, 250210, 250211, 250212 and Resolution No. 250214. Ms. Loughead, will you please call the roll to take attendance.
Present. Thank you. A quorum of this Committee is present and this hearing is now called to order. Ms. Loughead, will you please read the titles of the resolutions.
Bill No. 7 250195, an ordinance amending Chapter 19-1500 of The Philadelphia Code, entitled "Wage and Net Profits Tax," by revising certain tax rates, under certain terms and conditions. Bill No. 250196, an ordinance adopting the Operating Budget for Fiscal Year 2026. Bill No. 250197, an ordinance to adopt a Fiscal 2026 Capital Budget. Bill No. 250198, an ordinance to adopt a Capital Program for the six Fiscal Years 2026-2031 inclusive. Bill No. 250199, an ordinance amending Chapter 19-2600 of The Philadelphia Tax Code, entitled "Business Income and Receipts Taxes," to revise certain tax rates and end certain exclusions from the tax on receipts, all under certain terms and conditions. Bill No. 250200, an ordinance amending Chapter 12-100 of The Philadelphia Code, entitled "Traffic Code" to revise the fee for the use of parking meters, all under certain terms and conditions. Bill No. 250201, an ordinance amending Chapter 19-1800 of The Philadelphia Code, entitled "School Tax Authorization," to provide for an increase in the tax of the Board of Education of the School District of Philadelphia is authorized to impose on real estate; and amending Chapter 23 19-1300, entitled "Real Estate Taxes," to establish an equivalent reduction the tax rate for the City real estate tax, all under certain terms and conditions. Bill No. 250202, an ordinance amending Chapter 19-1806 of The Philadelphia Code, entitled "Authorization of Realty Use and Occupancy Tax," to eliminate certain exemptions, all under certain terms and conditions. Bill No. 250210, an ordinance amending Chapter -- amending Section 10-1001 of The Philadelphia Code, entitled "Fees of the Commissioner of Records," to increase the portion of fees for the recording of deeds and mortgages in related documents to be used for Housing Trust Fund purposes, under certain terms and conditions. Bill No. 250211, an ordinance amending Chapter 19-1400 of The Philadelphia Code, entitled "Realty Transfer Tax" revising the rate of the tax, all under certain terms and conditions. Bill No. 250212, an ordinance to amend Chapter 19-4400 of The Philadelphia Code, entitled "Development Impact Tax" to end imposition of the tax, under certain terms and conditions. Resolution No. 250214, resolution 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 2026-2030, and incorporating revisions with respect to Fiscal Year 2025, 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 hold the public hearing of the Committee of the Whole to consider bills read by the Clerk that constitute proposed operating capital spending measures for Fiscal Year 2026, a Capital Program and a Forward-looking Capital Plan for Fiscal Year 2026 through Fiscal Year 2031. Today we will hear testimony from the Administration regarding Administration finances and proposed tax bills. Today we have scheduled testimony from the Department of Finance, Department of Revenue, the Sinking Fund, City Treasurer, Board of Pensions, the Office of Property Assessment. Given the overlap in these departments' responsibilities, all departments will be available for questioning following testimony from the City's Finance Director Rob Dubow. At 3:00 p.m., we will hold our first of four public testimony sessions. Ms. Loughead, will you please call the first witness to testify.
Rob Dubow, Finance Director. (Witnesses approached Witness table.)
Just state your name for the record and please begin your testimony. How you doing today?
Great. Good morning, Councilmember -- Council President Johnson and members of City Council. I'm Rob Dubow. I'm the Director of Finance and I'm pleased to present testimony on the Office of the Director of Finance's FY26 operating budget. I'm joined by Cat Lamb, First Deputy Finance Director and Elizabeth Hanley, Deputy Director of Finance for Administration, Development and Training. We are joined by the rest of the Finance leadership team. Before I begin my testimony, I just wanted to take a moment to thank the leadership team and all the employees in Finance for their tireless efforts on behalf of the City. Finance's core budget request is 25.9 million. That includes funding for 142 positions. I'm going to keep this short. You have my written testimony and that details our programs, our goals, our performance measures and our spending. So I'm going to end my testimony there. We're also submitting written testimony for the Board of Pension Retirement, Revenue Department, Office of Property Assessment, Treasurer's Office and the Sinking Fund Commission. And as you said, representatives from each of those agencies are here to answer any questions you may have. Should I go into the tax bill testimony?
Okay. Thank you. So good morning, Council President Johnson, members of the Committee. My name is Rob Dubow. Same name, I'll not introduce myself again. Thank you for the opportunity to testify and I'll be testifying on the various revenue measures in the proposed FY26 budget and the '26-'30 Five Year Plan. And I break this into four different parts, the tax investment related to recommendations from the Tax Reform Commission, items related to the Housing Initiative to preserve and produce 30,000 housing units, items that will produce more revenue for the School District and items proposed in response to legal challenges. So on the tax investment side, in developing our proposed changes to the Business Income Receipts Tax and the wage tax, the Administration had three guiding principles: One, we wanted to do things that were bold and unprecedented. Two, we wanted them to be fiscally responsible. And three, we wanted to take advantage of the City's reduced pension costs after the City's Pension Fund reaches 100% funded. I believe that our proposal is consistent with all of those principles. We focused our reductions on the BIRT because it's a tax that's both complicated and expensive for businesses. BIRT taxes both receipts and income for businesses. That means that regardless of whether a business makes profit it has to pay taxes on its receipts. And then if it does make profit, it pays more. Our proposal would address both the complexity and the cost of the burden. Under the proposal, reductions in the gross receipts tax would begin in FY26 and they would accelerate once the Pension Fund reach 100% funded. And then that tax would be eliminated within seven years of the fund reaching 100% funded. Businesses would no 3 longer have to pay a tax on their gross receipts, even if they didn't make profit as they do now. Reductions in the net income portion of the tax would also begin in FY26 and also accelerate once the Pension Fund gets 100% funded. And then within seven years of the fund reaching 100 percent funded, they would be a little less than half of where they are now. So businesses would have a less complex tax and would be paying less. We give a couple examples of how that would work for businesses. It's in the written testimony so I won't go through the details of that. 39% for nonresidents by FY30. Resuming rate reductions would help continue a process that has seen resident wage tax reduced by almost 25% since it began. The changes to the BIRT and the wage tax are roughly $200 million investment through FY30, including about million in FY26. 11 And one of the things we were told 12 repeatedly is that for businesses 13 it's really important to have 14 predictability. So we are putting 15 these proposals in legislation 16 throughout the proposed term that I 17 talked about. E. Initiative. As part of the funding for that program, we propose to issue two $400 million borrowings for a total of 800 million. To help pay for the cost of those borrowings, the Administration is proposing a modest increase in the real estate transfer tax. E. bonds. And we have an example there of how that rate increase would affect a residential transaction and a commercial transaction, with the impact on the commercial transaction being much larger. We're also proposing to remove a hurdle to transactions by eliminating development impact tax. 5 million a year. So it hasn't had the benefit we hoped, but has the same cost for developers. On school funding, there are a couple of things in the plan. One is if you remember in last year's budget, we proposed increasing the percent of real estate that goes to the School District from 55% to 56%. 5% in the last year of our plan. That would provide another $12 million for the School District. When combined with the change we made last year, that would be $36 million more a year for the District. And in addition, we're proposing to increase meter rates in the Center City area by $1.
That will help increase traffic flow and will also increase revenues by about $4 million annually for the District. And finally, legal challenges. Since FY16, the City has exempted the first 100,000 in receipts from the BIRT. And since FY13, we've exempted an amount equal to 2000 from the Use and Occupancy Tax, $2,000 in payment. Those exemptions have been particularly helpful for smaller businesses. For the BIRT, tens of thousands of businesses don't have to pay the tax and don't even have to file a return. Unfortunately, the BIRT exemption has been challenged in court. Based on that challenge, the Law Department has advised us that the exemptions for the BIRT and U&O should be repealed. We don't take this step lightly. Relatively new interpretations of the Supreme Court requires that we can no 23 longer offer an exemption. Keeping the exemption would result in -could result in fiscally devastating punitive measures imposed by a court. We understand the issues that this will create. There will be confusion and additional costs. We're trying to take steps to help those businesses as we transition to a BIRT that doesn't include a gross receipts portion and has a much lower net income portion. The budget proposes to include $30 million annually to help businesses in two ways: First, we'll provide tax preparation support because some firms will either have not filed before or have not filed in a long time. And then second, we'll be expanding Commerce's programs to provide programmatic support for businesses so that they can grow and thrive. Among the programs that will be expanded, our Small Business Catalyst Fund, the Storefront Improvement Program and the Emergency Grant Program. We're also proposing to add employees in Commerce to help administer those programs. That concludes my testimony and we're available to answer questions.
Thank you, Mr. Dubow. Okay. Members are queued up. I just have a brief question before I turn it over to members so we can do a deeper dive into your presentation. I know yesterday some members were addressing the fiscal stability of our budget and there were some questions regarding if we're doing tax investments, if we're putting money aside for labor reserve, if we're putting money aside in the event that there's some policies that come from the federal government that has impact on our local revenues as well as the significant investments we're doing around the H.O.M.E. Initiative. Just give me an idea, Rob, on how you and your team are working, one, making sure that we have a structurally-balanced approach as we continue to move forward with our budget but also an issue that's near and dear to me again in terms of how are we driving economic growth and development. I know we talked about having an outside firm that gives projections on the type of growth we will see in the future. And so, I want to get an idea again and double-down on the Administration's plan to drive economic growth. And then also in terms of tax investments, are there any projections or how many jobs that will be developed based upon this investment that will take place with the tax investment?
Yeah. So we start first, the first question was about the fiscal stability in the plan. So a couple of things we have in the Five Year Plan. We start with fund balance, right. So that helps us as we look forward to kind of all the challenges that we face. We also make contributions to the Budget Stabilization Reserve Fund, which also helps us have a guard against unforeseen events. And then in FY25 in the upcoming transfer ordinance, we're proposing adding $95 million as a federal reserve which could at least give us a little cushion, as you know as things go wrong, if they do go wrong. So that's looking at the fiscal stability. We do have a plan that is balanced. It has positive fund balances in each of its years. We have a particularly challenging year when we get to FY29 because of that balloon payment on the borrowing from the 1990s. But you can see in the plan that once we get past that balloon payment, our fund balance starts to go back up. So we show kind of getting to balance after we face that big hurdle. Do you have a question now?
Okay. On the question of our economic development strategy, so tax investments are definitely a part of that, so are the other things that the Commerce Director was talking about yesterday, things like our workforce development programs, things like the marketing program that she's putting together. H.O.M.E. Initiative is also an important economic development tool, and I'm sure they'll be able to talk about more of that as they come in.
I was thinking, and I know it's early on in the stage, we'll have another day to specifically address the issue around the H.O.M.E.'s Initiative, again talking about focusing on job growth and development as a way to address the issue of poverty. And so, there will be analysis of projected jobs that should be developed out of the H.O.M.E.'s Initiative with the borrowing of the $800 million investment, is that correct, a fair assessment?
Yeah, the analysis of what it means for the economy in general?
Okay. When you talk about our city having the highest combination of credit ratings and more in the last four decades, how much money has the improved credit rating saved in terms of city borrowing? And I know you're big on making sure we spend the money, it's not just sitting there and we're paying a debt service.
Right. So what it's done for us when you get up into the A rating -- so we used to be BBB -- there are more investors who can invest in your bonds, so rates come down. I think the exact amount of the saving probably just depends on the timing and a specific issue, but it definitely has a meaningful impact on what we spend on our bonds.
As we move forward, what would you think would put our credit rating at risk as we continue to move forward in this environment?
Yeah. So there are two things that the rating agencies have looked at and said, okay, these are really positive developments. One is the progress we've made with pension funding. So I think if we didn't continue the commitment we've made to increasing the health of the Pension Fund, that would be something that rating agencies would be really concerned about. And if we didn't continue our commitment to having positive fund balances and making sure that we have protection against things that would go wrong, I think those are the two things that they are looking at.
And this question is for the Revenue Department regarding tax relief, right. We want to make sure that we're supporting the most vulnerable people in the neighborhood regarding making sure they're not burdened by the real estate taxes. And so, members of Council went all throughout the City of Philadelphia educating the public around the various tax relief measures that we offer, such as LOOP, such as Senior Citizens Tax Freeze, such as the Low-Income Tax Freeze. But one thing that did arise during our town halls that we were learning about is making sure that there's a coordinating effort in terms of the application process. And I know part of the testimony is that we want to have a consolidated portal where individuals can apply for LOOP, Low-Income Tax Freeze, Senior Citizen Tax Freeze and their various other tax relief measures that we have to offer. What is the timeline on when that process will actually be completed? COMMISSIONER McCOLGAN: Sure. Good afternoon, Council President and members of Council. I'm Kathleen McClogan, Revenue Commissioner. Thank you for the question. Because we're very excited about this initiative, we've already started conversations with our vendor to gather the requirements for a universal application for property tax assistance and our goal to implement that in FY26. It is a complex endeavor because of all of the different criteria for each of the programs, but we're confident that we'll get it done in FY26.
When we talk about the auto- or cross-enrollment for the various city tax relief measures, when is that time frame? Is it the same time around FY26 as well? COMMISSIONER McCOLGAN: For auto- and cross-enrollment?
Yes. COMMISSIONER McCOLGAN: So auto-enrollment is complicated on the tax side because of legal and privacy limitations that we have in place, but I can talk to you a little bit about what we do. So on the tax side when a customer is found to be eligible for the Senior Tax Freeze or Low-Income Tax Freeze, we do automatically enroll them in Homestead because we've already verified that is an owner- occupied property. And for -- we do the same for Senior Tax Freeze. We do think that the universal application will really benefit taxpayers. But also other things that we have done is proactively reopened the Low-Income Tax Freeze application since Councilmember Gauthier's ordinance was introduced on March 6th. And I'm happy to say that we have had additional applicants. I can talk to you a little bit more about outreach if you'd like, but also just to reiterate what we've done on the water side. So we do auto-enroll and cross-enroll wherever we're able to. So on the water side, we did auto-enroll over 40,000 customers into the TAP program. We're very proud of that initiative and it's ongoing work that we've partnered with the (inaudible) team to do. So that's still ongoing. We also auto-enrolled customers who were eligible to receive a LIHWAP grant from the state. We know that they were eligible so we were able to auto- enroll them into the assistance programs. And we've also greatly expanded the shut-off protections for water. Also on the tax side, once we identify that a property owner is eligible for OOPA, we also enroll them into Homestead if they don't already have it. And just in terms of what else we're doing outside of the limitations that we have legally and with privacy, we formed an internal working group within Revenue so that we can continue to utilize all opportunities to utilize the data that's available to us so that we can auto-enroll wherever possible but also to make sure that we have focused outreach to groups so we can clearly identify who is eligible for all programs and make sure that we have focused outreach to them. We're working in that working group to standardize best practices so that we can document what works best with each application, the type of communication that works best, the language that works best and the support that is needed. And we always appreciate Council's partnership in all of the community outreach events. We really find that that is the most effective way to get people overall enrolled into programs. It builds the trust that's needed. And many times we're able to enroll them right on the spot for things like Homestead.
Good. All right. Before we go into the second round -- and that's something that's probably pretty critically important as you roll out the H.O.M.E. Initiative? (First round.)
No, I said before we go into the second round -- oh, yeah. (Laughter.)
Long morning, right. So before I turn it over to my colleague to begin the first round, that tax relief initiative I just think it's critically important to work in partnership with the H.O.M.E. Initiative simply for the fact that while we're doing development, right, or the preservation of homes, obviously depending on what neighborhood you live in, individuals are probably looking for more levels of tax relief. And then also because we aren't doing assessments in 2026, that gives a little grace period where people don't feel like they really don't see their real estate taxes actually increasing, but then when '27 comes, my understanding '27, '28 we'll probably be doing this again, incrementally at least. From a preliminary conversation I've had, that after '27 moving forward we'll probably make an incremental increase or assessment -- not increase. I'm going to say assessment. But most of the time when there's an assessment, there's an increase, right. And so, hopefully during '26 we'll have a chance to kind of put this tool to work in terms of making sure when we go out in the neighborhood and the community, it's easy for people to just go on one portal, one application and enroll as many people as possible. I have a quick question though. I know I advocated every year I've been here around Homestead. Do we have numbers of how many people, how much was allocated in FY25, how many people actually took advantage of the Homestead Exemption in terms of money left on the table? COMMISSIONER McCOLGAN: I can speak to the enrollment numbers. For Tax Year 2025, we have 247,000 properties that are enrolled in Homestead. And that's an almost 13,000 increase over Tax Year '24.
Thank you very much. Let's rock and roll. The Chair recognizes Councilmember Jones.
Thank you so much, Mr. President. How much time do we have today per member?
So all I ask so we can get in two rounds, I just ask individuals before you do the whole speech before you get to the question --
So I asked that number because I can only praise one of the members at a time -
So I did Rob Dubow yesterday. So I want to thank you, Revenue Commissioner. I don't know. What was the lady that retired that used to come out and make people feel -- Vicky. COMMISSIONER McCOLGAN: Vicky Riley.
Vicky used to come out to community meetings and make people feel good about paying taxes. I'm like now that's some magic for you when you feel good and let me write this check. That is an amazing thing. And I want to thank you personally for one of my constituents who came up with this much paperwork about bills that he was unclear about and double payments and things like that. And you sat down with him and made him feel good about paying his taxes. So I want to publicly thank you for that. COMMISSIONER McCOLGAN: Thank you, Councilmember.
You are welcome. So my line of questioning is similar to what President Johnson talked about. One, in lieu of I think it might have been O'Rourke that talked about our potential exposure based on the federal government. And one of the things I will say about you, you are frugal, if nothing else. You know how to hide that money and put it away and squirrel it away. And --
-- I've learned to appreciate that in you. So what I want to go straight to is two things that I'm looking at. One, I don't want to tinker from above or in this chamber with millage rates, AVI, if it's going to have a devastating impact on our ability to provide basic services. But Member O'Rourke and others of us want to take a hard look at tax reduction proposals, things to protect the common person, but you have to tell us why we should not. I'm going to hold you to saying, Councilman, that's a crazy idea because this is what will happen. Now, I won't hold it against you, Rob, because I actually respect what you do. And so, you need to talk to us. We ain't got to do it in here, but to say this will have unintended consequences. So my bill is an AVI millage rate neutralization bill 23 that says they've learned over time not to have to come back in these chambers and ask what's for millage rates. So they go around the city and they adjust AVI to get what they need to run the city. But is that an overreach or overpay that we might want to look at millage rates adjustments based on property value increases. Now, like I said, I don't want to be the petulant Councilperson that messes up the dials, but you need to explain to me why we should or should not do that. And I'll hold you there.
And can I add also a point of information to follow up with Member Jones' line of questioning. Rob, you could also follow up with under the leadership of Councilwoman Jamie Gauthier, particularly when Councilmember Jones says in certain parts of the area, assessments, assessments right, are nonconformity, I guess if I can use that, but basically from a racial disparity standpoint, right, there was a report that came out that says, basically assessments are higher in some areas than the other areas based upon racial demographics and backgrounds. And so, I know we are doing the H.O.M.E.'s Initiative that deals with housing. Assessment is going to be a part of that conversation as we begin to develop, right. But could we also address that component in terms of what are we doing to address it as well?
So couple of things. On that component in particular, the Mayor set up an assessment task force that has people outside the Administration, inside the Administration, and one of the issues they're looking at particularly is that issue and whether that exists, and if it does exist, maybe what causes it and what can happen in response. And I know there are conversations going on about that. On the millage question specifically, I think obviously there's an impact on the General Fund. There's also an impact on the School District. And as Councilmember Thomas pointed out yesterday, they're facing some real challenges, their finances. So that would be one of the concerns I have about something that hit our millage rate.
So I'll let you know I sincerely appreciate your guidance on these things because that is your wheelhouse and I respect what you tell me, what you tell us. Second component I have is with all of the DEI retractment of working with members that represent University of Penn, Councilman Johnson, Member Gauthier, to look at a couple of things. One, if you're telling me that you no longer are committed to these things, should the City of Philadelphia be committed to you by way of you not paying taxes? So when you have the shadow of Temple facing North Philly -- and I'm not picking on Temple, not picking on Penn, St. Joe's does a real good job -- but it's time for us to evaluate what is the community benefit that you give in the shadow of your institution to the kid living in the projects. I'll never forget being at Temple and I'm watching this kid look at young people, scholars going to Temple never believing that that is for him or her in the shadow of not a job, not a scholarship, not anything. And so, we have to start to look at and say we care about these institutions that care about the communities in which they're housed, and we're going to seek your guidance on it to be able to come up with a formula that says, Penn gives this amount of scholarships, they work on community benefits, this amount of supportive housing, they're not gentrifiers, they are community partners. And we want to see a mathematical model that says you are worth the price of a mission in our city. And if not, if not, we need to take a hard look at their status as a nonprofit entity in the shadow of the communities that we live in. So those are two of my asks that we -- I don't want to go monkeying with things that I don't have, in the spirit of in my inner Blondell Reynolds Brown, right, that we really -- and one of the things Majority Leader does is does her homework. And we want to work with the Administration to say we need to do a little bit more of this. We need to be cautious about that, because particularly with No. 47 up there we don't want to cause a chain reaction that does harm to our city. So we're looking to work with you --
Thank you, Member Jones. Chair recognizes Councilmember Brooks.
Thank you to all of those testifying today. I'm going to go directly into my questions because I think there's a lot of confusion about the BIRT reductions and increased taxes on small businesses. I know that I've gotten some questions about this, and early today I pulled out a proposal that we are calling the People's Tax Plan outlining some sensible solutions that I think are worth considering in this body. Can the Administration give an update about the outreach they have done last year on wage tax refunds and how can we build upon those efforts? And the next question is, what steps can the City make today to get into a place where we can start automating wage tax refunds?
And I'm going to ask the Revenue Department to talk to that. COMMISSIONER McCOLGAN: Thank you, Councilmember. The first part I heard that you were asking about our communication about wage tax refunds. And I'm sorry, the second part?
One is about outreach and how can we build on them. And the second question is, what can we do to start automating the wage tax refunds. COMMISSIONER McCOLGAN: Okay. Thank you for the question. Through data-sharing, we did identify folks who are likely eligible for wage tax refund and we've sent out over 100,000 notices to them late last year, and we're happy to say that the result of that was that we were able to double the number of low-income wage tax refund recipients over the year before. So that was a success and that's something that we'll also continue to talk about how we can improve upon in that working group that I had mentioned earlier. Automating wage tax refunds is a challenge. It's something we really just don't have the ability to do because the data that we receive that's related to that is dated by the time it comes to us. On average, it's two years old, and also it doesn't really give a complete view of all income for the taxpayers. So auto- enrollment isn't something that we can do, but we can always work to improve our outreach and focus to make sure that we're getting those funds back to eligible employees.
So I heard you say you did mailers out to folks. Is that the only mode of advertising around that the City has done around wage tax refunds? COMMISSIONER McCOLGAN: No. So we have a ton of information on our website. I believe we also have a video that shares information about that. And then we also share information at all of the outreach events that we do. We do between 200 and 300 outreach events throughout each year, and we have a great communication team that makes sure that they focus that information where it's needed.
So is it on social media? Is it an ad campaign? COMMISSIONER McCOLGAN: Yes. So we have social media, we have videos on YouTube, we have information on our website. We also -- I just recalled that we send out a notice to all employers at the end of each calendar year to let them know that when they provide employees with W2s that they're required to also inform them of the low-income wage tax refund. So we make sure that we communicate that out to the employers, inform them of that requirement. We give them the language to share. So we're really doing everything that we can to get that communication out to eligible employees.
Thank you so much. COMMISSIONER McCOLGAN: Thank you.
But I do have to ask the question because one part wasn't answered, Rob. Is the tax investments raising taxes on small businesses? That was mentioned in the statement. So could you clarify what's happening to small businesses? Are you supporting small businesses or raising taxes on small businesses?
No. The tax rate cuts will -- the investments will help small businesses. Most of the payers of the BIRT are actually smaller businesses. The largest businesses are a very small percent. So, yeah, the tax rate changes will help businesses of all size.
Okay. Just trying to get some clarity just for the record as we go through this process. The Chair recognizes Councilmember Phillips.
Thank you, Council President Johnson. Today I just wanted to raise a couple questions regarding the business tax predictability. So you mentioned a commitment to predictability for businesses as part of these tax changes. Given the long-term nature of these adjustments, how does the Administration plan to effectively communicate the upcoming burden in wage tax changes to business owners, particularly small businesses, to ensure that they're aware of the new tax structure and have enough time to adjust and plan for these changes through FY39?
I'll turn it over to the Revenue Commissioner to talk about that in more detail, but it's going to be a combined effort of both Commerce and the Revenue Department to do the outreach to talk about both what's happening on the tax side and about the programs that Commerce is expanding. And both departments have an extensive list of contacts in businesses so they'll use that. COMMISSIONER McCOLGAN: Yes. Good afternoon. The Revenue Department is committed to making sure that we inform businesses of their tax obligations, and we've already started working very closely with Commerce. What we started to do once this change was announced was let everyone know that we're sending additional information after this tax season is ov -- after April 15th of this year, because it can be very confusing. The tax change applies to the 2025 year which is due in April of '26, so we've let people know that information is going to be shared soon, and we will make sure that we have a robust communication plan to all businesses. We can do a focused notice that goes out to all of the businesses that we have registered. And we've already scheduled weekly meetings with Commerce to talk about how we can best partner to get that information out to businesses, which can include adding some of the language about their programs to some of our notices that go out because we send so many notices out to businesses and customers. So we are going to work very closely together to make sure we get that information out.
Thank you. And just so you know, the important crux of that question is for very small businesses, the ones who may not even make a couple dollars a year. They're just businesses in name basically. COMMISSIONER McCOLGAN: Yes.
That's going to be more key. COMMISSIONER McCOLGAN: One thing I'd like to highlight also for small businesses is that as of 2022 they have the opportunity to carry a loss forward that is applied to the net income portion of their tax for years. 10 So that's also something that we 11 want to make sure that they're 12 aware of. 13
14 That's helpful. Also, for the 15 H.O.M.E. Initiative we're working 16 together to implement this plan. 17 As a Council, I have a few 18 questions regarding how the City 19 want to assure these resources for 20 each resident who need them the most. A critical factor for the 9th District is infrastructure improvements such as NPI's driveway program and retaining wall efforts. How does the Administration plan to support these type of initiatives under the H.O.M.E. Initiative ensuring that structural repairs and neighbor stability efforts are funded, particularly around our driveways?
The H.O.M.E. Initiative has funding for that, specific funding, so it's covered in that.
Perfect. Thank you. Thank you, Council President. I'll come back for the second round.
Thank you. In terms of small businesses, I would think that because of the lawsuits and I just want you to clarify for the record, because again there's an argument that this proposal, tax proposal, is raising taxes on small businesses. That's one narrative. I'm going to put it that way. Lay out the facts regarding the lawsuit, why the exemptions aren't going away, right. And then when the exemptions do go away, the steps that small businesses have to take as it relates to them now having to pay the gross receipts tax going forward?
So the exemption is going away because we've been advised that it would not withstand a legal challenge. That --
Yeah, yeah. So we understand that that will create both confusion and costs for businesses, particularly small businesses.
How much would it cost us to defend that case in court? You said it's going to cost us. How much are we talking about it will cost us?
In the worst-case scenario the whole BIRT would be declared to be not an enforceable tax. And so, that's the worst-case scenario and the thing that we're trying hard to avoid.
So Francis has advised me actually that in the worst-case scenario not only would we lose the tax, but we'd have to pay back three years of the tax. And just to kind of give you some context, in FY26 our estimate is that the tax be $725 million.
We don't give BIRT, Mr. President. We give credits. We won't give money back.
When you -- your time, you're queued up. But I just wanted to get on the record. And so, not moving forward with the legal challenge, right, doing the settlement, right, the exemption goes away, right. So the exemption goes away not necessarily raising taxes on small businesses. We didn't vote as a body to increase taxes --
I want to clarify the narrative. We can talk facts. Rather your people agree or disagree if you should go to court or not, we as a body are not voting to raise taxes.
Yes. And as part of the budget, we're proposing $30 million in programs to help businesses, particularly small businesses, through grants and preparation advice on the tax side.
And what's the Administration's plan to educate those small businesses and get them up to speed who have never filed taxes before?
Yep. So part of that 30 million in proposed funding is specifically for tax preparation to help to let small businesses know that they need to file and then to talk them through how to file.
thank you very much. The Chair recognizes Councilmember Jamie Gauthier.
Thank you, Council President. And good afternoon. Thank you so much for being here --
-- and thank you to the Revenue Commissioner for reopening the application for the low-income property tax freeze. I'm really excited that there's more time for people to get enrolled in this vital program. I know that we are considering the tax proposals as a way of attracting jobs ultimately to the city. The thing that I think that I struggle with every year around this is just wanting more certainty that our people will get the job, so that people who live here who are living in poverty will get the jobs or get a substantial amount of whatever jobs are created. So would we be able to put anything in place like local hiring requirements if we do go ahead with the tax cuts? Is that something that we could consider as a city to ensure that the folks who live here are going to be the ones who benefit?
I think I need to just talk to the Law Department about that, but understand the concept.
Okay. In particular, I really appreciated one of the proposals that came out of the Council President's Tax Reform Commission Report. Have you read that report?
Okay. I didn't want to assume. But there was a recommendation that we would create a fund along with any tax cuts that happen or particularly tax cuts attached to the BIRT. And the idea is that we will put an amount equal to 10% of the BIRT tax rate reduction into a special investment fund called the Jumpstart Fund. So, for example, if the BIRT reductions amounted to 30 million over a given period, we would have 3 million in this fund and we would create a match as well from our business community so that we could have several million to work with, and that money would go towards workforce development programs to ensure that local people benefit from these tax cuts, and they would also go toward support for small businesses. Are there any concrete plans to stand up these programs?
So the programs that we're standing up are really the ones we're talking about as part of that $30 million. A lot of those are specifically for small businesses to make sure that they can thrive and that they can maintain and expand employment.
Well, I appreciate the 30 million. And we've touted that. I do think that we should create a tool that makes it really easy for small businesses to get those 30 million in resources as opposed to shifting them to vital programs but programs that may have more application criteria. But the $30 million is specifically in response to us getting rid of the BIRT exemption. The Tax Reform Commission's recommendation is about the tax cuts that will be instituted over a long period, right. And so, it's not really the same thing. So what I'm asking is would the Administration seriously consider along with the tax cut proposals a fund where we could take a portion of that money and put it to use for workforce development programs for our residents here and for even more small business support?
Yeah. And I will tell you also that we have more in this budget on workforce development than equal to 10% of our BIRT tax cuts. So I think we've actually done more for workforce development than what the Tax Reform Commission was recommending. But happy to have more conversations with you because workforce development is important and we're always happy to talk about additional investments there.
Great. I would love to talk more about that. I know that since this came from the Council President's work, I would hope that the Council President and this body would push for such a fund. And just to be transparent, I talked to the Tax Reform Commission about this idea at great length and I'm hopeful that this is something that we can do for our communities. Thank you so much.
You're welcome. The Chair recognizes Councilmember Jim Harrity.
I got lots of questions, but right now I just want to concentrate on the Zero Fare program. A program funding free SEPTA passes to 25,000 residents in poverty is receiving 0 in the FY26 budget. I'd like to know why we're not continuing that program. It actually benefits people that actually need it. Also would like to know what is the average annual salary threshold to receive the pass and what is the average salary threshold for a family of four to receive the pass?
So I can just give you the general answer and then get more specific answers when MDO is here for their hearings. But that was a two-year pilot. The pilot ended and we made the decision not to continue the program after the pilot period, but we can get you more information on things like the income requirements.
Okay. Do we know the number of people that this is going to affect that took advantage of this? I know a lot of our staff actually took advantage of this when it was a --
Two separate things. There's the Zero Fare program that was a citywide program.
And then there's a program that was just for City employees, and that is actually continued in the program but in the budget at a lower amount, at $5 million, so that's still there.
Okay. So part of it will still be around, but the actual resident part of it goes away?
How much -- do we know how much that cost, the program?
I think that's right, but I'd have to get back to you on that.
Okay. All right. I think I still have some time left so I'm just going to keep going while they're conferencing over there, try to get it in. What's the timeline on our proposed million borrowing for the H.O.M.E. Initiative? And then to do with that, what are the legal requirements that must be met in issuing these bonds? Are there any restrictions on the use of the funds?
So in the plan we showed two borrowings, one that would be this fall and then the second that would be November '27. We are planning to issue the bonds as taxable bonds, which means that the only restrictions would be whatever we can put in the bond documents or whatever the discussions are with Council about any restrictions.
So there would necessarily be no 21 restrictions on what you could pay for?
Well, we would negotiate an ordinance in bond documents. And so, whatever are in those documents would be the restraints on how we could use the dollars.
Okay. And then just what are the risks associated with this borrowing and how will the City manage potential cost overruns and project delays?
So for the borrowing itself -- you're talking about really the H.O.M.E. program, right?
So I think that kind of discussion is probably -- we have a full day for hearings on H.O.M.E. where they can get into things like, what they're doing to control cost and what they're doing to make sure that we live within -
You don't have any general numbers that you can throw out here?
Well, the 800 million is the cost for the City bonds, and then there's also money that will use Housing Trust Fund and federal money that would get that cost up to about $1 billion. And then there's land that we would putting in that can bring the total cost to about 2 billion. But I think you're asking a different question which is kind of a program-specific question and --
Excuse me, Member Harrity. One second. I have a point of information from Councilmember Nic O'Rourke.
Thank you, Mr. President. Just a point of information. On the Zero Fare, isn't it true that though it is a pilot, you have confirmed that it's a pilot, that we're actually planning to cut the program before we even have the evaluation which is due in 2026; is that accurate?
So we have no ability to look at the benefits of this at all because we're cutting it before the actual --
Well, we know what usage was. Right, but we don't have that --
I also have another point of information from earlier, but I'll raise that up in my question time. Thank you. Thank you, Council President.
Yeah. So I'm just trying to make sure that when we're thinking about this, we're thinking far enough into the future. I'm a construction guy and stuff's expensive, man. You go try to buy a sheet of plywood that used to cost 10 bucks, it's now a minimum of $60 to $75. And things, you know, the way this is going on our tariffs on products, we're going to need steel.
I think we need to be making sure that our numbers reflect any kind of overruns or costs that may come up --
-- because of the inflation and because of the tariffs.
Thank you, Member Harrity. And I was conferring with the little small mini conference with Member Jones as being one of the authors of wanting to accept the program that you brought up. So we wanted to confer together to make sure that we want to be supportive of the initiative that he offered based upon you bringing it up and this body supporting you, so we're on the same page. That's all, sir.
(Inaudible). The Chair recognizes the gentleman Councilmember Young.
I have a question about the construction tax. Could you tell us how -- you said it's about $3 million that it generates a year?
And how much revenue is estimated to be generated by the increase in the real estate transfer tax?
Okay. And the increase in recording fees, how much is estimated to be generated by that?
300,000 a year. So just to me, we're looking to increase those recording fees which is a nominal amount, $300,000. But this construction tax can fund that essentially. It's money there if we keep the construction tax. Whatever intent you have with the recording fees, the money could be -- essentially it's already there with the increase. And I just say that to say because recording fees affect everybody. No matter if it's nominal or not it affects everyone, whether it's a transfer from a mom to a daughter, a grandmom, whether it's in the state transfer, it's just something a tax that really affects or a fee rather that affects the entire city. So I just think that as we're looking at ways to continue to generate revenue for whatever reasons that we look at who it affects in the long run. So I just want us to be clear on this construction tax. Yeah, we can modify it a little bit. I do think that it's funding that is necessary to fund the initiatives of our city. And maybe we can look at it, you know, we're using it to fund affordable housing. Maybe we shouldn't tax affordable housing using the construction tax, right. But it's still something that I think our City can continue to use that revenue for as the market itself is creating enough market rate housing, right, that this particular tax can help continue to fund some of the initiatives that we need funded in our city. So just want to make that comment on the construction tax. I do have a specific question for Revenue. How does Revenue really know if a property is owner-occupied or not? Because we were informed that the only way you know is if the homeowner has applied for a LOOP or Homestead. Are there any other proactive measures in place to identify homeowners? COMMISSIONER McCOLGAN: Unfortunately, there is no data that's available to us to accurately reflect whether a home is owner-occupied. One thing I did want to point out because I think it causes confusion is we estimate the number of owner-occupied properties based on census information, but we don't know which properties they are.
Okay. And I have a question regarding LOOP. This is a constituent matter. A constituent had to subdivide her property because she could no longer afford her property in Fishtown. She subdivided, got a new OPA number. They then kicked her out of LOOP because she got a new OPA number and her tax bill is $10,000 a year, which is a third of her income. And so, we're trying to figure out how can she get back on LOOP, although on paper she doesn't qualify because she hasn't lived in this new OPA address for 10 years or longer. So what can we do to fix those types of issues that we see in our systems along with some of the other programs like the -- while my time is up, the Senior Tax Freeze and the Low-Income Tax Freeze, we have seen that constituents with different estate planning methods have been denied access to these programs. And so, I don't want people who have estate planning tools to be denied from these programs if they qualify. So folks with like South Philly Trusts or other types of trusts or other types of estate planning tools to save money on the back-end, when they pass away or they transfer the properties to their families if the intent is this is their home, I think we should still be applying these programs to those folks as well. So could you address those for me? COMMISSIONER McCOLGAN: Sure. The issue that you brought up with that individual who had a subdivision for LOOP, I am aware of that issue. I appreciate that your office brought that to our attention and we're discussing it, and we will get back to your office on that one very shortly. On the issue of estate claims for Senior Freeze and Low-Income Tax Freeze, we do have equitable ownership. So those property owners can come to us. We have a process where a member of our legal staff will review their information to see if they can make them an equitable owner. And in that case, they are entitled to those programs. So happy to discuss the individual situations that have been brought to your attention.
Yeah. I think I would like to see what the criteria is that your office use to determine who's an equitable owner or not because we want to make sure that this is a fair process for everyone. COMMISSIONER McCOLGAN: Sure. We have a very long list of documentation that they can supply, so we'll be happy to provide that to your office.
Thank you so much. If you can provide it to the Council President, I'm sure other members of Council may have the same issue as well. COMMISSIONER McCOLGAN: Yes.
Majority Leader Gilmore Richardson, point of information.
Yes. Thank you, Council President. Point of information. Thank you very much, colleague Councilmember Young, for bringing that up. I have that here to even ask about. But I wanted to clarify with the Revenue Commissioner, you're referring to the policy change that we worked on around the tangled title issue in proving equitable ownership in order to be eligible for City tax relief programs; is that correct? This is the initiative -- COMMISSIONER McCOLGAN: That is correct.
-- that we worked on, right? COMMISSIONER McCOLGAN: I'm sorry?
Is that what Councilmember Young is referring to? COMMISSIONER McCOLGAN: I believe so, yes.
So it's something similar. It's essentially folks have decided for whatever reasons for estate planning purposes to have the title to the property in a trust. Although they still own the property, maintain the property as their home because of lower tax burdens when they pass away on their heirs, they may decide to keep a property title to the trust, but it's still their home. It is still their property they're occupying, maintaining, paying all the bills as their primary residence. And I think that those people should still have the benefit of some of these programs with like the Senior Tax Freeze, the Low-Income Tax Freeze because estate planning mechanisms, I mean, rich people use it all the time to get away from certain things. I believe that the lower-income folks are able to have the same benefit of using some of these estate planning methods as well. COMMISSIONER McCOLGAN: Like I mentioned, we'll be happy to review those individual property scenarios, but we do everything that we possibly can to get folks into assistance programs that they're legally entitled to.
Thank you, Council President. Good afternoon, colleagues. Trying to be efficient. So it's my understanding that the idea of getting rid of the exemption is not one that the Administration wants, but more or less the conclusion that you've come to based on a lawsuit, correct?