COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, November 17, 2005 2:30 p.m. - - - PRESENT: COUNCIL PRESIDENT ANNA C. VERNA COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DARRELL L. CLARKE COUNCILMAN FRANK DiCICCO COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN JACK KELLY COUNCILMAN JAMES F. KENNEY COUNCILWOMAN DONNA REED MILLER COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILWOMAN MARIAN TASCO BILLS 050669, 040776, 051063, 051064 and 051065 - - - 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 2
Good afternoon, everyone. This is the public hearing of the Committee of the Whole regarding Bill Nos. 050669, 040776, 051063, 051064 and 051065. I would ask Mr. McPherson to please read the titles of the bills. MR. McPHERSON: Bill No. 10 050669, an ordinance amending Section 11 19-2604 of The Philadelphia Code, relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates; all under certain terms and conditions. Bill No. 040776, an ordinance 18 amending Section 19-2604 of The Philadelphia Code, relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates; all under certain terms and conditions. Bill No. 051063, an ordinance 25 amending Section 19-2604 of The 3 11/17/05 - WHOLE - BILL 050669, ETC. Philadelphia Code, relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates; all under certain terms and conditions. Bill No. 051064, an ordinance 8 amending Section 19-2604 of The Philadelphia Code, relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates; all under certain terms and conditions; and Bill No. 051063, an ordinance 15 amending Section 19-2604 of The Philadelphia Code, relating to tax rates, credits and alternative tax computation for the business privilege tax, by reducing certain tax rates; all under certain terms and conditions.
Thank you. The Chair recognizes Councilman Nutter.
Thank you, 4 11/17/05 - WHOLE - BILL 050669, ETC. Madam Chair. Madam Chair, before we get started, I wanted to ask -- and I'm aware of at least one other possibly similar situation. I'd like to put forward an amendment to my bill or at least the bill 8 I introduced, 050669, prior to the start of the hearing so that it's in a form that can be more fully discussed before this body. Of course, in order to do that, I'd like to both circulate the amendment and then ask if we might be able to go into a public meeting in order to have the amendment addressed and then come back into the public hearing.
Are the amendments being circulated as you speak?
Before 5 11/17/05 - WHOLE - BILL 050669, ETC. I came in, I was thinking about the process we've had for the last, I guess, couple years. I believe, unless my memory doesn't serve me correctly, that we've had the Mayor present a budget so we know what our kind of bills are before the Committee of the Whole voted on tax relief. Is that the process that we're following this time? Do we intend on voting bills out, or what are our goals for today? I believe in past years we have dealt with tax bills as a whole at one time. Now some are being produced, some are being considered today. I'm just curious as to what our plans are.
I think that the sponsors of the bills that are before us could certainly respond to your question.
I believe, though, as a body we agreed to deal with them all at one time in 6 11/17/05 - WHOLE - BILL 050669, ETC. previous years. If that is our plan, to deal with them all at one time --
That was because we considered them as part of the budget.
Is that our plan this time or are we not considering --
No. 11 I think that we could hear testimony today and decide whether we're going to report them out of Committee with a favorable recommendation or not vote on them at all.
So in other words, then we won't be considering this part of the budget as we have done in previous years?
Essentially they will be. They will certainly be considered as part of the budget, but not at the same time, as has happened in the past.
Thank 7 11/17/05 - WHOLE - BILL 050669, ETC. you.
Okay. I believe, Councilman Nutter, you were speaking.
Excuse me. I think there are two other lights on, and I'm getting some sort of a nod from Councilman Clarke, and I know that Councilman Goode has his light on. Did you want Councilman Nutter to complete his proposal first?
Thank you, Madam Chair. I'll be brief. As I was saying, I wanted to circulate this amendment in the course of this process in order to make an adjustment to Bill 050669 so that in the discussion that we'll have on the record in the public hearing, the bill is in a 8 11/17/05 - WHOLE - BILL 050669, ETC. form that is more favorable to the bill 3 and to the discussion that we'll have here today as opposed to talking about the bill in the form that it was introduced and then subsequently trying to do something. So my request was, and I've circulated the amendment, it's just a request of the sponsor to make an adjustment to the bill in a public meeting prior to testimony in the public hearing, and I just thought it best to try to do that prior to testimony so that anyone talking about the bill would have it in its most current form.
Very well. Councilman Goode, it's my understanding that you may possibly have an amendment to your bill also?
Yes. I have circulated an amendment to my bill, which I'd like to be considered in a public meeting before the public hearing starts 9 11/17/05 - WHOLE - BILL 050669, ETC. as well, but I would not be asking for a vote on my bill today.
Very well. Do we have a copy of your amendment, sir? Was it circulated today or previous?
I think I put it on the desk and there are other copies on the desk.
Thank you, Madam President. I just wanted to get some clarity on two issue. One with respect to Councilwoman Blackwell's question as it relates to the budget process that will happen in early next year and, two, with respect to the request to have the 10 11/17/05 - WHOLE - BILL 050669, ETC. public meeting prior to the public hearing. Is that something that requires a rules suspension or is that at the purview of the Chair?
No. 7 I think it will require a rules suspension, and I believe Councilman Nutter indicated that.
I didn't ask for a rules suspension because in any hearing, the Chair is in control of the Committee and I'm not aware that we have to have a rules suspension to move into a public meeting in order to then go back into a public hearing. Usually the Chair just says, We're going into a public meeting, do whatever you do in the public meeting and then go back to the hearing portion.
I 11 11/17/05 - WHOLE - BILL 050669, ETC. thought I heard you ask for a suspension.
That's okay. And I still don't have Councilman Goode's amendments. They're making copies, and they will BE distributed. Councilman Nutter, would you please --
I asked you the question. Is there required to be a rules suspension? If it's no, it's no. 19
I am being told there is no requirement for a suspension.
So at this point, I would ask Councilman 12 11/17/05 - WHOLE - BILL 050669, ETC. Nutter. Councilman Nutter, would you make your motion.
Sure. Thank you, Madam Chair. Madam Chair, I would just move that the proposed amendments to Bill 0506 --
I just have a point of order, I guess it is. Did you formally recess the hearing?
I just wanted to make sure that the record was clear. Thank you.
At the request of Councilman Nutter, we will go from our -- we will actually continue our public hearing and go into our public meeting. Okay?
I have a question. 13 11/17/05 - WHOLE - BILL 050669, ETC.
Thank you, Madam President. I'm more than likely fully prepared to support the Councilman's amendment, because I believe that Councilpersons had an opportunity to have the bill structured in a way that is advantageous to its passage, but if the Councilman could do so for me personally, I can't speak for anybody else, if he can briefly explain the amendment prior to myself personally voting on the amendment, if he can just summarize what the intent is, it will be very helpful to me.
I'm sure he would have no objection to that. Councilman Nutter.
No, Madam Chair. I'd be pleased to do that. Thank you. Madam Chair, the primary purpose of the amendment is to make some 14 11/17/05 - WHOLE - BILL 050669, ETC. rate adjustments from the original bill 3 that was introduced back on June 16th and to accelerate some of the reductions in both the gross receipts portion of the business privilege tax as well as the net income rate as well. So it's a rate adjustment amendment to the bill. It maintains the first five years as guaranteed reductions in the business privilege tax and then requires that any subsequent reductions would, of course, need a vote of City Council. That's what the proposed amendment does.
Thank you. One question as it relates to that. Councilman, please correct me if I'm wrong. The prior or the current legislation in terms of dollars over the first five years was approximately 21 million. I'm not sure of the exact 22 number.
Apparently, Councilman, depending on who you talk to, it's somewhere in the $19, $20, $21 15 11/17/05 - WHOLE - BILL 050669, ETC. million range, yes.
What would be the potential impact on this particular reduction?
You're welcome. Any other questions or comments from members of the Committee? (No response.)
Yes, sir. 16 11/17/05 - WHOLE - BILL 050669, ETC.
I'm sorry. Just a more direct answer to Councilman Clarke's question, the amendment that I circulated, the amendment itself is stapled and then there's a single sheet that's attached by paperclip. It has a revenue impact or cost analysis for the proposed amendments.
Madam Chair, if there are, at this moment at least, if there are no other questions, I would move the adoption of the amendment. (Duly seconded.)
It has been moved and seconded that the amendment be adopted. All in favor will indicate by saying aye. (Aye.)
Those opposed? (No response.) 17 11/17/05 - WHOLE - BILL 050669, ETC.
The ayes have it and the amendment is adopted. The Chair recognizes Councilman Goode.
Thank you, Madam President. I would also like to amend Bill No. 040776. The schedule has not changed at all. It would still eliminate the gross receipts portion of the business privilege tax by 2010. The amendment seeks to require approval by ordinance on an annual basis, and I move the adoption of the amendment. (Duly seconded.)
It has been moved and seconded that the amendment submitted by Councilman Goode regarding Bill No. 040776 be adopted. All in favor will indicate by saying aye. (Aye.)
Those opposed? 18 11/17/05 - WHOLE - BILL 050669, ETC. (No response.)
The ayes have it and the amendment is adopted. This concludes our public meeting. We will now go into our public --
Do you want to recess the public meeting so we go back? I don't want the record to indicate it's been concluded, because it sounds like the public meeting is over. Do we need to do other business in the public meeting?
Because I know once the hearing is adjourned, if a hearing is adjourned, you have to reschedule it.
So I want to make sure the public meeting can be reconvened. I just don't want any technical flaws.
So we are now back into the public hearing, and at this time, I would ask Mr. McPherson to please call upon our first witness to testify. MR. McPHERSON: The first panel is Mark Schweiker, President, Greater Philadelphia Chamber of Commerce. With him is Paul Levy, President and CEO of the Central City District, and David Thornburgh, Director of the Pennsylvania Economy League.
Good afternoon, gentlemen. I am told that we have two Councilmembers that would like to be acknowledged before you speak, so if you'll bear with me a minute. The Chair would like to recognize Councilman Clarke. 20 11/17/05 - WHOLE - BILL 050669, ETC.
Thank you, Madam President. Madam President, I would have asked a similar question that I asked Councilman Nutter about the bill of Councilman Goode, but we didn't get a chance because we went into the public hearing, but I would just like to ask Councilman Goode a similar question in terms of the financial impact over the period of time with the amended version of the bill as opposed to the original version.
I didn't change anything in terms of the schedules. If my bill was enacted, it would cost $6 million in the next fiscal year budget. It would cost $85 million over the five-year period from '06 to '10, and it would cost 162 million over the five-year period from '07 to '11.
21 11/17/05 - WHOLE - BILL 050669, ETC. You're welcome. The Chair recognizes Councilwoman Brown.
Thank you, Madam President. I too have remarks with regards to pending testimony today I'd like to put on the record. In many ways, this feels like Groundhog Day where the same thing happened to Bill Murray over and over again. I stated last week that our City in a good way is facing an increased fund balance, which indeed puts our City's health, fiscal health, in moderately better position than anticipated, and we know that now for a number of years, beginning in the Rendell Administration, this City has seen substantial business privilege tax reductions for our local businesses. In fact, the facts are we have invested more than $1 billion in tax reductions to date, and that number grows to more than 22 11/17/05 - WHOLE - BILL 050669, ETC. 1.3 billion when combined with the efforts that were started under the Rendell years. Recent reports of the increased fund balance is a sign that our City's fiscal health is better and indeed should move members of this Council to do more, because the record should reflect again all of us have felt from square one that there needs to be business privilege tax reductions. Given the fund balance, and I repeat, given the fund balance, I introduced three business privilege tax bills last week, along with a schedule for outgoing years to give our members of the business community an opportunity to have some level of comfort with those changes, and indeed I hold my position that I do not believe we should be making decisions about our City's fiscal health in out years. Responsible tax reductions are what we should be concerned about. And I 23 11/17/05 - WHOLE - BILL 050669, ETC. look forward to the continuing dialogue and debate with members of the business community and a greater understanding and hopeful acceptance of the proposal put forth where we would want to consider reducing business privilege taxes on a pay-as-we-go basis on a year-by-year basis, because at the end of the day, that indeed works best for our City. So I put that on the record so that now we have options of business privilege tax bills to look at and consider, and at the end of the day, the hope is that all of us come up with a compromise that puts our business community in a better standing. Thank you, Madam Chair.
You're welcome. Gentlemen, thank you for your patience. Mr. Governor, I assume you're going to lead off.
Yes, I am. 24 11/17/05 - WHOLE - BILL 050669, ETC. Thank you, Madam President, and Stu Weintraub is with me, certainly a respected tax attorney, and David Thornburgh of PEL and Paul Levy of the Center City District. Certainly all of them have a pretty good feel for what is at stake here pertaining to what we discuss. So thank you so much for the opportunity to visit. And to the Committee of the Whole, thank you for the opportunity to visit. For the record, I'm Mark Schweiker, President and CEO of the Greater Philadelphia Chamber of Commerce. I'm happy to come before you again today to urge your support for reducing the business privilege tax. Our members have always felt that the business privilege tax stands out as one of the biggest points of contention they faced in doing business here in Philadelphia. It is a tax that hampers small businesses from growing and often causes other businesses to set up shop in suburban locations. 25 11/17/05 - WHOLE - BILL 050669, ETC. I know that it sounds redundant, but I must remind you, and that's what the charts off to your left, Madam President, are all about, I must remind you that the City -- and this is a painful reference -- the City has lost 250,000 jobs since 1970. We believe strongly that by reducing this tax, you will help create a more level playing field, certainly with neighboring jurisdictions, and generate new jobs in the City again. More jobs obviously equals more revenue for the City. S. 9 percent regionally for the same time. This two-point difference must be reduced. For this to occur, we must establish a business tax structure that serves to create more jobs within the City. As we conduct our outreach campaign to members and businesses in the 11/17/05 - WHOLE - BILL 050669, ETC. City, let me pause and provide you a few comments we've received thus far from those who have moved out of the City due to the height of business taxes, and I'll do this very quickly, but I do think it's important. This is from the President of a printing company with 250 jobs. "As a business owner in Southwest Philadelphia that is responsible for over 250 jobs, I urge you to support the reduction in the business privilege tax. It is an onerous tax that helps make Philadelphia a non-friendly business environment. We've expanded rapidly and are considering a move in a year or two. " Very quickly from a one-person business, "I own and operate a one-person business. You can imagine how onerous I find the business profits tax. Please do not support its continuance. " 27 11/17/05 - WHOLE - BILL 050669, ETC. This is now from El Hong, who is President of a marketing firm on Chestnut Street. "I am writing to you to show my support for reducing the business privilege tax. As a small business owner, the privilege tax in its current status causes me to seriously consider moving my business outside of the City. " And, finally, as I reference three businesses contemplating their future and where they'll do business. This is from a company that's already moved. "It's too late for some of us. Because of the tax situation and lack of responsiveness from City Hall to many of our business issues, we have been forced to leave the City after 20 years. Our new address is in Moorestown, New Jersey, less rent for the same space, no use and 28 11/17/05 - WHOLE - BILL 050669, ETC. occupancy tax, free parking. " I guess the point I'm making, for all Councilmembers, is certainly with the right action, ultimately we send the right message to those who are thinking about leaving the City that we are committed to tax reform and improving the City's tax model in a way that makes it more affordable. But they are from actual business operators here in the City and one that's already left. Having said that, we all know that the business community has been singing the same song for three consecutive years now in the business privilege tax. What makes this year's 29 11/17/05 - WHOLE - BILL 050669, ETC.
campaign different from past years, you may ask. I'd like to respectfully tell you why, and I think each of the folks to my left and right will underscore this as well. 8 million, according to the Board of Revision of Taxes. The current revenues are running almost 140 million ahead of projection. The City has hired a consultant to help collect back real estate taxes, which carries an estimate of 253 million. The City's own recently released gaming report projects at least to 30 million in new revenues and 18 perhaps 7,000 to 12,000 new jobs. And, 19 finally, the City may implement a tax 20 amnesty program that would yield millions 21 of dollars in back taxes. 22 Let me mention here before I 23 move on to the balance of my remarks, the 24 City has not had an amnesty program in 25 over 20 years. In fact, on Saturday, 30 11/17/05 - WHOLE - BILL 050669, ETC. November 12th, the Mayor announced a new conditional forgiveness policy for paying property taxes between now and May 1 of 2006. This is very much in the same spirit as a tax amnesty program and hopefully will yield millions of new revenue dollars for the City. Given the above, one would be hardpressed to believe that the revenue is not there for tax reform. 4 billion budget. Over the next five years, the City's budgets will total approximately billion. I would 17 suggest that over the same time period, 18 $40 to $50 million in business tax reductions is now doable and not just wishful thinking. The good news is that there are a host of bills being considered today that would reduce and even phase out the business privilege tax. It means more people recognize the need to cut the tax 31 11/17/05 - WHOLE - BILL 050669, ETC. and in a way that is predictable. I would publicly like to thank each and every one of the sponsors of the bills being considered this afternoon. Let me be very clear on the desires of the Philadelphia Chamber of Commerce on the business privilege tax. We support legislation that significantly reduces both sides of the tax over a fixed schedule of years with the eventual phase-out of the tax. While the Chamber remains pleased with the apparent fiscal health of the City, due largely to the boom in the Center City real estate market, I am keenly aware that we are in competition for those excess revenue dollars. However, the Pennsylvania Intergovernmental Cooperation Authority recommended that the revenue be used to fund a rainy-day account, which the Chamber has supported in the past, which will reduce the City's debt service and cut business taxes. 32 11/17/05 - WHOLE - BILL 050669, ETC. On the subject of debt service, in a report issued by the state's Department of Community and Economic Development in 2002, the debt per capita in Philadelphia was $3,212. This is a burden which our citizens are forced to bear, and this amount per capita is among the highest combined county/municipal rates in the five-county region. Now, I'm not here to suggest to you that the Administration is turning a deaf here to the business community on this matter. Nothing could be further from the truth. In fact, GPCC's Chairman, Steve Steinour, and I met personally with the Mayor and members of his cabinet to discuss and identify common ground on what is a priority issue for the Chamber and the business community at large. We have also had meaningful discussions with most Councilmembers, many of whom have already commented today, who did not support us on this issue last year but want to be 33 11/17/05 - WHOLE - BILL 050669, ETC. helpful this time around. I will tell you that the business community is encouraged by such actions, but is far from convinced. Several of the bills being considered today only address one aspect of the tax. The Chamber will only support a bill that reduces both sides of the tax. 5 percent. Let me remind you that there are gross receipts taxes, some call it mercantile, leveled in neighboring suburban communities.
For the record, in 2004, there were communities in 19 Delaware County, 18 in Montgomery, 10 in Bucks and one in Chester County with some form of business privilege or mercantile tax. None of these jurisdictions imposes a BPT on net income. 5 percent is higher than the wage tax, and each of you know well the damaging effect 34 11/17/05 - WHOLE - BILL 050669, ETC. that the wage tax alone has had on the City's economy. 5 percent, the business privilege tax keeps the City at a major disadvantage. Therefore, it is our belief that by reducing both portions of the business privilege tax and by seeking its eventual elimination, jobs ultimately will be created both downtown and in the neighborhoods. Again, I applaud the sponsors and hope that we can work out a compromise measure so that a meaningful business privilege tax bill can be passed by 16 votes before the new year begins. I am here today to pledge the Chamber's support in working out that compromise in any way that you deem appropriate. Before closing, I would like to share the content of an article with you that appeared in the New York Times just recently. "By embracing globalization and implementing the right domestic policies, Ireland today is the richest 35 11/17/05 - WHOLE - BILL 050669, ETC. country in the European Union only after Luxembourg. This is remarkable in that, in the mid 1980s, Ireland was going broke after going on a borrowing, spending and taxing spree which nearly drove them under. 5 percent, far below the rest of Europe. Michael Dell, the founder of Dell computers, set up in Ireland in 1990. What attracted him to Ireland? As he emphasized, good universities producing a very attractive workforce, a good public transportation system to move people around easily and affordably, and a tax policy that is consistently very supportive of businesses. Esteemed members of the Committee, in Philadelphia we are missing only one of those ingredients, and if we 36 11/17/05 - WHOLE - BILL 050669, ETC. are successful in passing an appropriate business privilege tax bill, it will demonstrate that you too have the courage for sensible change. The Philadelphia economy will change for the better, and businesses, workers and residents will benefit tremendously as a result. I want to thank you for the opportunity to offer these remarks. )
One simple question. If the next Council does not approve the business tax rate reductions starting in Fiscal Year '11, would you still consider that to be tax reform?
Well, in and of itself, you're changing the tax model, but I think when it comes to just the 37 11/17/05 - WHOLE - BILL 050669, ETC. lowdown mathematics of it and, most importantly, how business owners would react, waiting until 2011, I don't think it's tax reform.
My question is related to the 669 legislation before us, which calls for fixed cuts up until Fiscal Year '11. At that point, Council has to approve it by ordinance. If Council does not approve the business tax reductions by ordinance in any year after that, they stay locked in at Fiscal Year '10, would you then still consider this bill to be a tax reform bill?
If I understand you correctly, get it done for the next five, commit it to that; is that what you're saying?
And nothing happens after that. Would it still be a tax reform bill?
But would it 38 11/17/05 - WHOLE - BILL 050669, ETC. still be tax reform? Throughout your testimony, you use the terms like "what is tax reform, what's not tax reform, what's appropriate tax form."
Councilman Goode, I think if we can come away with a collective effort of this Council to eliminate --
My question, sir, with all due respect, my question is a very specific question. Is it still a tax reform bill if no tax rate reductions are approved as of Fiscal Year '11 when they have to be approved by ordinance?
Thank you. The Chair recognizes Councilwoman Brown. 39 11/17/05 - WHOLE - BILL 050669, ETC.
Thank you, Madam Chair. Thank you for your testimony, Mr. Governor. To your knowledge, are there any other major cities, major urban areas in the country, that are currently pursuing business privilege tax reductions the way Philadelphia is currently?
Well, there may be different names, but I do think there are a number of bigger jurisdictions that are acting on tax reduction efforts. I think New York City is probably in its fifth or sixth year. I know San Francisco is -- it sounds like San Francisco is on the verge of some dramatic reductions, and mind you, that as I mentioned San Francisco -- and this really is an eye-opener -- we're probably higher than San Francisco by 65 percent in sum. So to some extent, when you 40 11/17/05 - WHOLE - BILL 050669, ETC. compare tax rates, it kind of confirms to you why we're not in the hunt to economically and land some of these companies and jobs, but to answer your question point blank, I think the City ought to be credited for the programmatic type effort to cut taxes, but we're coming from far behind in the pack and we've got our work cut out for us.
So currently Philadelphia is the leader in this country when it comes to Philadelphia business privilege tax activity?
Well, I think they're coming from behind, yeah. If that's compared to the folks who are in the back of the pack, we're probably running along at a nice clip, but it ain't enough if you really want to juice up the economy and generate company starts and new job creation, witness the fact that we're now over the 250,000 mark in jobs lost. It's rather an infamous 41 11/17/05 - WHOLE - BILL 050669, ETC. position.
Philadelphia is probably, other than New York, the most heaviest taxing city in the country. If not the heaviest outside of New York, one of the heaviest outside of New York.
Excuse me. For the record, would you identify yourself.
I'm sorry, Madam President. My name is Stewart Weintraub. I'm with Schnader Harrison Segal & Lewis, and I am Co-Chair of the Chamber of Commerce State and Local Tax Committee. When you are cutting taxes from the level that Philadelphia has been cutting taxes, to say that they are 42 11/17/05 - WHOLE - BILL 050669, ETC. leading the pack is really not reflective of what is going on in the rest of the country, because if your rate is at six and a half percent and you cut it to six percent, that's a big cut, but if your rate is 0.1 percent and you cut it to 0.09 percent, that's not a lot of cut, but it's still significant. It's a question of a degree. So to say that we are making substantial benefits, yes, we have made substantial gains, but as far as the Governor said, as far behind as we have been, we're still not even close to catching up to the other cities in this country.
Of the cities that you mentioned, do you know if they are making reductions on a case-by-case pay-as-you-go basis or locked in rates?
It's both. 43 11/17/05 - WHOLE - BILL 050669, ETC. It's both. I think the point is that those legislative bodies realize that the world and the economy is moving in hyper speed and you just got to get it done.
Again, Councilwoman, they don't have as far to go to get to where they want to be, so they don't need to take it out over multiple years. I would also point out it's not local, it's state level. Pennsylvania enacted a phase-out of the capital stock foreign franchise tax about eight years ago, seven years ago that was a ten-year phase-out locked in, and on two different occasions when the state's economy had a problem, the legislature stepped in and froze the reduction for one year and then restarted it again. Now a tax that was supposed to phase-out in around 2009 is phasing out in 2011, but, again, it was locked in.
Locked in; however, there were triggers? 44 11/17/05 - WHOLE - BILL 050669, ETC.
Well, the legislature is able to weigh in, if need be. I was there in 2002, and it was because of a weakened economy, a sensible reaction. But you're able to create the predictability that business planners need, and if you've got real problems down the road, the legislature can react in kind, as Stu was trying to make clear.
What the point I was making about the trigger, Councilwoman Brown, is that the legislature did not have to step in to reenact the decreases. They stepped in to stop the decrease. There was no 18 trigger to continue the decreases.
Am I hearing also then, however, that there were mechanisms in the language or in the legislation to respond to the existing economic climate?
No. It wasn't in that legislation. They responded on 45 11/17/05 - WHOLE - BILL 050669, ETC. their own. The Pennsylvania General Assembly saw the need because of the state's economy at the time that the need -- that the ability to reduce that year was not there, so the legislature came in and amended the original reduction to freeze it for another year.
To a different topic, oftentimes comparisons are made between Philadelphia County and surrounding counties, and I think we should be cautious not to get into a "we" "them" kind of dialogue. Would you agree or disagree that Philadelphia is indeed, for a number of reasons, different from surrounding counties and our needs, therefore, our service delivery requirements follow that they're different?
I think that's a fair observation, and at least I can tell you that the folks who affiliate with many of our organizations are sensitive to that as well, and so -- and 46 11/17/05 - WHOLE - BILL 050669, ETC. also when it comes to the regional perspective, I think every one of us and our constituencies realize that we've got to be attune to something, that the region will go as the City will go. And we want certainly the outlying counties to fare well economically, but we're greatly concerned and willing to do what we've got to do to see to it that the core, this great City, does well economically and socially and civically on civic terms as well. That's why we're here. I think we can fashion an approach and a policy that inures to the benefit of all. Right now it's very difficult to -- as someone involved with an organization that is trying to promote greater Philadelphia and certainly the cities and the City of Philadelphia, the reality is, is we try to cord some of these site selection experts that kind of drive company location/relocation actions, is that there just isn't a real 47 11/17/05 - WHOLE - BILL 050669, ETC. good commercial out there about the City. It's almost as if, to some extent, aside from all of the complexities associated with tax talk and public budgeting, and all that's important, is, we need something, anything to be able to tout and talk about improved business and economic conditions in the City. And there are smaller things, but I think if we can say, Hey, look at the City, it's becoming more affordable as far as taxes, that's a pretty compelling commercial. That's why I wanted to mention those smaller companies, by the way. This is about sending the right message to resident companies that we want you to stay here. And I do believe that I think much too much is made, if I may, Councilwoman, about downtown versus the neighborhoods, that this discussion, I think -- the conversation has already changed. We're talking about how far we go as opposed to whether or not we should 48 11/17/05 - WHOLE - BILL 050669, ETC. even touch the business privilege tax. I think that's a sign of progress in the dialogue, but --
I would add to that that was always the conversation and discussion, on how far we go. It's been stated repeatedly in these chambers that all of us believed and agreed that additional business privilege tax reductions were in order. The conversation, dialogue and debate has always been "and how far we go," and where we ended up six months ago was clearly an indication that many of us felt that particular piece of only legislation in front of us was simply too far.
I hope so. Maybe I'm more optimistic than some of our constituent members, but I think with all the greatest respect for the Councilwoman, I think that when last spring -- last June ended and with the inability to adopt a model where it was a 49 11/17/05 - WHOLE - BILL 050669, ETC. measly $600,000 in year one, zero in year two and $600,000 in year three, there wasn't a whole lot of belief that there was resolve on the part of the City Council to bring about business privilege tax reduction. And I don't mean to get into a snit here, but that's just their handicapping.
But just to finish the point, that half of our members -- let me say I think 88 percent of our members have employee counts of 99 and below.
88 percent of our members have employee counts of 99 and below. 45 percent of our members have employee counts of six and below, and these folks are out there working every day. And I run into them every day, and they will often say, You know, this business privilege tax, you get it 50 11/17/05 - WHOLE - BILL 050669, ETC. down to a point or two, I can hire another person. That ethnic supermarket that may have four employees, maybe get another part-timer or maybe you get a full-timer, but that's out in the neighborhoods. That's not Center City. They're not big businesses talking. These are people who are trying to make ends meet, at least in a business and solvency sense, and love to give somebody a job as a packer, and they just don't feel the -- they don't have the confidence to give it a go because they don't sense that the tax reform is around the corner for these small businesses in the neighborhoods.
Okay. My final question would be, for those of us who believe in business privilege tax reform, when is enough enough?
We know 51 11/17/05 - WHOLE - BILL 050669, ETC. that for the record. And so moving to a place where we want to be on balance with cushioning City services that we believe are required and giving members of the business community also what's due them, I think the bigger challenge is moving to a place that's on balance between those two worlds. Thank you for your testimony.
Point made. I tried that one three years ago, so I'm steering clear in terms of the balancing thing.
You're welcome. The Chair recognizes Councilman Kenney.
Thank you, Madam Chair. Thank you for your testimony, gentlemen. Since you mentioned it in your 52 11/17/05 - WHOLE - BILL 050669, ETC. testimony, I wanted to let you know that I will be, either next week or the week after, reintroducing the rainy-day fund again. I think that the effort we had last time was not successful. I think it's a very important element to have within our City financial structure. I know it does better for us with our bond ratings, which save us money in the long run, and that's why I think it's important to have these tax rates locked in, whether it's five years or ten years or longer, because then those cuts become institutional in the budget process, so there's no arguments between fire houses, rec centers and the like and libraries, which make people crazy, and we get used to having these deductions, reductions every year, in addition to the stabilization of the rainy-day fund to help us with our financial picture. I think it's very important. And in respect to Councilmember Brown's comment relative to Philadelphia 53 11/17/05 - WHOLE - BILL 050669, ETC. being different than the surrounding counties, I really do think we are different, and the big difference is, we have more unemployed people than the counties do. This should not become an argument between the business community and the regular people in the neighborhoods, because if we can get that two percent down and employ more people and have a better employment situation than the suburbs even as a goal, we have less need for services. We have less need to expend government resources to take care of people, because they're taking care of themselves. They are buying groceries in their neighborhood. They are buying homes in their neighborhood. They are employed, they're paying taxes. So this whole issue of we need to make sure we have enough money for services, yes, we do, but the more we get people back to work and employed, the 54 11/17/05 - WHOLE - BILL 050669, ETC. less services we're ever going to need. And that's why I think that this is an important step we need to take and to move forward as quickly as possible. But I thank you for coming out. I'm going to look for your help and advice and counsel on the rainy-day fund also as we move forward.
Well, those outside rating agencies are important as far as your ability to borrow at affordable levels, and they act as a monitor about certain trends, and I do think that with an ample rainy-day account, as well as the fact that this legislative body says, We're so serious about what dynamically leads to job creation; that is, reducing the business privilege tax, they will see it and they will affirm it, and it helps a lot of ends, not just debt reduction.
Thank you, Councilman. The Chair recognizes Councilman DiCicco.
Thank you, Madam President. Councilman Kenney just actually said everything I was going to say. I had all these notes here about why the jobs are important, because the needs, as Councilwoman Blondell Reynolds Brown was talking about, we're able to address those needs of our citizens by the fact that we have more people employed, which translates into more taxes, even though we are lowering the rates. But outside of that, I think Councilman Kenney covered everything I was going to speak on for the moment. Thank you.
You're welcome. Do we have any other questions of the Governor? 56 11/17/05 - WHOLE - BILL 050669, ETC. (No response.)
Good afternoon, Madam President. Thank you very much for this opportunity to testify, and other members of Council. I put together a presentation. I will just highlight some of the key points. For some time, the Center City District has been working in partnership with the Department of Revenue of the City to really answer two questions, what type of jobs do Philadelphia residents hold and where do they work, and I think that's directly relevant to today's discussion, because this discussion to me is about how you can better provide opportunities and services to the constituents in every one of your neighborhoods. And I'll just walk through this very quickly, but on , I simply 57 11/17/05 - WHOLE - BILL 050669, ETC. 6 billion a year in salaries. 46 percent of that is earned in Center City, 36 percent is earned outside, and only is earned by people 7 going out to the suburbs. 8 The second page, we spend a lot 9 of time talking about jobs. I think it's 10 important to understand in the private 11 sector, which is where 84 percent of all 12 jobs are in the City, 61 percent of those 13 jobs are either in education and 14 healthcare or in the office buildings 15 here in Center City. Those are two 16 primary sources of employment. 17 If you jump over to , I want to talk about the office sector first. Obviously in the downtown, 44 percent of all jobs here are in the office sector. And while you may have an image of the office sector being filled with just high-paid attorneys and janitors, the picture is actually much different. 61 percent of all jobs in 58 11/17/05 - WHOLE - BILL 050669, ETC. downtown office buildings in Philadelphia pay between $20,000 and $59,000 a year, and on the top of , it lists those jobs. These are good, working-class and middle-class jobs which are available to everyone within the City. If you jump forward all the way to , and I want to -- something the Governor just said before. All of this is made possible by a transit system that we obviously need to improve upon, but the bottom of , virtually every section of this City, the majority location where people are working, is in the downtown. And where it is not the case, it's in the hospitals and universities in the surrounding neighborhoods. On Pages 7, 8, 9, I've simply broken the City into different sections. So, for example, on , in South Philadelphia, 243 million is earned in Center City, 113 million earned outside. I fully believe the importance of small 59 11/17/05 - WHOLE - BILL 050669, ETC. neighborhood jobs. I just simply wanted to underscore the importance that the downtown economy is the employment base for the neighborhoods of the City of Philadelphia. Jumping ahead, in the interest of time, to , this becomes the core of, I think, what we're discussing. Our largest sector of employment in this City is healthcare and education. That's not only the universities and hospitals here in Center City and University City, but in the Northeast and North Philadelphia, throughout the City. This has been an extraordinarily successful sector for the City. Between 1990 and 2004, we grew jobs in that sector by 34 percent. I need remind everyone here that all of those large healthcare institutions and educational institutions are non-profits who are exempt from both the property tax and the business privilege tax. The really good news 60 11/17/05 - WHOLE - BILL 050669, ETC. since 2000 is, those employers have done better than the suburbs in healthcare and education. But if you turn to , this is where the less than good news begins, because in the downtown office buildings and in office buildings across the City, since 1990, we have lost 10 percent of our jobs, and it isn't simply 11 that these jobs have left the region. If 12 you look at the bottom of , while 13 we were busy losing 15 percent of our 14 jobs, the surrounding suburbs in the 15 office sector were adding 18 percent. At the top of is a very disturbing chart, in my judgment.
In 1990, we had more office space in Center City that was in the western suburbs. We have gone sideways and downward since 1990 in terms of office jobs, and I remind you these are jobs which are the primary source of employment for most Philadelphia residents. As we have seen business leave 61 11/17/05 - WHOLE - BILL 050669, ETC. the City, the suburbs have grown dramatically. Now, you might say, Well, gee, this is part of a trend everywhere. If you look at the graph on the bottom of , and this goes to one of the questions that was just asked, in 1993, 41 percent of the region's office space was here in the downtown. Today it is 28 percent. The national average is 34 percent. We are six points below the national average. We are looking a lot more like sprawling Atlanta and Houston than like New York or Chicago. And the key point here is, we are moving those jobs out beyond the roots of public transit, out beyond the regional rail. These jobs are moving beyond the reach of most of the constituents and most of the people who live within Philadelphia neighborhoods. And so the core of my argument and my suggestion to you at the bottom of is that hospitals and education institutions are large land owners, they 62 11/17/05 - WHOLE - BILL 050669, ETC. can't simply pick up and go. They are property tax exempt and BPT exempt, and they obviously pay a huge amount of wage tax and generate a lot of jobs. The commercial office tenants are far more mobile. They're going to go where the costs are most competitive, and they will do just what manufacturing did when this City ceased to be competitive, they will simply leave. If you look on the top of 17, this is a calculation done this June for office space in Center City and in the Pennsylvania suburbs. 76 more per square foot to be in Center City. For a 100,000-square-foot tenant, that's almost a half a million dollars a year they can save when their lease ends and they move to the suburbs. When you look at the bigger 63 11/17/05 - WHOLE - BILL 050669, ETC. firms, the large law firms, financial services firms, accounting firms, they pay far more business privilege tax. For them, it's as high as $12 a square foot. 2 million by moving to the suburbs. If you look at the top of 18, you'll see what's happened. Those firms, at the rate of 34 percent, we lost them from the City. They have moved outside the City, beyond the reach of public transit, beyond the reach of neighborhood residents. 8 million. That is significantly more than what was vetoed last year in just four firms, what is not being granted to 6,000 firms across the City. The challenge I think we face 64 11/17/05 - WHOLE - BILL 050669, ETC. is really very simple, on . 5 million square feet of office space that's vacant in the downtown. That's nearly double what we had in 2000. Now, that's a big number. 5 million square feet? Right across the street to my right is Two Penn Center Plaza. That's a half-million-square-foot building. The equivalent of 11 of those are vacant in Center City. Or to bring it back home to neighborhoods, that's the equivalent in square footage of 2,750 vacant townhouses. Imagine simply 11 of those buildings sitting empty, no one working in them, not paying taxes. You don't see it because it's spread through 38 million square feet of office space. Now, why does cutting the business privilege tax matter? It makes the downtown competitive, it makes neighborhoods competitive. And we just 65 11/17/05 - WHOLE - BILL 050669, ETC. went through a simple calculation based on real wages paid based on analysis of all downtown firms. A half a million square foot building, that's Two Penn Center, 1515, or shown here in the picture, Four Penn Center, you fill up a building of that size, it's equal to 2,000 jobs. Based on the salaries paid within office buildings, that's $51 million of new salaries. 4 paid to people in South and West Philadelphia.
1 million in wage, real estate, business and U&O taxes, and based on the Mayor's report on City services, 11 million a year can buy you 257 new case workers in the Health Department, it can help pay 66 11/17/05 - WHOLE - BILL 050669, ETC. the salaries of 198 fire fighters or 186 police officers. It is a false choice to pose business tax cutting and providing services. If we make this a competitive environment, we will have the resources to provide services, but, more importantly, we'll create the job opportunities. If you look at the chart on the bottom of , if we simply got back to the occupancy levels we had here in downtown office buildings in 2000, you would have $76 million in new tax revenues to devote to City services. So I will end simply with a statement that we need all of us. This is not just business community versus neighborhood services. This is not downtown versus constituents who live in our communities. The downtown, the hospitals, the universities are the employment base of this City. Clearly, those people who are BPT exempt and the 67 11/17/05 - WHOLE - BILL 050669, ETC. growth of hospitals and universities is a great strength. We are losing far more office jobs than New York, Chicago, San Francisco, because we've had a tax structure that has driven jobs away from where people live. Cutting the business privilege tax, paired with the reductions that can happen in the wage tax because of gaming, can make this a competitive environment, an opportunity environment, a place where we not only have everyone working, but those who are not, you have adequate resources for services. Thanks very much for this opportunity. )
Thank you. As usual, your testimony is very informative. At this time, the Chair recognizes Councilman DiCicco.
Thank you, Madam President. Good afternoon again, 68 11/17/05 - WHOLE - BILL 050669, ETC. gentlemen, and thank you, Mr. Levy. In the past four, five years, downtown has seen a significant interest in new folks moving into the City. We're repopulating our downtown. It's starting to spread out into a number of the neighborhoods, both north and south Center City, and that's a good thing. And a lot of the folks who are moving in are empty-nesters, as we refer to them, people who either are retired or getting close to retirement, may be professional people, may not be professional people, but as far as the job future for them, they're not really that concerned. But my question is, and hopefully I can articulate this, do we see anything in these surveys that would indicate that less people may move into the City because of the job market that may not be able to produce the kinds of jobs for the folks that would be moving into Philadelphia in general, not just Center City but generally speaking? 69 11/17/05 - WHOLE - BILL 050669, ETC. We know there is a high unemployment rate in the City of Philadelphia, and we want to see about creating jobs for those folks, but is there anything that you see that may not encourage or may discourage people from wanting to move into the City because the future of jobs is not looking that good for them, the future of jobs for them does not look as good?
Councilman, I'd say there are two sources of demand that is really driving the downtown housing market. One is clearly the returning empty-nesters, and the other are young professionals. The overwhelming majority of empty-nesters who are moving back to Center City are not people who are moving here to get a job. They already have their job here. They've been living in the western suburbs. They're sick and tired of spending 35 to 40 minutes on the Schuylkill Expressway. Their kids are 70 11/17/05 - WHOLE - BILL 050669, ETC. off in college. They've gotten tired of the lawn mower. They're moving back to be downtown. So you can get, and we are getting, significant return of existing employees who are already here. We are also having strong growth, as I said, in healthcare and education, and that's a clear source. Where I think the real risk is is that today one-third of Center City's population is age to 34, and 79 14 percent of that group have college 15 degrees. It's what every employer wants. 16 And as those people enter the job market 17 and as their jobs are moving to the 18 suburbs, we're going to lose a very, very 19 talented group of people. 20 We're extraordinarily 21 successful in Center City today with 22 young, well-educated professionals, 23 people who can start businesses, but if 24 the job opportunities aren't here or, as 25 we saw out at the Cira Center when 71 11/17/05 - WHOLE - BILL 050669, ETC. businesses have been incubated in the Cira Center want to open, they go to the western suburbs to avoid taxes, then we lose that creativity. So I think on the empty-nester side, we're not as vulnerable as we are on people in their 20's and 30's.
And those are the businesses or the employers that leave primarily because of the high cost of doing business in the City of Philadelphia?
We have spent the last three or four years working with the Commerce Department and PIDC visiting more than 80 firms here in Center City as part of a whole retention effort, and we have been extremely successful in partnership with the City in getting people to stay. The story beneath the surface there is, many of those firms keep a presence in the downtown and move more and more of their jobs to their suburban 72 11/17/05 - WHOLE - BILL 050669, ETC. offices. And what's happening is particularly -- again, what may not be as clear is, architects and people like myself are paying the wage tax. The attorneys, the people in financial services who are part of partnerships, those are the people who are paying the business privilege. They are not paying the Philadelphia wage tax. That is hitting directly in their pocket. They are the decision-makers, and they are simply moving their firms out beyond the limits of the BPT. It's happening very clearly.
For me, it's never been a difficult decision. I think it's a no-brainer, and the proof, as they say, is in the pudding. Wherever we have created tax-free zones, KOZs, abatements, whatever, we have seen the positive results of that. So I don't understand why there's such a debate that if you reduce the cost of certain things, whether it's real estate taxes and/or 73 11/17/05 - WHOLE - BILL 050669, ETC. business taxes and wage taxes, we have already seen the benefits of those reductions in those KOZ zones in creating more jobs and keeping those businesses either in the City or attracting new businesses. I just wonder sometimes why we even have these debates, but I guess that's just me. And the late Councilman, my dear friend and colleague, Councilman Cohen, used to the lean over to me and say, You know, you're still a republican, when it comes to financial issues anyway, and I guess he was probably right in that respect.
Councilman, let me speak with my Center City District hat on. I am a taxing authority who provides services. I fully respect when Council says they need to make sure there are adequate revenues to provide services. That's absolutely key. I think what the data shows, however, is that the tax structure we have has driven out 74 11/17/05 - WHOLE - BILL 050669, ETC. businesses which could provide the revenue. So the purpose is not to cut taxes to let the business community go free. The purpose to cut the taxes is to make us competitive with other cities and surrounding environment so we capture the entrepreneurial energy and the job growth to create employment opportunities. This is not an either/or choice. And when we grow the economy of North Philadelphia or Center City, we grow opportunity for our residents.
I think that is the crux of this whole issue, is how we convince people that it's not welfare for the rich, we're not just giving big business tax breaks for the benefit of putting more money in their pockets. This is the opportunity to create more jobs so that more people are employed. And I guess depending on one's philosophical issues in terms of financing in business versus the working 75 11/17/05 - WHOLE - BILL 050669, ETC. person, somewhere in the middle is the answer, and I think we never -- the problem is getting to the middle ground, and hopefully we can get there now. Thank you.
Councilman, I would tell you too for some of these business people, small businesses, if you had this hearing at night, you'd see them face to face. They'd tell you themselves, but they're small businesses and they're cranking every hour. They can't get here during the day.
Well, I think all of us, especially District Councilpeople, no disrespect to the At-Large, we have in all of our districts a number of small businesses and we know the struggle that they're going through. I'm involved with the Port Richmond Enterprise Zone, which we established a few years ago. We're having a big round-table meeting, I think, in a couple of weeks to talk about how do we keep 76 11/17/05 - WHOLE - BILL 050669, ETC. those jobs in Port Richmond, probably a couple thousand jobs all told between the different entities. So I think we're all aware of that. We appreciate that and understand it. It's just convincing some folks that this is in everyone's best interest. It's not just giving big tax breaks to big business and wealthy employers. Thank you. Thank you, Madam President.
You're welcome. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Mr. Levy, let me just ask you one quick question. You were an early, if not, maybe one of the earliest, proponents of the tax abatements to encourage growth in both the residential and converted office building to residential or rehab, which Councilman 77 11/17/05 - WHOLE - BILL 050669, ETC. DiCicco took up that leadership and I think has either created or expanded virtually just about every tax abatement that we offer. From your perspective, I would assume that's been quite successful.
In Center City alone, there's 8,200 units of housing that wasn't here before in buildings that largely were vacant and non-performing. So, yes, it's been extraordinarily successful. We're working with others on getting the numbers for what's happened across the whole City, which we don't have at this point.
And when the builder or the owner or the investor sought to make a decision with regard to whether to pursue that, is it your opinion that knowing that you had a ten-year tax abatement to then market your property was an advantage?
I think very clearly at the beginning, '97, it was hugely 78 11/17/05 - WHOLE - BILL 050669, ETC. important in signaling when this Council passed that abatement that you were serious about encouraging residential investment in the City, and it sent a signal, and developers, first slowly and then very quickly, started flocking here, and now we have national developers, whose names you only used to read in the suburbs, who are building major developments within the City. I think that's a huge sign of success.
Just by way of example, what do you think the market reaction would have been if we had proposed a ten-year tax abatement, but you had to get approval on a year-by-year basis in order to get the abatement?
I think clearly anyone in their personal life or in business life needs predictability. You can't go into a business environment, you can't buy your own home unless you have some sense of predictability, and, clearly, the ten-year abatement was a 79 11/17/05 - WHOLE - BILL 050669, ETC. very powerful signal, and I think that level of certainty encouraged a lot of people and I think it's still encouraging many people to come to the City.
And I know there's been some discussions within this body, whether private or quietly public, about tax abatement programs, and certainly for another session of this body, that issue may get taken up. As we've made progress, as we've seen growth, we should always at least be willing to reevaluate what we do and how we do it, but for the moment, those abatements are in place and people continue to take advantage of them.
I totally agree with it. It's very important for Council to review anything it passes such as that, and I think there's a lot of discussion that all of you are hearing from constituents, which is very real, which needs to be discussed and understood, and we need to respond appropriately. But I 80 11/17/05 - WHOLE - BILL 050669, ETC. think as an action that this Council took in 1997 and then again in 2000, it has been extraordinarily successful.
So a sense of certainty over some reasonable period of time --
Councilman, if I can also supplement Mr. Levy's answer to your question. Back in 1984 when this Council was debating the enactment of the business privilege tax, I think only two members of this Council today were members of that Council then -- three members, I'm sorry, three members of this Council. There were some restrictions that were being proposed in the business privilege tax back then that was a very hot button issue in the debate, and on the floor of this Council, one of the 81 11/17/05 - WHOLE - BILL 050669, ETC. former members of this Council said with respect to predictability -- I'll quote from the transcript of that Council hearing -- "I believe that the predictability of taxes is important to business as much as what taxes are, and that doesn't sound strange to me. I think if a business person wants to plan their income over a period of time and has to build particularly a small business, a financial plan for themselves, not being able to tell from year to year whether this Council or any other is going to suddenly impose another financial cost that they didn't know about must be a terrible burden upon them. And so the effort of the business community to find a way to make a more predictable tax structure for themselves, one that at least puts them in a ballpark of prediction, I think that's understandable, given what a business person has to go through, particularly the kind of small businesses we are 82 11/17/05 - WHOLE - BILL 050669, ETC. trying to develop here in Philadelphia." And this Councilmember closed by saying, "But I certainly think the objective is one that makes sense, not only for large businesses but for the very small ones, particularly for them." And that was in the debate back in 1984 when this very tax was being enacted.
That sounds like a very sound approach. Who was the member that made that quote?
Oh, Ed Schwartz, okay. The Chair recognizes Councilman 83 11/17/05 - WHOLE - BILL 050669, ETC. Kelly.
Thank you, Madam Chair. Thank you, gentlemen, for your testimony today. I think it was very, very helpful, but I just want to follow up on some of the comments that Councilman DiCicco said. If you believe in supply-side economics and all of the programs over the years, the abatement program, whether it be the KOZs or even reduction of taxes, we're definitely going to see a surge in revenue throughout the City, and I think that Councilwoman Reynolds Brown made a comment that all of us in this Council are interested in reducing business taxes. I think the big debate is how much and how soon and how far-reaching it's going to be. I can tell you that I think I would like to see a bill put through that's going to lock us in whatever decision we make, whatever rate we put 84 11/17/05 - WHOLE - BILL 050669, ETC. in. I think it's very, very important to do that. I'm also very appreciative of the comments that Councilman Kenney made, because he sounded certainly more like a republican than a lot of republicans. I think he must be hanging out with the Union League a hell of a lot more than I think.
I'm still not allowed in, but that's all right. But I just want to thank you, and I think that this Council is seriously going to work on this, and I hope we can come to some resolve and get it passed as soon as we can. Thank you.
85 11/17/05 - WHOLE - BILL 050669, ETC. You're welcome. Are there any other questions or comments of this witness? (No response.)
Seeing none, the Chair recognizes David Thornburgh. Good afternoon.
Good afternoon, Council President. I have copies of my testimony here.
Having just noted that, though, I have the advantage perhaps of listening to my colleagues' testimony and the questions from the floor, and if it's okay with you, I'll submit this as written testimony, but perhaps respond to a couple issues that have come up in the questions.
Your written testimony will be given to the stenographer. It will be transcribed in full. 86 11/17/05 - WHOLE - BILL 050669, ETC.
Thank you. I do that partly because I think, as we all recognize, this ground is very, very well-plowed. The questions of our tax is important, which ones, to whom, over what period of time. Certainly the Controller's office, the Tax Reform Commission, Council staff, the Mayor's office, both Mayor's transitions teams, independent researchers from the Fed, the Wharton School, the Center City District, Temple and some of our work have all documented those effects over time. The question has come up today, though, about how far and how deep and over what period of time. I guess my comment on that question is that the world -- and here I mean businesses, small and large, that are making decisions -- are really less interested in how far we have come, but are very focused on where we need to be, because we are in a competitive world, block to block, neighborhood to neighborhood, 87 11/17/05 - WHOLE - BILL 050669, ETC. county to county and certainly the rest of the country and the rest of the world. In there, I would just pull a couple of numbers from the well-plowed ground and remind ourselves the numbers that we worked on a couple years ago. But on the household side, families that live and work in Philadelphia pay about 40 percent more in taxes than their peers in the suburbs, in the median suburbs. On the business side, that premiums -- and I would argue that businesses are more sensitive to taxes than individuals. Individuals care about schools and crime and other things, but on the business side, by and large, businesses in Philadelphia pay about 19 percent more in taxes than their peers in 20 the suburbs, which in a world that counts pennies, I would suggest that's a significant difference. So my answer to the question of where we need to be is to drive both of those numbers down, recognizing also that 88 11/17/05 - WHOLE - BILL 050669, ETC. there are advantages, real advantages, to having a business here in Philadelphia, and certainly we all know that. So I wouldn't suggest this needs to be on a parity to the tax burdens that need to be equal to those of the suburbs, but they need to be significantly lower. And, finally, the question of how we're doing relative to other cities and other regions and as anybody else undertaking the same kinds of options and thinking about taxes, I think it's worth repeating what Governor Schweiker and Stu said earlier, that we are having this conversation much more persistently than many cities, because most other cities don't find themselves in the predicament that we're in. They don't have those 20 percent or 40 percent burdens that we do relative to the competition. So what that presents, I think, is a tremendous opportunity. And I was with a site location consultant last week that does the kind 89 11/17/05 - WHOLE - BILL 050669, ETC. of thing that Governor Schweiker and Tom Moore at Select Greater Philadelphia does, which is work with companies to help them find locations. And conversation turned to what kind of story you tell firms that are looking to relocate, and his advice was pretty straight-forward. You tell them the truth, because if you don't tell them the truth and if you try to mislead them, they're going to find it out anyway, and that makes you look foolish at least. And the truth, I think, that we have to tell is that this is a City that has undertaken the most responsible and aggressive and long-term business tax reduction strategy of any city in the country because we need to, recognizing that we need to, and that the elements in this particular instance are as significant and responsible reductions on both sides of the business privilege tax, that it is over a long period of time for the reasons that we just talked about, 90 11/17/05 - WHOLE - BILL 050669, ETC. and that it heads towards the eventual elimination of that tax.
And I think if that's the story -- if that's the truth that we're able to tell, I think that leaves us with a significant and honest and important committed advantage in growing the kinds of jobs that we need here in Philadelphia. So, again, I hope those were helpful comments to fill in some of the gaps in the previous testimony. I'd be happy to answer any questions. )
Thank you very much. The Chair recognizes Councilman O'Neill.