COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE OF THE WHOLE - - - Room 401, City Hall Philadelphia, Pennsylvania Wednesday, November 10, 1999 12:30 p.m. - - - Bill Nos. 960662, 960663, 970214, 970652, 980303, 980927 - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN AUGUSTA CLARK COUNCILMAN DARRELL CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK DI CICCO COUNCILMAN JAMES KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 (215) 561-2220 2 I N D E X BILL NO. 980303 DAVID GLANCEY, Board of Revision of Taxes -- 19 MICHEL NADOL, Director of Finance ----------- 21 DAVID VOLPE, City Controller ---------------- 23 DIANE LUCIDI, Association of Realtors ------- 46 3
May I ask all Councilmembers who are in the building to please report to the Chambers so that we can get started with our public hearing Committee of the whole. Councilman Rizzo, do you want to be recognized.
Madam President, I understand there will be three bills before us in the Committee today, No. 970652.
I must leave, and I'm going to leave my vote yes and for any amendments.
Councilman DiCicco, we're still considering 970214.
970214 and 970652. Also on Bill No. 980303, vote no and on any amendments also.
And Councilman 4 Bill No. 970214 DiCicco, you have 980927?
This is the continued public hearing of the Committee of the Whole from Wednesday, October 27, 1999, regarding Bill Nos. 960662, 960663, 970214, 970652, 980303, and 980927. Councilman DiCicco, you're withdrawing what bills? For the record, would you please make it very clear which bills you're withdrawing?
Madam Chair, I'm withdrawing Bill Nos. 960662, 960663, 980927.
Thank you. Do we have anyone to testify on these bills? (No response.)
It is my 5 Bill No. 970214 understanding, it I just handed testimony from the First Deputy City Controller, Dave Volpe, regarding Bill No. 980303. Does everyone have a copy of it? I just received it. Will the Clerk please distribute a copy of the testimony. I would ask Mr. McPherson to please read the testimony from the first deputy city controller.
Madam President, for procedural purposes, can I just ask if we can just accept this testimony as if it had been read in the record and give it to the stenographer.
I don't see problem with that. We'll give a copy of it to the stenographer and that will be made a part of the record.
Councilman DiCicco, it's my understanding that you have an amendment that you would like to offer on Bill No. 23 970214.
Yes, Madam President. 6 Bill No. 970214 Will the Clerk please distribute the amendment? Do I need to read in an in the record?
I think you should. Mr. Glancey, since this is pertaining to your department, do you have a copy of the amendment?
Thank you, Madam President. I'm offering an amendment to Bill No. 18 970214, "Section 2, Effective Date; Application. This ordinance shall take effect upon the effective date of state legislation enacted subsequent to the enactment of this Ordinance authorizing this Ordinance, and shall apply only to the exceptions for which application is made to the Board of Revision of Taxes on or after such effect date."
Are there any 7 Bill No. 970214 questions or comments from Members of the Committee regarding this amendment? The Chair recognizes Councilwoman Clark.
I'm not certain I understood the amendment, and I don't have it in hand. What is the effective of it, Mr. DiCicco?
Presently, the City is authorized under state enabling legislation to offer a three-year exemption -- an abatement on new construction, residential real estate construction. If this Committee should vote favorably on the bill with the amendment, it will not be able to take effect until the State gives us the 10-year authorization. Presently, in the State House and the senate, the bill is being worked on and we anticipate approval at the state level that will give the authorization to the City. So if we would have said immediately, we couldn't do that because we don't have the authority yet from State.
Yes. And the maximum that the State could allow us is 10 years. We presently have -- we implemented years ago in 8 Bill No. 970214 Council a three-year abatement. The bill is requesting to extend that to years. 4
It would remain in 8 effect even though the 10 years had passed? 9
No, the 10 years 10 abatement to the property that is being constructed.
Oh, I see. And it remains in force then, that 10 years would be the maximum abatement period?
Councilman Kenney, your light was on. Do you have any questions?
Thank you. The next bill is Bill No. 970652. Do you have anyone to testify on that? Or does the sponsor or anyone else have any amendments to propose? (No response.)
Seeing none, the next bill to be considered is Bill No. 980303. Is there anyone to testify on this bill or do we have any amendments being offered for that bill? The Chair recognizes Councilman O'Neill.
With the grace of the Chair, I'm going back to 970214, the first bill 16 Councilman offered the amendment of. I have some questions on that just dealing with the property dealing with the buyer or the owner. Party A buys a new home, gets the 10-year abatement. Two years later or four years later or five years later sells the property. Does the abatement continue, and if it does, what is the public policy reason for continuing it?
My understanding, the abatement goes with the property for the balance 10 Bill No. 980303 of the 10-year term, if it's four years out that you sell it, then there's six years left on the abatement. That's my understanding.
I'm not in a position to answer that. Maybe Frank Paiva or someone could answer that.
I just from a public policy standpoint would question whether as a used property we should be offering any abatements, because what's the difference between that used property at that point and any other property that's for resale. It's a comment. I think is worth looking at. Probably before the time we get the State. If we can tailor it, we will. I'd also be glad to work with Councilman on the state part.
Madam President, with respect to Bill No. 980303, if I understand it correctly, this bill is reduce the ability to transfer tax from 3.0 onto 1.5. This could result 11 Bill No. 980303 in an annual loss of approximately $32 million for the City's General Fund. In a companion piece of legislation certain loopholes in the real estate transfer tax are proposed to be closed, the value of which has not yet been calculated by the Administration due to a lack of data. The Administration's is trying to value them, but finding it difficult, the general feeling is that their value is immaterial in comparison to the annual loss of 32 million as a result of the proposed rate reduction called for in Bill No. 13 980303. The issue of tax reductions, the strategy of which taxes should be reduced, who receives these benefits and how the City pays for the decreases should be addressed in the City's annual operating budget and five-year financial plan and if at the approach may pour holes in our budget without leaving us a way to close them. And that is the lingering and continuing problem that I have with the bill that reduce the realty transfer taxes.
Would any other 12 Bill No. 980303 sponsors care to speak to that issue?
Thank you, Madam Chair and thank you, Councilwoman Clark. This is an issue that's been discussed, obviously, over some period of time, primarily brought to me by the people who engage in business in the City, primarily Greater Philadelphia Board of Realtors who, I believe, testified at the previous hearing that at least from their perspective there is some impact on their business by the City's disproportionately high real estate transfer tax as compared to the four counties is around us. The Administration's testimony from, I guess, a week or two ago did indicate potential significant revenue losses, although there is -- it's fairly easy to say that there is a dispute among parties about what the value will be of the closing of the four loop holes. The Administration at least recognizes that these do exist and that people do take advantage of them. The fact that they can't quantify them doesn't mean that they don't happen or that we wouldn't receive some 13 Bill No. 980303 benefit from them. I think it was testified at previous hearing that this Council, I believe in 1996 closed the loophole from which we are now enjoying some significant dollars coming into our budget. Secondly, I am more than willing to have continued discussion and dialog with the Administration about a different strategy on reducing the real estate transfer tax. It has been done in the past that the reduction not done all at one time but done in a phased fashion over a period of time. Notwithstanding whatever reductions, even in a phased strategy, there's nothing to stop this Council from stopping the phase-in at any particular point in time. There was one error that was made by the Administration in their calculations, which was an assumption that the transfer tax reduction would start in the middle of this particular fiscal year. I do have an amendment to be put forward that clarifies that particular issue as well as an amendment that would call for a five-year phase-in of a planned reduction of the real estate transfer tax with incremental and smaller reductions in the 14 Bill No. 980303 earlier years resulting in a much less, much less, potential revenue loss to the City. And the amendments that I have would cut that revenue loss by 45 percent.
Have you given a value to closing the loopholes and would you be comfortable with a plan that reduced the tax added amount equal to the loopholes value? I don't know that I've ever seen that computation, but that would be a direct offset, it seems to me, that nobody could complain about it.
Well, that certainly is a very interesting idea, Councilwoman, which I'd like to give a few seconds of thought to. To get to your first question, no, I have been able to quantify the value, nor has even people more esteemed and learned in this particular area than myself.
There are many around, Councilwoman, let me assure you. Some of them are actually in the room with us today. Frank Paiva from the Law Department studied this issue. It's the kind of thing where you can't figure out 15 Bill No. 980303 what you might get because you were never getting it in the first place. But I think if I heard your thoughts correctly, what you might be talking about is somewhat of a bifurcation of the real estate transfer tax reduction component of the bill, leave the loophole closing portion in place and see what happens over the next couple of years and then possibly come back and look at a reduction that's equal to what comes in from those taxes try to make a wash, is that what your proposal is?
Yes, unless there is a way to assign a value that is reasonably comforting to what the closing loopholes dollar value would be. Since I have no clue what they are -- I'm a little nervous with putting a hole in the budget and hoping that loopholes will not make the hole as big as we presently compute it to be. I think we need to be more responsible than that, and that's what my concern. But I, like you and other Members of Council, understand the beneficial impact of reducing that tax so as to increase the activity in realty transfers.
And I think that's been one of the primary goals. The new computation, 16 Bill No. 980303 just to at least get it on the record, and I would like to circulate the amendments so the Members can take a look at it, the new proposal would have the transfer tax reduced to the one-and-a-half percent level over a five year period of time and in the next fiscal year it would go from the current 3 percent to 2.75 percent or two and three-quarters. Based on the Administration's numbers in their testimony. That will result in an about a $5 million change between what they estimate the revenues to be at the 3 percent rate versus what they would be 2.75 rate in next year's annual budget.
What plan have you to make up even that margin, that five million.
I think it goes back to what you had raised earlier. And, again, I'm intrigued by that kind of proposal where we would keep in the closures. Although to be honest with you, people in the real estate community, when they looked at this, looked at the advantages that they would get from the lowering of the real estate transfer tax and were willing to push for that at the sacrifice of the closing of these actual 17 Bill No. 980303 loopholes that people do in fact utilize and were willing to trade off the closings for the reduction.
But their obligation and responsibility is different from yours and mine.
And from our vantage point, how do we achieve the greatest good by doing the least damage to systems that we already understand?
Madam Chair, I won't burden this record any further. I think the point that I was trying to make has been made.
Thank you. The Chair recognizes Councilman Kenney.
Thank you, Madam Chairman. Mr. Volpe's analysis of this particular proposal indicates that their conclusion is that the proposed legislation is likely to be an effective means of stimulating the local housing market. Then on page -- I'm sorry, the pages aren't numbered. But the page which says at the top "Real Property Transfer Tax Analysis" and shows you the chart would 18 Bill No. 980303 seem to run counter -- Mr. Volpe is not here, but would seem to run counter to his assertion because in 1989 when it was at its highest rate, 4.07, the real estate transactions in Philadelphia remained flat. It actually went down until 1991 when it hit a level 3.69 as a result of court ordered phased-in reductions. And seeing the steadily rise with each concurrent reduction from 1992 through -- well, 10 in 1994 when it stop reducing at 3.0, seemed to have 11 indicated that there was a spike in each year in 12 housing sales and activity commensurate apparently 13 with the phased-in reductions. And what I'd like to 14 do is if somebody maybe from the Administration or 15 for the Board of Revision of Taxes or from the real 16 estate industry try to explain that for us. 17 The other question I have for whatever 18 expert may be here enlighten us, and I raised this 19 with Councilman Nutter on the converse of the argument as to why we should do this or not. I'm wondering whether or not the real estate industry or anyone in the City could see the potentiality of people selling their homes and moving out of Philadelphia at a quicker rate based on a lower realty transfer tax. So, for example, I bought two 19 Bill No. 980303 houses in my life, both in the zip code. One, I bought for my parents and then the other one I sold that house and moved to a larger house still in South Philadelphia. The largest closing cost that I had was my realty transfer tax. The question I have, and I guess it's a supposition, is that if we reduce that number, would it potentially spur more people to sell their house because it's more cost effective for them to do it now because it's less of a closing cost? One side of it my question is it seems like the phased-in reductions did in fact spur on an increase in property transactions. And secondly, does anyone feel that a reduction in the real estate property transfer tax could create potential that someone might want to sell their house and move out of the City because it's less costly at closing to do so under the new scenario.
Mr. Glancey, are you prepared to answer this question?
Always unprepared, Council President, but never afraid to take a shot at answering one of these questions. Good afternoon. My name is David 20 Bill No. 980303 Glancey, and I'm the Chairman of the Board of Revision of taxes. Councilman Kenney, really I'm just taking a shot at the first part of your question. But it does seem to me that the transfer tax may not be the priority factor in whether or not people buy or sell homes. I mean, I think the cost of money is always the most important, and secondly, just the general conditions in the City. Now, is it a factor? I can only use my only personal analysis. I've bought two homes in the City of Philadelphia. I don't remember ever considering realty transfer taxes. I know times have changed since I last bought my home about years ago. 16
You may be correct, 17 because the first time I recognized the realty 18 transfer tax is when I fell off the chair at the 19 closing today when I had already done the deal. I 20 had already bought the house, I was already going to settlement and went down the settlement sheet and like kind of shrieked at that number. But the deal was already done then, and that's I guess part of what you're saying.
And I'm not here to 21 Bill No. 980303 minimize what the real estate community is saying. I remember those days when it was 4.07 percent, and I think in those days it was probably some sort of an impediment. But I think the changing economy, the reduction to 3 percent has had an I impact.
What you're contending now is that spike from '91 to '96 had as much or more to do with the economy and the cost of money as it did the phased-in reductions in transfer.
Again, without having research in front of me, that would be my reaction, yes.
I was going to try to answer with regard to your question for Mr. Volpe, but I think noticed that he just entered the Chambers.
But conceptually as I understand the analysis and as the Administration's own analysis has similar shown there are multiple variables that affect the volume of real estate transactions and sales prices and so on. And again, we're not saying that the transfer tax has zero 22 Bill No. 980303 impact, but what we're saying is that it's far, far outweighed by the impact interest rates, the health of the overall economy, general quality of life within the City, many different factors. And it's those other factors that I believe controllers regression analysis, if you control that for those other factors, the analysis shows that the remaining impact of the transfer taxes is minimal.
What is the overall benefit for the City for an increased housing sale market, increased activity in selling and buying of houses? Is there a direct benefit to the City? I recognize the real estate industry's interest in that particular area because it's their business, and the more houses they sell and the more house people buy certainly is works to their benefit. But what is the benefit to the City with having a spike or a large number of real estate transactions, both selling and buying?
If there's, along with that, increased activity, a net in migration of people, of businesses, of investment in capital, then clearly there's a benefit. If it's just exchanges back and forth, kind of a wash or lots of activity because 23 Bill No. 980303 everyone selling to leave and properties are being left behind vacant, then the benefit clearly would not be all that great.
But in the residential market -- and again, people from the industry could comment. In the residential real estate market, it's unlikely that a person selling and leaving without selling the house and buying a house somewhere else or leaving the house vacant. It's more likely that a person would move their business to another locale leaving the building empty and available for lease. I don't know many people who can buy a house in the suburbs in New Jersey without selling the house they have in Philadelphia first in order to make thier down payment.
Councilman Kenney, in all fairness to the witnesses at the table, I think the question should have been directed to Mr. Volpe. He is now present. I would invite Mr. Volpe to come up to the witness table.
In the interest of time, unless Mr. Volpe wants to elaborate, I think that Mr. Glancey said that while the real estate 24 Bill No. 980303 transfer tax in his opinion is a factor, the spike from '92 to '96 may have as much to do cost of money and overall economy as the transfer tax phased-in reductions. Would you like me to ask my question over?
First I'd like to apologize for not being here earlier to read my own testimony, so I do apologize.
David, the question was that it would seem run counter to the assertion in the testimony that the realty transfer tax doesn't play a major role in the sale and purchase of properties, but when I looked at the chart and the phase-down numbers, it would seem that from the 3.69 level through the 3.0 level there seemed to be a significant spike in housing transactions. The question I asked was seemed to run counter-current to the assertion that it didn't matter because it was moving forward.
I don't think we're saying it doesn't matter. We're just saying a couple things, one, other things matter more. The state of the national economy, interest rates in terms of the direction of interest rates, and the factor that we 25 Bill No. 980303 believe that other taxes are more important to be cut in terms of job growth. You look at the wage tax, business tax, we've done studies on those also that show that in bang for buck for job creation, you can do a lot better with reducing the wage tax, business privilege tax or a portion of it than with the real estate transfer tax. We did the actual analysis a couple years ago. It was related to another bill which related to making some exemptions. And again, I wan to say, not saying it doesn't matter, but there are other factors that matter more.
Thank you, Mr. Volpe. The Chair recognizes Councilman Cohen.
While I was out of the room, there was a title of the bill read, Bill 19 No. 960663. Is that going to be brought for discussion today?
With respect to that, I'd like to make a few observations. Whenever a large sum of money is threatened to be withdrawn from the City budget, I get very concerned about what is going to be cut if there is a loss because I think City services are not nearly enough and I'm looking for ways to increase the amount of money despite the general mood of no tax increases. But certainly, it would motivate against from reducing income and, therefore, I just express those concerns that I don't think we're in a position to withdraw money. Now, this tax was a very interesting tax when I was raised. I don't know how many members were here in City Council, but this tax was the brainchild for better or for worse of Mayor-elect Street. He developed a theory that there is no 21 continuing constituency that would be hurt by this because everybody was sort of a separate buyer and that therefore it was a tax that could be leveled at a much higher rate than it had been before at two and a half percent because there would be nobody 27 Bill No. 980303 really to protest it. People that wanted to buy the house would buy the house, and people who wanted to sell would sell and nobody would complain. They might complain a little bit, but they would not organize any kind of a taxpayer protest. So even in the late eighties it seemed like a kind of safe tax. Then we got involved the illegal aspect of it when Max Weiner raised the issue of a bill having had the rate of taxation left blank in the original bill. There was no rate in the taxes. And after the hearing were held, at that point after we had all the discussions, we filled in the figure with what seemed to be appropriate. When Max Weiner sued the City on the ground that there had not been enough notice for the tax, nobody knew what the tax was going to be and after the Council Committee adopted the tax bill and filled in the missing space, there was no further hearing. We thought our Council procedures were appropriate. We felt the purpose of the hearing was to established a figure for the tax and we adopted it and it we thought it was all well, but a cord courts did not agree with it. The courts through out the law and devised a new pattern for the law to take effect. 28 Bill No. 980303 Now, I don't know. Has there been any problems with -- other than real estate agents. They obviously want to be able to sell everything, you know, with the least amount of taxes involved. Have there been any significant number of complaints purchasers or by sellers? I mean, people complain whenever there's going to be tax increase. Obviously, there are going to be a number of people that complain, but has there been any kind of a body of protest other than through the real estate agents? I'm not belittling the impact, but I just want to know what's been the public result of this tax increase. And then I notice President Street, it's natural for us candidates to do that. He mentioned his role in reducing the tax, but I never saw any mention of his role in increasing the tax. But it was a very -- the City needed money. It was a very good thing. And we liked that kind of a tax that will not bring you criticism. Augusta, do you remember that?
That was the history 29 Bill No. 980303 of this tax. Apparently the City Controller agrees that it's a pretty good tax. (Laughter.)
Well, I won't hold you to that. I mean from the point of an affecting the commodity, you don't seem to feel that it's a major significance at all.
All I'm saying is as a City we've got other problems that are much bigger and there are factors that affect everybody, be it the local economy, national economy, interest rates that play a larger role than the tax itself. We would never say it's a good tax. The Controller, if we had the money, would probably look to reduce all our taxes. But there are other taxes out there that absolutely in terms of having a job stifling effect, jobs or population are more onerous.
Do you have any information as to what the impact would be?
Councilman Cohen, I don't think the stenographer can hear you.
Is there any information, any study been made of the impact of the tax? Has it retarded sales? 30 Bill No. 980303 I notice your statement indicates there's no information available on that.
No, our studies show that it really didn't have much of an affect on residential sales over the period we looked at which I think was the 1998 through '96, that there were other factors that did have an impact. If you had high mortgage rates, that is going to lessen the number of sales. If you have a bad economy, that is going to lessen the number of sales. The tax itself, based on our regression, which in fact is included, show that it really didn't have an affect on the level or number of sales.
And the Administration analysis has reached the same conclusion.
Mr. Nadol, please identify yourself for the record so the stenographer knows who's talking.
I'm sorry, Council President. I'm Michael Nadol the City's Director of Finance. Our analysis finds pretty much the same thing that the Controller's analysis found. For example, from fiscal year 1990 through fiscal year 31 Bill No. 980303 1995 when the rate was being reduced steadily from its peak of 4.07 percent down to the current 3 percent. Our best collections adjusted for the size of the rate were actually when the tax was at its highest. And again, let me be clear. I'm adjusting out for the factor of the rate itself being higher and the kind per percent collections, the underlying sales activity happened to be highest and best for the City when the tax itself was at it highest point. I'm not suggesting that we couldn't increase activity by raising the tax, what I am suggesting is much that as much as controller study's has shown, there are many other factors, interest rates, the overall economy, that are much more critical to these kind of home purchase decisions than the rate of this particular tax.
Then President Street's judgement must have been pretty good because was what all of us currently in the Council at that time felt that it was a kind of safe tax because the people that would complain most would be the ones had sold the houses. They were more likely to need more money than the buyer of a house. Maybe it's wrong according to controllers and accountants, 32 Bill No. 980303 but that's how we figured, and we thought it was all right. Okay, it's reassuring to know that it's not having a major impact. Thank you, Madam Chair.
You're welcome. The Chair recognizes Councilwoman Clark.
Madam Chair, I think that we as Members of Council would be highly sensitive to criticism. And I, for one, have not ever been called by a potential purchaser to say, "I would buy a house, but the realty transfer tax is too high" or "I will sell a house, but my share of it is too high." I've not ever had that comment come to me in the years that I have been here. 16 So I am more inclined to look at the chart and say 17 that these are the Clinton years when interest rates 18 were low and unemployment was low and therefore 19 people were inclined to take the kind of risk for a 20 long-term big ticket item like a mortgage. And in terms of purchasing, I guess I have purchased three or four houses in Philadelphia. You read about it in the news. When you're buying a house, you're buying it with borrowed money anyhow, so whether you're borrowing the money for the 33 Bill No. 980303 closing costs or whether you're borrowing money for the purchase cost hardly makes a lot of difference to you if you've got a mortgage banker who is willing to cover the difference between what you have and what you need. And it's a one-time expenditure. You sign so many papers on that day and give away so much money, that it hardly makes a difference who got which check. I just don't see it being the kind of problem that we're saying it is today. But I would like to see some analysis of the value of the loopholes that could be closed so that we can do a rational plan toward reducing the tax, because nothing make a legislature's heart beat nicer than to be able to say to the constituency, "I reduced your tax load." Of course, we want to do that, but we have an obligation to be reasonable and rational in our approach. Thank you, Madam Chair.
Thank you, Madam Chair. Hopefully, we would be able to bring all of this to some conclusion. I think that over the past couple days and even in previous hearings, my colleagues' comments and viewpoints are both 34 Bill No. 980303 enlightening and have been helpful in this discussion, and people having the opportunity articulate their views and feelings about it. We over the past couple days and certainly the past few years and over the next couple weeks will be talking about various, whether it's tips or tax abatements and wide variety of things that may or may not have an impact on the City budget. We may even one day have a discussion about stadiums and any impact that they may have on the budget. So, I am, as all my colleagues, equally sensitive to any actions that we may take that have budgetary implications. Everything usually above the level of parking regulations and a couple other things often have budgetary implications and sometimes actually involve taxes. I think today's debate and discussion, quite honestly, may have been longer than some of the discussions that we've had about tips and other tax abatement programs and whether they impact the City of Philadelphia's budget or the School District's budget. Not only are these discussions important, but it also highlights, in a good way I think. Some of the differences of opinion about how 35 Bill No. 980303 we try to all accomplish the same goal, which is to have people stay here and have more people come here and we can escape the reality, and I don't think we need a regression analysis to show that not withstanding all the things that have happened over the past few years, Philadelphia has continued to lose more population than any other county in the United States of America. I'm not ever going to propose that this simple matter by itself is going to reverse that, but it could be a part of a larger strategy that encourages people to come back to our City and others to stay here and just move up in terms of the size of housing. This, I believe is probably my third bill in this regard. The first one had a title problem. The second was an effort to just deal with homeowner to homeowner transactions, but that raised some concerns in the commercial and industrial components of the real estate community and so that's why I came back with an across the board cut. Councilman DiCicco had a bill. His was, I guess, less devastating than mine, and so we've chosen to go with this particular bill. I think where I am, given the 36 Bill No. 980303 discussion, is as a legislature I would like to kind of bring this to some conclusion with the sense of finality one way or the other about this particular issue. So I've heard all of the comments and respect them. I would like to at least move this bill along. Members will then do whatever it is that they want to do with it. What we do is vote on matters and express our view and our opinion by way of voting on matters either up or down. At least get the bill in a form that I think is the most responsible, notwithstanding the difference of opinion about impact on the budget, and have a bill 14 that's in a form at least that provides for a phased-in reduction. And then the members are always free to do whatever it is they want to do with that particular bill. But for me, at least, as a legislature, it allows kind of a putting a period at the end of the sentence and then we can all move on with our particular lives and agendas and bills and the like. This continues to be out here. It sits around for extended period of time with no 24 particular resolution one way or the other. So I think in that regard, all I can do is ask my 37 Bill No. 980303 colleagues, who all of whom I respect their opinion, to, one, get the bill in the form that at least the sponsor -- and, actually, there are a number of co-sponsors.
Get the bill in a form that response to the administration's appropriate concern about the level or potential loss and have that bill in a form that is ready for a vote one way or the other, and Members will do what Members want to do and I respect them no matter what action they may take. But I'd like to bring this particular matter to a conclusion, have a bill, have it sitting before us and then members take a vote on it and end it one way or the other. And that would be my request, I guess, either at a collegial level or a personal level to have this matter move forward and not have it in the status of limbo or just kind of sitting in the committee which naturally if sits here for another couple of months, it would just expire by way of the end of calendar, but still doesn't have the complete sense of finality that people like to have on issues when they work on them. So I'd like to get the bill out in a form that is more responsible and then allow Members to take a vote on it. 38 Bill No. 980303
Thank you. The Chair recognizes Councilman Mariano.
I would like to be a recorded as voting yes for all bills and amendments.
You're voting on all bills and amendments that were offered?
Very well. The Chair recognizes Councilman Cohen.
Not everything is always ready to be decided. Sometimes things have to be thought about, sometimes they have to be thought about over a longer period of time, sometimes you have to study a whole new situation. There are all kinds of possibilities. I don't think everything is always ready to be moved along and decided. Therefore, I don't think that that's -- for me, that's not really a good option because I don't think I'm ready to make a decision. I would like to really know what the impact has been of this tax. It may be a very good tax as taxes go. No tax today is any good, but as a tax goes, it may create less problems than any other one. It may be 39 Bill No. 980303 advisable to keep this tax and maybe follow the Administration. I'm not known for doing that, but it might be wise to follow the Administration because of the amount money involved. I don't know whether that's going to be the result. So I don't think that it's necessarily in our interest as a City to reach a decision. We're in the process of discussing it. I think we ought to continue to discuss it, but we ought not to feel that we have to come to a decision now. We may not have enough material for that. Thank you, Madam President.
Thank you, Madam President. I, too, would like to offer some comments similar to the comments that were just made by Councilman Cohen. With all due respect to Councilman Nutter, having been someone who introduced a very similar bill for a percent reduction in the real estate taxes, the reason I withdrew my bill was primarily because of the information that has been given to me by the Administration which shows a significant hole in the budget going forward and I didn't think it would be 40 Bill No. 980303 fair for the next Administration coming in to begin to start out with a significant reduction in revenue, projected revenue. That being said, I'm still not convinced that there are in other ways in which we can accomplish some reduction in the real estate transfer tax, i.e., the loopholes that we have to look at. We know the numbers that the reduction would produce based on the activities that we have experienced over a period of time. I know if we bring the real estate community up to the table, they will more or less testify as to the advantage of the reduction. And somewhere in between may be the correct assumption or numbers. I think what we really need to do is continue to work on this. And as a sponsor on another bill and a co-sponsor to your bill, I think we should continue to keep working at this even into the next administration and maybe bring in some people who are experts in this field, economists or some people from other municipalities who may have had similar bills and see what the impact, the positive impact. We always speak to the negative impact, but no one is really speaking to the positive, if there is a positive. It's an unknown. I don't know if we'll 41 Bill No. 980303 ever get to that, but I think you need to have a dialog and continue the dialog. So for me, again, the reason I did withdraw my bill was because of the uncertainty, but I am not in a position, I'm not ready yet to say let's just finish it, because if I had to vote on it today, I would be voting no, but that's really not what I want to do. And if you look at the bills that I've been doing all along, is how do we get people to the settlement table, how do we encourage more home ownership and providing an opportunity for people to buy, which was the other bill I withdraw as an example of a bill that says the responsibility for the transfer tax should be to the seller and not to the buyer for those people who may decide to stay in the City bit move up. That's a way of reducing the real estate transfer tax burden on that seller/purchaser. So there are a lot of things, I think, we may be able to figure out in this bill, in the reduction bill, and incorporate some other things in there based on some of the other bills that are floating out there and maybe come up with a better package and get to some level of reduction. Thank you. Thank you, Madam President. 42 Bill No. 980303
You're welcome. The Chair recognizes Councilwoman Clark.
Madam Chair, I associate myself with the comments of Mr. Cohen and Mr. DiCicco. I do think that have all of us care about the reducing the tax burden, but I think that sometimes we can act too quickly. We should preserve our option. We should put some value on the closing of the loophole. We should look at the gradual reduction that Councilman Nutter discusses. We should bring this whole notion back at a time when we are at the beginning of an Administration and not at end so as not to burden unnecessarily a new Administration with unexpected revenue shortfalls. For that reason, if we have to vote on it today, I have no choice but to vote against it.
Thank you. The Chair recognizes Councilman O'Neill.
I just wanted one 43 Bill No. 980303 more comment. What I would suggest to Councilman Nutter is that going forward with the next Administration and should we keep these dialog going, I would be more than willing to be a co-sponsor to a similar bill. You can be the sponsor to it, obviously, and I would be more than willing to co-sponsor it. But I really think we just need to keep this going. Thank you.
Councilwoman Tasco, did you want to be recognized.
Yes. Thank you, Madam President. As one of the co-signers on this bill, I think I have to speak, too. I do echo the comments of Councilman Cohen and DiCicco and Clark. And I just have one comment -- a couple of comments. One, I think that we've all been sort of distracted in the last three or four months and some of us need a little more time to give a lot more detailed study to this entire bill. And so that I can vote from an informed point of view, because we all want to reduce taxes, but I think we should not act in haste and repent in leisure. So I would ask you to just keep this dialog going along for a little more time. Thank you. 44 Bill No. 980303
Madam Chair, I ask to be granted permission to leave this hearing for the time being. Should a vote come up while I'm out, I want to be recorded as voting no on any bill 8 that reduction the revenue.
I want to vote no 17 on Michael's and abstain on all the others.
Thank you, Madam President. First, at a later point in time I will ask for more in-depth analysis of Councilwoman Tasco's comment about acting in haste and repenting in leisure. I need to have more -- I definitely need more study about that particular idea. I may 45 Bill No. 980303 have some repenting I need to do. With regard to have my initial comments and then Councilman Cohen and a number of other Councilmembers have commented on, I think we all, one, understand that a no vote on a particular bill 7 like this doesn't lock anybody into anything. But I respect, again, greatly the Members' wish to keep the discussion going and the dialog to reach a sense of consensus on something as significant as this. I would at least like to let the Chair know, but this was a little while ago before we all went around. I was given a note that indicated that the Realtors who here wanted to have an opportunity to come to the table and address some of issues that were raised. That's, obviously, the Chair's call. I think we're still in the public hearing, and I said, that was a while ago so I'm not sure where they are at this point in time. In terms of still wanting to provide testimony, that was a little while ago.
Councilman O'Neill, do you want to be recognized?
Our new Finance Director may be leaving the table and I would like, 46 Bill No. 980303 before he does, to congratulate him on the testimony he gave on these bills the first time out, which I think is his baptism, if I'm not mistaken, at least on issues like this. I thought the balance he gave, the sensitivity to the bills' sponsors even if he wasn't the necessarily agreeing with them and the written testimony which I read later, I thought was excellently prepared and well written, easy to understand, which isn't always something we get from finance directors. I'd like to congratulate Mr. Nadol on that. I don't know what the future is going to hold for him,but I was very impressed. Thank you.
Gentlemen, if you don't mind perhaps we can hear from representatives from the real estate board. Good afternoon. Please identify yourself for the record and proceed with your testimony.
My name is Diane Lucidi. I'm the Government Affairs Director for the Greater Philadelphia Association of Realtors.
And I'm Janet Cribbins 47 Bill No. 980303 from Prudential, Fox, and Roach in Chestnuthill.
Unfortunately, all our members weren't able to be here today. There is a national convention in Florida and we were here originally in October before the election and thought that we'd have some closure then. I just wanted to make a few points here. Philadelphia has the highest transfer tax in the nation. And the Greater Philadelphia Association of Realtors encourages home ownership. The transfer tax as it is definitely presents a adverse message to potential home buyers. Home ownership, we feel and believe, creates stability in neighborhoods. Philadelphia has lost over 150,000 residents in the past 10 years. The trend continues to be this way. There won't be any people left in Philadelphia to tax. One of the Councilmembers said that transfer tax was a safe tax and that they had never heard -- another Member said that no one has ever complained to them. When I lobbied Council, a few of the staff people have told me that their family members, cousins, relatives, whatever, were forced not to buy in Philadelphia because of the transfer tax. As a first-time homeowner transfer tax does play a key 48 Bill No. 980303 role in purchasing a home in Philadelphia. I'm experiencing now. I'm a resident of South Philadelphia. I want to stay Philly. I want to stay South Philadelphia. But I have to consider the transfer tax. It is part of the closing cost; it is a factor. We acknowledge that the flight from the City is due to a variety of factors, including wage tax, schools, crime, et cetera. But we do believe that the transfer tax does play a role. We believe that the current efforts of this five-year plan not succeeding. Too many people have left the City, and a more bold approached is needed for the rest of the Philadelphia, as was done in Center City. But the rest of the Philadelphia needs to be put on an even keel. We need to be able to compete with our suburban counties, whether it's Flourtown, South Jersey, whatever. People are fleeing to these communities, and we ask to be put on an even playing field with our suburban counties.
Thank you. Are there any questions or comments from Members of the Committee? (No response.) 49 Bill No. 980303
Thank you very much. The Chair recognizes Councilman Nutter.
Madam President, recognizing, one, lateness of the hour and also the reality of where we are with this particular bill, what I will probably want to propose in the public meeting is if you look at of the bill, see the language and italics in 19-1403(1)(g), what I will probably propose in the public meeting is to delete out the phrase "ending June 30, 1998; and," and leading into letter (h), which is new, "one and one-half percent (1.5%) for the fiscal years of the City commencing July 1, 1998 and" the word "thereafter" stays. That was the original part of that particular section of the code. Secondly, because of when this bill was originally introduced, as you can see it has a 98 number on it back in April of '98. It was anticipated that the bill being put into place at that time would have an effective date of July 1, 1998. Obviously, that date has long ago passed. So that date needs to be changed to July 1, 2000. And what you would then have in effect 50 Bill No. 980303 is the real estate transfer tax proponent of the bill taken out; the reduction component, the loophole closing portions of the bill would remain with a corrected effective date. So at that point should those amendments pass, what the Members will have is a bill that does not have any reference made or component regarding a real estate transfer tax reduction but only a bill 10 that closes the loopholes that we've talked about before.
I think you're going elaborate on that. I don't quite understand what you mean.
Madam Chair, this bill 980303 does five different things in the bill. One of them is proposed reduction in the real estate transfer tax from the current 3 percent to one and a half percent. Given the discussion that we've had today and the comments made by many of my colleagues, what I would propose in the public meeting is to delete the section that would reduce the real estate transfer tax, leave the rest of the bill in place which then only deals with loophole closing. The other sections of the bill, if you 51 Bill No. 980303 look at the top of , Number 11, Item c, you see that there's new language there. In 19-1405 on there's new language age in that section. In 19-1407, at the bottom of into , all of those sections are also being amended to close loopholes. Those components would remain, but also the effective date needs to be changed because of when the bill was introduced.
My intention on this bill has been directed to mostly the tax feature. We haven't heard any discussion, or at least I haven't heard any discussion, on the other parts of the bill. Does the Administration agree, Councilman Nutter, with your closing the loophole? Is there any reason why the loophole was there?
Councilman Cohen, at the original hearing on the bill, Frank Paiva from the City's Law Department who is a tax expert and who drafted the components that we're talking about testified on the record as to these loopholes and provided examples of how these loopholes are presently used by people in the real estate 52 Bill No. 980303 community. He is here. I'm sure, if you would like, he can give you an abbreviated version of that testimony.
I think in view of the proposed amendment, it would be worthwhile if he gave us a very brief summary so knew what we were talking about, because we've concentrating on the other phase of the bill. Most of us are not experts on loopholes.
Can we hear from someone from the Administration on this, Mr. Nadol? You've heard the a proposed amendments. Can you tell us what the Administration's feelings are?
I have heard the proposed amendments, and certainly our primary and really only objection to this bill was the fiscal impact of the proposed transfer tax rate reduction, which as we've talked about at length, would have been in excess of $30 million a year. In terms of the proposed loophole closing initiatives, we've looked at them from both a public policy and a revenue perspective, and we 53 Bill No. 980303 believe that they are ideas that do have merit. There are, as was testified at the previous hearing, some cases where out in among the tax bar at seminars educating attorneys about the City's tax structure where some of the loopholes addressed in this bill are cited as tax avoidance strategies. In our review of actual transactions, and we focussed on a large number of large commercial transactions, we have not been able to identify any cases where these loopholes actually had been used. That's why we did not attribute a significant revenue impact to these proposals. But at the same time, they are proposals that would help to make it harder for people to avoid paying their fair share of the tax the way the rest of us do. So the bottom line would be that closing these loopholes would be a policy that we would support.
So in essence, what you're saying is the City would be collecting more money and we're not really doing anything as far as the residential transfer tax? Am I correct in my thinking?
One the loopholes which addresses foreclosures could have some impact in the 54 Bill No. 980303 residential market, but the primary --
What kind of effect? Be a little more specific, please.
I may ask both the Revenue Commissioner and Mr. Paiva from the Law Department to assist me with that.
Thank you, Madam Chair. Is it safe to say that all the revenue impacts relative to the remaining provisions of the bill can be nothing but positive to the City?
I think that's correct to say, yes. We don't believe they would be anywhere close to the impact of the proposed rate reductions, but if there are any impacts, they would be positive. They would make it harder for people to avoid paying their tax.
I guess that question doesn't have to be answered now. Councilman Cohen.
I'm satisfied with the explanation given by him. 55 Bill No. 980303
Are there any other questions or comments from Members of the Committee? The Chair recognizes Councilman Nutter.
Thank you, Madam President. Councilman Cohen, are you satisfied with --
Let me also just say that this has been -- I won't say a long and arduous journey; it hasn't been long enough for that. They haven't brought out the rubber hoses yet. But Councilman O'Neill's comments, one, I thought were very well taken both about Mr. Nadol. We're seeing a kinder gentler Finance Department and Director. I know from whence the niceness comes from. There's a lady downstairs who I believe deserves a lion share of credit for that. Secondly let me thank Frank Paiva for all of his work on this particular matter. The Administration, and I see a revenue commission over there, the Administration has certainly been a, in a sportsmanship fashion, I would say the 56 Bill No. 980303 administration has grudgingly done its job and protected its interest both by way of materials, and from what I've been made aware of, the infrequent or possibly recently frequent phone calls, discussions, and conversations with Members which is their right to do. I would lastly say, though, that this Council is going to be challenged in the next few months and certainly over the next few years about what we do and how we do it and how we conduct ourselves. And I think for those of us, and I think that includes everybody, really care about this body and how we conduct our affairs, we always have to still be mindful of the fact that we are legislative body of the City. It is our responsibility to be respectful of the Administration, but it is still a co-equal and independent branch of this government. There are times when well agree; there are times when we will disagree and often have to take actions that we think are in the interest of citizens of this City because we represent them as much as Administration does each and every day. So with that, I think I've at least made my intentions clear in the public hearing and I'll take the appropriate action in the public meeting. 57 Bill No. 980303 I would ask my colleagues, certainly, for their support in trying to amend the bill in the way that I've indicated for the last go-round of this conversation. Thank you very much, Madam President.
Thank you. Are there any questions or comments from any Members. (No response.)
Thank you very much. Does anyone else care to testify? (No response.)
Seeing none, this will conclude the public hearing of the Committee on the Whole. - - - 58 COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC MEETING COMMITTEE OF THE WHOLE - - - Wednesday, November 10, 1999 - - - Public Meeting conducted by the Committee of the Whole, held in Room 401, City Hall, Philadelphia, Pennsylvania, on the above date, to consider action on the following: BILLS 990662, 990663, 970214, 970652, 980303, 980927 - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILWOMAN AUGUSTA CLARK COUNCILMAN DARRELL CLARKE COUNCILMAN DAVID COHEN COUNCILMAN FRANK DI CICCO COUNCILMAN JAMES KENNEY COUNCILWOMAN JOAN L. KRAJEWSKI COUNCILMAN RICHARD T. MARIANO COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK RIZZO - - - 59 PUBLIC MEETING
We will go into our public meeting. The Chair recognizes Councilman DiCicco regarding Bill No. 970214.
Thank you, Madam President. I make a motion that we adopt the amendment to Bill No. 970214. (Duly seconded.)
It has been moved and seconded that the amendment be adopted. All in favor will signify by saying aye. Those opposed? The ayes have it. The motion is carried. The Chair recognizes Councilman DiCicco.
Madam President, I make a motion that Bill No. 970214, as amended, be reported out of this Committee with a favorable recommendation and that the Rules of Council be suspended so as to permit first reading next session of City Council. (Duly seconded.)
It has been moved and second that Bill No. 970214 be reported 60 PUBLIC MEETING out of Committee with a favorable recommendation, as amended, and that the Rules of Council be suspended so as to permit first reading at our next session of Council. All in favor will signify by saying aye. Those opposed? The ayes have it. The motion is carried. The Chair recognizes Councilman DiCicco regarding Bill No. 970652.
Thank you, Madam. President. I move that Bill No. 970652 be reported out of this Committee with a favorable recommendation and that the Rules of Council be suspended so as to permit first reading at our next regular session of City Council. (Duly seconded.)
It has been moved and seconded that Bill No. 970652 be reported out of Committee with a favorable recommendation, also a recommendation that the Rules of Council be suspend so as to permit first reading at our next meeting. All in favor will signify by saying aye. 61 PUBLIC MEETING Those opposed? The ayes have it the motion is carried. The Chair recognizes Councilman Nutter regarding Bill No. 980303.
Madam Chair, the proposed amendment for 980303 is that in Section 8 19-1403(1)(g) that the printed italics starting with "ending June 30, 1998," concluding with the word "and" in the letter (h), that that wording be deleted; and that in Section 2 on , the year 1998 be deleted and the year 2000 be substituted.
Councilman Nutter, read that again, the first part of it.
Councilman, on , which is a part of section 19-1403 which starts at the bottom of on the bill, there are italics that are printed in letter (g). I'll read the entire passage, "ending June 30, 1998; and" and going over to letter (h), which is in italics "one and one half percent(1.5%) for the fiscal years of the City commencing July 1, 1998 and," all of that italic language is proposed to be deleted. And on in Section 2, which is the effective date section, currently reads "July 1, 1998," the "1998" 62 PUBLIC MEETING should be stricken and the year "2000" should be inserted. So that this bill becomes effective July 1 of the year 2000.
19-1403(g), the 3 percent for the fiscal year stays in there, that's in the bill already?
That's already in the code. The italic language what was amending that section of the code to allow for the reduction to 1.5 percent.
H comes out completely except the word "thereafter," because "thereafter" is a part of the code. It goes with the original letter g.
We advertised the 63 PUBLIC MEETING bill and said we propose to decrease the tax, and we declined to do that. We did less than the title allowed us to do. What's your concern, Madam President?
Decreasing the rate of tax beginning July 1, 1998.
The bill states that the purpose is to decrease the tax.
The Council has declined to do that. No one can have any detrimental reliance on a bill that proposes to do something and we've done less. We could not do more.
No, we're not. As soon as some reads the final bill, they will see that we have not reduced the tax. We proposed to do something; we chose not to do it.
I believe we have someone from the Law Department here, Councilman. Do you mind taking the table and testifying on this, sir? 64 PUBLIC MEETING
Good afternoon, Madam Chair. My name is Frank Paiva. I'm from the City of Philadelphia Law Department. It is my understanding that the title must show all the possibilities that will be before the Council, but to the extent that less is done, to my knowledge, there's no problem with the notice requirement. That's what the title's for, it's to give notice to everyone that these are things that are before the Council. And one of the things before the bill was the rate reduction, but Council has now decided not to go forward with any rate reduction so that's not a problem because notice was given. And the other parts, the loophole closings, they were also noticed and everyone had notice that those parts were also part of this bill.
Mr. Paiva, in effect is not the bill, the pink copy of the bill the working document of this counsel and that whatever it is we pass is codified in the Philadelphia Code; and therefore, the title of the bill doesn't appear 65 PUBLIC MEETING in the Philadelphia Code, just what action we've taken? So someone who reads the Philadelphia Code would not be misled that there's a decrease realty transfer tax because in fact it was never done. The pink copy on file in the Clerk's Office would be a record of what in fact was proposed and discussed but not finally passed and codified in Philadelphia Code.
The importance of the title is just to give notice that these are things that Council is considering doing so that if anyone out there objects to it, they can come in and have an opportunity. That's the purpose. Usually the problem is we try to do changes that we haven't given people notice for. That's the problem we try to avoid.
In the past, I think the City Solicitor has sent notification to us that we could never change the title of the bill.
And we're not proposing to change the title. We're not changing the title.
I would ask that 66 PUBLIC MEETING there been a written opinion on the subject. I will accept it if it's written so that there will be a clear record because it's not what my understanding is of the requirement. I will accept the City Solicitor's opinion on that, but I am concerned that if people are going to use as sophisticated a technique to try to avoid the tax structure of Philadelphia, I think they're going to be ready to go to court. I would just urge the City Solicitor to consider all the aspects of it. I will accept whatever opinion they render on that subject.
Thank you. Madam President I respect Councilman Cohen's comments. What I would be more than happy to do is to seek the opinion that the Councilman requests. I would not like for the lack of that opinion today, and at least the comments of a representative of the Law Department who has articulated on the issue, to not hold up getting the bill out of Committee.
I would not ask for that. There's plenty of time to get the opinion. 67 PUBLIC MEETING
This bill is not even going to get first reading until the 18th and won't be ready for a vote until the 2nd. So we will certainly have -- they have could probably have this opinion in about minutes. But in any event we'll 7 certainly have it before the bill is ready for 8 second reading and final passage to be distributed 9 to all Members. 10
Madam President, I would move the adoption of these amendments. (Duly seconded.)
It has been moved and seconded that the amendments be adopted. All in favor will signify by saying aye. Those opposed? The ayes have it. The amendment is adopted. The Chair recognizes Councilman Nutter.
Madam Chair, I move 68 PUBLIC MEETING that Bill 980303, as amended, be reported out of this Committee with a favorable recommendation and a further recommendation that the Rules of Council be suspended so as to permit first reading at our next session. (Duly seconded.)
It has been moved and seconded that Bill No. 980303 be reported out of the Committee with a favorable recommendation, as amended, also a recommendation that the Rules of Council be suspended so as to permit first reading at our next meeting. All in favor will signify by saying aye. Those opposed? I ayes have it. The motion is carried. This concludes the public meeting of the Committee of the Whole. Thank you all very much for your patience. (Council adjourned at 1:20 p.m.) - - - 69 C E R T I F I C A T I O N I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of November, 10, 1999, were reported fully and accurately by me, and that this is a correct transcript of the same. RE: COMMITTEE OF THE WHOLE ___________________________ Lisa C. Bradley, RPR and Notary Public