COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING COMMITTEE ON FINANCE - - - Room 696, City Hall Philadelphia, Pennsylvania Monday, December 8, 2003 2:30 p.m. - - - BILL 030769 - An Ordinance amending Section 10 19-1303(3) of The Philadelphia code, entitled "Authorization to Offer Exemptions from Real Estate Taxes on Improvements to Deteriorated Industrial, Commercial or Other Business Properties," by extending the exemption period for certain existing grants of exemption, under certain terms and conditions. - - - PRESENT: COUNCILWOMAN JANNIE BLACKWELL, Chair COUNCILMAN DAVID COHEN COUNCILMAN FRANK. J. DI CICCO COUNCILMAN JAMES KENNEY COUNCILMAN MICHAEL A. NUTTER COUNCILMAN BRIAN J. O'NEILL - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters 1835 Market Street, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 Bill 030769 - Finance P R O C E E D I N G S - - -
We would like to begin our Public Hearing dealing with Bill Number 030769 that will be heard before the Finance Committee. We have a quorum: To my left Councilman DiCicco, to my right Councilman Kenney, and to his right Councilman Nutter. We will now ask the Clerk to read the title of the Bill which is sponsored by Council Members Kenney, DiCicco and Nutter. COUNCIL CLERK: Bill Number 030769, an Ordinance amending Section 19-1303(3) of The Philadelphia code, entitled "Authorization to Offer Exemptions from Real Estate Taxes on Improvements to Deteriorated Industrial, Commercial or Other Business Properties," by extending the exemption period for certain existing grants of exemption, under certain terms and conditions.
Thank you very much. 3 Bill 030769 - Finance The Chair will call to testify our Revenue Commissioner, Nancy Kammerdeiner. After her testimony we will have Mr. Tom Witt and James Kroll from the Hyatt Hotel. After those gentlemen, we'll have Joshua Grimes and Jay Barnett from Doubletree. And after them, we have Joshua Vincent, Center for Community Study of Economics. If there are others who would like to testify, please see Darwin Bovay who is standing there, and he will certainly place you on the list. Commissioner.
Good afternoon, Councilwoman Blackwell and Members of the Committee on Finance. I'm Nancy Kammerdeiner, Revenue Commissioner. And I'm pleased to be with you today to present testimony regarding Bill Number 030769. This ordinance will amend Section 24 19-1303(3) of The Philadelphia Code, entitled "Authorization to Offer Exemptions 4 Bill 030769 - Finance from Real Estate Taxes on Improvements to Deteriorated Industrial, Commercial or Other Business Properties," by extending the exemption period from three years to ten years for certain properties that are used as hotels. Specifically, this Bill would add the definition of a qualified building as, quote, any deteriorated property that is a hotel, as defined in Philadelphia Code Section 19-2401(5), end quote. It then adds a new section that would require the Board of Revision of Taxes to -- and again I quote -- extend to ten years the term of any three-year real estate tax exemption issued pursuant to this Section, 19-1303(3), upon any improvements to a qualified building for which a certificate of occupancy was issued after October 27, 1999, end quote. The Board of Revision of Taxes has provided information that indicates that nine hotels have been issued certificates of occupancy since October 27, '99. 5 Bill 030769 - Finance Adding seven additional years of tax abatement for these properties would cost the City and the School District approximately $27 million in real estate tax or an average of nearly $4 million each year for seven years. Any future hotel properties would also be entitled to ten years of real estate tax abatement instead of three. There's a potential that the fiscal impact of this legislation would be even higher. Mayor Street and his Administration want to encourage businesses to grow and develop in Philadelphia. Of special interest has been the development of hotel rooms as part of the City's strategy to fully utilize the Convention Center and to grow the tourism industry. We share your interest in supporting the hospitality industry. However, at this time we cannot afford to reduce revenue without further deliberate consideration of 6 Bill 030769 - Finance priorities, and the relationship to other tax reduction proposals. Furthermore, this Bill would provide assistance for only a select few hotels, not the industry as a whole. I remind you of the fiscal pressures that the City has faced in fiscal '04 and will continue to face during the balance of the five-year plan. Reductions in the state budget that caused cuts of over $85 million in direct financial support to Philadelphia have not yet been restored. This comes at a time when revenues have been curtailed by weak regional and national economies, and future revenue growth has been further curtailed by legislation that triggers further reductions in wage tax rates. In addition, rapidly increasing pension and health insurance costs are putting enormous pressure on the City's budget. I also remind you that the Tax 7 Bill 030769 - Finance Reform Commission was recently presented -- excuse me -- has recently presented a comprehensive package of recommendations for tax reductions to Mayor Street and to Council President Verna. These recommendations were developed after fact gathering and serious deliberation over a period of nearly a year. The Administration and this Council will use the Commission's recommendations as the basis for serious discussion about the tax policies that will be incorporated in the next five-year plan and the budget that will be developed for fiscal year '05. The extended tax abasement proposed in Bill Number 030769 and any other tax measures that will affect the revenue available for the budget should be considered along with the recommendations of the Commission, not in isolation. For all of these reasons, the Administration cannot support Bill Number 030769.
I urge you to hold this Bill in 8 Bill 030769 - Finance Committee, and to look at this proposal along with other tax measures early next year. Should you decide to move forward with this Bill, however, I recommend that you consider an amendment that would condition the continuation of the tax abatement on the continued operation of the hotel on the property. With such a requirement in place, you would support the hospitality industry but would not consider a tax abatement -- continue a tax abatement if the property were used for another purpose. This concludes my testimony, and I'll be happy to answer my questions.
Thank you. We have two questions ourselves, but we would like to defer to sponsors of the Bill. Councilman Kenney.
Thank you, Madam Chairperson. Thank you, Commissioner, for your testimony. 9 Bill 030769 - Finance Let me say from the outset that I do understand the concern that other hotels in the City have that are not going to be able to take advantage of this abatement. And I commit, along with the other sponsors of the Bill, to work with them to try to find appropriate measures to keep them afloat also, while we're going through this period of time, post 9/11, and more importantly, post Convention Center mess. And hopefully its restructured approach and work rules will get us back to where we want to be in three to five years. And also in your analysis or in the Administration's analysis of the Bill, while looking at the revenue loss, has anyone looked at the number of jobs that are associated with these nine hotels? Do you know how many jobs there are?
I don't know directly on that; but I know that, of course, there are quite a few jobs that are dependent upon the continued functioning of these hotels. 10 Bill 030769 - Finance We had such a brief period of time to look at this, that we don't have a full analysis on that.
Well, according to the nine hotels, there's 1416 jobs, 1,416 jobs, at each hotel. And are you aware of the type of -- Now, this is more generalization, but I think it may fit. Is the profile of the individuals who are working there, the types of people, you know, where they've come from prior to working at these hotels?
I know that Commerce is more familiar with that than I am. But it's my understanding that most of them are Philadelphia residents, and many come from our poorer neighborhoods.
And many of them are also from our -- from the Welfare to Work Program.
I know that there were some concentrated programs to make sure they were given opportunities at the hotels when they were opening. 11 Bill 030769 - Finance
And theoretically, do we -- when we or the Administration considers whether to support a bill or not, relative to its fiscal impact, does it also take into account the cost associated with having to absorb people who were formerly employed who are now unemployed, for example, the loss of their wage tax, and the perhaps increased use of our health centers and other things as a result of loss of medical benefits?
It's things like that that I refer to when I said that we need to do a thorough analysis, and look at our tax policies in conjunction with our needs for expenditures. And I would say that given the short time that we've had to look at this, we have not specifically looked at those issues, with regard to this Bill. That is an issue we need to look at in general, with not only this, but all of the tax reduction proposals, to ensure that we can continue to provide the services 12 Bill 030769 - Finance that are going to be necessary.
This is not an exact science. And you never know, again, hypothetically, if 1400 people are out of work, how many people are going to get new employment; how many people are going to get employment that pays less than what they had before; how many people will gain employment that don't have medical benefits; and how many people won't be employed at all. So there's a sliding scale of misery as a result of, you know, the company or business going out of business. And the other question I have is, what happens if one of these hotels, say... I don't know. Say the Sheraton Rittenhouse, for example, or the Ritz-Carlton decide to go condominium, what happens to the real estate taxes on the conversion, if in fact these rooms are no 23 longer hotel rooms but are now privately owned condos?
Well, that's one 13 Bill 030769 - Finance of the questions and issues that I raise, and the reason that I suggested that if you are considering moving this Bill forward, that you consider an amendment to address just that very question, and whether or not the tax abatement would continue if the structure were used for a purpose other than hotel. If in fact your intention here is to provide a tax break for the hotel industry and for these hotels, then, that is a question, from a policy perspective, that you need to take a look at, as to whether or not the tax abatement for real estate taxes should continue post conversion. COUNCILMAN DiCICCO: Madam Chair.
Certainly. Point of order. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair, Councilman Kenney. If the Bill did not move forward and any of one of these hotels were to close, as Councilman Kenney suggested, and they decided to convert the building into a 14 Bill 030769 - Finance condominium or an apartment building, would they not be entitled to the ten-year exemption on the improvements? Because in effect it becomes a vacant building. And the exemption bill 7 that we did in 1997 says, if you take a vacant building, whether it's an office building, institutional building, whatever, they would be entitled to the ten-year exemption on the improvements.
The actual administration of the legislation is handled by the Board of Revision. And I know David Glancey is here to address this if I err on this. But I guess part of it would depend upon whether or not it became a vacant building in the interim. You might have a conversion. You have situations where you have combinations of condo and apartment or condo and hotel in the same structure. And so, there would be a question in my mind as to whether or not you would have 15 Bill 030769 - Finance a vacancy in between, that would qualify that structure for the abatement going forward. COUNCILMAN DiCICCO: Are you familiar with the Korman Suites up in the Frankford section, off of Fairmount Avenue -- off of the Parkway?
I know the structure. COUNCILMAN DiCICCO: They just recently converted the property. Was it totally vacant; do you know?
But I would suspect that an owner of a building would, knowing that the opportunity for a ten-year abatement is there, would create a circumstance where the building is vacant prior to their -- COUNCILMAN DiCICCO: And if I can, I think Clarion Suites on Race Street? I believe that -- and I could be wrong. Somebody can correct me. I think that building was vacant. 16 Bill 030769 - Finance They stopped renting out rooms as a hotel, and then ultimately did the conversion to condos. So, I would assume -- and I could be wrong for assuming this -- that there's some sort of an exemption.
I'm sorry. My name is David Glancey. I am the Chairman of the Board of Revision of Taxes. And thank you for inviting me today to make comments. Number one, if you look at the language of the ordinance, it's value added due to the improvement. That's the first thing you have to look at, is there value added due to the improvement. The hypothetical you pose is that a hotel gets converted to a condominium. Two questions: One, can it simply be converted. You know, maybe you bust out a wall here or there, not add so much value 17 Bill 030769 - Finance by doing that; and therefore, the answer would be no, that there would be no value added; therefore, there wouldn't be anything to abate. Second way of looking at this is, of course you can gut. You know, if you've got rooms on a floor, maybe you make 9 four condominiums out of that floor; and 10 therefore, significant changes; and 11 therefore, significant value added due to 12 the improvements. 13 So, if it is just a mere conversion 14 of what's there, my -- and again, this 15 would be a question of first instance. I have a hotel that now has three years into their abatement and they have seven years left. It's not working as a hotel. I want to convert it to a condominium. Abatement runs with the land. So, if you make the conversion to the condominium, it seems to me -- and again, I haven't asked the Law Department for an opinion -- but it seems to me a common 18 Bill 030769 - Finance sense way of looking at this would be that there still would be seven years left to run on that -- on that particular abatement, no matter what the use is, because it is still being used -- it still falls within the ambit of all those things that this Council has chosen to abate. I don't know if that's the answer to your question. COUNCILMAN DiCICCO: Well, we have -- We've done a number of conversions in this town, and more recently conversions to buildings that had been previously used as a financial institution, Allen Dom's recent project on, I think it's Walnut street.
Right. COUNCILMAN DiCICCO: Jewish Federation or something was there. They did a conversion. They're selling each unit as a condo which I think is a fee simple title or whatever.
Right. COUNCILMAN DiCICCO: Don't the -- Do 19 Bill 030769 - Finance not the owners of those condos now enjoy the ten-year tax abatement?
They do. They do. I'm agreeing with you. (Mr. Glancey and Councilman DiCicco began speaking simultaneously, not reportable.) COUNCILMAN DiCICCO: But if you take the... one of the hotels that Councilman Kenney mentioned or any hotel, and you tear out a wall or you don't do that great of amount of improvements, but you sell off the individual units as condos which is a new construction, more or less, because it's a new owner, is it not? Would they not be entitled to ten years?
I would say if there was -- COUNCILMAN DiCICCO: And then get no 21 taxes out of it.
If there was value added, the answer to your question is yes. If there is no value added -- and by that I mean, Frank, I guess if you looked at a 20 Bill 030769 - Finance hotel room that if it was not really changed very much could sell for a hundred thousand dollars as a condominium, okay? You don't add -- COUNCILMAN DiCICCO: I'll take two.
Yeah, yeah; right. You don't add any value to that room in the instance that you're converting that use. There really is nothing to abate. On the other side -- On the other hand, if you take that same room and it is now being sold for two hundred thousand because there are certain amenities that have been added, well, yeah, I would say that that one hundred thousand dollars would be -- COUNCILMAN DiCICCO: An abated value.
Chair notes that Councilman Cohen is here part of the hearing. But that was a point of order for Councilman Kenney. Thank you for that. 21 Bill 030769 - Finance
The other issue, Miss Kammerdeiner, that you raised in your testimony was one of the -- suggested amendment, if you go forward, to require that the use remain a hotel, to take advantage of this particular --
That would be one thing that you might want to consider if your goal is to assist the hotel industry and not just provide an abatement for the land.
Is that not satisfied on page one of the -- I'm sorry. We have -- Actually, I do have -- In the Bill now under Section C, paragraph number four, it says, qualified building. The qualified building is any deteriorated property that is a hotel as defined in Philadelphia Code Section 21 19-2401(5). Does that not cover the concern as it operating as a hotel?
I'm not certain that it does, once the abatement is given. 22 Bill 030769 - Finance And that would be a question for legal interpretation.
Thank you. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. Councilman Kenney covered most of the questions. In your testimony, Commissioner, you referenced a Tax Reform Commission study or recommendations. Do you know if there's anything in there -- Because I haven't, obviously, not had the opportunity to read it at all -- if there's anything in there that deals with the problem with the hotel industry today?
Not specifically. COUNCILMAN DiCICCO: Has your department -- I don't mean this to be critical. Has your department in any way looked at this potential problem? Because we have been talking about this for a 23 Bill 030769 - Finance couple of years now. Is there any recommendations that your department may have on the burner right now that might be helpful to us?
Commerce has really been looking at the issues, not Revenue specifically. COUNCILMAN DiCICCO: I have no 10 further questions at this time. Thank you.
Thank you. The Chair notes that Councilman O'Neill is here. Councilman Cohen, you are next.
Thank you, Madam Chair. How many hotels are there in the City? UNIDENTIFIED MAN: Councilman, the inventory that we have includes some beds and breakfasts. It's roughly 55.
Are there provisions in the years -- I assume that on some occasions the hotels have shown a profit. 24 Bill 030769 - Finance
And have they shared that profit with the City? Have they voluntarily or is there an agreement that since the City offers assistance to hotels at various times, when the hotels make a profit, they give back that assistance or enable the City to share in it? Or is this a one-way street?
As with other businesses, they're responsible for paying certain taxes, including the Business Privilege Tax.
And that's all they pay. They keep their profits, if they have profits.
They also collect -- Well, it wouldn't be from them. I was going to say they collect the hotel tax, but that would be from their patrons. They are responsible for paying taxes, just like any other by business in the City.
And don't share any of the profits with the City if they 25 Bill 030769 - Finance make them.
So the partnership begins only when a hotel loses money or believes it may be threatened for loss of money. Then it suddenly gets interested in becoming a partner with the City, to share the costs of the loss, maybe to absorb the whole loss? I mean, I'm confused here. I thought hotels were risky business, like every business is; that they're entitled to profits because they undertake risks. But here we have a situation which the hotels have already benefited heavily from the City's tax abatements in the past. And now when they're running into some financial problem or think they are -- I don't know whether they are. There's been no evidence that they are. But let's assume for a moment that they are, because of one reason or the other, maybe it's the Convention center problem that caused them Bill 030769 - Finance to run into a rift. And then we didn't hear sad tales about labor, though. Jobs are being lost by the thousands because policies were being adopted that killed Convention business for the City. Now, they're coming to the City to ask for help. I mean, I don't understand. What is this risk-taking that a business ever takes?
Can I just add a point of information on the question --
-- because it's a very important point. Any hotel that's taken advantage of a TIFF or other abatement in its financing to be constructed is not eligible for this abatement.
Were built after -- Were built... For whatever reason, some chose not to take advantage of what was available at the --
It was all individuals choices at the time. If you had qualified -- If you had taken advantage initially of any of the incentive programs or any of the TIFFs, you're not eligible for this particular Bill.
And the other issue is not -- well, for me at least -- is not necessarily the hotels, but the 1400 jobs of people who are hard to employ.
My experience, Councilman Kenney, is that an employer cuts jobs when jobs are not needed, and that he employs people when jobs are needed. And that -- Is there anything in your Bill which guarantees that there will be no layoffs? Is there anything in your Bill that provides that in the event of unemployment maybe the City, ought to have an unemployment policy which covers not only hotel workers but covers all workers that are laid off from their jobs?
This Bill is not that ambitious. But I do want to make sure that the record is clear, that I am concerned, as I know you are, with the reemployability of these particular individuals because of where they've come from out of the work force. And a lot of them came from unemployment to work, and are going to be much more difficult to employ again. 29 Bill 030769 - Finance
Point of information. (Councilman Cohen, Councilwoman Blackwell, and Councilman Kenney speaking simultaneously, not reportable.)
But I don't think they're going to have an extra day's job -- (Councilman Cohen, Councilwoman Blackwell, and Councilman Kenney speaking simultaneously, not reportable.)
Excuse me. We have a point of information. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. To Councilman Cohen's question, I believe as of today there have been three hotels, former hotels, that have been -- closed down their operations, and are 30 Bill 030769 - Finance either in the process or have been in the process of converting to condos: Korman Suites; the Clarion Hotel, as I said, on Race Street; and the Hawthorne Suites on 11th Street no longer exist as hotels. And as a result of that -- I don't know the exact number, but there have been many, many jobs that have been lost as a result of that. In addition, some of the hotels that are still operating in the City have had to cut back with their employment, employees significantly. And I believe there will be couple of folks here who will be testifying as to the number of jobs that they already had to scale back on to date because of the problem with the hotel industry as it exists today.
What's happened to the famous statements, let the market take care of the situation? There were a lot of concerns expressed when the hotels were on a building spree, that hotels were 31 Bill 030769 - Finance being built without any thought as to their need or anything. COUNCILMAN DiCICCO: I don't think anybody --
I think there was going to be at some point a time of reckoning. I thought that businessmen who invested money took risks, and because they took risks were entitled to profits when profits were made. But it seems here in the hotel industry, they want government to supply everything. They want the support at the beginning to enable them to build. They come in with all sorts of promises. And then when there are losses, they come back to the City for further benefits. Whether these particular hotels got significant benefits and tax deferrals or tax clearances entirely may or may not be the case. But we know what's going to happen if these nine hotels get it already. The 32 Bill 030769 - Finance Mayor points out that why do you pick these hotels? Maybe other hotels also need support. Maybe they ought to get it. What's the terms for getting it? How's the City going to share in the profits when profits are made? I'd like to hear those. I'd also like to hear how the money was spent that the hotels had. How do we know the hotels are in trouble spent their money wisely? I have yet to find an employer who, except for one in Massachusetts, and he's in trouble, when his plant burned down, continued to employ his workers. I forget his name. But it was recently in the news. Except for him, I know of no other employer who hires people unless they're needed. And if they're needed, they are hired. And if they're not needed, they're going to be fired. And there's nothing in this Bill that guarantees that the money will solely be used to pay wages for 33 Bill 030769 - Finance employees that are not needed by business conditions and therefore face layoffs. Then this is a Bill for unemployment compensation. It's not a Bill for working people. So I have all kind of questions. And other than the hotel industry, I'm sure there are other industries that are complaining now: Some because of Iraq, some because of slow economic conditions. Or take the jobless recovery we're having, where people are not getting jobs even though the economy seems to show, by some indications at least, evidence of strength. So, I think we need lots of information and lots of facts before we can go on a wild spending spree and say, let's just forego all kinds of taxes in the hotel industry. Because other industries are going to be asking for the same kind of help, and other parts of the hotel industry will also be asking. 34 Bill 030769 - Finance So I think the Mayor makes a wise decision in telling us to go a little slowly in the curtailment here. COUNCILMAN DiCICCO: We've made history today.
We certainly have. COUNCILMAN DiCICCO: We agree with the Mayor. It's a historical moment.
How much Revenue is generated in the Wax Tax from the hotel industry? And should the nine hotels not receive relief outlined in this Bill how much would we lose in Wage Tax Revenue?
I'm sorry. I didn't bring those numbers with me, but I can get them for you, and give it back to you very shortly. After I'm away from the witness stand, I can call my office and get them for you.
Thank you. And how would there Bill impact revenue to the School District? 35 Bill 030769 - Finance
As you know, real estate tax is divided between the City and the School District. And the School District now gets approximately 58 percent of the real estate tax that we collect, starting with calendar year '04.
Madam, point of information. Would the School District be affected by this Bill, too?
Yes, because real estate tax is divided between the City and the School District. And I did not add in in my testimony that you remind me with your questions about the School District that we do have an Act 46 problem because the City would be responsible for making the School District whole on revenues that are taken away from them.
So certainly we would need that information as well.
Well, basically, with the $27 million over the period of 36 Bill 030769 - Finance time, 58 percent of that is School District. So slightly more than half of that 27 million or the 4 million per year would be School District.
I'm sorry, Madam Chair. You were in a question. I'll just...
I'll just remember the... I'll just remember my question. That's all right.
So, you're saying how much per year affects the School District?
It's almost $4 million a year in total. 58 percent of that would be School District. So, considering that it's what, about 3.85 million? It would be about $2 million a 37 Bill 030769 - Finance year would be School District, just in round numbers.
Okay. That's $2 million a year School District. All right.
And that's the hotels that we know of right now, the nine that have been identified specifically.
Is there anything in the Bill that provides that each hotel that might benefit would have to submit its books to the City so they can be studied to determine what wastes there may have been? How do we know that a loss of funds is due to bad business? How do we know that it's not due to bad management? Or are they going to be covered in and everybody's going to be saved from any mistakes they made?
There are no 23 special requirements to that effect in this legislation.
You say there is 38 Bill 030769 - Finance no special requirement. So that everybody would be eligible.
Nor is there in any of the real estate tax abatement bills. The only requirement is that they be current with their City taxes.
Is there anybody from the hotel industry here that's going to testify?
All right. We'll hold some further questions till I hear from them.
Commissioner Kammerdeiner, until you mentioned this, this was not on my list of questions, but it was a rather stunning statement. So why 39 Bill 030769 - Finance don't I start here? I took from your last statement that the mere continuation of this abatement now triggers an Act 46 issue?
We would be reducing the revenue to the School District, and we would potentially have the issue ahead of us of having to restore that income to the School District. As I understand, Act 46 -- and I'm nowhere near an expert on it. If the City deprives the School District of revenue, that we are responsible -- through changes in the tax rate or the way we tax, that we have to make up for that, in terms of other revenue coming to the School District that would make them whole.
But if someone's already under an abatement, how did you account for... School District hasn't received those revenues yet. And if you 40 Bill 030769 - Finance just extend the abasement, how is it lessening their revenues? I'm a little confused here.
It's revenue that they were anticipating because you've changed the structure of what they were to get and what was part of their revenue flow. I would --
So are you now saying that as a result of Act 46, the City is now not in a position to offer any form of abatement programs for anybody about anything?
No. I'm saying that to change the rules. Those other abatements were in place. The rule was set up. And that was in place before. And now that we are trying to change the rules, I think we may have that problem. It's something that I think needs to be reviewed with the Law Department and those who are fully conversant with the implications of Act 46. I am not. 41 Bill 030769 - Finance
Act 46 is definitely affected by a TIFF. That's why the School District has to vote on, and the School Board needs to approve participation in any TIFF. Otherwise, it cannot move forward, as it relates to School District taxes.
So they're taking that into consideration and approving that as part of what they look at with the proposed TIFF.
Let me ask this question: Is there an Act 46 issue if... Let's say one of the hotels... You know, I don't want to be too dramatic here. I'm like -- And I'm not talking about you, but I'm like the usual or oft times doom and gloom that we get when we end up in these situations that, you know, the City is going to collapse if we do 42 Bill 030769 - Finance something. But let's say that one of the hotels starts to have some problems and possibly closes. One of the first things they're going to do, isn't it, is to go over to the Board of Revision of Taxes and ask for a lowering of their assessment, since the property is not functioning properly? And when they get their reduction, because they probably are, does that trigger an Act 46 issue as well? Isn't that a reduction in taxes, tax revenues?
It is. And that's why I say that I may have gone a little far with what -- what I indicate. I said it may be an Act 46 problem. I'm not an expert on how that is applied. I just know that when we were addressing some of the bills last... a year ago, in reference to caps and freezes, the Solicitor's Office advised that as we changed the rules, we put an impediment on the production of revenue that was anticipated by the School District, that it 43 Bill 030769 - Finance would trigger an Act 46 issue that would need to be resolved with the School Board and with the State.
But there's nothing in this Bill... It's one of our shorter ones. Is there anything in this Bill that changes the tax rates?
-- geared toward a maintenance of effort, from a tax standpoint?
Excuse me. We have a point of information on the table. Councilman Cohen.
Wouldn't the question be more appropriately directed to David Glancey, of the Board of Revision of Taxes?
If it's a question about Act 46, I'm not going to -- I'm certainly not going to say something I know nothing about.
He wasn't exactly jumping at the microphone over there.
I believe this is a question that needs to be addressed by the City Solicitor's Office and by Council to the School District because they deal with the Act 46 issues regularly.
I beg your 45 Bill 030769 - Finance pardon for a minute. The Law Department's aware of this Bill. Okay? And for... I mean no 5 disrespect. For a throwaway comment of it may be Act 46 related...
The Law Department's had the opportunity to weigh in any time they like. And I don't even know if they're here. I mean, to throw out these kind of would-bes, could-bes, I don't think it is, frankly, because I don't think any other thing we've done for any other industry in any other -- This is money that they're not getting now, so that if the abasement's extended, they're still not getting it. 46 Bill 030769 - Finance It's not an Act 46 issue at all. But -- But --
It may not be, Councilman. And I apologize if I made it sound like I was certain that it was there. I did not intend that. I said it's an issue that I would have a question about.
And I think that it needs to be explored before you would --
But I guess what's concerning to me is that the Administration is obviously opposed to the Bill, as is their right to be. And you were here to testify, and I thank you for being here. But where's the Law Department? Where is the Commerce Department? Where is the Mayor's Office? I mean, if there are things that people have expertise in that can enlighten us about the process, it's terrific. I'd love to have them here. But they're not here. And they've known about it. It's not something that's a secret. It's not a 47 Bill 030769 - Finance secret. I mean, people, I'm sure, in every one of those departments I've mentioned have had an opportunity to read this Bill 6 and can come up any time they want. The door's open and they're welcome to testify. But their lack of presence is concerning because as the Revenue Commissioner you have certain areas of expertise which I respect and admire. But I mean, to throw out a legal issue that the Law Department is not even here -- couldn't even send a letter, which would have been nice. But I just wanted to make that comment, Councilman. I'm sorry to interrupt you.
No. I understand. I... You know, look: We're all concerned about the impact on both the City and the School District. But I mean, I didn't hear -- and the Commissioner was not here for that hearing, but I mean, many of us sat through a rather tortuous hearing just a week or so ago. 48 Bill 030769 - Finance And I mean, I didn't hear all this School District conversation with regard to a pretty high profile tax increment financing transaction. But let me -- Well, Councilman Kenney has dealt with the Act 46 issue. But let me go back to the issue that I actually started with but in a different light. Commissioner, have you had an opportunity to evaluate what the tax revenue impact would be on whatever the number of hotels it may be, if they all go to the Board of Revision of Taxes, based on... I think one of the things I learned in the course of the past year is one of the assessment methods, I believe, has to do with income. So, if they all started experiencing significant financial loss, what's your calculation on the impact to the City, the School District, the citizens of Philadelphia, the unemployment losses, and the increase in social service costs as a result of doing nothing? 49 Bill 030769 - Finance
As I indicated earlier, we have not done that full analysis. We did not have much time in reference to this Bill to look into those issues in an informed way. And really, the first issue you raise, in terms of reduced assessments, we would have to get a great deal of information or make a lot of assumptions about what level of assessment change would be granted by the Board. And so, you'd have to develop a whole series of assumption sets in order to come up with anything in line with the kind of question your raising. And we have not done that.
How much assessment relief was provided in the last fiscal year as a result of either businesses or property owners, residential property owners, seeking a reduction in their assessment? What was the total value of that?
I would have to 50 Bill 030769 - Finance defer to David Glancey.
Councilman, I couldn't tell you that because, again, we don't do the taxes. We do valuations. But let me just say to you --
Yeah. The total value increases ran about four percent, and I believe give backs by way of appeals, which is really your question, probably ran less than a half a percent. Now, what that means in actual numbers I could figure out for you, but I don't have that information with me today, but I'd happily provide it.
Well, no, it was not a significant amount of give backs by what of -- And I use that term loosely here. But it was not a significant amount of 51 Bill 030769 - Finance money that came back -- went out of the City coffers due to appeals. Let me put it that way, particularly, I might add, in commercial and industrial properties.
Well, it didn't go out of our coffers because we didn't get it.
So out of the proposed amount that was to come in, there was some amount that did not come in, due to appeals.
...to, you know, give you your $5 back or give you your $10 back. But sometimes you get and it sometimes you don't. So the proposed 52 Bill 030769 - Finance coffers are one thing. I think the actual is something else.
Let me make one other comment with regard to the broader issue here, which we seem to run into from time to time when we try to help any particular sector or even groups within a sector. There always arises the fairness issue, based on timing. So, for instance, this particular Bill has a date by which a certificate of occupancy would have had to have been issued. And maybe I'll wait on this particular issue. But it always seems that we end up in these situations where, whenever the line is drawn or whenever an abatement is done, someone misses out. And so, the City of Philadelphia and a number of us sitting at this table consciously sought to bolster the hospitality and tourism industry, and specifically the hotel business, by helping 53 Bill 030769 - Finance to actually put money directly or indirectly into the construction of new hotels. That started primarily under now Governor then Mayor Rendell, the culmination of which could have been the landing of the Republican National Convention. Subsequently, there's been a serious negative impact, prior to September 11th and certainly afterwards, in our hospitality and tourism industry because of a variety of issues, some of which have directly to do with the fortunes of the Pennsylvania Convention Center. A couple of us, at least, are trying to turn that situation around. And some of the hotels, as has been pointed out, may not benefit from this particular Bill. Maybe they got some other benefit from something else we did. Maybe some of them got no benefit from anything that we've done. But I'm certainly mindful of the fairness issue, in that there's either a 54 Bill 030769 - Finance belief or a perception that some are being enhanced to the detriment of others. I certainly have no interest in trying to do that; but at the same time, if we know that a group is having a problem, I think we do have some compulsion to try to do something for that group, and then change our overall business environment that lifts... As they say, the rising tide lifts all boats. So, this is one effort about one group that's sitting in front of us with a particular issue that we can actually do something about. I think that does not mean that we're going to turn a deaf ear to other ideas or other proposals. But we're in this particular situation now, and we should do something about it. I'm going to need to ask at a later point maybe, Madam Chair, depending on what the schedule is, a question about a particular location, and a timing issue related to the date in the Bill, and 55 Bill 030769 - Finance whether a particular location is effective. But I'll wait until the appropriate moment at the Chair's direction for that. Thank you, Madam Chair. I'm finished for the moment.
Thank you. Councilman Cohen, and then Councilman DiCicco.
It seems to me that when you treat an industry or group or portion of an industry together as a unit, you're implying that everything is the same. Does that mean that running a hotel is automatic? Every hotel uses the same procedure? Every hotel has the same proportion of expense for food, for labor, for everything? I'm confused by this. Why do you pick these nine hotels? It may well be some of them may be part of a national group. Some may be individuals. Some may need assistance. Some may be eligible for assistance from home offices. 56 Bill 030769 - Finance I don't understand this give-away feeling. Seems to me that there's some Members of this Council that seem to feel that the City ought to just take care of business, that's the only thing -- And by "business" I mean that which we think of as being business organizations -- and that there's no limit to the City's ability to deal with that. But when matters are raised concerning the community at large, suddenly they want to know, where is the next $50 going to come from? You don't have $50 free in the budget. But we apparently have millions when it comes to industry. But I don't understand the unscientific approach. How can you just take a group of hotels, and say, maybe the manager was running around with the chief waitress or something in a hotel, you know, and spending that money idly. Nobody's going to look at anything? You're just automatically going to write checks in the form of tax abatements? 57 Bill 030769 - Finance I'd like to see if ever we give assistance -- And surely sometimes there's circumstances under which maybe it would be needed, if there's no other place of getting it, if the particular industry or business is vital to the City's existence. But we don't know... I want to know whether any studies have been made as to how many hotels are needed, as to their efficiency of operation. That's why I'm looking forward to the hotel industry to help guide us on that line.
Councilman, if you don't mind, I mean, the policy and philosophical questions you raise are not questions that I'm going to answer. I believe I'm here as a fact witness. But there are two, I think, important facts that I might be able to enlighten you about, is that there was -- As far as I know, nobody up here picked these nine hotels. The nine hotels fell into this category because the date October 27, '99, 58 Bill 030769 - Finance which appears in the proposed ordinance, says that anyone who would have been up -- who had a certificate of occupancy issued on or after October 27, 1999, would be eligible for this extension. So I believe the date gives rise to the nine, and it might be ten. Something was raised to me this afternoon, being here: Nine or ten hotels. Secondly, and you raised this earlier. And I think it's appropriate that I respond to this, is that the reason none of these hotels would have received TIFFs is that the state legislation forbids getting a TIFF and an abatement. The state legislation that creates the TIFFs says, if you take a TIFF, you can not get an abatement. So, those two facts, I thought, were important.
If I could add one other thing -- (Ms. Kammerdeiner and Councilman Cohen began speaking simultaneously, not reportable.) 59 Bill 030769 - Finance
There's one other thing. I believe the date that was selected for this ordinance is the date that was used in another abatement bill to change from three years to ten years. And there was, in fact, a question at that time as to whether or not that date preceded the time that we had authorization from the state legislature, to actually enact a ten-year abatement. And so, there is an underlying question, that the other Bill was approved and is in law. And so, that's why I didn't raise it in the testimony. But I believe this date is a date that this Council has 60 Bill 030769 - Finance already used in the past.
It seems to be a basis upon which to award millions of dollars in tax-free activities. Thank you, Madam Chair.
Thank you, Councilman. I'm not sure if the Chair mentioned that Councilman O'Neill is present. We certainly did want to say that. Councilman DiCicco. COUNCILMAN DiCICCO: Thank you, Madam Chair. Ms. Kammerdeiner, I'm not sure if you're even the appropriate person to ask this, since I don't see anyone from the Commerce Department here. It is not unusual for the City of Philadelphia to lend assistance to a business or businesses who have... either are experiencing some extremely difficult 61 Bill 030769 - Finance times or have... or are thinking about the possibility of moving out of the City to another municipality, for reasons that may benefit their business expansion, et cetera, the cost of doing business. Comes to mind Tasty-Kake, I think of, several years ago was considering -- I think was almost going out of business, if I'm not mistaken or reducing its work force significantly. And the City, I think, stepped in with some sort of tax incentive. A company in my District, who we have another issue we've been dealing with, was a wholesale furniture manufacturing company, that wanted to literally expand their facility and actually bring more jobs, was considering going to New Jersey because they had offered a better incentive, if you will. Is it not only -- I mean, this is not unlike any other kind of business, if you will, where, when we see that a business has a problem which could result 62 Bill 030769 - Finance in its closing and the loss of revenue and a loss of jobs, which translates into Revenue and taxes... Do you not see it the same way? And it may not necessarily be what we're looking at in the Bill, but in the context of what we're talking about there is doing and assisting an industry that thousands and thousands of Philadelphians rely on for employment.
You're correct that Commerce regularly works with businesses to try and find ways to assist them in staying in business in Philadelphia, expanding their businesses in Philadelphia, or opening one in here in the first instance. They do have incentive programs through various economic incentives, some of them from state funds, some of them from funds that have been authorized in appropriations either directly with Commerce or with PIDC. But those are done on a 63 Bill 030769 - Finance business-by-business basis, not on an industry basis or not on a date basis. They are done as specific targeted activities for those particular businesses -- COUNCILMAN DiCICCO: Right, like --
Like the ones you just site. COUNCILMAN DiCICCO: But are those offers that are put on the table, do you know of any that have an offer of some sort of a tax incentive or an abatement or a reduction in the collection of taxes?
Tax law itself must be uniform for everyone in a category, and so they couldn't provide a specific tax incentive for an individual business. COUNCILMAN DiCICCO: They could.
It would have to be for... They could not, unless it's a program that has been established where everyone who's similarly situated can benefit. COUNCILMAN DiCICCO: So 64 Bill 030769 - Finance hypothetically, if -- that could apply to all of the hotel establishments, as opposed to just several of them, as we're talking about today, if the Commerce Department and P.I.D.C. were so inclined to get involved in this process, which I think they should.
I think you're correct. COUNCILMAN DiCICCO: There's a possibility.
Madam Chair -- COUNCILMAN DiCICCO: I'm not putting words in your mouth. I mean, there is a possibility that there is some sort of incentive to be offered to the hotel industry...
I don't know what incentives specifically -- COUNCILMAN DiCICCO: I don't know what they are either.
-- but they would normally work with individual businesses or groups of businesses to identify what might be available, either through existing 65 Bill 030769 - Finance programs or through some other things that could be crafted. Generally, they're not taxes as such because under the Pennsylvania Constitution, the tax law must be uniform and uniformly applied to everyone in the same class or category. COUNCILMAN DiCICCO: Thank you. No 10 further questions. Thank you, Madam Chair.
Yes. It's my understanding that there's a problem with respect to an over supply of hotel rooms. Is that the case or is it not? (Ms. Kammerdeiner and Councilman Cohen began speaking simultaneously, not reportable.)
You would have to address that to the members of the industry, not to me.
Can I maybe perhaps just throw some light as far as what my motivation was relative to the period of time we're talking about?
Well, it isn't a question of your motivation. It's a question of the impact of the Bill.
Well, that's part of what I'm going to try to express. Not being -- I'm not an industry expert, but certainly the people we've talked to in the industry, both in the convention business and in the hotel business, believe that as a result of the changes in governance that Council Member Nutter and others have helped with over there, relative to the work rules, that anywhere from three to five years, five years probably being more realistic, is when it should start turning around as a result of increased bookings again. Because of the cycle of convention bookings, we've been out of the loop. And we'll probably, if all things go well, be 67 Bill 030769 - Finance back in the loop three, four, five years out. So one of the things I wanted to bring up later, but I'll bring it up now, is that after continued analysis about the revenue issues, I'm willing or ready today to offer an amendment which I will put on the record now, but will do so at the Public Meeting, to extend the abatement for eight years, as opposed to ten, so that this way we'll get to that five year --
What's the point? You know, before it gets to the eight-year period, you'll be in here asking for an extension to 12 years or 15 years, if we live through that.