Discover Works Global 888.557.8650 www.dw-global.com COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON FINANCE Room 400, City Hall Philadelphia, Pennsylvania Tuesday, March 13, 2012 1:45 p.m. PRESENT: COUNCILMAN BILL GREEN, CHAIR COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN W. WILSON GOODE, JR. COUNCILMAN WILLIAM K. GREENLEE COUNCILMAN KENYATTA JOHNSON COUNCILMAN MARK SQUILLA COUNCILWOMAN MARIAN B. TASCO Bill 120007 - An ordinance amending Chapters 19-2600, 19-1500, and 19-2800 of The Philadelphia Code... BILL 120104 - An ordinance amending Bill No. 110343, entitled "An ordinance approving the Fiscal Year 2012 Capital Budget providing for expenditures for the capital purposes of the Philadelphia Gas Works... BILL 120105 - An ordinance authorizing the execution, delivery and performance by the Philadelphia Facilities Management Corporation on behalf of the Philadelphia Gas Works of a Renewal Amendment... - - - Discover Works Global 888.557.8650 www.dw-global.com
This is the Committee on Finance. I notice a quorum is present in the persons of Vice Chair Marian Tasco, Bill Greenlee, Councilwoman Blackwell, Councilman Goode, Councilman Squilla. Will the Clerk please read the title of the bills.
Bill No. 120007, an ordinance amending Chapters 19-2600, 19-1500, and 19-2800 of The Philadelphia Code, entitled, respectively, "Business Privilege Taxes," "Wage and Net Profits Tax," and "Pennsylvania Intergovernmental Cooperation Authority Tax on Wages and Net Profits," by providing certain exclusions and revising certain definitions, all under certain terms and conditions. Bill No. 120104, an ordinance 22 amending Bill No. 110343, entitled "An ordinance approving the Fiscal Year '12 Capital Budget providing for expenditures for the capital purposes of the Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. Philadelphia Gas Works (including the supplying of funds in connection therewith) subject to certain constraints and conditions, and acknowledging receipt of the Forecast of Capital Budgets for Fiscal Years '13 through '17" by approving a Revised Capital Budget for Fiscal Year '12. Bill No. 120105, an ordinance 11 authorizing the execution, delivery and performance by the Philadelphia Facilities Management Corporation on behalf of the Philadelphia Gas Works of a Renewal Amendment to Service Agreement for Gas Storage and Transportation Under Rate Schedule GSS with Transcontinental Gas Pipe Line Corporation.
Thank you. We will begin testimony on Bill 21 No. 120007 with Revenue Commissioner Keith Richardson. com 3/13/12 - FINANCE - BILL 120007, ETC. afternoon. Keith J. Richardson, Revenue Commissioner for the City of Philadelphia. Good afternoon, Chairman Green and members of City Council Committee of Finance. I'm here today with Frances Ruml Beckley, Chief Counsel for the Department of Revenue in the Tax Unit. We are here today to testify in support of Bill No. 120007, which amends Sections 19-2600, 19-1500 and 19-2800 of The Philadelphia Code by excluding from the imposition of business taxes certain activities of investment companies registered under the Investment Company Act of 1940, the investment activities of certain entities specifically exempted from registration under this Act and activities of the general partners or managing members of such entities to the extent that their compensation is measured by or otherwise based on the financial performance of the entities they manage. com 3/13/12 - FINANCE - BILL 120007, ETC. Revenue issued regulations excluding investment activities of entities described under Subsection 19-2601(7)(i) and (ii) of this bill from the definition of "business" for the business privilege tax and net profits tax purposes. This regulatory exclusion reflects Revenue's interpretation that the term "business" as defined under Title of The 11 Philadelphia Code does not include 12 investment activities of such entities. 13 Our understanding and the understanding 14 of our lawyers in the City Law Department 15 is that the investment activities of 16 these entities involve merely buying and 17 selling securities for their own account 18 and, as such, do not rise to the level of 19 business. The policy consideration was that having this exclusionary language explicitly stated in the regulations would make it clear to these entities the City business tax implications of their business presence within Philadelphia. com 3/13/12 - FINANCE - BILL 120007, ETC. investment companies and entities engaged in such investment activities to make their home base in Philadelphia or at least to open a branch office here. Most of the investment companies in our region that would benefit from this exclusion are currently located in New York, New Jersey and Connecticut, and those taxing jurisdictions have explicitly provided in their respective tax laws that trading securities for one's own account, in and by itself, does not constitute a trade or business. It makes sense to put us on equal footing with those jurisdictions to compete for location of these businesses. Recently, the City has been approached by at least two such entities that are interested in operating in Philadelphia. com 3/13/12 - FINANCE - BILL 120007, ETC. their general partners also are exempt from the business income and receipts and net profits tax business taxes. The Department of Revenue believes that to be the case not only because there are currently very few of such entities located in the City, but also because the industry is very portable and very cost sensitive. We also believe that Revenue cannot simply broaden the interpretive exclusions in the regulations to include the general or managing partners of these entities. However, City Council is explicitly empowered by the statute authorizing the BPT to create such exclusions, and we believe the Sterling Act also allows City Council to create exclusions from NPT. The impetus for such entities to locate in Philadelphia is the high quality of life that the City offers, plus the City's easy rail access to both New York and Washington, DC. com 3/13/12 - FINANCE - BILL 120007, ETC. wage tax and high-income employees would spend money in the area. Accordingly, it is with this spirit and understanding that Revenue supports Bill No. 120007.
We have worked with the bill's sponsor, Chairman Green, on some technical amendments, and we support the proposed amendments that we understand the sponsor will offer. This concludes my testimony. Thank you for giving us the opportunity to testify, and we're here to answer any questions you may have.
Thank you. Any questions for the Commissioner? (No response.)
Commissioner, I have one quick question for clarification and, that is, you mentioned that this is the buying and selling of securities. It's also, I'd like for the record, it's also my understanding that this same exemption Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. will apply to funds that invest in real estate.
That will be the case if they fall into the specific categories of the federal law. They're enumerated in the ordinance. It's a very narrowly drawn law.
If you could get back to the Chair a specific answer to that question as to whether or not this will include real estate funds or what funds it would include and what funds it wouldn't include, I'd like that before we move forward with the final vote. Thank you.
Good afternoon. This is just a question for the record. What benefit would we gain from the company being in Philadelphia if there's no income from any of the business privilege tax or the net profit tax? COMMISSIONER RICHARDSON: Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. Again, in my testimony, Councilwoman Tasco, you're going to have high-income employees working for the company. These kind of business entities kind of travel like ducks, in packs. So you're going to have not just the business owners, the employees, but you're going to have individuals who may be wanting to invest in the various funds coming to Philadelphia. These are high-end, high-wealth net people that will be staying in hotels in presidential suites, going to the high-end restaurants, spending time in the City. So we will earn money over various taxes within the City.
Thank you. So wage taxes of all the employees of the funds that are not in the City that will move into the City would be one tax we would collect that we're not currently collecting? Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. COMMISSIONER RICHARDSON: Right, where we're not collecting because they're not here.
Thank you. Mr. Bright. (Witness approached witness table.)
Good afternoon, Mr. Chairman, Councilmembers, members of the Committee. I'm a state and local tax practitioner, many years ago Chief Counsel of the Pennsylvania Department of Revenue, and I served as a Commissioner on the 2004 Pennsylvania Business Tax Reform Commission. I also write and study state and local taxes and try hard to keep up on that subject matter. I support this bill for the following reasons: As the Commissioner stated, in 2008 the City, by regulation, made the policy decision not to treat private equity investment funds as taxpayers. That, in my judgment, was a wise choice. Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. An investment fund is not in business in any meaningful sense. Furthermore, a private equity fund simply will not locate in the City if it is subject to significant tax, particularly when no 7 other financial center in the United States subjects such funds to taxes. The City's policy decision has the potential to attract to the City highly compensated staff who work for affiliated companies and service such funds, as well as the other peripheral businesses that would surround this kind of an operation, as the Commissioner discussed. The regulations did not expressly exclude as taxpayers the general partners of such funds. A general partner of a private equity fund usually will be a partnership, perhaps a limited liability company or similar such entity organized on a flow-through basis. The bill will implement the City's policy decision by making it economically feasible for funds and their general Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. partners to locate here. Conversely, if general partner entities are treated as taxpayers, neither the funds nor their general partners will locate here. They will locate instead in New York, San Francisco, Boston or other financial centers. The bill will exclude as a taxpayer a general partner of a private equity fund if the general partner is managing the fund as a general partner to the extent that the general partner's return is based on the performance of the fund. The bill should cost the City nothing, because it is quite unlikely that there are any general partners of such funds of any significance in the City, nor will any such general partners ever move into the City, unless the tax structure is made competitive with other financial centers. However, with this change, there is the likelihood that the funds, their general partners and Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. affiliated companies will move into the City. Other affiliated companies will not be excluded as taxpayers and, therefore, the City should see an increase in revenue associated with the activities in the payroll of such affiliates. I'd add one personal observation. The two largest mutual fund complexes in the world are Fidelity and Vanguard. Fidelity is located in downtown Boston. Vanguard is located in Malvern. That's not an accident. This bill does not address regulated investment companies, public mutual funds, which is what I'm referring to, but they are part of the overall world of financial investing in the United States, indeed the world, and to the extent that the City can move in the direction to be evenly competitive with other cities, we have the chance to attract such funds and associated people here with the attendant buildup in economic activity that is Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. quite likely to follow. That is my testimony. Please let me know if there are questions.
Mr. Bright, very quickly, this bill prior to the amendments, did it address the publicly traded mutual funds or public mutual funds at all in any way?
I think it did, but what we have done in the amendments is to clarify that point and say that the general partner will be excluded if it is a general partner of a non-public publicly owned company. When I say public and private, these are really terms that derive from federal Securities and Exchange Commission rules. The bill, as amended, would also give the power to the Revenue Commissioner, by regulation, to extend Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. the benefit if a general partner was a general partner of a public fund, if the Commissioner was satisfied that it otherwise met the objectives of the bill. So I think that's a long way of saying that the amendments are a clarification to the point that you're raising.
So a public REIT, for example, we have public REITs where most of the management is in Philadelphia, but they have to do all of their corporate governance outside the City. There's one down by Washington Square I can think of. In order to avoid taxes and jump through hoops, they otherwise might locate their headquarters here. We have not -- those people today could apply for an exemption to the Revenue Department if we pass this bill 21 or would we have to pass new legislation for public REITs, for example, to have the benefit that we're offering private funds?
I think you might Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. have to address that separately, because the bill here is targeted, geared towards the general partners of private equity funds, and a REIT, by definition, is a creature of really federal income tax law, meeting a whole series of requirements and is, I believe, actually required to be publicly owned. So if that was a wise move, that should be the next step.
Okay. And just for the record, Section 3(c)(5)(c) of the Investment Company Act of 1940 includes purchasing or otherwise acquiring mortgages and other liens on and interest in real estate. Any further questions for Mr. Bright? (No response.)
Seeing none, I would like to ask David Bookspan, Dean Miller, Robert Moul and Steve Goodman to come testify. In whatever order you arrive, Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. please state your name for the record and begin your testimony. (Witnesses approached witness table.)
Good afternoon, Chairman Green and members of the City Council Committee on Finance. My name is Steven Goodman. I am a partner at Morgan, Lewis and Bockius where I founded the Emerging Business and Technology practice, and I'm here to testify in support of the bill subject to this hearing. Over the past 45 years after graduating from Penn Law School and beginning practice in Philadelphia, I have focused on almost completely and been passionate about helping growth companies in the Philadelphia region. I've worked alongside countless such companies that have been formed and created thousands of jobs and billions of dollars of market capitalization. I am proud to declare myself as a lifelong Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. Philadelphian, also a passionate booster of the Philadelphia startup ecosystem, and I have nurtured, to my delight, mentored and supported local entrepreneurs. Part of my job in assisting entrepreneurs is to connect them with sources of capital. It's the fuel that makes the engine go. It's how they hire people, lease facilities, buy equipment and really achieve their dreams. And the primary source of capital for these companies is the venture capital and private equity community, and yet unfortunately virtually none -- and I don't think there's a single significant venture capital, private equity fund located in Philadelphia. When you compare it to San Francisco and Boston, cities that we're trying to emulate, they have an ecosystem, they have a community which consists geographically of those sources of capital. I've talked to venture Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. capitalists about Philadelphia, and I always hear, We can't locate in Philadelphia because of the ambiguity in the tax laws. And it seems to me that we have everything to gain, nothing to lose by attracting them. They will bring their employees subject to wage tax. They will patronize local businesses, and most important to me really is that they are a source of mentorship and nurturing to early-stage companies to identify when they're ready for investment and help them constructively in building and growing their businesses. Right now I am so proud of what the Philadelphia ecosystem has done in terms of the confluence of factors, bringing together the entrepreneurial community and service providers and technologists and founders of these kinds of companies, but there's one critical gap, and that gap indeed is the gap where there is no one in that ecosystem that provides the kind of support, financial Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. nurturing and mentorship that I was referring to. I am a huge believer in Philadelphia and have spent a lot of time working to try to help the ecosystem of Philadelphia to become a leader, and I think all the pieces are there. But I think the entrepreneurs of Philadelphia deserve to have something that they right now do not have and, that is, having in their community and having access to the investment capital and those who invest it, which is available in other cities that have been successful in creating the leading ecosystems in the United States. This concludes my testimony. If there are any questions, I am glad to answer them.
Good afternoon, Chairman Green and members of the City Council Committee on Finance. My name is Dean Miller. I am President and CEO of Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. the Greater Philadelphia Alliance for Capital and Technologies and a partner with a venture capital firm called Novitas Capital, which is headquartered in Wayne, Pennsylvania. I'm here to testify again in support of Bill No. 8 120007 and the importance of the bill to the future of the City of Philadelphia. PACT is the largest industry group whose mission is to help grow this region's emerging growth companies in the information technology, clean technology and healthcare industries. Our members include local venture capital firms, private equity firms, the majority of whom are located outside of the City of Philadelphia or within Keystone Opportunity Zones in the City. In my experience as a venture capitalist and at PACT, I can tell you that without investment capital from venture capital or private equity firms, most companies are severely restricted in their growth ability. These pools of capital really Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. do drive small business growth that fuels innovation and leads to job creation. Investment particularly in information technology, clean technology and healthcare create high-paying jobs, more than double the Commonwealth's average, attracting a highly skilled workforce to the City. One of my goals as President of the Greater Philadelphia Alliance for Capital and Technologies is to increase the availability of venture capital in the City of Philadelphia. I think the entire region benefits if we reduce that arbitrary boundary between the sources of capital, the venture capital firms, and the City. I believe that by bringing more venture capital firms into the City, we will increase investment in Philadelphia-based startups, which will create and attract more jobs to the City. As others have testified here today, venture capital firms, investment firms tend to travel in packs and so do Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. the companies that they invest in. The corporate campus where my venture capital firm exists out in Wayne, Pennsylvania is home to no fewer than nine investment firms and a collection of companies around them within probably a mile or two square in which those companies locate, and for good reason. They want to be close to their capital sources. You will see that same effect happen if more firms, more investment firms, are allowed to come into the City vis-a-vis this proposal. Again, New York, Boston and San Francisco have successfully created ecosystems in their cities in which these emerging growth companies can thrive, largely because they have the investment firms right there in the city. I believe that we really have an opportunity here in Philadelphia. We have incredible entrepreneurial talent among this population. We have great public support. We have incredible Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. universities, and truly the missing piece is amassing the capital sources. We have an opportunity. Again, Philadelphia is just as attractive to these investors as other markets, and we want to make it more attractive for them to come into the City and certainly at least as welcoming as our neighboring towns of places like Conshohocken, Radnor or Wayne where many of them are today. I would like to thank the Committee for the opportunity to testify. I want to thank Councilman Green for sponsoring the legislation and any other Committee members as co-sponsors. And I'm certainly available for any questions.
Thank you. Mr. Bookspan. I'm sorry. Any questions? (No response.)
com 3/13/12 - FINANCE - BILL 120007, ETC. Chairman Green and members of Council. My name is David Bookspan. I am an entrepreneur and a startup investor. Most recently I am Founder and Chairman of Monetate, Inc. and founding partner of DreamIt Ventures. I'm here today to testify in support of the bill. Over the past two decades, I've been actively involved in technology startups, primarily here. I live in Center City and I'm passionate about founding companies and starting companies here. My two most recent companies highlight the challenges that Philadelphia faces. In 2007, I co-founded DreamIt Ventures, one of the world's leading startup accelerators. In three months, DreamIt catapults idea- and early-stage businesses to market. com 3/13/12 - FINANCE - BILL 120007, ETC. much support as possible, a little bit of magic happens. We provide startups three months, up to $25,000, 1-to-1 mentorship, common workspace, donated legal and accounting services, and the opportunity to present their companies to more than 200 investors on a Demo Day. Since 2008, DreamIt has launched 65 companies, 50 of them in Philadelphia. DreamIt demonstrates that to thrive, startups need a community, a community of fellow entrepreneurs to share ideas and inspiration, technologists to join their team, mentors and coaches who have struggled on their way to success or failure, and professional services and, very importantly, access to capital. Early-stage capital is critical. The City of Philadelphia doesn't have much. com 3/13/12 - FINANCE - BILL 120007, ETC. technologists, and Philadelphia does not. As a result, companies that are started here in Philadelphia tend to leave our city and state and move to the cities where they find their capital. SCVNGR, a company that launched in 2008 out of DreamIt Philadelphia, moved to Boston after raising capital from Boston-based venture capital firms. SCVNGR has since raised approximately $20 million, launched LevelUp, a payment mechanism you may have seen around town, and employs around 150 people. ly, MindSnacks, Easel, Pocket Tales and Squoot - all moved to the cities where they found their capital. In December 2011, three months ago, DreamIt launched 14 new companies in Philadelphia. Nine of those companies have stayed in Philadelphia. com 3/13/12 - FINANCE - BILL 120007, ETC. month because its investors are in New York. Other companies from DreamIt Philly 2011 are talking to investors in New York and other cities, and I expect that they too will leave Philadelphia in favor of the cities where they find money. Monetate is a company I co-founded in 2008. Monetate enables eCommerce websites to put any content anywhere on any page without involving IT. Monetate turns online stores like Best Buy, QVC, Urban Outfitters and The Sports Authority into agile platforms for testing, merchandising and targeting, and creates a personal experience for each of their shoppers. Monetate was incubated in the Conshohocken office of a local venture capital firm. In 2008, we had three employees. When we grew out of our incubation space, we stayed in Conshohocken so that we could be close to our lead investor. com 3/13/12 - FINANCE - BILL 120007, ETC. raised over $20 million and employs approximately 90 people, all with family-wage jobs. We expect to employ around 200 people with family-wage jobs months from now. A lot of our 7 employees live in Philadelphia and each 8 day make the reverse commute. After 9 work, our employees, including these 10 Philadelphia residents, frequent the 11 restaurants and other merchants in 12 Conshohocken. 13 Entrepreneurs need a community 14 to thrive. Investors are critical 15 members of that community. In addition 16 to money, investors nurture companies, 17 provide advice and guidance, deliver 18 access to resources, people and networks, and give encouragement along the bumpy road of building a company. Currently, these communities in other large metropolitan areas are more vibrant than ours.
com 3/13/12 - FINANCE - BILL 120007, ETC. outside of the City. The mere specter of a hostile interpretation of an ambiguous provision in the City tax code virtually requires them to stay out. I know of two suburban venture capital firms that would like to move to the City if the tax code were more in line with that of San Francisco, New York or even Conshohocken. This represents $500 million, half a billion dollars, of investable capital that would like to find a home here and it's sitting just a Ryan Howard home run away. We long have bemoaned the brain drain from Philadelphia to other cities. When we have such a wealth of young talent, such great universities and such a wonderful quality of life, why do we lose so many of our startups to other cities? When you are starting a company, you follow the money. Right now in other cities sources of capital are concentrated. com 3/13/12 - FINANCE - BILL 120007, ETC. Avenue, the Main Line or Conshohocken. Bring that money into the City, put it close to the startup community, and you will create and retain intellectual capital alongside investment capital. New companies with highly skilled and highly paid workforces will emerge and stay. If we want to keep new companies here, welcome venture capital into the City. I believe that passing this amendment will attract venture capital and private equity firms from the surrounding area into Philadelphia. My hat is off to Councilman Green as the primary sponsor and the other co-sponsors of the bill. This is long overdue. This bill is an important step to reclaiming our position as a home of entrepreneurs and innovation and as a launch pad for new companies. Ben Franklin would give you a high-five. Thank you for the opportunity to testify. com 3/13/12 - FINANCE - BILL 120007, ETC. questions.
Thank you. I will ask Ms. Earley to please come join this panel for the sake of time and we can ask questions at the end, if there are any. Mr. Moul, please proceed with your testimony.
Good afternoon, Chairman Green and members of City Council Committee on Finance. My name is Bob Moul and I'm the President of Philadelphia Startup Leaders, the largest and most active community of startup entrepreneurs in the Philadelphia region. I also recently launched my next startup, appRenaissance, which is a mobile apps and infrastructure company right here in Old City Philadelphia. I too am here today to testify in support of the bill 22 under consideration. Before I became President of Philly Startup Leaders, I was CEO of a local company called Boomi, which was Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. recently acquired by Dell. While Boomi had raised money from local area angels, we wanted to raise more venture capital, and we ended up having to do that from a New York-based venture capital firm. As we were also raising capital for appRenaissance, I am extremely mindful of the need to bring more venture capital and private equity investment companies to the City. On our PSL website, we have a Manifesto, which reads in part, quote, "Starting a company can be a long and lonely journey. Each milestone is a small miracle - from idea to prototype, from first employee to first customer, from first revenues to first profits and eventually to a thriving and successful business. Most startups fail along the way. "To survive this journey, startup entrepreneurs need many things. They need access to funding and talent. They need support from their government Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. and their community. They need opportunities to educate themselves and their team. But more than anything else, startup entrepreneurs need each other," end quote. The overall theme of PSL is that a community is required for startups to thrive and survive. Entrepreneurship needs to be celebrated within the community, government needs to promote appropriate policies, universities need to produce talent, and entrepreneurs need access to capital. The stronger each of these areas are, the greater the possibility of creating a thriving innovative community. I've heard many examples of companies that were started in Philadelphia but then moved to other cities to get access to customers and investment capital. In fact, the irony isn't lost on me that the first two presidents of PSL both chose to move out of Philadelphia to build their Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. businesses. When I sold Boomi to Dell and began to look for my next venture, I was disappointed and concerned by the lack of new business development I saw in the region and specifically the City. I accepted the role as President of PSL to help grow the Philadelphia startup ecosystem, to help entrepreneurs start their companies here, to help companies build their businesses here, to help them hire people here and to help them raise funding here. I have said many times that we have all the raw ingredients we need for a thriving startup ecosystem. We have world-class universities, we have great ideas, we have passionate and smart entrepreneurs. We are closer than we've ever been before to having a thriving startup community here in Philadelphia. I strongly believe that access to capital is critical for such a thriving, innovative community and that the passing of this bill will attract investment Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. companies to the City. I support the Bill 120007. I thank Chairman Green and the other co-sponsors for bringing this bill 6 forward and look forward to its passing. I would like to thank the Committee for the opportunity to testify, and I'm happy to answer any questions that you may have at this time.
Good afternoon, Chairman Green and members of the Finance Committee. For the record, I'm Denise Earley, Director of Public Policy for the Greater Philadelphia Chamber of Commerce, and I come before you today in support of City Council Bill 120007. I applaud the sponsors of this bill for recognizing that high taxes are a reason for businesses to move out of the City and that tax reductions create a great incentive for businesses to move into the City. This bill grants Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. exclusions from the business privilege tax and the net profit tax to private investment or hedge fund companies, most of which are not located here now due to our onerous tax structure. The passage of this bill is a win-win for the City of Philadelphia. Not only could it create opportunities for our local college graduates, thus addressing the problem of brain drain, but these high-paying jobs could significantly add to the City's wage tax revenue base. I would be remiss if I did not take the opportunity to mention that it was the recommendation of the 2003 Tax Reform Commission to completely phase out the business privilege tax over a ten-year period because of the detrimental impact it had on businesses, and I know that some members of Council support the idea of a gradual phaseout of this tax. I want to also thank Councilman Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. Green for the business privilege tax reform bill that he co-authored last year which, when fully implemented in 2016, will exempt 30,000 businesses from paying the business privilege tax. Mr. Chairman, I don't usually use four-letter words in my public testimony, but I believe it is appropriate here - jobs, jobs, jobs. If this bill creates jobs -- and we believe that it will -- the Greater Philadelphia Chamber of Commerce is pleased to support Bill 120007 based on the tenets of our Principles for Economic Competitiveness. Thank you for this opportunity.
Thank you. Are there any questions from anyone on the Committee for this panel? (No response.)
I have a quick question for Mr. Bookspan, but before I do that, I'm in the middle of reading a book whose title I cannot Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. recall and there is an entire chapter on existing businesses and startup businesses. Existing business is businesses that have been in business for longer than ten years, are net decreasers of jobs, net-net they lose about 8 percent of their workforce a year. 9 Startup businesses, even though some 10 don't make it in the long haul, are huge net creators of jobs. In fact, 70 percent of all job growth, net job growth, in the United States is from startup companies that are backed by venture funds and people bootstrapping it and starting businesses, and I think that's just important for the record. That's what we're trying to create here in the City. Mr. Bookspan, how many of your 65 DreamIt companies were backed by a venture capital firm located in the City of Philadelphia?
One. Thank Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. you. I think that says it all. If there are no questions from anybody else, I will recess the hearing and move into a public meeting. And so we are now in a public meeting. I will call up Bill No. 120007 and ask Councilman Goode to offer an amendment.
Thank you, Mr. Chairman. I move the amendment to Bill No. 120007 as circulated to members of the Committee be approved. (Duly seconded.)
It's been moved and seconded that an amendment to the bill just mentioned be approved. All in favor? (Aye.)
There being none, I ask Councilman Goode to move the bill.
Thank you, Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. Mr. Chairman. I move that Bill No. 3 120007, as amended, be reported out of the Committee with a favorable recommendation and the rules of Council be suspended so as to permit first reading at our next Council session. (Duly seconded.)
Seeing none, Bill No. 120007 will be reported from this Committee, with a suspension of the rules so it may be heard at the next session of Council. I recess the meeting to move back into the public hearing. We are now in a hearing related to Bill Nos. 120104 and 120105, from which I may have to recuse myself under the state Ethics Act, and I'm announcing a possible conflict of interest and would Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. like to turn the remainder of the hearing over to its Vice Chair, Councilwoman Tasco.
Good afternoon. (Witnesses approached witness table.)
We will now ask the Clerk to read -- she read them already. All right. We'd like to recognize the witnesses and ask you to identify yourself and begin with your testimony.
Thank you, Vice Chairman Tasco. My name is Janet Parrish. I'm the Executive Director of the Philadelphia Gas Commission, and seated to my left is Eloise Young, who is the Chief Information Officer for Philadelphia Gas Works. We're pleased to have the opportunity to be here today to testify in support of Bill 120104. We have each Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. submitted written testimony, and I know speaking for myself, I'm not going to read mine at this late hour. However, you do have that written testimony, and attached to it you have a copy of the Gas Commission's Resolution and Order in this matter, which was adopted at its public meeting held on February 7th. So we are here to urge approval of the bill, which does reflect the Gas Commission's recommendations to City Council in this matter, and also to ask for a suspension of the rules so that first reading of the bill can occur at the next session of Council. Just to give you a highlight of the testimony, if I may, we are recommending that Council approve a $1.729 million amendment to PGW's Approved Capital Budget for Fiscal Year 2012, and this will support the acquisition of approximately 291 mobile radio units to replace outdated units that PGW currently uses. And I think Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. you'll be interested to know that these radios are used both as a primary means of communication at its gas plants, where intrinsically safe communication devices must be used, and also are used as a backup to cellular communications by its first responding personnel who are out in the field. And PGW must update this equipment because it must meet a mandate from the Federal Communications Commission to go to narrow band by January 1st, 2013. Now, what we have proposed here is, I would respectfully suggest, a win-win for PGW and the City, and, that is, rather than incur substantially greater capital expense to replace and upgrade its own radio infrastructure, towers, et cetera, PGW will become a user of the City's radio system. So in addition to avoiding capital expense on PGW's part, we have an additional user of the system against whom the City can allocate some of its operating costs. Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. I would also note for you that as far as we understand it, there is an economic opportunity plan that is applicable to this larger project between the City of Philadelphia and Motorola, which was entered into in 2009, pertaining to the current upgrade of the City's radio infrastructure. So that while PGW as a user of the system is now limited to selecting a vendor, selecting equipment and selecting installation vendors who can work on Motorola's proprietary system, in the larger scheme of things there is an EOP which is applicable to this project. And I think that's the gist of this particular project. We're happy to answer any questions you may have.
Thank Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. you. Good afternoon.
Just a few questions for clarification. You stated the radios are years old, and 8 so why didn't we consider this even last 9 year when they were 19 years old, or why 10 now? 11
We took our time 16 and looked at several alternatives. We 17 actually had a study that we based this 18 final decision on, and we looked at 19 things like cellular, using cell phones, 20 intrinsically safe cell phones. We went out and looked at other utilities and found out how many of them were using cellular as opposed to radio technology in the field, and finally came to the conclusion that this was the best Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. approach. And we also spent a lot of time talking to the City.
You also said that the radios wouldn't be efficient, Janet Parrish did, underground and basements and sub-basements. So what steps have you taken to make sure that this doesn't happen again?
I can speak to that, and Ms. Young can add if she'd like. As I mentioned, for a portion of the radio users; that is, the personnel at the gas plants, there's no 16 issue about being in basements or sub-basements, et cetera. But we asked that very same question to PGW. If you're going to lose the ability to communicate in a basement or a sub-basement of a property, how will this be an adequate backup to cell phones? First of all, it's our understanding that the -- in certain basements and sub-basements, there would Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. be the ability to communicate. Secondly, the radios would still work in walkie-talkie mode, which means that the personnel could communicate with each other. And, finally, if it were a serious safety situation; for example, a gas leak situation, the personnel would really have to exit the property anyway. They wouldn't be able to use a cell phone in such a situation because of the risk of igniting gas fumes. So PGW felt that this was adequate from an operations perspective as a backup.
One final question. You mentioned that PGW radios work on the B system and that you wanted to become a user of the City's A system. What studies have been conducted to evaluate the impact of PGW's access to the A system on the overall efficiency of the City's A network and any impact that may have on other users of that system?
I think you may Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. have misspoken, and, that is, that PGW is not currently a user of the B system. PGW has its own freestanding radio system in use at this time. But, yes, as you noted, they would become a user of the A system. Ms. Young can update you, but our last understanding was that that system is currently only at percent of 10 capacity. So it appears that there's 11 plenty of capacity to accommodate PGW. I don't know if you want to add --
We have spoken extensively with the City's IT department. They've assured us that these units would add no additional overhead to their system.
Thank you Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. very much for your testimony. Anyone else here to testify on this bill?
Again, my name is Janet Parrish, the Executive Director of the Philadelphia Gas Commission. Good afternoon to the Councilmembers. I'm here in support of Bill 120105, which also reflects recommendations of the Philadelphia Gas Commission, which were adopted at its public meeting held on February 7th. Seated to my left is Douglas A. Moser, who is the Senior Vice President of Gas Management at Philadelphia Gas Works. We have both submitted written testimony in this matter. com 3/13/12 - FINANCE - BILL 120007, ETC. attached to my written testimony, and that details the Commission's recommendations in full. We again are seeking approval of this bill as well as a suspension of rules so that the bill may have first reading at the next regularly scheduled session of Council. Just to briefly highlight the situation, this bill is really an adjunct, I would say, to the work that we've done previously with this Council to develop a framework for Council to approve Philadelphia Gas Works' gas purchase contracts. And, in fact, we were here as recently as last year and Council approved Bill No. 110109, which extended that pre-approval framework for an additional four years, actually to August 2015. com 3/13/12 - FINANCE - BILL 120007, ETC. approval period of Bill 110109. It would extend for ten years. And this contract is actually a simple renewal of a current PGW contract with Transco which was previously approved or was approved in its current form by this Council in 1995. I've also attached to my testimony a copy of Bill 1243, which is that bill from that period of time. So what we would propose to do here is to renew this contract for another ten years. The contract is set to expire on March 31st of 2013. And PGW has been informed by Transco; that is, Transcontinental Gas Pipe Line Corporation in full, that it must renew this contract by March 31st of 2012 or it would lose this storage capacity. com 3/13/12 - FINANCE - BILL 120007, ETC. season when demands on the system are higher. And this is a particularly valuable contract to PGW and its customers. It's one of its oldest and it's one of its cheapest. It's one of its largest. So all of these factors made a compelling business case to the Gas Commission to support the renewal of this contract. This storage costs around $3 million a year now on the current rates, which are approved and are in effect by the Federal Energy Regulatory Commission, FERC. In order to replicate this storage, PGW has estimated to us that it would cost upwards of $13 million a year additional. So over the ten-year life of the contract, $130 million additional if we did not renew this particular contract. Therefore, we believe it's in the best interest of the ratepayers that this be renewed as quickly as possible. com 3/13/12 - FINANCE - BILL 120007, ETC. participation issue, I think you may recall from our appearance here last year that PGW entered into an economic opportunity plan that was issued by the City's Office of Economic Opportunity in April 2011 which pertains to its gas procurement efforts, and that, of course, is a best efforts EOP. And I detail in my testimony some of the various steps that PGW has taken to reach out and expand its outreach to diverse energy suppliers to see whether or not they might enter into PGW's pool of gas suppliers, and those efforts are ongoing. I'd be happy to answer any questions you may have. Thank you.
Thank you. Can you explain for the record -- I think you've done so, but just bring a little bit more clarity -- why this is a sole source contract.
Okay. And Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. Mr. Moser can certainly join in, but I think you're aware of the fact that the national gas market is a highly specialized market with very few players, and this is one of PGW's two interstate pipeline companies. There's only two companies that transport gas -- over which gas pipe -- over pipelines that gas can be transported to the Philadelphia area. This is one of them. So PGW, I think, is -- I guess it's safe to say it's something of a seller's market here with this particular type of capacity. It's not that there are lots of alternatives. And if PGW were to give up this capacity, there would be many, many willing parties willing to snap it up, and we would have very great difficulty in replacing it. So it's kind of a use it or lose it type situation, I would suggest.
1995, was Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. approved by this Council.
And were there any requirements at that time in terms of diversity or any opportunities in terms of subcontracting?
At that time, I would say not that I'm aware of. What I would say is that the gas however since that time, the gas supply that PGW would be out there trying to purchase hopefully would be some of the very gas supply that could be injected into this particular storage field. If those -- there is one DBE supplier that PGW is already aware of with whom it contracts. There are, I think, three or four I think additional potential --
Four potential ones identified through PGW's outreach efforts, and I know it has begun the process of trying to see whether they can enter into the standard industry contract with PGW. Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC.
Okay. Thank you very much. Mr. Moser, do you have any comments you want to make?
Okay. All right. That will conclude our public hearing. We'll go into our public meeting, and the Chair recognizes Councilwoman Blackwell to report out Bill 25 120104 with a favorable recommendation Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC. and suspension of the rules.
Thank you, Madam Chairman. I move that Bill 5 No. 120104 be reported out of Committee with a favorable recommendation and also that the rules of Council be suspended so as to allow first reading at our next session of Council. (Duly seconded.)
It has been moved that Bill 120104 be reported out of Committee with a favorable recommendation and a request for the suspension of rules so this bill can be heard at Council's next session. All in favor will say aye. (Aye.)
There being none, the motion is carried. The Chair recognizes Councilman Greenlee to report out Bill 120105. Discover Works Global 888.557.8650 www.dw-global.com 3/13/12 - FINANCE - BILL 120007, ETC.
Thank you, Madam Chair. I move that Bill No. 4 120105 be reported out of this Committee with a favorable recommendation and, further, that the rules of Council be suspended to allow for first reading at our next session of Council. (Duly seconded.)
It has been moved and seconded that Bill 120105 be reported out of Committee with a favorable recommendation and that a request for the suspension of rules -- that there will be a request for suspension of rules so that this bill can be heard at Council's next session. All in favor will say aye. (Aye.)
There being none, the motion is carried. This meeting is adjourned. com 3/13/12 - FINANCE - BILL 120007, ETC. Thank you very much. This hearing is adjourned. com CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on March 13, 2012, and that this is a true and correct transcript of same. -------------------- MICHELE L. com 49:1 50:1 51:1 51:4,6,13 52:1 52:6,7,11,18 53:1,2,9,9 54:1 55:1 56:1 57:1 58:1,24 59:1,4 59:12,15,25 60:1,3,11,16 61:1 billion 31:11 billions 18:23 bills 2:9 bill's 8:6 bit 27:2 55:23 Blackwell 1:10 2:6 46:22,24 46:25 47:5,13 48:4 49:16 50:19 58:24 59:3 Bob 33:13 Bockius 18:10 book 39:25 Bookspan 17:22 25:20,24,25 26:3 39:23 40:20,24 Boomi 33:25 34:2 36:2 booster 19:2 bootstrapping 40:15 Boston 13:7 14:13 19:20 24:15 27:22 28:9 Boston-based 28:10 boundary 23:16 BPT 7:16 brain 31:15 38:11 branch 6:5 briefly 52:10 Bright 11:6,9 15:6,8,13 16:25 17:19 bring 20:7 32:3 34:9 55:23 bringing 20:19 23:18 37:5 broaden 7:11 Budget 1:17 2:24 3:8 44:21 Budgets 3:6 build 35:25 36:11 building 20:14 30:20 buildup 14:25 bumpy 30:19 business 2:13 4:13 5:6,6,9,19 5:23,24 6:14 7:3,4 9:23 10:5 10:7 11:15 12:2 18:11 23:2 34:20 36:5 38:2,19 39:2,6 40:4,5 54:8,25 businesses 6:16 12:13 20:9,15 26:21 36:2,11 37:22,24 38:21 39:5 40:3,4,5,9 40:16 buy 19:11 29:14 buying 5:16 8:22 C call 41:7 called 22:4 33:25 campus 24:3 capacity 50:10 50:11 53:19 56:15,17 capital 1:17,18 2:24,25 3:6,8 19:9,13,14,18 19:24 21:13 22:3,4,5,15,22 22:22,25 23:12 23:13,17,17,19 23:24 24:3,10 25:3 27:19,20 27:23 28:6,9 28:10,20 29:21 30:25 31:6,11 31:23 32:6,6 32:11,14 34:4 34:6,7,9 35:14 35:22 36:22 40:22 44:21 45:18,22 capitalist 22:20 capitalists 20:2 capitalization 18:24 carried 59:23 60:24 case 7:6 9:5 54:8 catapults 26:20 categories 9:6 celebrated 35:10 cell 47:19,20 48:22 49:11 cellular 45:7 47:19,23 center 12:7 26:12 centers 13:8,23 CEO 21:25 33:24 certain 2:17,18 2:19 3:4 4:13 4:17 48:24 certainly 25:8 25:17 56:2 CERTIFICA... com 25:13,16 33:12 37:8,15 39:20 41:13 42:4,16 59:5,13 60:4 60:12 61:4 common 27:5 Commonweal... 23:7 communicate 48:20 49:2,6 communication 45:4,5 communicatio... 45:7,11 communities 30:21 community 19:15,22 20:20 21:12 27:12,13 30:13,15 32:4 33:15 35:2,8 35:11,17 36:21 36:24 commute 30:8 companies 4:14 6:2,6 12:11 14:2,3,16 18:20,22 19:14 20:12,22 22:12 22:23 24:2,6,8 24:18 26:13,13 26:14 27:7,9 28:3,15,22,23 29:3 30:16 32:7,11,22 34:10 35:19 36:10,10 37:2 38:4 40:14,21 56:7,8 company 4:15 9:21 10:4 12:21 15:18 17:14 28:7 29:9 30:20 31:21 33:19,25 34:14 compare 19:20 compelling 54:8 compensated 12:10 compensation 4:21 compete 6:16 competitive 13:22 14:22 Competitiven... 39:16 completely 18:18 38:18 complexes 14:11 compressed 26:22 concentrated 31:24 concerned 36:4 conclude 58:21 concludes 8:11 21:17 conclusion 47:25 conditions 2:20 3:5 conducted 49:20 conflict 42:25 confluence 20:18 connect 19:8 Connecticut 6:9 connection 3:3 Conshohocken 25:10 29:20,24 30:12 31:9 32:2 consider 47:8 consideration 5:19 33:22 consists 19:23 constitute 6:13 constraints 3:4 constructively 20:14 contained 62:5 content 29:11 contract 52:22 52:24,25 53:3 53:5,12,13,18 54:4,10,19,21 55:24 56:24 57:24 contracts 52:16 57:16 control 62:22 Conversely 13:2 convincingly 6:21 Cooperation 2:16 copy 44:6 53:8 corporate 16:13 24:3 Corporation 1:20 3:13,18 53:17 correct 62:8 cost 7:9 13:16 54:17 costs 45:25 54:11 Council 1:2 4:5 7:14,18 18:8 21:24 26:2 33:12 37:19 38:22 42:5,7 42:18 44:13,16 44:19 52:9,13 52:14,18 53:7 57:2 59:7,9 60:6,8 Councilman 1:10,11,11,12 1:12 2:2,6,6 3:19 8:15,19 9:9 10:20 11:5 15:5,8 16:9 17:12,21 21:20 25:14,19,23 32:16 33:3 37:11 38:25 39:18,22 40:25 41:8,10,15,20 41:22,23,25 42:9,12,14 55:18,20 56:23 57:3 58:2 59:24 60:2 Councilmemb...
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