Yeah, it looks like it -- okay. It would be lower than the first half of '09 and right around the 239 3/25/09 - WHOLE - RES. 090266 same as the second half of '09.
Okay. So we would have lower wage taxes in 2014 than we have today. How much revenue would that raise for the City of Philadelphia?
I'd rather just run it through our model and give you the real number.
Okay. The gross receipts portion of the business- privilege tax, if we were to raises that by -- I think that's expressed in mills.
-- by five mills, how much money would that provide the budget if we were to raise that for -- 240 3/25/09 - WHOLE - RES. 090266
Five mills. So in -- we're at 0.1415 and you want to see 7 what it would be at 0.142; is that what 8 you mean? 9
And then that would 17 take us back to between where we were in 18 2004 and 2005. 19
Right. Can 20 you tell me what the impact -- back to the property tax. What is the impact on business location decisions of increasing the property tax?
There are obviously -- and as we've said, any tax 241 3/25/09 - WHOLE - RES. 090266 increase is going to have, you know, some impact, because there are commercial --
Can I finish? What the studies have shown is that while it has that impact, it's not as big as the impact that the wage and the business taxes have.
What is the impact? That's my question. What is the Administration's guess of the impact?
I mean, if you don't know, just say you don't know. 242 3/25/09 - WHOLE - RES. 090266
No, we do -- I mean, we have -- we can get you the information. We have it back in study, so we'll get you that.
Your question is, what is the impact of an increase in real-estate taxes on --
Of the proposed increase. What is the Administration's assumption about how it will impact resident location decisions?
Our view is that since it's temporary and it goes away in two years, it would have a minimal impact.
And how about the impact on real-estate transfer-tax revenues?
We are getting so 243 3/25/09 - WHOLE - RES. 090266 little in real-estate transfer-tax revenues that we don't think it would drive it down that much further 'cause there's very little activity there.
So can you provide what you think the dollar impact is on -- in terms of impact on businesses and residences so that we can compare it to the other numbers that you've given with the --
Sure. We can give you what the -- the elasticity that we used and what that meant for our revenue projections.
What is the impact of a property increase on our most vulnerable populations?
Well, who do you mean when you say you've taken that into account? In response to Donna Reed Miller's question, you kind of -- who do you mean? 244 3/25/09 - WHOLE - RES. 090266
Well, we talked a little bit about that before, but we put it in a context which is the absence of the revenue if we didn't get that or some other revenue source. It would mean very significant cost reductions -- service reductions.
We talked about children and we talked about the elderly --
-- of your proposed budget. 245 3/25/09 - WHOLE - RES. 090266 (Indiscernible; parties talking over each other.)
It depends on how many of them actually own real estate, but we talked about seniors, we talked about children, we talked about the infirm; those are the vulnerable populations, and we're trying to preserve the services for them.
Well, it doesn't depend on who owns home. The chart on makes the assumption that most people are renters and it still has a significant impact below 25,000.
Well, I meant -- I thought you were asking the direct impact in terms of how much they would have to pay. But you're right. It's going to affect anyone and anyone that has the 246 3/25/09 - WHOLE - RES. 090266 cost of a home in the City. And so that affects real estate, commercial, residential. It affects everyone.
So I'll wrap this up with just a few questions that they can get back to us on. What is the current tax- delinquency rate on real-estate tax bills? What is the current tax- delinquency rate for residential real-estate tax bills? What is the correlation between tax delinquency and home value or household income? Do the revenue projections based on the proposed higher real-estate tax rates also include assumptions about increased tax delinquencies? What are those delinquency assumptions? What percentage of tax delinquencies lead to foreclosure? To what extent does the FYP take into account collateral costs related to 247 3/25/09 - WHOLE - RES. 090266 tax-related foreclosures? What protections are currently in place for low-income and/or fixed- income homeowners with respect to increased property tax bills? What is the Administration's plan for protecting these homeowners?
Thank you. The Chair recognizes Councilwoman Miller.
Oh, Council President, my light must have been on by mistake, but thank you.
Yes. The Chair recognizes Councilman Rizzo. 248 3/25/09 - WHOLE - RES. 090266
In the plan, you list -- and I lost the page. You just show the cuts for Phase II. It would really have been helpful and, I think, better to tell the true story if you listed a column for Phase I. In Phase II, it shows -- it doesn't show some of the cuts that many people made. I think you know what I'm talking about. So tell me why we couldn't get a real clear, transparent picture of what has occurred.
I mean, I understand your point. We can provide that information. We'll provide that.
Yes, Madam President. I was actually trying to confer with my colleague over here. So help me get my arms around this -- the nonprofit community. It's my 249 3/25/09 - WHOLE - RES. 090266 understanding that they do not pay real-estate taxes.
It depends on the nature of the activity they're using the real estate for. But if they're using it for what are, in effect, charitable purposes, that would be correct.
Right. If they have for-profit entities, then they have to pay tax.
Okay. So the business operations of nonprofits have to --
If they're... Okay, back up. The for-profit subsidiary of the nonprofit has to pay taxes.
Well, I raise the issue because a couple of weeks ago, Councilman Frank DiCicco introduced 250 3/25/09 - WHOLE - RES. 090266 a measure requiring nonprofits to no 3 longer have the discounts with regards to water bills, which really opens up questions around a number of other exemptions that that community can get. And given their exemptions in this climate, is there a need for us to do a re-look-see at how they are treated? I don't know the answer to that as I sit here, but it certainly raises questions and maybe opportunities on how we can look to see where they can no 14 longer be exempted at the level that they are.
Right. I think that's one of the that issues we want the Tax Task Force to look at.
And so what is the anticipated timeline when they report back to the Mayor?
They are supposed to 251 3/25/09 - WHOLE - RES. 090266 report back to the Mayor and the Council President by mid-September.
Late September. I see, okay. Last question. There has been a proposal mentioned amongst colleagues to take the sales tax, extend it -- double the number of years, from three to six. What's your reaction, comment as it relates to another possible scenario to help us fill the gap?
There are -- it's a couple of reactions. One of the things that we wanted to make sure our plan made clear is that taxes we were proposing were temporary.
And I think once we had a tax that went beyond the life of the plan, it would no longer look temporary.
The second part is that we had a particular problem getting 252 3/25/09 - WHOLE - RES. 090266 through 2010 and -- particularly with our cash flow. And so, extending this year's didn't help us get through 2010.
I see. Okay then. Is the Commerce Director still here?
I wasn't at my desk here; I was at my desk upstairs wherein Councilman Clarke was raising questions about the Cultural -- his question was not devoted to the Cultural Fund; you actually gave -- were about to give an update on where we are with the dollars that were devoted to the cultural bonds. So can you give us a brief update on that?
Yeah, I think -- I think there are a couple of different things. I was not prepared to give a 253 3/25/09 - WHOLE - RES. 090266 full account. At our hearing at Commerce, we'll be able to walk through the cultural and commercial corridor bond fund.
Gary (indiscernible) is coming up 'cause there's also the Cultural Fund, which is different, but I think you were probably -- the last time, that was the money that actually goes out for commercial corridors --
Then I can go 254 3/25/09 - WHOLE - RES. 090266 through where we are on all of those projects 'cause those funds needs to be expended this year.
Okay, then. Thank you very much. Thank you, Madam President.
You're welcome. I guess I should direct this to Mr. Dubow. Appendix 3, Plan B indicates that the Fire Department will deactivate three engines and two ladder companies. What are their locations?
We don't have locations specified for that. You're talking about in the contingency budget, right? We do not have those identified.
But you're telling us -- you won't come back again. If we don't get approved, the two bills in Harrisburg, when would we know about where these cuts would be? After we pass the budget? In all likelihood, yes. 255 3/25/09 - WHOLE - RES. 090266
Well, I'm not sure, Council President. It would be after the budget, but it certainly would be after a careful evaluation of which companies and equipment that would be deactivated. And the Fire Department will be looking at that as we speak and will be looking at the locations that, if we had to go to this contingency budget, that we might to actually have implement. But we haven't made those determinations as of yet. We've only included the value of those reductions.
The Chair recognizes Councilman Green for a point of information.
Madam President, that gets to my point earlier about the fact that they're asking us to write them a blank check. Where we have no input in the decisions, if the contingency occurs, and there's probably a 50/50 likelihood that the contingency 256 3/25/09 - WHOLE - RES. 090266 will occur, which is why I just suggest to this body that we should not pass a contingency budget. Pass a budget, and if they have to make changes, they should come back to this body. Thank you, Madam President.
Thank you. Also, Plan B indicates that a Health Department will close one of its health centers. I guess you can't tell us which health center will be closed at this time.
Okay. We're going to see a reduction of the demolition budget by $2,100,000. Can someone tell us what the current backlog for demolition of imminently-dangerous buildings are?
Commissioner Fran Burns will be up. (Witnesses come forward.) 257 3/25/09 - WHOLE - RES. 090266 COMMISSIONER BURNS: Good afternoon. I'm Fran Burns, Commissioner of the Department of Licenses and Inspections. Currently, we have 300 imminently-dangerous buildings.
I'm sorry, how many? COMMISSIONER BURNS: Currently, we have 300 imminently-dangerous buildings identified.
Do you demolish any other category other than imminently dangerous? And if so, how many? COMMISSIONER BURNS: Currently, we do not demolish anything other than imminently-dangerous properties.
What is the average cost for demolition today? COMMISSIONER BURNS: We're averaging $17,000.
So if my memory serves me, under NTI, it was 258 3/25/09 - WHOLE - RES. 090266 much more expensive, was it not? COMMISSIONER BURNS: The average that I believe was testified before Council before was about $25,000.
So how are we doing this? COMMISSIONER BURNS: One of the things that we started at the beginning of this fiscal year was a request for proposal or, RFP, process to have the demolition and all of the related work done under one contractor. And that's -- we believe that that reduced the actual average price.
So are we still -- once we demolish, are we still putting up like the little fence and cleaning all of the trash and debris? COMMISSIONER BURNS: The related work for the demolition activity is stuccoing of the property, which is a water ceiling on the side of the property. And there's lateral work and there's also, when needed, asbestos 259 3/25/09 - WHOLE - RES. 090266 reports done for the work. The fencing of the property is not currently included in the work for demolitions.
I know that when a property is demolished, isn't there a lien placed on the property owner? And why haven't -- and I understand with all of the demolition that was done under NTI, I don't think anybody followed through on that, how successful we would have been and collecting any of the cost remains unseen. But are we, in fact, doing that today with the demolitions? COMMISSIONER BURNS: Yes, we are. We don't automatically put a lien on the property. The first thing we do is bill for the cost of the demolition. And if the bill for the cost of the demolition is not paid, then a lien is placed on the property.
How 260 3/25/09 - WHOLE - RES. 090266 successful have we been in collecting monies for demolition? COMMISSIONER BURNS: Actually, I have -- I have some analysis, but I don't have the actual percentage. So I can get back with a percentage. But we did look at -- across the past fiscal years, we had a report done on those that we've billed and that we've collected. I'd just have to sum the data up, and I can report back.
You'll let us know in writing, please. COMMISSIONER BURNS: Yes.
Okay. Councilwoman Miller, did you want to be recognized?
Yes. I have one last question for today. I was wondering if you ever considered to raise a fee, or if a vendor has a contract with, say, the Philadelphia prison system, and I -- I went to visit a prisoner, and I couldn't 261 3/25/09 - WHOLE - RES. 090266 believe how well-used the vending machines were in the waiting room. Would that vendor -- have you ever considered maybe increasing the cost of the vendor? Or does the vendor have to pay some kind of fee to the City of Philadelphia to have a vending machine in the prison? (Witness comes forward.) COMMISSIONER GIORLA: Good afternoon, Madam President. Lou Giorla, Commissioner of Prisons. Councilwoman Reed, the vending machines are serviced by a vendor, and I can't recall the name off the top of my head, but there is a commission paid to the prisons for this, for the proceeds of those machine.
The owner of the machines, do they pay a fee to you? COMMISSIONER GIORLA: Yeah. The 262 3/25/09 - WHOLE - RES. 090266 owner of the machine is a vending company. They both own and restock the machines as necessary, and they pay a monthly commission to the prisons.
Okay. And I thought maybe perhaps you could increase that commission as a way to raise some dollars for the City. COMMISSIONER GIORLA: Well, we haven't entertained that idea but I'll take a look at it. I'll be glad to take a look at it.
Since you haven't had a chance, I will recognize you next.
Getting back to the real-estate tax-increase request for a moment, I have my staff trying to ascertain this information, but perhaps you have a better shot at getting to it or equal to what I do, and I would like 263 3/25/09 - WHOLE - RES. 090266 you to make that request to (indiscernible) now. Can we find out how many senior citizens actually own property in the City of Philadelphia? How many are PaceNet-eligible, which means they wouldn't experience any of the percentage increase? And how many take advantage of the real-estate tax-rebate program, which is funded by the lottery through the State? So if you want to get -- and certainly I think Councilwoman Krajewski and Councilman Greenlee earlier raised questions relative to senior citizens and the impact on them. In order to get a clear picture as to the impact on seniors -- and I know seniors run the gamut, from, you know, well-to-do to very poor. I need to know if we can figure out a way to identify how many people who are considered senior citizens in age own property and what 264 3/25/09 - WHOLE - RES. 090266 percentage of those people -- or how many -- a gross number of them are eligible for PaceNet, which means they wouldn't have any increase, and/or also get the real-estate tax rebate from either, I think, it's the Department of Revenue or I don't know whether the PA Department of Revenue or the Lottery Commission would have it, but somebody would have it. So when we're actually talking about the impact of the proposed real estate on seniors as a population, I'd like to know what mitigations there are to kind of cushion that impact, okay? Thank you.
Thank you. The Chair recognizes Councilman Greenlee.
Thank you, Madam Chair. I'm looking for the budget state numbers that you had; I can't find it. I 265 3/25/09 - WHOLE - RES. 090266 don't know if you guys have a copy, but I wanted specifically to talk about the assumptions for revenue, and I guess they may have changed since the budget stats sessions. But with respect to wage tax, can you tell me what the assumptions are off the FY '09 base in terms of annual revenue from that tax?
Councilmember, are you referring to something in addition to what's on ?
Yeah. This is the change in the revenue coming in, and I'm looking for the base growth assumptions for all of the different taxes.
Yeah, I can get that to you. Do you want it verbally? do you want it in writing?
But let's 266 3/25/09 - WHOLE - RES. 090266 just talk about a couple of them. Do you have wage tax right now?
FY '10 grows by slightly over 1 percent, 1.3 percent. FY '11 grows by 1.8 percent.
And how have receipts been so far this year? Is there any evidence that we have a drop-off in wage tax?
Yes. Just give me a second, and I'll pull that sheet out. Through February, which is the last complete month we have, we're 267 3/25/09 - WHOLE - RES. 090266 slightly below what we had in the re-balancing plan by about 3 or $4 million. We anticipate and what we're worried about is that the next three months will actually start to show some of the job losses like in attorneys, law firms, that kind of thing.
But that's the most recent end-of-month. And the most recent -- we have, I think, for the first week or so of the year, and again, we're down about a percent or so.
So when you -- and is that why you're -- if you go back to and you see "Philadelphia nominal county personal income," and you've got Moody's Economy.com versus the City Budget Office estimate.
Is that why your estimates are -- is this what you used to determine essentially what 268 3/25/09 - WHOLE - RES. 090266 wage-tax growth is going to be?
That's right. What did is, we used a model and estimates of what's happening nationally, and that's why you have the CBO and Moody's Economy.com and Blue Chip above. And then those are used to generate our own estimates of what's happening in the economy. And for wages, as you recognize, we use the nominal wage and salary growth for the county, which is in that bottom. And we're showing slightly better growth than Moody's Economy.com is showing for that same period.
Okay, right. And then, nominal Pennsylvania income, you're showing down versus...
Right. We're showing slightly down for '09 and less growth for '10 than they're showing.
Okay. So what's the correlation between nominal wages and salary and personal income? It 269 3/25/09 - WHOLE - RES. 090266 would seem like if one's down, then the other would be down.
In the accounting function that the Bureau of Economic Analysis uses, wages and salaries are a component, the largest component, of what goes into nominal personal income. The rest of the personal income is derived from looking at interest income, looking at transfer payments, looking at a range of other non-wage income that goes into it. And the reason that we're showing some growth there is that we believe that both personal income and wages will show some growth. The primary difference between our forecast and Moody's Economy.com is that Economy.com is showing no wage growth between 2008 and 2010.
Okay. Let's switch to the real-estate transfer tax. Can you give me the -- how that's looking this year in terms of actual compared and 270 3/25/09 - WHOLE - RES. 090266 then what your base growth actually, you know, decrease in assumptions are?
Transfer tax through February was $83.9 million. We project that that will end up somewhere around $110 million, a little over $110 million for the year, which is why we took the number down that we had previously shown you. The growth rate that we have for FY '10 shows a drop of percent, so 13 that the number is actually 84.7 million. 14
So you 15 believe 110 is a good guess about where 16 we'll end up based on where we are to 17 this point in the year? 18
Assuming we get 19 better months in February, where we only 20 got $5.4 million. If we get $5.4 million 21 for the balance of the year every month, 22 we're not going to hit that number. 23
But based on, you know, sales increasing in the spring in general and last year's sales numbers 271 3/25/09 - WHOLE - RES. 090266 for the spring, et cetera, you're projecting 1.10? So I'm just curious why we're at 84.7 million or negative growth in FY '10, and the premise of the question is, essentially real-estate sales adjust. So you would have to be -- you would have to be assuming that we're going to go to a 24-month sales cycle from the time somebody lists a house to sell it for there to be a continued deterioration in real-estate transfer tax. In other words, there's going to become a period of time, whether it's, you know, nine months or twelve months, that it takes for a house to turn. Once we reach that point, everything that's in inventory on average is going to turn within that nine- or twelve-month period, so we should be looking for an uptick in FY '10 versus a down -- I'm sorry, yeah, in FY' 11 versus a down off FY 09. Do you understand the question? 272 3/25/09 - WHOLE - RES. 090266
I'm going to respond. We use Moody's Economy.com's forecast for both house prices and what's happening in the housing market. They anticipate an percent drop in prices 10 between -- can I finish? 11
An 18 percent 14 drop in average prices for Philadelphia 15 over the next two years, and they also 16 assume that the number of units being 17 sold starts to pick up. It doesn't pick 18 up in the manner that existed back in 2006. And this was a particular subject that I talked to Mark Zandy of Economy.com directly about. His view is that Philadelphia and Baltimore are two very interesting property markets where he believes the markets are somewhat 273 3/25/09 - WHOLE - RES. 090266 frozen, that there are prices that are being offered for a variety of residential properties, and people are not taking those prices, which is why you see inventory that, in some cases, is almost a year out for sale.
So what is Moody's Economy.com projection of what the average turn rate is for -- is going to be for real property from listing to sale?
They haven't given us a sort of a turn or a liquidation of the inventory, as you're describing, but what they're assuming is price decreases that don't end until the end of '11, beginning of '12.
Sure, but some of that is already in the market. And do they give you a number of transactions that they expect to occur every year?
We have a number of transactions on a national basis. I 274 3/25/09 - WHOLE - RES. 090266 don't recall the number of transactions taking place locally. I can go back and look and pull it for you.
I think they project amount of sale, but I don't think they project actual number of houses or, you know, real estate properties that change hands.
What they gave me and what we use as a proxy are the number of sales of new family -- of new-home construction.
Right. So without knowing the number of transactions, you're saying that there 275 3/25/09 - WHOLE - RES. 090266 will be an percent drop in prices, some of which is already built into the market.
So at a 8 certain point, inventory is going to 9 start turning, even at 18 percent lower 10 prices. So the assumptions are -- seem 11 to me to be extraordinarily conservative 12 because, you know, it will be 18 months 13 or 24 months, or at some point, houses 14 will turn, and at that point, we'll have 15 the same number of transactions roughly 16 every year at 18 percent lower prices or 17 ten percent lower prices. 18 So this -- I'm not sure I understand or agree with this revenue assumption. It looks like to me like you could be off 30 million a year, which is $60 million for '10 and '11, which is $60 million we can add back into the budget. I would like to understand in 276 3/25/09 - WHOLE - RES. 090266 more detail why we're making such a negative assumption here which requires property-tax increases of 30 million more a year for our residents.
Well, I hope you're right; I hope we are 30 million to $60 million off. Based on what we have seen in receipts to date, we seem to be right on track. Again, if we make the 110 million for FY '09, I think all of us at this table will breathe a sigh of relief. What was troubling in the meeting that we had with the Federal Reserve on March 10th or 11th, where a number of economists were there, was the degree to which all of them felt that the Philadelphia market was lagging national markets, that price decreases were still coming, the markets were still frozen. And they viewed that some of the estimates that we had put in place particularly for transfer tax, the original ones, were too rosy. 277 3/25/09 - WHOLE - RES. 090266 So I guess they were in good company with you.
Well, it's just that there's two factors that make up how much revenues we get for transfer tax. One is the value of transactions, the other is --
-- the number of transactions. And what you're telling me is, these assumptions don't include any guess about the number of transactions 'cause you have no data on that, and I think that that's something you need to go back and --
That's not correct. As I said before, we use a proxy of national sales, and I break that down to northeastern sales as well. So we do use proxy; the proxy has been very good, the modeling has been 278 3/25/09 - WHOLE - RES. 090266 very good on this. And I hope you're right that it's 30 to $60 million off on the low side.
Yeah. I was just going to say, if you could just provide that data in detail to us so that we can take a look at it ourselves, your assumptions, you base assumptions --
-- your assumptions about number of transactions, then we can have another discussion about it. Thank you. Thank you, Madam President.
Thank you. Are there any other questions from members of the committee? (No response.) 279 3/25/09 - WHOLE - RES. 090266