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Minutes

Committee Hearing, May 19, 2005

Philadelphia City Council Committee HearingsMay 19, 2005

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Councilman Nutter

(Inaudible.)

Council President Verna

Oh. Thank you. Thank you very much. COMMISSIONER KAMMERDEINER: Thank you. MR. McPHERSON: Next witness is 70 Whole - 5/19/05 Morton Hack.

Council President Verna

Oh, I'm sorry. Do you mind? I'm sorry. Councilman Rizzo.

Councilman Rizzo

While the Revenue Commissioner is here, Mr. Zuritsky mentioned something. And I've had conversation about the valet parking loophole. An example, a valet parker charges bucks to park the car; the garage charges 12 5. Can you address how we're going to 13 collect the 15 percent on the $15? 14 COMMISSIONER KAMMERDEINER: There's 15 a bill that was introduced this morning that 16 addresses that question. 17 We had in Revenue thought that the 18 valet parking would be covered by the parking 19 tax; and, in fact, in audit several years ago 20 had identified a situation where it was not being paid. We had assessed that difference. This issue went to court, all the way up to... I believe it was Commonwealth Court. It may have actually gone to the Supreme Court. I don't have the details here 71 Whole - 5/19/05 with me. But as a result of the court decision, that portion which is over and above the cost of putting the vehicle in a parking facility, is not covered by the existing parking tax legislation. The change that we're proposing in the bill that was introduced this morning would specifically bring the valet charge under the parking tax. And it is our expectation that that would, first off, close that loophole and make the entire transaction taxable, and also would deal with this issue of fairness, in terms of how the tax is collected and how the charges are handled.

Councilman Rizzo

Well, tell me, then, what is the real number in increased revenue, based -- If you're collecting that piece from the valet parker, what exactly are we talking about? That number, did you say $5.9 million a year? That's not including that. COMMISSIONER KAMMERDEINER: That is 72 Whole - 5/19/05 not including that. And we expect to address that more directly when there's a hearing on the bill that was introduced this morning. I don't have the exact numbers with me now, and I wouldn't want to quote it just off the top and misstate it. But we do expect that there would be several million dollars in additional tax that would come from the valet transactions. And I would prefer to address that directly with the full testimony on that bill.

Councilman Rizzo

Thank you. Thank you, Madam Chair.

Council President Verna

You're welcome. Thank you very much. COMMISSIONER KAMMERDEINER: Thank you.

Council President Verna

Our next witness. MR. McPHERSON: Morton Hack.

Council President Verna

Good afternoon. Welcome. Please identify yourself for the record and proceed with your testimony. 73 Whole - 5/19/05

Mr. Hack

Good afternoon, City Council members, Council President. My name is Martin Hack. I'm an independent consultant retained by the parking association to conduct a study on the effect of the parking tax increase.

Council President Verna

All right. Please proceed with your testimony.

Mr. Hack

First I'd like to begin by providing you a brief background regarding the study, the methodology and the findings. The study that was conducted focused on the effects of the parking tax increase, first in the City of Pittsburgh, understanding the implications of what the parking tax resulted in, and translating that into the effects of the parking tax increase in the City of Philadelphia. The study was written during March and April of this year and focused on the City of Pittsburgh because it's the most recent case study of a significant parking tax increase. In February of 2004 Pittsburgh 74 Whole - 5/19/05 instituted an increase from 31 percent to 50 percent in the parking tax rate. And this study focused on the time period of 2004 to the present. The study focused primarily on the effect of the parking volume and revenue, as well as the indirect effect for both the restaurants and other types of business within the City of Pittsburgh. 3 million transient downtown parkers were lost between the year 2003 and 2004. In 2003 the city estimated 17 million parkers, based on the tax revenues 18 which were collected. 3 million parkers lost within one year. The parking rates increased between and 67 percent. 75. During the evening the rate went up from $3 to about $5. And now for the private lots, the rates increased to about $20 and to about $10 for evening and weekend. The indirect effect of the parking tax increase resulted in store closures. Two department stores closed. 2 percent to percent. 12 The most dramatic impact of the 13 parking tax increase was the decline in 14 evening and weekend parkers in the downtown 15 area of Pittsburgh. 16 An estimated 467,000 evening and 17 weekend parkers were lost which represents 18 approximately 700,000 total visitors, assuming one and a half visitors per parked car. 5 million. 76 Whole - 5/19/05 What are the implications for Philadelphia? If you translate the effect of a 33 percent tax increase within this city, from to percent was the next step in 6 the study. 7 Effectively the conclusion is that 8 the parking tax increase being proposed will 9 have a regressive effect and may threaten the 10 renewed vitality of Center City. 11 The following conclusions were made 12 with regard to the impact within the City of 13 Philadelphia: First, an increase in parking 14 tax will result in higher parking taxes. 15 These higher rates may dissuade 16 future visitors from making Philadelphia and 17 Center City their destination of choice for 18 shopping, restaurants and other entertainment 19 venues. 20 The evening and weekend shopping and entertainment venues may be the most directly impacted as a result of the parking tax increase. Based on estimates of the retail sales reported by the Center City Council, 77 Whole - 5/19/05 and actually the Center City District, based on their projections of retail sales, if a 4 percent decline in retail sales is expected, 5 representing a $19 million loss in the local 6 sales tax and Business Privilege Tax. 7 Secondly, an office vacancy increase 8 may result which, based on the study, is 9 estimated to increase by 2 percent from 10 percent which is currently the office vacancy 11 rate, to 18 percent. 7 14 million in the taxes collected from real 15 estate, real estate collections. 16 As a result, the conclusion is that a proposed increase in parking tax, while it may increase the city's revenues by $12 million, is putting at risk approximately $24 million in other revenues, primarily from the retail and entertainment revenue taxes, as well as potential real estate tax assessment taxes. Thank you very much. This concludes my testimony. 78 Whole - 5/19/05

Councilwoman Blackwell

Thank you very much. Any are there any questions for this witness? (No response.)

Councilwoman Blackwell

Thank you very much.

Mr. Blake

Allan Blake, Central Parking System.

Councilwoman Blackwell

Mr. Blake. Thank you. MR. McPHERSON: Harvey Spear. VOICE: Already spoke. MR. McPHERSON: Bret Mandel.

Councilwoman Blackwell

Good afternoon.

Mr. Mandel

Good afternoon.

Councilwoman Blackwell

Please identify yourself for the record and begin your testimony.

Mr. Mandel

I have testimony which can be handed out.

Councilwoman Blackwell

Yes. MR. McPHERSON: Excuse me, Bret. 79 Whole - 5/19/05 Are you here testifying on Bill Number 050383?

Mr. Blake

No. 5 MR. McPHERSON: You're on the list for that one. That's what we're currently hearing.

Mr. Blake

Sorry. MR. McPHERSON: So, if you wouldn't mind waiting until we do the other bills, we're trying to get this one out because we haven't had any testimony on this bill in the past.

Mr. Blake

I'll be pleased. MR. McPHERSON: Thank you.

Councilwoman Blackwell

Thank you, Mr. Mandel. Sorry for the confusion.

Councilwoman Blackwell

The next witness on this bill is... MR. McPHERSON: John DeBenedictis, someone from D.L.C. Parking Services.

Councilwoman Blackwell

We'll read a series of names, and then you can indicate whether you spoke for them. 80 Whole - 5/19/05 MR. McPHERSON: Jeb Hatfield. UNIDENTIFIED VOICE: Yes. MR. McPHERSON: Jeffrey Eckman. UNIDENTIFIED VOICE: Yes. MR. McPHERSON: Ben Rosen. UNIDENTIFIED VOICE: Yes. MR. McPHERSON: Richard Zahib. UNIDENTIFIED VOICE: Yeah. MR. McPHERSON: Tom Dunn. UNIDENTIFIED VOICE: Yeah. MR. McPHERSON: That was the quickest list. Okay. We're done on this bill.

Councilwoman Blackwell

Thank you very much. Is there anyone else who would like to speak on this bill with regard to parking? Anyone else? (No response.)

Councilwoman Blackwell

Thank you very much. We thank you all for your patience. This committee will stand in recess until 2:00. 81 Whole - 5/19/05 (A recess was taken from 1:30 p.m. to 2:45 p.m.)

Council President Verna

When we recessed, there was testimony being taken on Bill Number 050383. Do we have anyone else to testify on that bill? (No response.)

Council President Verna

Do we have anyone else to testify on Bill Number 050383? (No response.)

Council President Verna

I'm really sorry to keep everyone waiting. We are in the process presently of considering our budget bills. But, however, we also realize that there are an awful lot of witnesses here regarding Bill Number 050216, concerning the predatory super stores. So, once the sponsor of the bill 21 comes down, I thought that perhaps we could have a spokesperson who will make it a little easier for all of us, so that we could go back to our budget bill. (Recess at 2:46 p.m.) 82 Whole - 5/19/05 (Reconvene at 3:10 p.m.)

Council President Verna

We are now reconvening the Committee of the Whole. Councilman Nutter, is there a witness you want to call up?

Councilman Nutter

I'd like to have the Budget Director. MR. McPHERSON: Could the Budget Director please come to the witness table.

Councilman Nutter

Madam Chair, can I have a sergeant-at-arms, please?

Council President Verna

Sergeant-at-arms, please. (Recess from 3:11 to 3:17 p.m.)

Councilwoman Blackwell

Now, we're back to Committee of the Whole. And we are listening to bill... Councilman Nutter has asked the Budget Director, Ms. Diane Reed, to come forward.

Councilman Nutter

All right. Thank you, Madam Chair. Ms. Reed, good afternoon.

Ms. Reed

Good afternoon, Councilman. 83 Whole - 5/19/05 Diane Reed, Budget Director.

Councilman Nutter

Okay. I'm going to need you to pull that microphone a little closer. Ms. Reed, you have two documents that were given to you by the sergeant-at-arms; is that correct?

Councilman Nutter

Okay. And the one document you will not necessarily recognize, but do you recognize the document that reads, City of Philadelphia fiscal 1998 operating budget?

Ms. Reed

Yes. This document would predate my term of service, but I do recognize this kind of document.

Councilman Nutter

Right. I understand. And while this particular document may predate your service, your recognition of the document, what is this a copy of?

Ms. Reed

Sorry. I didn't quite hear that.

Councilman Nutter

The date on the 84 Whole - 5/19/05 document may predate your service in the government, but you have stated that you recognize the document itself. What do you know this document to be?

Ms. Reed

This is the General Fund tax revenue portion of the operating budget.

Councilman Nutter

Okay. So, this is from what we often refer to as the budget in brief?

Ms. Reed

It could be.

Councilman Nutter

Well...

Ms. Reed

It could be, from the detail, but...

Councilman Nutter

It either is or it isn't, Miss Reed. Why don't you go to the last page. Do you recognize that page?

Ms. Reed

Yes, revenue from other governments.

Councilman Nutter

Is it from the budget in brief document?

Councilman Nutter

Okay. And as you can tell, all of the other pages are the 85 Whole - 5/19/05 same. So, can we at least agree that this is from the budget in brief book either during the years that you've been here or previous budget years?

Councilman Nutter

Okay. If you look at what is numbered down the bottom for fiscal 1998, the operating budget, it's listed as , letter C is wages and earnings, the current. That would be the wage tax; is that correct?

Councilman Nutter

And if you turn the page to page -- what is numbered , item number 67, the PICA city account, would that be the PICA portion of the wage tax?

Councilman Nutter

And would the addition of those two numbers represent the revenues generated by the wage tax?

Councilman Nutter

And do you know what those two numbers add to?

Ms. Reed

About 324. 86 Whole - 5/19/05 No. I'm adding the wrong numbers together.

Councilman Nutter

I don't think so.

Ms. Reed

I'm sorry. 962.

Councilman Nutter

Would you... If you want to take a moment or you can take my word for it, that the number is nine hundred and sixty-three seven hundred and nine.

Councilman Nutter

Or actually $963 million, right?

Councilman Nutter

I think these are in thousands?

Councilman Nutter

Okay. What I want to discuss with you are the trends in tax revenues during the period of time that the tax cuts have been in effect since former Mayor Rendell started them. And if you will, at least for the moment, accept that the numbers that we just discussed for FY'96 were added correctly, and 87 Whole - 5/19/05 you will find that there are two pages for each fiscal year in the first package representing copies of the budget in brief detail books for each year from FY'96 up through FY'05. If you want to look through the pack, that's certainly fine with me. I believe we've calculated correctly the total revenues generated by the wage tax during all of those years.

Ms. Reed

I'm sure you're right. Are you asking me to respond?

Councilman Nutter

No. I mean, you can either give that answer or you can trust me and take my word for it.

Ms. Reed

I'll take your word for it. You're good at that.

Councilman Nutter

I appreciate that. Thank you. Now, for a long time there's been this discussion about the connection between the tax reduction program and proposed or made cuts in services. And there has been a creation in the 88 Whole - 5/19/05 general public that the tax cuts have led to a decrease in tax revenue. So, I want to now discuss with you the numbers that go with the wage tax receipts from FY'96 through FY'05. And so, what I'd like you to do -- And you do know and agree that there had been tax cuts for the wage tax in place since FY'96, correct?

Councilman Nutter

Okay. So, in the second document, could you put on the record what the wage tax receipts are year by year?

Ms. Reed

You're talking about the second packet?

Councilman Nutter

Second packet, first page. There's a listing of...

Ms. Reed

Nine sixty-three seven oh nine million for '96.

Councilman Nutter

Right.

Ms. Reed

Nine hundred eighty-eight sixty-nine for '97. A billion for '98. A 24 billion 59 for '99. A billion 107 for 2000. 25 A billion 196 for 2001. 89 Whole - 5/19/05

Councilman Nutter

Mm-hmm. And then I think there are four more.

Ms. Reed

All the other raise the taxes as well.

Councilman Nutter

I'm sorry?

Ms. Reed

The others as well?

Councilman Nutter

'02, '03, '04, '05?

Ms. Reed

I don't have that.

Councilman Nutter

On the same page.

Ms. Reed

Oh, down below. Okay.

Councilman Nutter

Right.

Ms. Reed

A billion 158, '02. A billion 201 for '03. A billion 244 for '04. A billion 268 for '05.

Councilman Nutter

Okay. So, from the document, isn't it true that for every year since the tax reduction program started, wage tax revenues have grown?

Councilman Nutter

Okay. So, why is it that you say that the tax cuts have led to less tax revenue? 90 Whole - 5/19/05

Ms. Reed

The appropriate statement is really that -- that we are achieving less revenue than we would, given the growth in the tax base and the decrease in the rate.

Councilman Nutter

Well, if that was your goal, then you would have left the wage tax rate at 4.96, right?

Ms. Reed

Yes. We would have had, you know, roughly $1 billion more.

Councilman Nutter

You'd have all kinds of revenue then. So, what was the point of reducing the wage tax?

Ms. Reed

The point of reducing the wage tax is that it put the city at a competitive disadvantage, certainly vis-a-vis the region and with respect to other large cities, who are competitors with us for business attraction.

Councilman Nutter

All right. So, as we've gone through this exercise, it is not true that decreases in the tax rate have led to decreases in tax revenue.

Ms. Reed

Correct. We still received increases in tax revenue, but not at 91 Whole - 5/19/05 the same rate that we would have had we not changed the rate.

Councilman Nutter

Well, do you think it was better to cut the rate and try to make us more competitive or leave the rate where it was and see what happens?

Ms. Reed

I think it was better to cut the rate and make us more competitive.

Councilman Nutter

Okay.

Ms. Reed

And further, I think it was wise to do it in small increments because it's easier to make adjustments on the management side.

Councilman Nutter

And do we find pretty much the same trend to be the case with the Business Privilege Tax? Generally an upward trend in revenues at the same time that the rates were declining?

Councilman Nutter

So, in that situation, even with Business Privilege Tax cuts overall, with the exception of a couple blip years, Business Privilege Tax revenues have grown while we were cutting taxes. 92 Whole - 5/19/05

Councilman Nutter

Okay. So, can we stop saying that cutting taxes has led to less tax revenue? Can we end that discussion?

Ms. Reed

As long as we just, you know, describe it in a way that's appropriate because there is more tax proceeds -- there are more tax proceeds every year, but there is less revenue than there would have been without changes. So, just recognizing that fact --

Councilman Nutter

Well, I understand that.

Ms. Reed

It's value free, actually.

Councilman Nutter

But again, you argue against your own point, which is the purpose of cutting the taxes is to make us more competitive so that the city can grow. Otherwise, you just -- If revenue -- If pure revenue growth is the goal, you would either never cut the taxes or you'd suggest raising them. 93 Whole - 5/19/05 Now, we know ultimately raising them does lead to less tax revenue; isn't that correct?

Ms. Reed

I'm sorry. Would you repeat that?

Councilman Nutter

We generally know that raising taxes can lead to less tax revenue as the market adjusts to the fact that they're in a higher tax environment. You might get a short-term boost in revenues, but ultimately you'll have less revenue.

Councilman Nutter

Okay. All right. What's the -- So, what is the current -- And the administration has a proposal to cut taxes itself, doesn't it, further?

Ms. Reed

Further? Well, the proposal that the administration has is essentially revenue neutral because it has both a... you know, an increase and a decrease.

Councilman Nutter

Right. That would be tax reduction... 94 Whole - 5/19/05

Ms. Reed

Of the B.P.T.

Councilman Nutter

That would be tax reduction on the cheap.

Ms. Reed

(Indicating.)

Councilman Nutter

You're just going to shift it around to different payers, right? You're going to give people a Business Privilege Tax on the one hand --

Ms. Reed

Yes. We're reducing the business tax in exchange for the parking tax.

Councilman Nutter

-- and an increase on the parking tax on the other hand, and let that be the end of it.

Councilman Nutter

So even with that, you still believe that the B.P.T. should be lowered.

Ms. Reed

Yes. The B.P.T. is projected for, you know, decreases down to 2015, I think.

Councilman Nutter

Right. So, lastly, when people say to you or if someone said to us that cutting the taxes leads to less tax revenue, what should 95 Whole - 5/19/05 we say? Are they right or are they wrong?

Ms. Reed

I think you have to give them a qualified answer. I think just to say yes or no is, you know, a half distortion.

Councilman Nutter

Well, there is a yes or no answer to it. You can amplify it afterwards, but there is a yes or no answer. I think that's been borne out through this exercise. You cannot say that based on lower tax rates, you have less tax revenue. You cannot say that. You read the numbers in the record. Each one of them is greater than the year before, right?

Councilman Nutter

Okay. So, when people say that, they are factually wrong.

Councilman Nutter

Okay. Thank you. Thank you, Miss Reed. Thank you, Madam Chair.

Councilwoman Tasco

Thank you. Are there any other questions from members of the Council of the Budget 96 Whole - 5/19/05 Director? (No response.)

Councilwoman Tasco

Council recognizes Councilman Cohen.

Councilman Cohen

The Budget Director's last statement addressed to Councilman Nutter's last question. What do you say when somebody says to you what Councilman Nutter said, that cutting taxes leads to more income? Can you ever say yes absolutely or do you have to say, it depends on circumstances?

Councilwoman Tasco

Who are you asking the question of, Councilman?

Councilman Cohen

What's that? I'm asking the Budget Director.

Council President Verna

Do you have a response?

Ms. Reed

My answer to the Councilman, Councilwoman, was...

Councilman Cohen

What?

Councilman Cohen

I didn't get what you said. 97 Whole - 5/19/05

Ms. Reed

My answer to the Councilman was that, yes, the proceeds from the taxes have increased every year.

Councilman Cohen

But what does that prove? Does it prove that --

Ms. Reed

That proves that the cuts that have been made to date have not been so great that they actually have, you know, impeded the flow of proceeds.

Councilman Cohen

But does it prove that there's more money that the city received because of the cut than it would have received if there had been no cut?

Ms. Reed

Nobody really knows the answer to that question. You know, the number of jobs in the city have continued to decline. The tax proceeds have continued to go up on the wage tax. You know, the best conclusion people have been able to come to on that is that it is because salaries have continued to go up. We have -- We do see some data that we've been analyzing. We do see some increases over ten years in some creative 98 Whole - 5/19/05 class kinds of jobs, like management consulting and information technology. And that shows some, you know, new strengths in the wage tax base.

Councilman Cohen

Can you tell us what the average salary was in 1996, as against what it was in 2005?

Ms. Reed

No. We'd have to get back to you on that.

Councilman Cohen

And wouldn't that be necessary to prove or disprove your thesis? Which I happen to agree with. I don't know how anybody can decide on the basis of tax revenue alone that a tax cut produced more money. It might have; it might not have. And I strongly doubt that it did in local government. At the federal level, it's a different effect that supply side economics plays than it plays locally. Federal government can pay all of its expenses by continually borrowing money, if it wanted to. But we can't do that. So, I don't think there is an answer to that 99 Whole - 5/19/05 question as of -- with the data you now have before you. I believe that had there been no tax cuts during that nine- or ten-year period, that the revenue that the city would have received which would have been much more than it actually got with the cuts. Now, disprove that for me. If you don't believe it, show me how you conclude otherwise.

Ms. Reed

Very difficult to argue what might have been. However, I think that there is consistent information that the wage tax has been perceived to be too high. I do know retrospectively from studies that we did at P.E.L., that when the wage tax was increased in 1976, the city lost a lot of jobs and residents because the real estate taxes were increased at the same time. And the city did not get that back. So, I would say that that's some evidence that in fact --

Councilman Cohen

But the real estate --

Ms. Reed

-- high rates of wage and 100 Whole - 5/19/05 real estate taxes do have an injurious effect.

Councilman Cohen

But isn't the theory that supports Councilman Nutter's idea, isn't that a theory which says it's important to have the real estate taxes go up, and they will go up? And its just too bad if the result of that is to evict what we call the little old ladies in sneakers? Because that's what I hear from Bret Mandel in support of the tax cuts, when asked what would happen to people who couldn't afford real estate tax increases. Because Mandel's position was that what makes a city healthy is when real estate rates increase because it shows people are buying property and causing the prices to go up. Well, we think Philadelphia has hundreds of thousands of senior citizens that can't afford to pay more taxes and whose income will not go up in a way that will permit them to pay these increased taxes. So, we asked Bret Mandel what happens to the 101 Whole - 5/19/05 people. And he says, well, they can move or they maybe can get what they call these days reverse mortgages. Instead of leaving something to the family, they'll leave it to the mortgage holder. Now, neither of those two answers are satisfactory answers at all to the needs of Philadelphians. And that's why we question the thesis that Councilman Nutter gives us, that by cutting the taxes there's going to be more money. Because if that's the case, let's eliminate all taxes and let's see how quickly the city folds. And let's see how quickly the city employees, whom we also represent, come to us in big droves because they will get layoff notices. There won't be any money to pay them. And people in the community will complain because there will be no services. I think it's a ridiculous point of view to say just because you want to cut business taxes you adopt the theory saying, the more you cut taxes, the more income there 102 Whole - 5/19/05 will be. It depends. It depends on whether your tax drives out business. There's been no evidence that it has. Philadelphia was told -- we're told is a booming city. The downtown area of Philadelphia is booming like almost no other place in the country is booming. And there are many other side areas in Philadelphia that are booming with new businesses operating. So, I can't understand how the city could conclude that it may well be that cutting taxes is going to increase income. It might. But I suggest if it does, it's a rare case indeed where the tax is so high that it makes no sense. And the evidence is very crystal clear that the effect of that high tax has been to drive out businesses. The rest is just guesswork.

Ms. Reed

Well, Councilman, there have been several well established studies that show that there's a direct relationship between high wage taxes and low property 103 Whole - 5/19/05 values. And I think that someone could begin to illustrate that the increase in the value of real estate in the city does have a relationship to the decreases in the wage tax, aside from the fact that Philadelphia is just cheap and a great bargain, compared to some other jurisdictions.

Councilman Cohen

Well, you know, we get these contradictory statements from the administration. On the one hand the taxes are too high; on the other hand, Philadelphia is a very cheap city to live in. Which is the case? Are people attracted by our overall low tax rate or are they driven away by the overall high taxes? And which is the case in Philadelphia? Do we have a high tax rate or a low tax rate? Because you tell us both things. You tell us that for real estate purposes the tax rate is much too low. Don't dare go out in the communities and tell people that, because they're bitterly complaining about the real estate 104 Whole - 5/19/05 increases in taxes the last couple of years. They think they're already far too high. Yet Councilman Nutter's theories that he supports on the elimination of these business taxes seems to go in the direction of saying we've got to raise the real estate tax. And I see no evidence to warrant it. And I think we're doing a great disservice to the people of Philadelphia by threatening long-time residents, that for Philadelphia to prosper they've got to be driven out of their homes or got to the late age in their lives --

Councilman Nutter

Point of order.

Councilman Cohen

-- past 70 and --

Council President Verna

The Chair recognizes Councilman Nutter for a point of order.

Councilman Nutter

Thank you, Madam Chair. Just want to make sure, before we get too far through this record.... As the 105 Whole - 5/19/05 Councilman well knows, I respect his comments, but I at least want to make sure that I interject at the moment. The Councilman is quite aware that I've made no mention whatsoever of increasing any tax. And specifically, I have not even made any mention with regard to the real estate tax at all. Revenues on the real estate side are going up because we have a tremendously hot real estate market. We have not touched the real estate tax rates in this city since 1991 which is before I arrived in this City Council. The fact that anyone's real estate tax bill might go up is a function of increased assessments because of increased value. So, I just want to make sure that the record is very clear. I've made no 22 mention of real estate taxes. I've not talked about real estate taxes. I've not talked about increasing any taxes. And I respect the comments and the 106 Whole - 5/19/05 point that the Councilman is trying to make, but I needed to insert that at that moment. Thank you, Madam Chair.

Council President Verna

Thank you. Councilman Cohen, I assume you're finished.

Councilman Cohen

Well, I just think that Councilman Nutter better follow what Bret Mandel is testifying to because he says clearly Philadelphia's rate of real estate tax is far too low, and what will show that Philadelphia is a strong economic force will be when real estate taxes go up. And Mr. Mandel is here, and he'll be able to testify, I hope, later at the hearing, and we can hear directly from him. But one thing has an impact on the other.

Council President Verna

Thank you, Councilman. The Chair recognizes Councilman Kenney.

Councilman Kenney

Thank you, Madam President. I'll be brief. Ms. Reed, what was 107 Whole - 5/19/05 your last job? What was your position?

Ms. Reed

Senior manager, KPMG.

Councilman Kenney

And prior to that?

Ms. Reed

I was the President of the Mid Atlantic Employers Association.

Councilman Kenney

Did you have a relationship at all with the Pennsylvania Economy League?

Ms. Reed

Prior to that I was the Executive Director of the Eastern Division of the Pennsylvania Economy League.

Councilman Kenney

How long ago was that?

Ms. Reed

I was at the Economy League from the first day -- from Osage Avenue day until May of '94.

Councilman Kenney

Did you at any time ever add -- or did you -- You were aware of the Pennsylvania Economy League's position on business and wage tax cuts over the last few years we've been having this discussion? I mean, do you...

Ms. Reed

Not detailed knowledge, 108 Whole - 5/19/05 but I do receive their materials. I was receiving their materials.

Councilman Kenney

Do you agree with that? I mean, I would argue they're probably one of the strongest advocates for accelerated tax cuts that we've heard in this Council. It's my estimation, anyway. Do you disagree with their position?

Ms. Reed

I don't know specifically what exactly they were advocating. I do know that the... you know, the experience that we've had this past year kind of indicates that the taxes are decreasing about as fast as we can, you know, absorb change on the expenditure side, and that should be an important consideration.

Councilman Kenney

Are you familiar with a recent letter from the Mayor relative to... Are you familiar with the recent letter we received from the Mayor which was reported in the Daily News today, relative to Council's request and the Mayor's responses to those requests to put back services?

Ms. Reed

Yes. 109 Whole - 5/19/05

Councilman Kenney

You, as the Budget Director, I'm sure you'd be pretty familiar with that. And does it seem to you that the things that the Mayor is agreeing to or at least seems to agree to in his letter is pretty much everything he originally cut out of the initial budget submission? And with the exception of the Fire Department -- and I know there's ongoing discussions there -- it seems that just about everything... As a matter of fact, one of the put-backs was an increase from what we were suggesting for the libraries from 3.5 to 4. I mean, it seems that in the major areas, with the exception of the Fire Department, the response to the administration that Council's request has been pretty much putting back everything or almost everything that was taken out.

Ms. Reed

There are specific proposals that I think the administration has agreed to. 110 Whole - 5/19/05

Councilman Kenney

So, where was the big -- Where was the big controversy? Why the big controversy? Why the big doom and gloom about not adhering to the initial cuts recommended by the administration, when now as of yesterday the administration sends us a letter and says, oh, by the way, you know what? We won't give the library 3.5; we'll give them 4. We'll put back some of the other stuff we said we were going to take out. We were going to put back some of the other stuff that said, if we didn't take this out, the world was coming to an end. Our bond rating would collapse. We wouldn't be able to do business. We wouldn't be able to pay bills. And now, all of a sudden, this stuff comes back here like it was a game.

Ms. Reed

Well, those are offset by some new revenues which, you know, hadn't been contemplated before.

Councilman Kenney

Oh, so --

Ms. Reed

Without the new revenues, 111 Whole - 5/19/05 it wouldn't be possible to do that.

Councilman Kenney

So, the billboard stuff puts everything back?

Ms. Reed

It does help, yes.

Councilman Kenney

It's amazing. It's amazing how that happened. I mean, we start out this process with all these cuts which amount to, I think, .04 percent of the entire budget. I mean, a really big number when it comes to a $3.5 billion budget. And where does it get cut out of? It gets cut out of the fire service, libraries, rec centers, mini City Halls. What do these all have in common? They all have in common that people get angry about it. And people get angry about those basic service cuts. It's easier to tie tax reduction to the big bad service cuts that now seem to be very easy to put back. Never mind. We were just like -- It sounds Like Emily Latella. Remember her from Saturday Night Live? She used to do the editorial comments. And then when she would get through, she said, never mind. We'll 112 Whole - 5/19/05 just put it all back. I mean, why this big tempest in a teapot if, in fact, you had the capacity to put it back from day one?

Ms. Reed

Well, actually, we did request decreases in every city department, including those of the independent elected officials. So, everybody was sharing in the pain on that.

Councilman Kenney

Right. Right. .04.

Ms. Reed

In addition to other kinds of initiatives that we have, which were also trying to bring the total cost of government down.

Councilman Kenney

So, the cuts that have been really controversial, though, I mean, is that an incorrect percentage of the budget? I think it was .04 percent, represented in those cuts that people were complaining about the most? That people were coming to our offices, writing us letters, sending us e-mails, meeting after meeting that we had to 113 Whole - 5/19/05 attend amongst Council members, meeting after meeting that Council members had to attend in the district, numerous budget hearings where we had people come in to complain about libraries, and where kids were going after school, and what the Fire Department wasn't going to be able to do and do. And all of a sudden now, like, voila, it's back. And where's the -- What happened? I mean, we went through months of this -- months of this soul searching and hand wringing and finger pointing. And all of a sudden, at the whim of the Mayor, it's back. And we may have the fire service back before we're done. What's this game? UNIDENTIFIED VOICE: Drop it. Drop it. Drop it. Drop it.

Councilman Kenney

I don't get it. To me... I mean, you're part of this process. You're in those meetings. You know what's coming out and what's going back. So, we sit here like goofs. And at the last minute now: Here it is. Here's the 114 Whole - 5/19/05 money. We found it. Gees. What a good process this is, isn't it?