Committee Hearing, February 24, 2004 (part 1)

COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - - Room 400, City Hall Philadelphia, Pennsylvania Tuesday, February 24, 2004 10:15 a.m. - - - - RESOLUTION 040076 - Resolution authorizing the Council Committee of the Whole to hold hearings on the findings and recommendations of the Tax Reform Commission's final report, released on November 15, 2003... PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILMAN DAVID COHEN COUNCILMAN FRANK J. DICICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JAMES F. KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO - - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 I N D E X RESOLUTION 040076 COMMISSIONER WILLIAM R. MILLER, IV Tax Reform Commission.......... ROGER BALLOU, CDI Corp............. 11 REV. BRUCE EDWARDS, ULC............ 16 MARC BERMAN, Berman Travel......... 26 BRUCE CRAWELY, African American Chamber of Commerce............ 27 EDWARD SCHWARTZ, Tax Reform Com.... 65 MELVIN JACKSON, Tax Reform Com..... 85 AL TAUBENBERGER, Tax Reform Com.... 121 ANDREW VANDENBRUL, Tax Reform Com.. 123 BRETT MANDEL, Tax Reform Com....... 137 CHRISTOPHER DWYER, Tax Reform Com.. 152 RICHARD VOITH, Econsult............ 161 KEVIN GILLEN....................... 191 JACK HUNTER, Tax Reform Com........ 206 DAVID THORNBERG, Tax Reform Com.... 207 3 032404 - WHOLE - RES. 040076

Good morning, everyone. I just want our visitors to know that we're waiting for a quorum, and as soon as we have nine Councilmembers here, we'll go on with the hearing. Thank you. (Recess.)

Good morning, everyone. We are going to be considering Resolution No. 040076. Though we do not have a quorum at this point in time, we are going to proceed with testimony because we truly believe this to be an informational session. So at this time, I would ask Mr. McPherson to read the title of the resolution.

Resolution 18 authorizing the Council Committee of the Whole to hold hearings on the findings and recommendations of the Tax Reform Commission's final report, released on November 15, 2003, and further authorizing the Committee to seek advice and recommendations on tax policy and tax reform from citizens, financial experts, economists, academia, business executives and 4 032404 - WHOLE - RES. 040076 state legislative and executive branch officials.

Thank you. It is my understanding that Joyce Wilkerson is here. Is she still in the room?

She just stepped out.

Then I think we ought to proceed. I believe we have an agenda. The first panel.

Commissioner William R. Miller; Roger Ballou, CDI Corporation; Reverend Bruce Edwards, Urban Leadership Council; Marc Berman, Berman Travel; A. Bruce Crawley, African American Chamber of Commerce.

Again, I apologize to all of you for the delay. However, we do welcome you and thank you for all the work that you did and the many hours that you put into giving us the information that you have. Thank you. Mr. Miller, I'm sure you would like to open.

Good morning, Madam 5 032404 - WHOLE - RES. 040076 President.

Good morning.

Good morning to the other Councilmembers who are present. I just have a brief statement that I'd like to read into the record. I am a lifelong resident and business owner who's had the privilege of serving as a member of the Tax Reform Commission. I want to thank, certainly, Councilwoman Tasco for introducing Resolution 14 040076 which made today's hearings possible. I'd also like to thank Councilman Nutter for drafting the legislation that created the Commission in studying taxes. I'd like to thank you, Councilwoman Verna, also in my discussions after our deliberations and support that you, Councilwoman Blackwell, and others have essentially given us to give us this day to start what we simply see as a dialog. We created a body of work. It's a very intricate body of work of three volumes. 6 032404 - WHOLE - RES. 040076 Given your busy schedules and the fact that we spent nearly a year and over 10,000 hours to develop it, it's not something that you can do overnight. So we thank all of you for giving us an opportunity to sit here and begin a dialog about its importance. In November 2002, nearly 170,000 Philadelphians voted to create the Philadelphia Tax Reform Commission to recommend methods to reduce the taxes of Philadelphia residents and workers and businesses. Following a study of thousand-page documents and testimony by dozens of tax experts, business owners, residents, we concluded that Philadelphia's unique tax structure has fundamentally damaged the City's economy. We now have the opportunity to move Philadelphia forward by adopting the Tax Reform Commission's recommendations as a total package instead of attempting a piecemeal effort that would shift the tax burden to either business owners or residents. As a resident and a small business 7 032404 - WHOLE - RES. 040076 owner, I felt the burden of an overbearing and, frankly, unfair tax structure. There are all sorts of tax abatements and TIFs that are being used to entice large corporations to move into Philadelphia or prevent them from leaving. And I think that that's essential. But what happens to the small business owner who wants to support the City but is hit with the City's burdensome tax structure in my case as both a resident and a business owner? There are no tax abatements or TIFs to keep us in Philadelphia. In fact, no one would think twice if a small business was forced to close or was forced to leave the City, and many of them are, taking its dozen or so jobs with them. But what happens over time when many of these businesses continue to leave? " Fortunately, with me this morning is Bruce Crawley who's President of the African 8 032404 - WHOLE - RES. 040076 American Chamber who will speak more in detail about the impact on small businesses. Any economist will tell you that the small businesses are the cornerstone of a City's economy. But who makes up for those jobs if we do not reform our tax structure and retain them as we also try to attract new and large businesses to Philadelphia? I think in a recessed economy large corporations downsize to meet their profit margins; small businesses close. You simply say in a business regardless of large and small, one has to look at what are the propositions of keeping a business afloat. You have to try your best to increase your margin of profits. Larger corporations have strategies of downsizing and outsourcing. Small businesses, quite frankly, have to be able to contain costs. When you have a regressive tax structure, there's a cost burden laid on you that you don't have the ability to shift elsewhere. So we're driven out of business because of it. You will hear testimony over the 9 032404 - WHOLE - RES. 040076 next two days from a broad spectrum of Philadelphia residents, small business owners, large corporations, Chambers of Commerce, ranging from the African American Chamber of Commerce to the Greater Philadelphia Chamber of Commerce, all of whom offer their perspectives on why taxes are necessary.

We also have the Northeast Chamber of Commerce, North Philadelphia Chamber of Commerce, the Pennsylvania Economy League and many others who have worked on this with us. From the Tax Reform Commission's perspective, tax reform is a prerequisite to economic recovery and prosperity in Philadelphia and throughout the region. We cannot afford to not act on the recommendations which the citizens of Philadelphia said were a necessity and which reduce Philadelphia's tax burden equitably. Most importantly, the recommendations provided a revenue neutral road map to reduce taxes across the board without damaging the City's General Fund. We should all remember that today, 10 032404 - WHOLE - RES. 040076 as never before, all voters, whether they are black, white, rich or poor, democrats or Republicans, whether they live in North Philadelphia, South Philadelphia, West Philadelphia, Center City or the Northwest, people want results and people expect results. The Tax Reform Commission's recommendations taken as a whole package are the end result of a process that was created by the people, and those same people now expect the Mayor and City Council to act responsibly, to take action. If nothing is done, the message says back to the citizens of Philadelphia that their needs are not important, the City spent a year and a half and a half million dollars on an exercise of futility. I personally don't feel that you, Members of Council, that is your sentiment. I think your attempt today by having these hearings reflects your concern. I simply hope that it is a spirit of exchange between us and Council and used as an informational session. But I do want you to feel our passion. 11 032404 - WHOLE - RES. 040076 The essence of democracy, I think I said the other Thursday, is citizen participation. We are private citizens that banded together and decided that this was something that was critically important to our City's future and our own existence, and that's why we're here today. Thank you for the opportunity. And with that, I want to turn it over to Roger Ballou of the CDI Corporation.

Good morning, Members of the City Council's Committee of the Whole. For the record, I'm Roger Ballou, President and CEO of the CDI Corporation. We're located at 1717 Arch Street in Philadelphia. I am also a City resident. The CDI Corporation is a publicly-own provider of customized staffing and outsourcing services. We currently have several hundred employees in the City. 1 million in City taxes. I'd first like to thank Councilwoman Marian B. Tasco for introducing Resolution 12 032404 - WHOLE - RES. 040076 040076, granting this public forum to discuss the findings of the Tax Reform Commission. I come before you today as a member of the Greater Philadelphia Chamber of Commerce Council for Growth. You may recall that Mark Schweiker, the President and CEO of the GPCC hand developed a letter from the Council for Growth that outlined our support for the Tax Reform Commission's recommendations. " This is a $16 million, four-year initiative to market the Greater Philadelphia region nationally as well as globally to successful businesses and ambitious entrepreneurs. A major component of the success of this effort is and will be the tax climate we can offer them. I'm asking for your help in making this happen. You can set the tax rates that will either drive people 13 032404 - WHOLE - RES. 040076 away or encourage them to come and stay in Philadelphia. Tax reform is critical. The region has huge natural advantages. Its proximity to the major centers of business and government in New York and Washington, the major universities here, the transportation networks, industries and growth segments of the national economy, including things like life sciences where this is one the world's centers; and the quality of life. I want to acknowledge the fine work of the 15-member Tax Reform Commission for their relentless hours of meetings and research to develop a plan that was adopted almost unanimously. They have much to be proud of. The diverse group was able to hunker down over the long, hot summer and present a plan that I believe is fiscally responsible. In fact, the Commission received such glowing accolades that the Greater Philadelphia Chamber has been working with the General Assembly in modeling a State Tax Reform Commission after the Philadelphia 14 032404 - WHOLE - RES. 040076 Commission, and we're pleased that Governor Rendell made mention of this in his recent budget address. I'd also like to acknowledge and thank the Mayor for recognizing the Commission's work when on December 18, 2003, he instructed each and every one of his transition committees as part of the Philadelphia 21st Century Review Forum to carefully review these recommendations. I've heard time and again the cry to make our City more competitive with our neighboring borders to help market the City and the region to the tourism industry and to expand the Pennsylvania Convention Center so we can get a bigger piece of the pie. I'd suggest that the best way to do this is to make this City a more business-friendly town in which to live and work and, yes, to prosper. We don't operate in a vacuum. We realize that many factors have to come together to make things work. We're optimistic that the City residents will be 15 032404 - WHOLE - RES. 040076 able to enjoy additional tax relief from the State as a direct result of the new gaming revenues. It should be noted, however, that state tax relief should be considered in addition to the City's, not in place of it. And in times when poaching has become fashionable for some, I'm of the mind that stealing companies from one another really doesn't get us anywhere. We're in the economic fight of our lives, and if we're to win, we must be competitive. One only fails if you give up, and we don't plan on giving up or anything along those lines. Thank you for this opportunity to speak to you.

I hope you're all planning to attend the Mayor's business luncheon on Friday, March 5th, and the Chamber's annual City Council reception on March 25th. Thank you very much.

Thank you.

We now have Reverend Bruce Edwards from the Urban Leadership Council.

Good 16 032404 - WHOLE - RES. 040076 morning, Reverend. REV. EDWARDS: Good morning. Madam President, to you and Councilwoman Tasco and Councilman Nutter, sponsors of the resolution that we're here to support this morning, and to all of the esteemed Members of our City's Legislative Body, let me say again good morning and that I am Reverend Bruce M. Edwards. I'm the President of the Urban Leadership Council and a proud member of what we have come to call the Tax Reform Coalition (sic). Since last Thursday afternoon following a meeting of members of that Tax Reform Coalition that has literally been together -- we were trying to figure it out a minute ago -- possibly three years now since we started working together in an effort that was launched by the former head of the Greater Philadelphia Chamber of Commerce, Charlie Pizzi, to ensure the continuation of modest wage tax reductions and that brought together organizations and groups as diverse as the Greater Philadelphia Chamber, the Center for 17 032404 - WHOLE - RES. 040076 the Study of Economics, the Pennsylvania Economy League, the Pennsylvania Bar Association, small business owners, political leaders, City Controller Saidel and his great staff, Young Involved Philadelphians, the Greater Philadelphia Association of Realtors and, yes, the Urban Leadership Council. These diverse constituencies formed a bond that has remained strong and remained committed to achieving in a very real way tax reform for the City of Philadelphia. This, in fact, became a labor of love for the Urban Leadership Council. " Well, on May 15, 2002, the ULC submitted and provided oral testimony at hearings called by you to examine the value and ascertain support regarding a proposed amendment to the Philadelphia Home Rule Charter to provide for the creation, appointment, powers, and duties of a Philadelphia Tax Reform Commission; and should the creation of such a Commission be 18 032404 - WHOLE - RES. 040076 placed before the citizens of our City for a vote by ballot question to be executed that November. In that testimony, we gave only qualified support. We feared a Commission, as many had been in the past, would have become an impediment to real progress. We wanted no 9 part of an entity that would become just representative of nothingness. We wanted something that would have real teeth and whose work would ultimately impact the City and call for real improvement in the areas of job creation, job retention, neighborhood restoration; and that in the end, the Commission's work would result in ushering in a new era of economic growth and opportunity that would lower the tax burden on Philadelphians and raise the economic growth opportunities that exist here. In that testimony, the ULC also expressed concern as to configuration of the proposed Commission and the composition of the Advisory Board. But more importantly than that, however, was Article 5, Chapter 9, 19 032404 - WHOLE - RES. 040076 Section B of the resolution. It was this section that gave us real concern about the validity of such a Commission. " This consideration bothered us greatly in that we saw no point in examining the City's tax structure for the mere sake of an examination. Nor could we see the value in doing a comparative analysis without the ability to make real recommendations that would get us out of the trouble that we're in and affect the City's bottom line. In simple terms, the ULC's position was that if the Commission was not going to speak to cost savings, possible revenue reductions, possible service reductions or any budgetary manipulations, not allowing the Commission to 20 032404 - WHOLE - RES. 040076 address those matters would make the Commission of little value. Well, I'll say hallelujah and thank God. That did not happen. The ULC and the citizens of Philadelphia are gratified that the end result of a Commission that was voted into being by the citizens has worked and has worked well.

We're proud of the work that they accomplished. We paid attention to it. We involved ourselves in it, testifying before the Commission twice ourselves. So with our misgivings, we were proven to be wrong. The Commission was a real Commission. It had a mission and it has completed the mission. In a letter to you, Council President Verna, dated October 20, 2002, the ULC made note that it continued to support the establishment of the TRC, particularly after learning of enormously high real estate property reassessments and pending commercial property reassessments that were on the way. 4 percent of their annual income in 21 032404 - WHOLE - RES. 040076 City wage, sales, and property taxes, we knew something had to give. In the Mayor's own Budget Address that he delivered on November 21, 2002, the Mayor talked about the complementary work to be done by the Tax Reform Commission. He stated that this group would have the critical challenge of looking at the City's complete tax structure, including the real estate assessment practices of the Board of Revision of Taxes as well as identifying the right mix of revenue sources to balance the City's budget, provide quality services and grow the local and regional economy. On March 18, 2003, I was before this same Committee supporting City Council Bill 18 030073, and in that testimony I marvelled at some of the glaring negative statistics being reported by speaker after speaker. If the statistics are true, we as a City continue to lose some 1,000 residents per month, draining our talent pool and decreasing the City's income. At this hearing, the ULC urged your vote for the bill and for your positive vote 22 032404 - WHOLE - RES. 040076 to create, via voters approval, the Tax Reform Commission. I urge you to work toward improving the City's economic lot as opposed to continuing to manage the City's decline. Now, here we are. The Tax Commission was voted into being. The Tax Commission has spent months doing its work. 10 It has been a good steward of the people's money. And I think we can all agree that it was a noteworthy process. They came back to us with documents that were clear in their content and in their substance. The 13 separate bills that represent the work of the Commission must not get caught up in political in-fighting, rules manipulation -- ya'll aren't listening to me. Let me go back on that one because ya'll aren't listening to me. The 13 separate bills that represent the work of the Commission must not get caught up in political in-fighting, rules manipulations, or any other such action that might prove negative and, therefore, impede the work of the Commission, your own work on behalf of 23 032404 - WHOLE - RES. 040076 your constituents and ultimately the work of the citizens of our City. Finally, let me say, we must insist upon a new standard of public and private service ethics in the City of Philadelphia. There is evident in our City a system that not only smells of corruption, back-door dealing, inside trading, manipulation of the process, and all too often it doesn't matter what the issue is as long as some individual, some firm, some non-profit group can find another way to pimp the public, get some more checks rolling in, and immediately go back to hoodwinking the public. That was not the mission of the Commission. That was not what the mandate of the Commission was. And the Urban Leadership Council will not tolerate it. We worked to get the Commission instituted, we stood with Councilman Nutter to get it instituted, we testified in front of it, we support its final document, but that's where we're going to stop. We expect it to be turned over to the citizens of Philadelphia, to their representatives in this Chamber, and 24 032404 - WHOLE - RES. 040076 for the Mayor to get busy about turning the economic house of this City around. That's what it's about. And I will leave you with those words. We demand this. The people of the City demand it.

An immediate cessation, an immediate cessation in the kind of behavior that has literally torn a great city apart. We've got to stop it, and we've got to stop it now. I thank you so much for allowing me to come. One of these days, ya'll are going to ask me to come down here and say a nice prayer. But every time I come, you got to make me come down here with my fire and brimstone. )

Thank you, Reverend Edwards. We now have Marc Berman from Berman Travel.

Good morning, Madam President, Members of City Council in my City. My name is Marc Berman, born and raised in 25 032404 - WHOLE - RES. 040076 Northeast Philadelphia. My current residence though is Northeast Philadelphia. I'm an active member of the Greater Northeast Philadelphia Chamber of Commerce. Last year, my wife, who is also my business partner, took a risk. See, she opened a travel agency in a post-911 world. My job at the agency is marketing and E-commerce. I was told by many, "Are you nuts? It won't work. Travel agencies are closing left and right." Then we took another risk. We opened in my City, Philadelphia. Did we consider other options? Yes. And no. I see companies taking the same risk that we did. We have a Wal-Mart, a Lowes, and a Target a few feet from the Berman Travel.com world headquarters in Oxford Circle, Bells Corner, Northeast Philadelphia. Even Chickie's and Pete's Cafe is expanding here in my City, taking a risk, but doing it. As far as Berman Travel.com, it's 14 months since we opened. And during this time, Sandals Resorts in the Caribbean nominated Berman Travel.com for Newcomer of the Year, 032404 - WHOLE - RES. 040076 not just in Philadelphia, but nationally. And where is Berman Travel.com located? Not in New Jersey, not in New York, not California, Florida, Kentucky or Ohio. That's where our biggest competition is. We opened it right here, in my City, Philadelphia. Our primary wholesaler, Travel Impressions and American Express Company, named us Best of the Best, 2003, and it seems we're off to a good start. Now your help is need to implement in their entirety the proposals offered in the Tax Reform Commission report. This way, other new businesses can see our growth in Philadelphia and join us in this great City. I did take a risk. I don't know if it was worth it yet. It's only been 14 months. But I believe in my City. I love my City. I'm not leaving my City. So I'm going to stand behind my City and hope that all of these things become adopted. We need it. It's the greatest city in the nation. Thank you for your time and support with this issue. It's crucial for the future 27 032404 - WHOLE - RES. 040076 of our City. Thank you for your time.

Thank you. (Applause.)

We'll now have A. Bruce Crawley, Chairman of the African American Chamber of Commerce.

Thank you. Good morning, Madam President, Members of City Council. I'm here today as Chairman of the Board of the African American Chamber of Commerce. Bill referred to me earlier as President of the African American Chamber of Commerce. The President gets paid, the Chairman is a volunteer position. I want to make that clear. The African American Chamber of Commerce, established 10 years ago, is a leading regional private sector advocate for the growth of African American businesses and the expansion of the African American economy overall in this City and region. The organization currently has a membership of 750 businesses, the overwhelming majority of which are located within the City 28 032404 - WHOLE - RES. 040076 limits. The African American Chamber was one of the appointing organizations to the Commission and we were proud to submit the name of Melvin Jackson, our board member, who with his wife owns and manages a successful West Philadelphia based healthcare business. Oddly, we represent a community that is not diametrically opposed to the concept of paying taxes. For us, being asked to pay taxes is a sign of having an economic pulse, that your business is generating cash flow, that your family members are earning income and wages. And in an economy wherein the African American unemployment is twice that, 6 percent versus 12 percent, twice that of the general population, we take having an economic pulse very, very seriously. So we're not all that much turned off by taxes. We are more turned off by not having wages or revenues flowing through our businesses. We come before you, with all that having been said, as supporters of the Philadelphia Tax Reform Commission and its advocates for a more fair and balanced tax 29 032404 - WHOLE - RES. 040076 strategy for Philadelphia. For minority businesses, however, the definition of fair and balanced includes, not only tax rates that are not excessive or onerous, but also tax planning that provides sufficient revenue to the City's General Fund to support an attractive quality of life for City residents and City-based businesses. Unlike some others in the regional business community, we don't necessarily believe that tax cuts are an absolute panacea for curing all of the business location entrepreneurial development and residential out-migration issues that have challenged this great City for the 40 to 50 years. While we believe that intelligent and professional tax rate strategy is important, we also are strong believers in the fact that tax revenues can also be built by including more businesses and employees in the municipal tax base. The problem with the current tax base, as we see it, is that the tax planners have not paid anywhere near the appropriate levels of attention on how businesses and 30 032404 - WHOLE - RES. 040076 employees that may grow out of the new majority of the City's population can contribute to greater overall tax revenues, balanced budgets, greater infrastructure and service development capability, and even to reduce per capital and per business tax rates. The focus of the tax planning, the goal of the majority of the tax advocacy has been to accommodate those who have every intention to leave this great City as soon as they possibly can, on those who have already left and who have little desire to return. We find that at least troublesome and at some level clearly unproductive. This is a Philadelphia tax plan designed to supplement the General Fund and to grow this great municipality. While we understand the ongoing need to attract and accommodate outsiders, we are much more interested in a comprehensive tax plan that works for people who want to be here, whose houses and businesses are located here now, whose children are enrolled in Philadelphia-based schools and who believe in the future of this new international City. 31 032404 - WHOLE - RES. 040076 From where we sit, that hasn't been the case at all.

And that is the principal reason why the African American Chamber of Commerce did not join the now infamous three-block long parade of briefcase carriers that demanded radical suburban focus tax cuts. Are we imagining all of this? Former Federal Reserve economist and now Econsult Principal Wharton Professor Voith was quoted recent as saying, "Will cutting wage taxes work? Will lower taxes encourage a few of the people leaving the City to change their minds? Will lower taxes encourage others to move to the City? Will a business add an employee here rather than elsewhere if it costs less in taxes? Ultimately, is investing in City wage tax cuts worth it? " From the hysteria of the parade coverage, you'd think it was an ironclad sure thing. It's not. In fact, in the same article, Professor Voith pointed out, "Only 32 032404 - WHOLE - RES. " Yet, as we know, those same cities have all experienced the same suburban out-migration, the same economic polarization and the same decline in quality of their systems, as has Philadelphia. While we support the Tax Reform Commission report in a broad sense, we also want to register our formal strong recommendation that we not stop here if we truly want to achieve a vibrant municipal economy. 7 percent of the Philadelphia-based businesses are owned by those same people, the new majority in this City. But here is the tragedy and a substantial reason for our economic malaise. 2 percent of the City's gross receipts. Clearly, there is 33 032404 - WHOLE - RES. 040076 squandered economic opportunity in that disparity of population to gross receipts and the disparity of businesses to gross receipts. 6 percent, still leaving more than 93 percent of the gross receipts with white-owned businesses, we project an additional increase of 8 to $9 million dollars in annual gross receipts as tax revenue and an additional 38,700 jobs, and an annual wage tax increase of 40 to $50 million. That's the tax revenue benefit of economic inclusion. It's an approach that has for too long been unexplored in the City's tax and budget planning. We at the African American Chamber of Commerce strongly recommend that we begin to focus our tax strategies on the people who actually live here and the businesses that have tied their future to this City. In summary, let me reiterate, any tax structure of any City, no matter how fair, 34 032404 - WHOLE - RES. 040076 is doomed to failure if nearly 60 percent of potential wage earners are under-employed or unemployed and that if in of its businesses are excluded from an opportunity to contribute to the tax base. Thank you all very much.

Thank you. Are there any questions from members of the Committee regarding the first panel's testimony? Your going to have to raise your hands because we don't have the box here. Councilwoman Tasco.

Thank you very much. I'd like to thank you for coming in today to begin this whole discussion around your work that you spent so long preparing and I want to thank you for issuing a report that is objective. And I know from Bill Miller, my buddy, all of the dialog that went on during the course of your deliberations. So I want to thank you because you're all very busy. Thank you for being in the City, working in 35 032404 - WHOLE - RES. 040076 the City, and taking time to contribute to an effort that we need to really look at. And I just want to express my appreciation to you for that.

Thank you. Anyone else? Councilman Kenney.

Thank you. I was just curious, Mr. Crawley. During the course of your testimony, you eluded to or you made mention to a suburban-based tax reduction. Can you elaborate on what you meant by that?

Yes. I think that too often, as we've been engaged in these dialogs about wage tax cuts, the focus of whatever proposed tax structure, the focus of whatever proposed tax rate level is too often on -- often the vain attempt to bring businesses that are located out in the other four counties and southern New Jersey and northern Delaware back into Philadelphia without the appropriate focus on the businesses that are here now and who have every intention to stay. 36 032404 - WHOLE - RES. 040076 I think that it also has been used that the structure of the wage tax argument has been used to explain the residential out-migration from the City. And as I said and as I refer to a report by Professor Voith at Econsult and the Wharton School, 4 in 10 of the largest cities in America don't even have a wage tax. And yet the same patterns of out-migration, the same patterns of economic polarization exist in those same cities. The same pattern of declining support of their public school system exist in those cities. So it's not just the wage tax. It's an issue of inclusion, inclusion of the people who have businesses of all color, of all ethnic backgrounds whose businesses happen to be located in this City. I would encourage us to have a more balanced approach as we look at tax reform and to focus on people who have tied their fortunes to this City.

I think that the only difference probably with Philadelphia and the other cities that you're mentioning 37 032404 - WHOLE - RES. 040076 relative to out-migration rates is that they've repopulated their cities with efforts like immigration efforts and other things so cities like Chicago, Boston, New York -- New York had a percent out-migration of native 7 New Yorkers over the last decade and a 9 8 percent net gain of population. So I think we 9 have a long way to go in that area. 10

And I think immigrants 11 of all ethnic backgrounds are encouraged to 12 move into a city where there is economic 13 inclusion. If they believe that they as 14 immigrants and they as minority immigrants 15 specifically won't have an opportunity to be included in the overall economy without regard to minority set-aside legislation and those kinds of false arguments, if they don't believe that that can happen, they won't move to that City. And I think that if Philadelphia wants to have competitive advantage, it ought to begin to move in that direction, both for tax planning and for the general flow of this economy.

Well, that's 38 032404 - WHOLE - RES. 040076 what made it so hard all the time to support a lot of the Public Works projects in the City because seemingly that most of the people who benefit from them are suburban construction workers without the opportunity for minority men and women in the City to access the construction trades and to work on those projects, so that's a lot of frustration that we went through in dealing with things like stadiums and other things. So I do agree with you there. Thank you.

Thank you, Councilman.

Thank you. Any other questions or comments? The Chair recognizes Councilman DiCicco.

Thank you, Madam President. Good morning to the panel and thank you for all of the work that you've put into this Commission report. Just this morning, I had the opportunity to speak to some folks who are principals in a company that is currently in 39 032404 - WHOLE - RES. 040076 the City of Philadelphia, and the company has been here for about 250 years. It's an insurance company. And on this Thursday, I intended to introduce legislation, TIF legislation, that will help provide some gap funding that will enable this company to stay in the City of Philadelphia. It's not similar to what the KOZ that we're talking about or the KOIZ Zones. This company, because of policy changes post-9/11, can no longer be insured if they continue to have more than 800 people working for their company in one building at a time. And that's something, I think, that other companies may have some experiences with going forward. So this company intends to buy a building and stay in the City of Philadelphia and actually grow over the next few years, their employment to about 200 more jobs, high-paying jobs, average salary 50 to $70,000 a year. They're currently leasing space in Liberty One or Liberty Two. But the interesting thing about my conversation this morning -- they had to make a decision. The 40 032404 - WHOLE - RES. 040076 policy, again, doesn't permit them to house more than 800 employees in one facility at any given time, so they have to basically split up their employees, put no more than 800 in one building, a few hundred somewhere else. And they don't want to leave the City of Philadelphia. They're basically an institution, they've been here a couple hundred years, 250 years. If they were to look at leasing space as opposed to buying -- and they're not in the business of property management, they're not in the business of owning real estate; they're an insurance business. The cost of leasing space that will accommodate what they're required to do under the policy, separating the employees out, would cost their company over the course of 15 years $35 million to stay in the City of Philadelphia more than it would if they went to a suburban or South Jersey; $35 million over the course of 15 years. And that doesn't even take into consideration the wage taxes. That's just the cost of the U & O business taxes and general business privilege taxes, et 41 032404 - WHOLE - RES. 040076 cetera, strictly on a lease basis. They'll probably save a few bucks by owning their property, but they just have a commitment to the City. And I know we all have horror stories, we've heard these stories before and we'll continue to hear these stories during this discussion, but it was just interesting that just this morning they came in. $35 million dollars over years. 12

Part of that, 13 Councilman, has to do probably with the fact 14 that even though we have a 14 percent vacancy 15 rate for commercial real estate in Philadelphia, there's a 20 percent vacancy rate in the suburbs. So you can strike a deal because a lot of those buildings are, you know, you can drive a truck through and won't find people with leases. So it is a good time to negotiate leases in the suburbs as compared to the City.

And because of those policy changes that they've required, the likelihood is if there were some sort of a 42 032404 - WHOLE - RES. 040076 terrorist act, it's more difficult in the suburbs because those facilities are kind of horizontally laid, spread out over a campus. Generally, in the City, you're in a vertical building and it's one building where 800 to a thousand people may be working for that particular company and it's an easier target. And they've taken that into consideration. But they're a Philadelphia-based company and they want to stay here. So, again, I'm going to introduce a TIF for them. That wasn't the purpose of my raising it, the purpose was $35 million is a considerable amount of money over a 15-year period.

Councilman, I understand the same company is being enticed by New Jersey.

Yes.

And making all kinds of very, very good offers to them.

Some areas in New Jersey, they're putting as much as $20 million in an incentive to lure companies out to them. Just, "If you move here, we'll 43 032404 - WHOLE - RES. 040076 give you $20 million for retrofitting or what-have-you to get your company up and running.

Just as a quick comment on that, though, we actually looked at real estate in the City and in the suburban areas and in New Jersey just recently. And just a fact to comment, that the rates in the City have fallen so much that the actual rental rates available here are equivalent to the outside rates. I think they're talking mainly business occupancy tax and turnover tax is the differential. The rates in the City have fallen by 50 percent in most of the A and B level buildings.

You're talking about the vacancy rates?

No, I'm talking about the rental rates have fallen 50 percent from where they were three and four years ago. So it's not the rental rates that create the problem or create the impetus, it is those turnover taxes and occupancy taxes which on a lot of jobs, on a $50,000 job, it's not as 44 032404 - WHOLE - RES. 040076 much to absorb. But on your processing jobs, your more entry level jobs, jobs like that, it becomes a very high component of your decision where you put the work. And that's where the City gets hurt tremendously is in an awful lot of the jobs that are wonderful starting jobs for people, and $30,000 jobs where the 9 business occupancy taxes and the turnover 10 taxes make it unattractive to leave those jobs 11 in the City. So a lot of loss of jobs that's 12 going on here is hollowing out of existing 13 firms that may stay in the City for their 14 high-end jobs but not for a lot of the other 15 jobs. 16

Thank you. 17 Thank you, Madam President. 18

Thank you. 19 The Chair recognizes Councilman 20 Nutter. 21

Thank you, Madam 22 President. 23 First, to the panel, thank you very 24 much for your testimony. And I wanted to go 25 back to -- Mr. Crawley, you had raised a 45 032404 - WHOLE - RES. 040076 couple times in your testimony, which if we have a chance, I certainly would like to have a copy of.

As soon as I get it typed, Councilman.

I understand. Well, no need to admit that. It was so fluid, you know, "The copies are back at the office." On the economic inclusion issue, though, and as we're in this setting at least having a tax policy discussion -- you and I have obviously had a number of conversations about the issue. I wanted to better understand, though, from a tax policy standpoint how we create an environment that is economically inclusive, or is that more of a public policy issue? What kinds of things will we do on the tax side that create that inclusion? And then I have a follow-up question about that.

Councilman, I think that if the premise is that the tax basis broaden and it's broadened according to the 46 032404 - WHOLE - RES. 040076 opportunity that exists in these under-included businesses, then you can do projected reduced tax rates.

Right, just because you have more people participating.

And still project the same kind of revenue impact. And that's the premise. The premise is if you consider the same sources for your tax revenue generation, same sources for job creation, same sources for wage tax, then you're going to have to have a rate level that predicts the kind of revenue you need to balance your budgets.

Because you're always pulling from the same pool.

Absolutely.

Then the second question is a follow-up to that, it it's probably less of a tax policy discussion and more a public policy discussion about your thoughts or views or suggestions, even criticisms, about -- for the African American Chamber or other businesses that you're involved in, how often is there outreach to 47 032404 - WHOLE - RES. 040076 the Chamber members or other business that you're aware of with regard to either City or State -- kind of leave the feds to the side for a moment -- or naturally private sector business opportunities where some of the not-so-known entities are provided that opportunity, whether it's for a concession contract or other situations where people have experience, they're actually in that business presently, they didn't just create something of the moment to take advantage of the opportunity -- nothing wrong with that if you know what you're doing. So from your perspective as Chair of the African American Chamber, what's not happening? What kinds of things should happen to broaden that base, get your economic inclusion and then provide that opportunity?

Two things. One is clear from the numbers, that those activities are not happening either in the public sector or private sector. If you got percent of 24 the business and they get 2.2 percent of the gross receipts, obviously, public and private 48 032404 - WHOLE - RES. 040076 sector. It's not doing both or not doing an adequate job of outreach. So we know that from the number. But one of the things that we've been discussing at meetings, we recently had a meeting between and among the members of the African American Chamber, Hispanic Chamber, and Asian Chamber. And at that meeting, we talked about a concept that would assist in developing the kind of revenue growth that could then be shared. We draw that from looking at the major complaints that are being made now about the national candidates for the Democratic Primary and the complaints that are being lodged against President Bush. And that is that this economy, this Administration, has allowed and fostered an environment wherein US-based corporations are going overseas to purchase goods and services, de facto exporting jobs. So the jobs that get created by the revenue generated by those companies are created offshore. And so there's great 49 032404 - WHOLE - RES. 040076 harangue about that. People are complaining, and that ought to be brought back. And what we're suggesting is that the combined groups of African American, Hispanic, and Asian Chambers, both in the City of Philadelphia and within the region, that there been a commitment between members of the public and private sector, there been a commitment that there been a county first and region first procurement policy. If we could, first, capture the dollars that these governments are spending anyway. They have to do procure. They have to put RFPs together. What percentage of those revenues, what percentage of those procurements are being spent within Philadelphia County and then within the other four counties in the region and how much of that is being spent arbitrarily outside the region without any plan to ensure that it's county first and region first. Same thing could apply to those counties out in Bucks, Montgomery, Chester and Delaware. Our issue there is that if that 50 032404 - WHOLE - RES. 040076 were to take place and if the public sector could do it and then if the private sector -- say, the 200 largest corporations in the region could come together and do the same thing, look at how much they spend on procurement and where is it spent, is it spent within the region? Is it spent within that county? Capture that. Look at the differential that could be attained if they increased the percentage of in-county and in-region purchases. There would be a dollar value -- I don't know how many billions of dollars that we could keep within this region. And there you'd have a built-in attraction to entrepreneurial entities, businesses that would be formed because they knew that money was spent only if you happen to be a resident business here. So that could happen. And as it happened and if it was done inclusively, not only the broad business community would grow, but the minority business community which, again, is 24 percent of the businesses in the City of Philadelphia. 51 032404 - WHOLE - RES. 040076 So that's how we see that happening and that's how we see the tax effect. The tax effect numbers that we talked about in the report were based on that premise, that there would be monies generated by keeping procurement at home to a greater extent than it already exists. Not a hundred percent of it, but 60, 70, 80 percent of procurement kept within the county, kept within the region to create that flow and then we'd be able to do that.

I know you're aware and it's, I'm sure, too new for us to have much data, but you know last year there were a variety of amendments to the Home Rule Charter, all of which passed and they did a number of very positive things. One was an attempt probably at a smaller level to start proceeding down the path that you mentioned with the bid preference for Philadelphia-based businesses. The year is new and young, and I don't know how many bids we've had since the calendar year started, but certainly there's a smaller model, I think, of the kind of thing 52 032404 - WHOLE - RES. 040076 that you're talking. And, I mean, it's across the board, it's not preferential to any particular sector, but it is at least Philadelphia-based.

Rising tide would raise all ships.

Well, that's what they say.

And a greater potential is for government to use its bully pulpit with the private sector, to say, "Private sector, can't you also retain, manage, and project your own procurement within the region?" We create a lot of cash flow.

Okay. Thank you, Madam Chair.

Thank you. The Chair recognizes Councilman Rizzo.

Madam President, I think that my question was answered already, but I just want to be sure on the point about the policy of a particular company limiting 53 032404 - WHOLE - RES. 040076 800 employees to a particular facility. How widespread is that? And I understand there's a concern for terrorist attacks. I believe that's why that policy was put into place.

Are you referring to the comment that Councilman DiCicco made?

Correct.

I believe it's an insurance company.

I understand that. My point being, how widespread has that type of policy spread? Because if a company is going to spend 35 million additional dollars over 15 years to assure continuity in their business, that is obviously something that everybody should be concerned about if that policy is going to start to ripple through many industries or many corporations that reside here in the City.

Madam President, it may very well be the case. It's not just this company. It just happens to be 54 032404 - WHOLE - RES. 040076 that this company does have in excess of 800 employees now located in either Liberty One or Liberty Two. My understanding from a very brief conversation with the people this morning is that insurers of companies such as this insurance company are making that a requirement. I suspect it's a national policy at some point, if it already is not in place.

Point of information.

The Chair recognizes Councilman Kenney.

Thank you. On that same note, my understanding, though, is that these policies apply to what they term as trophy buildings. Buildings like Liberty One and Two, the high profile potential terrorist targets because this company will be moving to Fourth and Walnut at a 12-story building but don't have the same problem because it's not a high profiled building like something like Liberty One and Two or other high profile buildings that are more potential targets of terrorists than a 55 032404 - WHOLE - RES. 040076 normal office business.

But most companies, I would assume, fit into that category of the trophy building because they require so much space that they're generally in the high-rise buildings.

Well, they're going to a thousand people in Fourth and Walnut. But because of the low profile of the building, it's stories, it's not in an area 12 that's potentially - I guess when they do their insurance calculations, I assume they take into consideration the size and profile of the building which then, I think, limits it to so many buildings, but not every building.

I think post-9/11 in the New York area, my understanding is financial institutions, security exchange, they have basically downsized from putting all their employees in one building, even as far as New Jersey. A lot of those companies have sub-offices, if you will, in New Jersey because they've spread out their employees so, God forbid, some sort 56 032404 - WHOLE - RES. 040076 of terrorist attack took place, they wouldn't get totally wiped out. So it's in line with that mindset.

Thank you, Madam Chair.

You're welcome. Councilman Cohen, did you want to be recognized?

Yes.

The Chair recognizes you, sir.

Thank you, Madam President. I hear lots of talk about the entrepreneurial system. And whenever we talk about taxes, I hear about companies -- the African American Chamber of Commerce who's present here, but I hear the same thing from the Chamber of Commerce as I do from the African American Chamber of Commerce, always talking about entrepreneurial thing. What about the worker? Because I'm a partisan Democrat. I don't know whether I'm in the 57 032404 - WHOLE - RES. 040076 presidential race or not now that Howard Dean has gone out. But I was at least with him in the Democratic wing of the Democratic Party, but I don't hear Democrats talk. I hear the same talk whether it's a Republican or Democrat, it's always about these big companies and the tax policies, yet I see no 9 enthusiasm in the community by leadership in the communities, whatever the communities are, black or white, for the targeted tax cut that I proposed and which has received at various times as many as 11 votes. Is that because the money would go to workers and nobody seems interested in workers because they're not entrepreneurs? I thought that the purpose of talking about reforming a tax system was not just to help companies, I thought it was supposed to reflect itself in savings to ordinary working people. And if you tell me, "Well, they'll come," then I say, "Well, let's cancel the election, let's just keep Bush in power," because Bush follows this theory that if you take care of the entrepreneurs, everybody else will be taken care of. You 58 032404 - WHOLE - RES. 040076 know, it will finally trickle down. I'm looking for people interested in tax reform, and I must say I was very strongly disappointed by the membership of the Tax Reform Commission because very few of them seem interested in the ordinary average worker, the middle class citizen. They didn't, for example, even discuss, they didn't criticize, they didn't attack, and they didn't approve, they said nothing about the targeted wage tax cut because that would mean into the -- maybe not into the hands of the entrepreneurs, but it would leave room for a targeted wage tax cut that comports with the Democratic Party's program for tax cuts. Yet, here again this morning, I hear the same talk about entrepreneurs. I'm interested in the neighborhoods, in the communities in Philadelphia and workers and the average citizen. And the people that vote -- I believe they're voting when they vote for Democrats that they're voting for an economic program that's different from that of the President's. I hear everything that's 59 032404 - WHOLE - RES. 040076 being said by Democrats at this table could easily be said by Republicans and by people who support President Bush because the one targeted wage tax cut proposal that was presented by the Keystone Research Center, a very fine group of research people, wasn't even discussed, apparently, by your body. You didn't think it was worth your time because nobody's going to be able to make a lot of money on it? Is that why? And you're not interested in worker income?

Are you ready for the response, Councilman Cohen?

For those of you who are members of the Tax Reform Commission, I address that question. And to those who are not, I address the question, shouldn't that be where the focus is, what's going to mean more income for the folks in the neighborhood, the ordinary worker?

I will say to you that at least this morning, certainly in my comments and certainly in Reverend Edwards' comments, who represents the Urban Leadership 60 032404 - WHOLE - RES. 040076 Council, that the perspective of those who are non-business owners certainly reflected an attitude of why tax reform had an impact on people in the communities. And over our 10,000 hours on the Tax Commission of deliberating the issue of tax reform, we had countless testimonies from people in the community because we took many of our hearings to the community. The Greater Philadelphia Urban Affairs Coalition is part of this coalition to speak directly to the issues of the benefits of tax reform for people who are non-business owners. We've discussed part of that this morning. We had formed a citizens' advocacy group called Philadelphia Forward, of which the Urban Leadership Council, the Greater Philadelphia Urban Affairs Council, many other community-based organizations are also working to advocate for tax reform. And through those deliberations, many people have discussed quite fervently perspectives that you've just put on the table. I think that it will take a great deal of time and a lot more patience on all of 61 032404 - WHOLE - RES. 040076 our part to recognize just from the first panel that you've seen today the enormity of tax reform, how tax reform is intrinsically linked to a broader economic development strategy which, in effect, people in this City, those who are actually leaving who don't own businesses have to feel that an equitable system's put in place that will address their needs as well. So I think that we've been extremely sensitive. One of the successes, I think, of the Tax Reform Commission was that a broad, diverse group of people came together to look at taxes in the essence of tax and tax structure and its impact on all aspects of life in Philadelphia, and I think we did that.

Well, could you explain to me within that framework why it was that this bill that would add as much as $900 a year to the family income of, say, a woman with a child, and which sought to apply the same standards as were applied at federal and state levels to entitled people to refunds is not followed by the City? And if you know of 62 032404 - WHOLE - RES. 040076 any actions protesting that situation, I'd like to hear it. Because I haven't heard any.

Councilman Cohen, in fairness to the next panel that's coming forward and as I was just told, Commissioner Mel Jackson, Madam President, will replace me on the next panel. They will fully be prepared to discuss that and perhaps correct some of the misassumptions about those issues.

Well, I'll be patient. I've been patient a long time to hear of a targeted tax program. Philadelphia is a Democratic City, it's supposed to be a labor City as well, and yet it's way behind Harrisburg and Washington with respect to how it carries out its tax policy. All my bill did was to ask that the same standards that applied to income at the federal and state level be applied at the City level. Why should somebody pay a wage tax here if at the state and the federal levels they're exempt from paying a form of income tax? But couldn't get much of a hearing before the Tax Reform Commission because you 63 032404 - WHOLE - RES. 040076 weren't interested in that. I'm talking to the Commission as a whole, I'm not talking about the body individually. That's why I've been unable to join with Councilman Nutter in expressing joy and happiness of what the Tax Reform Commission did, because I think they deserted the people of Philadelphia. I'm willing to wait. I'll wait even to last panel to get some answers to that question.

Well, the next panel coming will probably have some answers to that, and hopefully we're all going to be patient and try to have a meaningful exchange around those and other issues.

Because one can take, Bill, a simple problem and make it very complex. This was an easy matter. All that's needed is to say the same level of policy -- I'm talking about the income of individuals -- should be employed by the City so that people who are eligible for refunds from the state and federal taxes ought to be eligible. If 64 032404 - WHOLE - RES. 040076 they fit those income categories, they should be eligible for a wage tax refund. That's simple. You don't have to have much policy on that. If the Republicans feel it's fair, I don't understand why Democrats feel that people have to be taxed, if even a Republican in a rare case admits that working people are entitled to some relief.

Councilman Cohen, the reason the Tax Reform Commission -- I'm sorry, Madam President. The reason we were successful in the Tax Reform Commission in giving a real good body of works is because we're very disciplined, and I'm going to defer those questions to the next panel.

Thank you very much. Thank you gentlemen.

Thank you.

Again thank you for all your work. The next panel will be...

Commissioner Jackson, Commissioner Schwartz, Vice Chair Al Taubenberger, Andrew VandenBrul, and 65 032404 - WHOLE - RES. 040076 Commissioner Brett Mandel.

Can one of the Sergeant-at-Arms please distribute the testimony? Good morning.

Good morning, President Verna. My name is Ed Schwartz. Usually I testify here on behalf of the Institute for the Study of Civic Values, which I suppose I'm doing as well, but I'm here primarily as the Chairman of the Tax Reform Commission. What I'd like to do here is to lay out, not only what we did, but why we did it. I was an appointment of this Council to the Commission, and I feel some special obligation to you. And I don't know whether I will be eternally grateful or I will never forgive you for this. Depends on what day, but I'm here. And I'm also conscious that part of the skepticism about whether the Commission would yield any result of consequence had to do with deep divisions that may have existed at the beginning. Some of it 66 032404 - WHOLE - RES. 040076 was targeted at me. The Daily News said -- I guess the Philadelphia Magazine referred to me as a tax fiend. " So like Nixon going to China, I guess, I feel that the astonishment that has been greeted by what we did really deserves explanation. You've heard a lot and will continue to hear a lot about the core recommendations. 2 percent; changes in the business tax leading ultimately to the elimination of the business privilege tax; significant immediate reforms proposed in the assessment procedures governing our real estate taxes along with the gradual implementation of a land tax. Others here will go into greater detail on those proposals, but those are the outlines. But I think it's important to understand why we are recommending what we are 67 032404 - WHOLE - RES. 040076 recommending, one of the core assumptions behind what we've done. When I started as Chair, I did say to everybody that we had our positions that we brought to the table, but it was time to step back from those and to listen with an open mind to the research and the testimony that we would hear and permit ourselves the ability to come to, perhaps, a different conclusion, because otherwise, why would we meet? And every member of the Commission really took that really seriously. And I know I did. So let me go through some basic points about what we did, addressing why we did it. First, it's important to point out that the Charter amendment that this Council drafted and that was supported by 80 percent of the public asked us to look at the tax system as a system. That's why we were created. We were created at a moment or recommended by this Council at a moment in which there were lots of different tax proposals on the table and enormously 68 032404 - WHOLE - RES. 040076 outlandish, I would call them at the time, suggestions about how much money we could take out of the City budget. There were proposals that moved in opposite directions. And then even after all of that around the wage tax, then in the summer another upheaval relating to real estate tax assessments. And so what this Charter amendment asked us to do was to step back from all of these individual proposals, evaluate them to be sure, but within the framework of a tax system. Some editorial writers and others who have heard members of the Commission who are now advocating for what we've done have been a little taken aback when we say, we're proposing this as a system and not as a group of 27 recommendations that you take from a tree like apples and decide which ones you like. That's because what we did indicates that if you change one part of the system without making concomitant changes in the other parts, you're going to end up with as many problems, maybe more problems, than you had before. 69 032404 - WHOLE - RES. 040076 Now, the details of that will grow out of the testimony that we provide for you. But I'm merely saying that when we come forward and say we want you to look at this as a system, it's not just feeling that we were on Mt. Sinai and somebody handed us the 28 recommendations for tax reform from a tablet. It is because we have looked at the tax structure as a system and we think it needs to be reformed as a system.

Secondly, the overriding consideration in reviewing particularly the business and wage taxes was the impact of these taxes on the City's ability to preserve jobs by expanding local businesses and attracting new businesses and new jobs into the City. In the end, jobs loomed the highest of our concerns. One can argue that when an individual resident moves in or out of Philadelphia, they may have all sorts of reasons to do that; crime, schools, all kinds of reasons to move in and out of Philadelphia as families and individuals. But having 70 032404 - WHOLE - RES. 040076 listened over the course of months to hundreds of business owners, having listened to the people on the Commission who represented business organizations, having listened to the people who have tried to promote economic development for the City of Philadelphia who say that whatever they try to do, in the end the tax system makes it almost impossible; it was, in fact, impossible to conclude that we could survive and continue to grow as a City unless we did something serious about the tax system, that that in this case was the huge elephant in the room, if you will, that was preventing our economic growth despite the other advantages that Philadelphia does have to offer. We're asked here, why do we focus so much on the business taxes? Because we have them and most other cities don't. Why do we focus so much on companies? Because they're paying prices here that they don't pay elsewhere. If the objective over the years was to create a business tax structure that socked it to them, we have succeeded 71 032404 - WHOLE - RES. 040076 brilliantly in that effort. But the result is that the 2 or 3,000 welfare recipients whom the Institute for the Study of Civic Values supports in community service jobs over the course of a year can't find jobs because businesses are the ones who create jobs, and they simply aren't here. Beyond that, there was a debate internal to the Commission over which the real culprit was, the wage tax or the business tax. And in the end, the conclusion was both, particularly, if you look at what kinds of businesses we're talking about. Obviously, for a large employer, 4 or 500 people working for them or more, the wage tax will loom as a bigger and bigger problem because there are more people who have to pay it. But we haven't changed much since when Walter DeLessio (ph) 20 years ago when I was sitting over there used to say that Philadelphia was a City of businesses with 50 or fewer employers. And during that period of time, we had Dave Birch (ph) issue a very interesting study, that I carried around, that the engine of 72 032404 - WHOLE - RES. 040076 growth for American economy was small business. And so it was really impossible once I became much more familiar with how the business tax system in this City works, it was impossible for me to understand why any business would want to locate here. It was so complicated, there were so many incentives not to locate here, and they didn't have to put up with this every place else. So from the standpoint of the businesses that you've heard today in terms of the African American Chamber of Commerce and some of the others, it affects all small businesses. And the businesses that we're talking about within the City by and large are small and, yes, we do believe that there needs to be as a critical component of our economic development strategy support for the existing businesses here that will enable them to grow, that it can't all simply be done by attracting some other business from some other place. In fact, if we provide the proper kind of support for local businesses, then maybe we'll also be 73 032404 - WHOLE - RES. 040076 making it attractive for other businesses. When I was here, we fought over the Convention Center.

A handful of people met from the business and political establishment of the City and said that if we were going to become a world class tourist center, we had to have a new Convention Center. And in fact, if we were going to maximize the impact of that Convention Center, it needed to be located in an area of Center City Philadelphia where there are 330 businesses that have to be moved out and all kinds of other disruption. And it took us about a decade from the time that proposal first came to City Council and the time when then Mayor Rendell got a chance to cut the ribbon for us to put that across. And maybe we never would have. It was difficult. But the point is that as long as we failed to do that, we would not be a tourist center. The City of Philadelphia with Independence Hall and the Constitution and all that would not be a tourist center. We come here with a similar perspective. We all recognize how difficult 74 032404 - WHOLE - RES. 040076 this may be, particularly over the period of years. But until we solve our problems, we will not, in fact, grow our economy. That much is clear to me, having spent a year in which I was skeptical about that proposition. Even the issue of the workforce, which I've raised here, is related essentially to this problem. If we look at the potential workforce simply as graduates of the Philadelphia Public Schools, well, they got a little ways to go, as is the case in all urban school districts. But if the workforce also includes the thousands of graduates from superb colleges that are located both within and just around Philadelphia at least equal to the college graduates in the Boston area, then they leave because there are no jobs for them. And why are there no jobs for them? Because businesses cannot cope with the tax system. So the fastest way to build our workforce, as has happened in Oregon and Seattle and a lot of other cities, is to create an environment in which they can work. And if they can't find jobs, they're going to leave and our 75 032404 - WHOLE - RES. 040076 workforce suffers accordingly. The reforms that we recommend in the real estate tax system become critical to offset some of the problems that will be created for some people by economic development and rising property values. I found this a kind of interesting situation. For years as Housing Director, I would talk about the virtues of affordable housing that existed in Philadelphia. Now, in the last years what we called affordable housing has become depressed property values. But there's no question that $68,000 is the median sales price for a house in the year 2000, and $168,000 is the median sales for everything around us. But economic growth that will occur as a result of tax reduction, we believe, can spike property values. We saw it in Center City. And so at that point, it becomes critical that the people living in their homes be able to afford the increases and not have to take home equity loans in order to pay their taxes. So we make a lot of suggestions, 76 032404 - WHOLE - RES. 040076 recommendations, about the importance of moving toward an assessment system which is clear in understanding. We proposed buffering significant increases in taxes over a three-year period so people can absorb them within their income. And we believe that the land tax, which was controversial and still is, is another way, that we'll get into in more detail, to lower the burden on homeowners, particularly homeowners who make improvements, of real estate taxes and put the burden on those who continue to sit on the top of vacant land and do really nothing about it. As was said this morning, we were enjoined not to talk about spending. And we did manage as part of our charge to come up with some recommendations about revenues. But the greatest, if you will, acknowledgment of the charge that we be fiscally and socially responsible was the 10-year timetable that we established for the full range of reforms to take effect.

The reduction in the wage tax, the reduction in business taxes, and the gradual implementation of a land tax are all 77 032404 - WHOLE - RES. 040076 recommended over a 10-year period. We know that this will cost the City some revenue, particularly in the early years. It will cause less revenue if we spread it around over a 10-year period. We're also hopeful -- believe really that as we move through that 10-year period, the economic development benefits that tax reform and tax reduction of this kind will bring will create revenues that we are not even anticipating in our own financial projections. We have taken the discipline of a city's Finance Director in the economic and revenue projections that we provide to you, because that's what you've got to do right now. But we do believe that if we reduce taxes -- Econsult gave us some statistics that went into the thousands, 40, 50,000 new jobs -- that that will begin to offset the lower revenues. It won't happen right away. And finally, the 10-year timetable also gives the City an opportunity to keep evaluating what you're doing. You don't lock yourself in. It becomes incremental. And if 78 032404 - WHOLE - RES. 040076 it's not working the way we think it ought to be working, you can make changes as opposed to dramatic steps that you then have to retreat from. The first year of our recommendations, which becomes relevant to the considerations that this Council will have to have in the City budget that the Mayor will present on March 18th, I believe, is $17 million. Now, I put that number on the table now because, obviously, over a five-year period, the number grows. And there is a tendency now in this world to five-year plans to talk only about the money over a five-year period and not to see what it means in an individual year. Now, I don't argue that $17 million is a trivial amount of money, but it is far less than 34 million, 50 or 60 million. And even in the context of a deficit facing the City, $17 million is something at least that you can get your arms around. And I would make two points about revenue and one about spending. Last night on Action News, WPVI, 79 032404 - WHOLE - RES. 040076 they did an expose of the number of people who don't pay their real estate taxes and still owe them. Hall Watch had produced a list, and we as a Commission looked at that and all the other uncollected taxes. The Revenue Department said to us that we collect only 95 percent of the taxes that we are potentially owed and that doesn't count the unreported taxes from other states and whatever. And so we found that appalling. If you and I have to pay taxes, other people need to fess up to that responsibility. And what we saw last night on the television news was like a video of our report. " We need to get on top of that. If we followed our recommendation, if the City was able to do that, of increasing the collection of revenues by one percent, not even a hundred percent, that would be $20 million. That covers all of the first years. It's simple arithmetic. We collect $2 billion in wage, business, and real 80 032404 - WHOLE - RES. 040076 taxes, so you do 1 percent, it's $20 million. Let me add to that on the revenue side something that has not yet come out -- but I am spending much of my own time on these since they are going to be the make or break arguments for this system -- we have 117,000 building code violations that are listed on a database that exists at the University of Pennsylvania, 117,000 code violations. Now, we need to get to the bottom of that. Each of those code violations, what do they represent? I looked at the neighborhoods where they were located. " Well, there were 65,000 of them that were in neighborhoods where houses are selling for more than $30,000, and about 45,000 of them in neighborhoods which homes were selling for $60,000. So these are not valueless neighborhoods.

We learned that the CLIP Program has both improved the quality of life in these neighborhoods but yielded some money. That's going to be expanded. I don't know what the dollars are here, and there are 81 032404 - WHOLE - RES. 040076 some big issues about how the courts fine and all of that, but it's $300 a fine. You do the arithmetic. And these two areas, revenues and code violations by themselves in this first year could more than offset the recommendations that we're making. On the spending side, I'm not going to say anything more about this than what I'm about to say, but I will just bring to your attention, it was certainly on my mind when I agreed to become chairman, looking at spending. The budget for the Police Department and prisons rose $183 million between FY '98 and last year; $183 million. When I was in Council, there were 4500 people in the Philadelphia Prison, and the budget was roughly $63 million. Ten years ago, there were about 6500 people in the Philadelphia Prison, and the budget was about $110 million. The prison census is between 7500 and 8,000, the budget is $180 million. That's the prison budget. We need to look carefully. We can't do it between now and this budget, which is 82 032404 - WHOLE - RES. 040076 why I'm pointing to uncollected taxes and code enforcements that would be available to us this year. But we need to spend the next few years looking really carefully about the cost of crime in Philadelphia at every level because that is where our money is going. That's what we're spending it on. All these other discussions, when you look at the budget carefully, are really trivial compared to what's happened there. Finally, we did look at a lot of different recommendations. It's not like we just focussed on a handful of them and chose to ignore the rest. And in our report, we go through all of the recommendations that were made. Let me say that the criteria for us in terms of benefiting the working people and low income residents of Philadelphia, I would add, for whom I have fought for the past 40 years, was whether there would be jobs here, and in the context of creating jobs, whether the City services that are needed to preserve our quality of life and to protect neighborhoods could remain intact while we moved forward 83 032404 - WHOLE - RES. 040076 with whatever proposal we were advancing. That's the criteria. This is not Harrisburg and it is not Washington. We cannot deficit spend here. We don't have the revenue base. They don't have the business tax problem that we've got. So if a proposal did not meet one of those two tests, that in fact it had an obvious impact on economic development and growth and the creation of jobs, and that it would not in fact unduly threaten the revenues of the City and thereby undermine City services, we would not support the proposals that failed to meet that test, all of them. And there were a number that we looked at with great interest at some point. But at some point it failed to meet the test, that's why it wasn't there. So we give you a system which was what we were asked to do. We were asked to give you a blueprint, and we've done it. And over the 10-month period that we've worked, we worked hard to come up with something that was fiscally and socially responsible. My colleagues will go into greater 84 032404 - WHOLE - RES. 040076 detail as to what the individual proposals are, but I appreciate the opportunity that you gave all of us to make this contribution to the City of Philadelphia, and we will be available to you and to others in the City for information about what we've done as this debate unfolds. Thank you very much.

Thank you. The Chair recognizes Councilman Cohen.

I'm struck by the fact that the Chairman of the Commission does not in any way talk about the jobs paying a living wage of any kind, even though that is a major problem. In addition to the lack of jobs, that when jobs have been created under the philosophy of the Tax Reform Commission, because I find no difference between its approach and President Bush's approach, no 21 attention is paid to the ability to have an income that carries medical expenses, that provides a living wage, that provides for health insurance. I didn't hear a word about -- 85 032404 - WHOLE - RES. 040076

Councilman, I believe that Commissioner Jackson would like to respond or make a statement relevant to your question.

Thank you, Madam President. Just briefly, personally, I take offense to a person sitting here saying we are not, quote, good Democrats because we happen to disagree with a particular person's approach. The discussion within the Commission was, and what Councilman Cohen is talking about and Jonathan Stein who, from Community Legal Service, advocated very strongly for that position, is to give to exempt people at the lowest income from paying wage tax. Now, a couple things happened in terms of that. Number 1, it would have cost $78 million which would have had to be made up elsewhere. Number 2, our plan was we wanted to look at how we could bring revenue into the City and working with Sharmain Matlock over at Greater Philadelphia Urban Affairs, we want to work with people who are eligible to get earned income tax credits and which are not 86 032404 - WHOLE - RES. 040076 presently getting them. That is, we believe, in terms of the Commission, a better of way of approaching the question. And Councilman Cohen is wrong. It was not $900, it was $123 if we exempt people at the lowest income level in terms of paying wage tax. But I do resent trying to use the work in the forum in which we have worked to develop, to have a debate about a living wage and all of other things that we have nothing to do with. If you have issues you want to take with your colleagues, then take them with your colleagues, not with us.

Well, I disagree totally with you. I think your job was to create a fair and equitable policy, and I think you failed in doing that because like the President's policies, you ignore the problems of working people.

We can disagree, Councilman Cohen. But I have a few comments I'd like to make. And I apologize, I have to leave. I have a o'clock meeting. 87 1 032404 - WHOLE - RES. 040076 Let me say first, my name is Melvin Jackson, I'm Executive Vice President for At Home Health/Geri-Perk and we are a 10-year-old business and we grew this business here in the City of Philadelphia. Presently, we have 45 employees and some contractors and we're located at 40th and Market in the heart of the area where some people are talking about. And many of our people are people which come off of, quote/unquote, welfare in terms of our aides and in terms of many of our office staff. So we take a back seat to nobody in terms of our commitment to the City of Philadelphia. We pay close a million dollars between our City, State, and federal taxes. I'd like to echo what my Chairman, Bruce Crawley said. You have a problem here. The problem is that you have a shrinking tax base, and you're not going to expand and develop that tax base until you take into account from a structural standpoint the 56 percent of the people who are citizens of the City of Philadelphia which are non-white. 88 032404 - WHOLE - RES. 040076 And Councilman Nutter asked a question about how do you go about doing that. If you look -- and people which are entrepreneurs read Inc Magazine. If you read Inc magazine, you will find out that Atlanta, Georgia, is rated the top City in the country in terms of business development. The City of Philadelphia is rated the 10th worst City in the country for business development. And what Inc Magazine said in relationship to that was that Atlanta is an inclusive environment in terms of business. Atlanta has had black mayors for the last, what, years? And it's 15 been able to grow and develop its black 16 entrepreneur class. It's been able to grow 17 and develop and expand the pie where black 18 entrepreneurs and black business people are 19 included. And until this political leadership 20 and until this business leadership in this 21 City of Philadelphia takes a similar tact, we 22 are never going to be able to be in a 23 position, you're always going to have the 24 conundrum, cutting the wage tax or cutting 25 services. And that's the situation. And the 89 032404 - WHOLE - RES. 040076 way to get out of that is to expand the pie. But to expand the pie, you have to include minorities at the fundamental level. Let me give you an example. Comcast is coming into this Council right now wanting to talk about getting $20 million for some little area over there to assist them in terms of putting up a new building. At the same that Comcast is doing that, Comcast is talking about eliminating its cable contractors and contracting it out to somebody else across the country. And the ones which they're talking about eliminating, the vast majority are the minority cable contractors. We work at cross-purposes. That great president of the Greater Philadelphia Chamber of Commerce who just left, Charlie Pizzi, when he went over there to Tastykake, one of the first things he did was send his ad budget to New York and cut out the local company who was doing the ad work. And that's our problem. We don't have a concept in terms of what we need to do in terms of growing the City and growing the 90 032404 - WHOLE - RES. 040076 region. And the only way to do that is to include not just minority businesses but all businesses. I'm sure Al will agree with that. We have many businesses here in the City of Philadelphia who can do this work, and they take it -- you guys, the business and political leadership here takes this all over the world. Tenet, when they got ready to do their ambulance services, they combined them and then sent them to a company out in Ohio rather than using local ambulance companies who could do the work just as well. That takes jobs from there. That takes wage tax revenue from here. That takes business tax revenue from here.

And we have a failed and flawed policy in terms of how do we go about revitalizing the City of Philadelphia. And one last point. If you look back in the '50s, those companies which grew and developed in the needle trades and the garments stuff, those were not businesses that recruited from Montgomery County. Those were homegrown businesses. 91 032404 - WHOLE - RES. 040076 We are in a situation now where we have to do homegrown businesses again, and we have a tremendous opportunity here to be able to do that. What we need to do, though, is develop a strategy of how we're going to grow local businesses. Thank you. I apologize I have to go.

If you don't know, Commissioner. I know that Councilman Goode did want to be recognized. I don't know whether he wants to ask you a question or Mr. Schwartz.

Mr. Schwartz. Thank you, Madam President.

Excuse me. Commissioner Jackson, I don't know if Councilman Nutter has a statement or question of you.

This a question for Mr. Jackson, but I think Councilman Goode may have been in the cue ahead of me. I can ask my question as he's leaving.

Mr. Jackson has 92 032404 - WHOLE - RES. 040076 to leave, so Councilman Nutter can go ahead

I'll be quick. Mr. Jackson, two things. One, if you could provide for us a copy through the Chair of the article that you made reference to from Inc. Magazine --

I'll fax it down to your office, sir.

I'd like to have a copy of that. And I know you have to go and I'm cutting across a member, but the example that you relate with regard to Atlanta, and Atlanta's mentioned often and you talked about some of the leadership down there and the things that they have done. What has hampered our efforts here in Philadelphia to do the same kinds of things?

Lack of political will.

I'm sorry?

Lack of political will. Our political leadership historically and business leadership has not wanted to address the fundamental question. It's not a 93 032404 - WHOLE - RES. 040076 question of any set-asides. It is not some little gift that you're giving to black people or that you're giving to Hispanics, and until we understand that point, it's good for the City. And there has not been the political will here for the political leadership or the business leadership to step up to the plate and say -- Bruce talked about the fact that we're at 2.2 percent right now in terms of all the business that developed here. If you went 6.6 percent, that's 35,000 jobs, that's over $50 million in terms of wage taxes, that's $8 million in terms of business privilege tax. That solves your problem. But there's not the political will here to step -- and that includes the media. You have a lot of people here in the media, and that's print and television, which want to hold on to the past. The past is when -- you know I'm not as eloquent as Bruce. The past has been when white folk controlled everything in the City of Philadelphia. And until that philosophy and that thought process changes, there's not 94 032404 - WHOLE - RES. 040076 going to be any change and Philly is not going to grow. Did I answer your question, Councilman Nutter?

Well, it was responsive. So it's the political will and -- I mean, we can have a longer discussion. I know you have to go, and actually I have to go as well. I'd love to have two or three examples of the kinds of things that we're talking about here.

When Maynard Jackson took over as Mayor in Atlanta, they were getting ready to build an international airport. He brought the white business leadership in there and said, "I want minorities included in terms of this construction and all the contracts." They said, "We're not going to do this." Maynard said, "Well, the ground will sit vacant." If you go down there now, and Shirley Franklin from here, they have the same 95 032404 - WHOLE - RES. 040076 kind of situation down there because they're building schools. Atlanta has more black millionaires than any City in the country. And it's not important to be a millionaire, but what is important is the number of jobs that can be created from the construction companies, from all the different kinds of businesses in terms of spinoff. If the political leadership in this City stepped to the private business leadership -- because you have a lot of power. People come in here wanting all kinds of variances, they want tax breaks, they want this, and they want that. If you step to the private business leadership and say -- all these offices buildings you guys keep talking about, not a one of them has black contractors on their rotation for that day-to-day services that are provided. And that's the meat of a contractors work. Not a one of them has a black contractor.

You made reference to the airport example in Atlanta which is certainly a very well known story. 96 032404 - WHOLE - RES. 040076 And I would -- I don't know exactly what they did in Atlanta, but certainly it may be a model to replicate. In the current context, I'm not necessarily sure that we want to have a whole lot of discussion about Philadelphia International Airport as a model that anyone would want to pursue. But certainly there have been opportunities down there, and I made reference to this when Mr. Crawley was up. Was there any outreach to entrepreneurs in West Philadelphia, South Philadelphia, north, northwest, the northeast who were not some of the known people around to have any of those concession operations down there?

There's been significant progress out to the airport, but we get 2.2 percent of the business in this City. The fundamental point is, you can't grow and have a growing tax base as long as minority businesses are going to get 2.2 percent. It ain't going to happen. I mean, the math states it.

I understand. I 97 032404 - WHOLE - RES. 040076 like math.

Thank you.

Thank you.

At this time, the Chair recognizes Councilman Goode.

Thank you, Madam President. Before we get on testimony from other Commission members I wanted to actually question the Chairman about some comments he made. I don't take issue with those comments, I want some clarification. Particularly base upon your history within this body and your role within the Tax Reform Commission, you stated on the record, I believe, that years 17 ago you were in this body and you were just 18 beginning to learn about the correlation 19 between tax structure and economic development 20 and that 20 years later you believe that you see more clearly that without tax reform there can be no significant economic growth. Was that your statement?

Yes. Well, yes, I wouldn't -- I think the taxes were somewhat 98 032404 - WHOLE - RES. 040076 different and lower years ago than they are now, but yes.

Actually, that's 5 not necessarily correct. And particularly 6 what I wanted to question you on, in July of 7 1983, the wage tax at the end of the Green 8 Administration was raised from roughly 4.3 9 percent to 4.96 percent. And the three years 10 following that in 1984 and 1985 and 1986, we 11 actually saw the unemployment rate drop from 12 9.3 percent to 6.2 percent. We also saw a net 13 gain of over 33,000 jobs. So how do you 14 reconcile that fact that six months after the 15 wage tax was raised from 4.3 to 4.96 that in 16 the following three years you saw the 17 unemployment rate drop drastically and a net 18 gain of tens of thousands of jobs? 19

Well, there was a 20 massive amount of public investment during that period, which of course I favor entirely, to build a new Convention Center. The investment tax credit that in fact existed at that time was what spirited the construction at the private sector of all the Center City 99 032404 - WHOLE - RES. 040076 office buildings. And so that a good part of the increase at that point was in those taxes. I don't say that, you know, you pass a tax and within a given year necessarily you get something that countervails against other economic circumstances. Moreover, let me say that, you know, if we had a different kind of federal government with massive amounts of public investment that existed prior to the Reagan Administration, we might be in a very different circumstances.

Mr. Chairman, the Reagan Administration came in in what year?

1980, but the --

And we're talking about 1984, 1985, 1986.

You asked me for the reason, and I gave it to you. We had massive locally and State-induced public investment in the Convention Center and other matters. Under the Reagan Administration there was in fact an investment tax credit which was responsible for the office boom that we 100 032404 - WHOLE - RES. 040076 experienced in the mid-'80s. Once that investment tax credit was eliminated, then the office boom ended and we went through yet another period of significant tax increase after that in which I was the Housing Director that in fact put us at the beginning of the '90s in a terrible position.

Mr. Chairman, I'm actually not taking issue with your response. I agree with your response. My follow-up question really is simply, so it's not just a matter of tax structure? And when you talk about significant economic growth, I don't know if there's another period in the recent past where there's been more economic growth than that net gain of 33,000 jobs over those three years, 1984, 1985, and 1986 or when you had a significant drop in unemployment like you had from 9.3 to 6.2, which is significantly lower than the current unemployment rate.

Do I believe that other things might contribute to the economy than taxes? Of course. Obviously, they do 101 032404 - WHOLE - RES. 040076 do. During the 1990s, during the Rendell Administration, part of made his initiatives possible was an additional billion dollars over a few year period from the federal government. If we're going to bring a billion dollars of new federal money into the City, of course that will have an impact. On the other hand, what I have concluded is that for a person to start a business in Philadelphia, leave aside incentives, deals that larger companies can cut and the rest of it, just do something like my father did, create a business, a publishing business in this case. I don't see why they would do that in Philadelphia based on the business tax structure. And I do believe that at this moment, the people who are negotiating deals now, not in 1984 or '87 when I was doing this here, but now, who are trying to hold companies into Philadelphia and get new ones come in -- now this is where the wage tax -- are all saying that the tax system now is the major impediment to what we're doing. And we 102 032404 - WHOLE - RES. 040076 do not have billions of dollars coming in from federal government; quite the opposite. If the Bush budget that is just proposed for FY '05 comes into play, we're going to see exactly the opposite in federal contribution to the City over the next five years.

Mr. Chairman, I was not taking issue with your statement at all. Simply -- except for the fact that, one, the period of most significant economic and job growth happened after the wage tax was increased. Two, more specifically, I'm asking the question -- your statement really was without a change in tax structure or tax reform there can be significant economic growth, that is not necessarily true. I support significant tax reform in terms of the wage tax and business privilege tax. I will support it particularly in light of I think it's the best way to take advantage of national job growth that expect to happen over the next few years. So it's not that I'm not supportive of it, I just don't believe that tax reform in and of itself leads to 103 032404 - WHOLE - RES. 040076 economic growth and there's nothing to prove that it does.

Well, interesting enough thought, in all of the period of time we're talking about, whenever we have wanted a business to be here, there been some kind of a break, tax break. I mean, part of what I want to say is that the City will either spend the money to reduce everybody's taxes, business taxes, and will get jobs, or we'll do it the way it's being proposed now. You'll give up another $30 million for a couple of sweetheart deals in Center City and then there will be some other thing that comes along. We'll pay it one way or the other. Somehow these businesses seem to think that lower taxes is relevant to their ability to stay here. I agree with you. If we had a responsive national Administration or for that matter if some of the initiatives that the Governor former Mayor wants to provide begin to benefit Philadelphia, that could help. But I come back to saying -- we're talking business taxes as much as the wage tax here -- 104 032404 - WHOLE - RES. 040076 that it was hard to listen to an entire year of everyone who is involved in this economy or representing it saying that they just cannot function properly as long as the tax system, in particular the business tax system, is in effect. It's hard to hear that for a year and not to conclude that they really are trying to tell you something. And the fact is that whatever happens in the mid-'80s right after, which is countervailed by some other things, whatever happened in the late '90s, the overall trend over the last years has been down with 15 occasional bumps up; that's been the trend. 16 And you look at the trend into the future, and 17 unless we take some steps now to deal with 18 this, it will continue to be down, barring 19 some major investment that will turn it 20 around. I don't know where that's coming from.

Let me finish this exchange with this. First, I'll remind you in terms of talking about national policy, that we are in a presidential election year. 105 032404 - WHOLE - RES. 040076 And so there may be a major shift in policy as of next year. Secondly, if we were able to lower the unemployment rate to 6.2 and able to create a net job gain of over 30,000 jobs over the next few years, would it be simply because of tax reform?

Well, there are two things that have to happen. One is you've got to be able to do it, Number 1. And Number 2, we've got to do it in a way that does not undermine City services. But this is where the research that we commissioned was relevant. The research said that if we do what you're describing, we would end up with 43,000 jobs over the next two or three years. Can anybody say, quote, for sure? No. It's also based on that wonderful phrase of economists, "All other things being equal." They never are. So don't really know ultimately what's going to happen, but they've done a pretty decent job of trying to evaluate the tax impact, all other things being equal. And that's what they're saying to us. 106 032404 - WHOLE - RES. 040076 Now, I wouldn't be out here advocating this if I didn't see ways to deal with the revenue and spending side that would make this possible, but I do. And, therefore, I think based on what we've heard over the course of the year, I think it's important for us to try to move ahead on this. Does that mean there are other things that need to be done? You bet. That's not what we're here to talk about.

The question is whether tax reform can be done in isolation in terms of economic growth strategy and whether just doing tax reform is going to get you the same type of drop that you had in the '80s without tax reform.

Well, I think that interesting enough we do have -- at this, point it's uneven and there are plenty of things that need to be added, but there are a number of people who are trying to do economic development in Philadelphia, Center City, small businesses, everything else. So it's not like nothing is happening, we're all just 107 032404 - WHOLE - RES. 040076 sitting around saying "The economy is fine and we're not doing anything." There are a lot of people who are doing things. And they're the ones who came to us with the greatest insistence that their ability to accomplish their objectives is completely impeded by the tax system. So what a Paul Levy is saying in Center City is, we have made as a result of all these public investments that you're describing and that I supported, huge project here, we cannot go forward. And then we have small business people saying "Yeah, we have some support throughout NTI for commercial strips and whatever, but we cannot get small businesses to stay here because of the way the business taxes are." So what I'm saying is that there is an economic development strategy. Do I think it's enough? No. That's not the discussion here.

That there is an economic development strategy?

There is at least - 108 032404 - WHOLE - RES. 040076 yes, I think that there are economic development strategies that represent the legacy of what we created years about, 5 frankly. They continue to move forward in 6 Center City. They're not all government 7 driven either. They're private sector 8 economic development strategies. Do we need 9 to do more? Yes. 10 But what we have been told is that 11 even attempting to do these things will, in 12 fact, not yield the result we want because the 13 tax system is making that impossible. It's 14 precondition for this success of some of the 15 other things we're trying to do. 16

I agree with 17 that, but it goes both ways. If you tax 18 reform without a comprehensive strategy of 19 economic growth, then it doesn't get you what 20 you want either.

Do I favor a much more ample strategy for economic growth and development than we have now? Yeah, I do. And I have some ideas about it, as you might imagine, but I'm not getting into any of those 109 032404 - WHOLE - RES. 040076 here because that's not the purpose of the hearings. I do know that some of the things that I personally favor, given what I know now, would be hard to implement if a company just took a look at the City of Philadelphia and said, "I'm not going to go there. I'm not going to pay those taxes." And that's what they're doing.

I believe that we actually are here to talk about economic growth strategies because otherwise it's a discussion about cutting taxes, and everyone wants lower taxes. Unless it's going to give us economic growth, there's no need for discussion of tax reform. Thank you, Mr. Chairman.

Just to end on a positive note, I do agree with that. We need to do both. I'm merely saying that we need to do both. And I think that the belief in the past was that the economic growth and development strategy by itself would overcome these other obstacles, and I don't think that's the case anymore. I think that we've 110 032404 - WHOLE - RES. 040076 got to do both.

Thank you.

Thank you.

Thank you. The Chair recognizes Councilman Cohen.

In view of the Chairman's view that taxes could be some form of an economic development program, isn't it true that with domestic spending being the main element of the development of the gross national product that the targeted wage tax cut for working people would put money into the communities, into the neighborhoods where the money would be spent directly for products produced here in the neighborhoods or sold in the neighborhoods? Why isn't there the real form of economic development? The only tax reform that would produce any economic development would be to put more money into workers' pockets. Yet that's the thing your group refuses to recognize because you're not interested, 111 032404 - WHOLE - RES. 040076 apparently, in domestic spending despite all the statistics which show that the gross national product depends on domestic spending. Don't you agree that the money that would go to workers as a result of the targeted wage tax cut would be spent in the neighborhoods? Retail business --

Councilman, I really need to say three things.

-- which are not able to exist in neighborhoods because there's been inadequate income there? I mean, I just can't make it the slightest bit of sense out of a policy which ignores the fact that the best wage tax cut that you could make from the point of view of having an economic to tax reform would be to put the money in the hands of workers. Yet that's the one think you stay away from.

As a matter of fact, reduction over a 10-year period affects every worker, low income, upper income. What you favor or your bill represents is an effort to single out the lowest income people and give 112 032404 - WHOLE - RES. 040076 them a --

The targeted tax cut, not the Bush overall tax cuts.

-- tax relief. Yes, we have a regressive State Constitution. I once walked to Harrisburg in the middle of the 1970s as part of a tax reform group to try to get that State Constitutional amendment changed. I don't notice anyone who has fought over that, so we've loss that one. Let me also add that it became clear to us as we examined this that there are state and federal tax breaks available to the population you're describing that are not being used. And they, unlike the City's, represent monies from other parts of the country, from Pennsylvania and Washington, that would come into the City. And so right now, the Daily News and other groups, the Urban Affairs Coalition, is spearheading this, is leading a fight that low income people, working poor take full advantage and get full advantage of the earned income tax credit. 113 032404 - WHOLE - RES. 040076 The same with the State. So we favored at a time when most low income workers were not taking advantage of the existing subsidies, it made more sense to us to recommend a serious public support and effort behind those things which bring money into the City than it does to add another incentive which will, in fact, cost the City budget $75 million with no 10 discernable economic effect. To go back to the question that you raised, the businesses that are alongside of where I live in Mount Airy are nice businesses, but they depend upon my income. They don't make things that are exported elsewhere. They don't attract new people to the City of Philadelphia. They're businesses that in fact take advantage of and are dependent upon the fact that I earn money that I'm able to spend at the Wawa or in a restaurant or at various local places. That's the derivative economy. You're describing a situation in which we remove $75 million from the public budget that is supporting security and other 114 032404 - WHOLE - RES. 040076 things, in fact, and having people in the neighborhood go shop for the same set of shoe stores? Not really. It doesn't work Councilman. Doesn't work economically. This is not the Democratic Convention. It is discussing the economic results of actions. And you can assert that it works, but it doesn't.

And I believe in the report on , Volume I, Appendix 1 --

In a little appendix they try to --

Well, I think there are several pages of tax exemptions for low income Philadelphians. I don't know if you saw that, Councilman.

It doesn't deal with this question at all. It was as an afterthought.

Wait. Is the important point that your bill get passed or that we find a way to provide income into the pockets of low income workers? 115 032404 - WHOLE - RES. 040076

Yes.

The important point is that we find ways to provide income in the pockets of low income workers. That's what we've recommended. How much time have you spent advocating or fighting for the existing campaign which will mean millions of dollars into the pockets of low income workers? Have you spent any of your time? Have you made any speeches about that? Has your indignation apply that all to the fact that the State and federal --

Sure, my indignation as a partisan Democratic, I'm ashamed of the Democratic Party because the Democratic Party in this Council --

You're not answering my question.

-- refuses to give the workers of Philadelphia the same benefits that the Republicans do at the State and federal level. I'm ashamed of being a Democrat under those circumstances. 116 032404 - WHOLE - RES. 040076

I'm asking you a question. How much time have you spent -- there's a campaign, the Daily News is running editorials every three days in support --

I'm probably the only ward in the City that had Lance Haver to a meeting of the Committee men in the ward to explain to the Committee people how they are to help their neighbors and constituents get that money. But that's no excuse for the City refusing to make that money available.

All right. I'd like to call --

Just a moment, please. I believe Councilman Goode would like to be recognized.

Thank you, Madam President. Just a couple of other broad overview questions. Chairman Schwartz, how many pieces of legislation has the Commission recommended?

Thirteen.

Of the 13 bills, how many have significant revenue 117 032404 - WHOLE - RES. 040076 implications?

Let me just say that I think the bills that would obviously relate to the reduction of tax breaks -- I don't know how many there are, Councilman -- you know, wage tax, business taxes obviously would have revenue implications. The bills that may call for procedural structural changes in the way we do things, you know, like some of the assessment reform recommendations and those would have a different kind maybe of revenue impact, but not the kind you're talking about.

Is your testimony that all 13 of those bills work together?

Yes.

So if Harrisburg comes up with a different plan to provide the City with revenue to change what's going to happen in terms of the wage tax is able to do more dramatic sooner, does that change the equation?

Well, that's actually -- that's taken into account in our recommendations. In fact, I worked very hard 118 032404 - WHOLE - RES. 040076 in the middle of last summer to get the Commission, which we did, to support the Governor's proposals. The point is that we have a schedule that it takes into account the Governor's recommendations and that doesn't. And we have a different schedule for what we think the City ought to do if the Governor's plan comes into effect, which is pretty much the same as it was last year, than if it doesn't.

We're not just talking about the Governor's plan, and I would say that I'm not sure you want to suggest that Harrisburg is going to follow the Philadelphia Tax Reform Commission's proposals. What I'm suggesting is that if Harrisburg does whatever it wants to do, cut the wage tax to 3.8, to 3.7, to whatever next year, does it or does it not change the equation?

Well, I'm saying that the equation that you're talking about is considered in the recommendations that we made. That was before us last year --

Mr. Chairman, 119 032404 - WHOLE - RES. 040076 you're not responding to my questions. I'm asking you if Harrisburg actually decides to implement a different plan, does it not or does it not change the equation?

If it decides to implement a different plan --

A different plan, does it change the equation?

It probably will, yes. It's impossible to deal with something that you have no idea what they're going to do.

So if the equation changes, the 13 bills work together a different way, and, in fact, one bill may be out?

I think that what we're talking about is not the number of bills.

I'm not asking what you're talking about. I'm asking you to respond to my question.

First of all, we didn't introduced bills; they were introduced 120 032404 - WHOLE - RES. 040076 here. And they reflected the core of the system --

And I cosponsored half of them. I'm just asking you to respond to the questions. I'm not even taking issue with your answers other than it being nonresponsive. I'm asking you, does the equation change if Harrisburg does something different with regard to wage tax relief?

Than what they said last year?

Yes.

Yes, of course.

So if Harrisburg does something more dramatic at a quicker pace, does that allow us to also do something more dramatic in terms of the business privilege tax?

It might, depending on where the City budget was in the process.

Thank you.

Thank you. Any other questions of Mr. Schwartz? 121 032404 - WHOLE - RES. 040076

Thank you.

I'd like to call on Al Taubenberger, the Vice Chair of the Commission.

Thank you.